Understanding the Value Creation Strategy - Case Study Example

How value creation strategy has helped Alibaba.com to communicate superior value? Contents Contents 2 Introduction 3 Discussion 3 CompanyBackground 3 Understanding the B2B Market and Customers from Value Creation Perspective 4 Value Creation of Alibaba.com 7 Personalized and Customized Services Offered by Alibaba.com 7 Risk Control Initiatives by Alibaba.com 8 Networking with Strategic Partners in Alibaba.com 9 The Controlling Complexity 9 Recommendation and Conclusion 10 Reference List 12 Introduction Value Creation is a one of the major considerations for any business entity. The organizations put emphasis on value creation for innovating better product for customers from which the consumers may derive value of the products and enhance their buying behaviour towards the organizational products. Therefore, creating value helps an organization to increase sale of its products and services, increases share prices by infusing such value into shareholders and to ensure easy accessibility of investment capital for smooth running of long term business operations (Anderson, Narus and Rossum, 2006). In this paper, the value creation strategy of Alibaba.com will be discussed in order to understand how the company has evolved towards excellence over the decades through exercising value creation strategies. The parent company this Chinese eCommerce conglomerate is Alibaba Group of Holding Limited. The company tends to provide superior sales services to its business-to-business clients through its well established web portal (Alibaba.com, 2014). For the purpose of evaluating the value creation strategy of Alibaba.com, the potential market of the company, level of customer services, external environmental impact on it and the key challenges faced by the company would also be analysed. Discussion Company Background Alibaba.com Limited is the fundamental company of Alibaba Group of Holding Limited which is the largest trading platform for B2B customers and small businesses in the world. The service operations of Alibaba.com can be categorized into three distinct segments, which the company operates through three different portals. The English portal enhances online sale between importers and exporters for more than 240 companies. The Chinese portal, named 1688.com, ensures domestic B2B sales exclusively for China and the third is a transaction based retail web portal, Allexpress.com that develops merchandising among small buyers, buying small quantity goods at a wholesale price (Alibaba.com, 2014). In this way, Alibaba.com integrates the whole world and converts into the company’s client through efficient utilization of eCommerce and extensive management of customer services. In spite of having well established supply chain and strong customer base, recently the company is experiencing significant challenges. First, the fame of Alibaba.com is not that far reached outside of China. With the advancement of technology and upgrading eCommerce system, Alibaba.com is experiencing tough competition from large number of global companies such as Amazon.com, eBay Inc and domestic companies such as JD.com, Baidu and Tencent (Harrison and Kjellberg, 2010). Apart from that, in 2011 the company has been alleged by the United States Trade Commission for getting involved in notorious marketing activities for selling infringed goods from its web portal such as Tobaco. The parent company was wedged into the controversy for supplying inferior quality of gold and raw uranium in 2012 (Christensen, Cook and Hall, 2005). All such incidents largely hampered the brand image of Alibaba.com and portrayed a negative reflection into the consumer’s mind. Therefore, adopting value creation strategy became most important for Alibaba.com to rebuild the company’s image for accelerating its sales and operations again in the future. Understanding the B2B Market and Customers from Value Creation Perspective Business-to-business (B2B) Marketing enhances the commercial transactions between manufacturers and wholesalers or between wholesalers and retailers. The value proposition of B2B e-market can be derived by analyzing activities, organizational structure and the governance of eCommerce procedure. The B2B Market Model is constructed by a matrix of two dimensions such as transactional process and controlling complexity (Bowman and Ambrosini, 2007). Figure 1: B2B Market Model for Value Creation (Oliva and Kallenberg, 2003) The four components of Transactional Process are identified as Information, Negotiation, Payment and Delivery. These components of transactional process are sequenced and interconnected in a manner so that it enhances the merchandising process of B2B marketing. The controlling measurement ensures effective management and administration of the transactional process (Osterwalder, Pigneur and Clark, 2009). Such dimensions are commonly used in B2B marketing, especially in e-market for the purpose of establishing security and trust business network and reliability in eCommerce process. According to the degree of control, the Controlling complexity is divided into high, medium and low dimensions. Consistency in eCommerce process is the core system for a B2B organization involved in online merchandising to encounter the strategic challenges and for efficiently managing of operational issues (Dittrich and Duysters, 2003). The value creation attributes of B2B marketing can be described through the four transactional processes of B2B Marketing Model Matrix. These are: Information Phase The information phase concentrates on providing quality information to potential consumers in the business market, to enhance the organization’s business transactions. Such organizational effort helps the company to coordinate, collaborate and disseminate the business information in order to institute value proposition incorporated into the business strategy. Hence, managing contextual information and communicating appropriate and classified information is crucial for company involved in B2B e-marketing, to assist the buyers and sellers for having a speedy access to information. Customization also holds importance as this strategy emphasises on communicating value of information that the company has customised for each and every buyer and seller (Kindström and Kowalkowski, 2009). Negotiation Phase Negotiation phase also holds importance because in a marketing mechanism continuous exchange of goods and services takes place. Hence, strong bargaining power is required for a company engaged in B2B marketing to sustain in the competitive global market place. Therefore, a B2B organization strives to integrate IT technology for enhancing the opportunities of online negotiations such as providing tender and bidding, digital contract signing and management of accounts receivables. However, the key challenge faced by e-market is the inability of the market to place fair and equitable negotiations in transactional services that may influence purchasing decision of the potential consumers. Figure 2: Transaction Process of Alibaba.com (Oliva and Kallenberg, 2003) Payment Phase Payment phase is crucial as it involves monetary transactions between buyers and sellers. In general, customers seek for flexible payment options without compromising in the security and reliability factors. Hence, in order to establish perceived value of the organization, reliability in transactions should be ensured to all buyers and sellers through effectively controlling the risk of online transactional settlement and providing a wide range of payment methods. For instance, with the modernization of financial system of China, the companies in B2B market have identified the alternative payment options provided by various financial institutions to bring competitive advantage and creating synergy over others (Michel, Brown and Gallan, 2008). Delivery Phase The delivery phase involves end to end delivery of goods to the buyers from the suppliers. Hence, strong logistics and supply chain mechanism is of utmost importance for a B2B company as delivery phase includes multiple players for transportation, storage and payment phase. Value Creation of Alibaba.com In this segment the value creation model of Alibaba.com will be analysed. It also shows the company’s strategy for successfully executing the existing resources in the present business scenario and controlling the transactional complexities to ascertain secured and trusted merchandising. Personalized and Customized Services Offered by Alibaba.com Alibaba.com tends to identify the customer specific requirements and accordingly provides customised services to all of their consumers. The company offers more than hundreds of products from 42 industries present in the market. In order to instil utility factor among the members, assistance are provided through “ali assistance” or “My Alibaba” segment to support and simplify the product listing in internal website (Alibaba.com, 2014). The company has upgraded its web portal from time to time and eventually provided a wide array of trading options for the online buyers and sellers to enhance online auctions and real time negotiations facilitated by Trade managers. The company involves less human resource to avoid more complexities and thus compensates its services by providing three opportunities such as Ali-College, Ali-Forum and TrustPass®. Ali College is an online school initiated and maintained by Alibaba.com to educate the traders of the way to conduct online business. Next is an online discussion forum and blogs where consumers are influenced to share their trading experience and notify if they have encountered any challenges during the trading process so that the company can take corrective actions while needed. TrustPass® is the identity authentication system introduced by Alibaba.com where online businessmen can obtain information regarding products and services as well as business credits collected from Ali Forum. In this way, Alibaba.com assimilates all the existing and potential customers through continuous innovation and value addition, keeping at pace with the technological up gradation (Hauser, Tellis and Griffin, 2006). Figure 3: Ecommerce Activities of Alibaba.com (Ulaga, 2001) Risk Control Initiatives by Alibaba.com The payment process of Alibaba.com is integrated with its delivery process. The company is not directly involved into supervising the entire payment and delivery process; it outsources the whole system to a trusted third party payment service, Payment Bao (Ali Pay named for Alibaba.com). In this way the company adds value to its stakeholders by optimizing the operating cost (Alibaba.com, 2014). In this third party provided system, Ali pay holds the money before the buyer confirms receipt and quality of products. Once the buyer and seller approve the agreement of transaction, the buyer transfers the money to Ali pay account electronically. Ali pay confirms receipt of funds to the seller party and asks to deliver the products. When the product reaches to the buyer, the buyer confirms the authenticity of the product to Ali pay. After receiving buyers’ confirmation, Ali pay again transfers the money to the sellers’ account. If the product fails to satisfy the buyer’s requirement, the company either refund the money to buyer or trigger the seller to supply a better quality product. Alibaba.com also provides the buyers a platform to negotiate with the sellers for price of product or refund settlement with the intervention of the Trade managers from Alibaba.com. Such integrated system management definitely helps the company to enhance brand awareness and establish a positive brand image among business traders (Lindgreen and Wynstra, 2005). Networking with Strategic Partners in Alibaba.com A major concern for B2B markets is to accomplish the contract deal with reliability. Both parties involved are often seen stressed due to unavoidable troubles related to virtual market and the security aspect of online trading. Hence, maintaining strong alliance with strategic partners such as banks, logistics companies and quality inspectors is extremely important for B2B eCommerce companies. Alibaba.com has been successful in maintaining strong and long term relationship with its strategic partners including business credit rating agencies and authentication agents and several government departments as well. Therefore, such strong interrelationship with strategic partners helps the company to simplify all kind of transactional complexities. It is true that Alibaba.com experiences comparatively weaker support in delivery stage. However, the company has overcome this through involvement in both parties for successful accomplishment of contracts (Hakansson and Ford, 2002). The Controlling Complexity Alibaba.com Limited’s excellence is proved by its effort of managing the complexities and converting these complexities into the company’s aptitude. The scope of controlling complexity differs along the four stages of B2B value creation model. In the first phase of information, the degree of controlling complexity is low as availability of enormous data allows the buyers and sellers to multiply the purchasing decision (Lusch, Vargo and O’Brien, 2007). In the negotiation phase, Alibaba.com keeps strong check in order to monitor and control the provision for unethical trade practices. In the payment and delivery phase, as shipment of bulk commodities contains multiple players from a large number of transportation and storage entities and strategic partners, strict control is also appointed by the company to ensure timely delivery of appropriate product. This is achieved by Alibaba.com’s effort to coordinate the activities of all strategic partners starting from receiving payment from buyer to delivery and assurance of quality products and transferring payment to supplier. A flexible application of eCommerce enables Alibaba.com to better management of information related to security systems. Therefore, as these two phases involve higher degree of complexity, the extent of controlling such complexities is also higher. Application of such strong control over the whole merchandise process enables Alibaba.com to satisfy customers’ need. All these efforts taken by Alibaba.com ensure value creation of the company to all its stakeholders (Möller, Rajala and Svahn, 2005). Recommendation and Conclusion Studying the value creation strategy of Alibaba.com, it is clear that practicing sound value propositions helps the company to retain its competitive position in the marketplace. However, there are some inherent gaps. Over dependency of Alibaba.com on China market may prove to be challenging for Alibaba.com in future; hence it could be recommended that, company should reduce its concentration on one market and strive to enhance its value propositions in other markets, especially in those emerging market. This will help Alibaba.com to expand its global market share as well. Alibaba.com should also drive to en-cash realistic market opportunities. Highlighting the best-selling products in its website will aid value among customers’ mind which in turn will enhance the purchasing intention of all its customers. The progress of B2B market segment has changed the concept of global trade. Hence, the companies involved in this industry segment have to strive for continuous value creation in order to maintain sustainability. Alibaba.com is no exception. In this present decade, Alibaba.com is experiencing several challenges from external business environment in terms of rising competitors and supplying infringed products. However, the company has been able to absorb and survive such controversies only through its propensity for value creation among all its stakeholders. If Alibaba.com continues to exercise such value creation strategies in future as well, it will definitely retain its leading position in global trade. Reference List Alibaba.com, 2014. What is the Trade Assurance service? [Online] Retrieved from: [Accessed 7 January 2015]. Anderson, J.C., Narus, J. A. and Rossum, W., 2006. Customer value propositions in business markets. Watertown: Harvard Business Publishing. 
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