Strategic Analysis of eHarmony Company - Case Study Example

Strategic Analysis of eHarmony Company

eHarmony, an online dating site company founded by Dr. Neil Clark Warren and Greg Forgatch faces with increasing competition on the market. The company needs to reconsider its strategic position on the market. For this purpose, there will be applied the framework of the first stage of strategy management – the process of strategy formulation. At the strategy formulation process it is important to evaluate the macroeconomic environment of the industry as well as analysis of key internal and external factors. Below is provided a more detailed analysis of the macroeconomic environment in which the eHarmony company operates. Based on the PESTEL framework, there are listed key political, economic, social, technological, environmental, and legal factors.

PESTEL

Political factors

No political factors identified based on the case study

Economic factors

No specific economic factors identified based on the case study

Social factors

Popularity of the institution of marriage and Increasing popularity of online platforms as means to meet somebody for romantic/long-term relationships offer significant growth opportunities. Moreover, an increasing trend of divorces in the fourth year of marriage leading to the tendency to re-marry within the next 3, 5 years after divorce also offers new market growth opportunities for dating/marriage agencies, both online and offline. Removal of cultural barriers and changes of attitudes and expectations to marriage, supplemented with the shift from being material/family expectations to personal feelings and emotions drive more people to seek for their destiny in different places using different means. However, the social trend towards later marriage implies that the target audience of eHarmony is starting from 25-26.

Technological

Development of PC market and Internet technology stimulates the development of internet personals, helps to remove psychological barriers and enables to expand partner-seeking opportunities.

Environmental

No specific economic factors identified based on the case study

Legal

There exist the risks of potential lawsuits initiated by eHarmony customers. Case of Claasen v. eHarmony, whereas a married man accused eHarmony in discriminating his rights in refusing providing him a membership because of his marital status. Another lawsuit also was based on the discrimination approach of eHarmony towards same-sex matching service.

SWOT Analysis

Below is provided an overview of the company’s internal strengths and weaknesses, external opportunities and threats (SWOT).

Strengths

Weaknesses

• A unique product offer

The company has designed a patented matching system based on the long-term compatibility of potential partners

• Guided communication system
• Phenomenal membership growth

The company has managed to grow its membership database up to 3mln, out of which 40% are active users

• High conversion rate of subscribers into paying members

Despite an increasing competition on behalf of free dating service providers, the company still has a high rate of conversion of members from subscribers into paying members

• Strong expertise and knowledge

Dr. Warren one of the founders of the eHarmony is an experienced psychologist of marriage and family relationships; he has positive reputation of relationship expert and relative status. This aspect allows the company not only to add value to the service, get customer’s trust, but also focus on developing new products

• Strong leadership

Clear vision, mission and strategy of the company that allows the company to differentiate itself from key competitors

• Well-developed customer service
• Strong R&D function

• Strict control and selection criteria for potential members
• Increased focus on marriage issues might significantly reduce the firm’s competitiveness, opportunities for growth and profitability
• Too long questionnaires discourage many potential subscribers from using eHarmony matching service

Threats

Opportunities

• Intensive competition

The competition on the market is growing and will more likely intensify, considering the potential growth and popularity of online communication. Moreover, competitors increasingly copy some product features and offer lower membership fees or even free service for subscribers

• Increasing popularity of social networks

Social networks pose a threat of becoming a substitute to the marriage/dating sites

• There are many opportunities for growth in the market

It was forecasted that the market will double by 2012, achieving thus the total market value of ~$1800 million

• Technology development

Technological development enables firms to improve their service, to adopt effective data management strategies and to develop more innovating and engaging interface for customers

• Shift in social behaviors and attitudes to marriage

Shift in social behavior and attitudes to marriage offer more opportunities for online dating service promotion

-Opportunity to add service to same-sex customers

Balanced Scorecard

Furthermore, once the environmental scanning has been performed, the next step of formulating a strategy is the necessity of developing the firm’s vision and strategy. Below is provided a more detailed evaluation of the eHarmony’s business based on four major perspectives: financial performance, internal business process, organizational capacity (knowledge and innovation), and customer/stakeholder satisfaction.

The Learning & Growth Perspective

The company has managed to develop a unique corporate culture and attitudes towards dating and marriage. Because of the professionalism and expertise of Dr. Warren the company focuses on continuous learning and research & development. The company operates in a knowledge-worker organization, whereas unique knowledge is embedded into technology. The company might need to focus more on measuring performance of its online matching service by introducing some effective performance indicators. Continuous measurement and effectiveness improvement will allow the company to develop a more sophisticate matching system (probably wit reduced number of questions). Learning and growth will constitute an important element of the firm’s success.

The Business Process Perspective

While evaluating the firm’s internal business processes, it is important to admit that the company’s management has a good knowledge and professionalism necessary for running this type of business. Instead of providing a technical platform for arranging meetings of people, the management integrates its professional knowledge into it. However, this knowledge can be utilised even better if the resources and priorities are efficiently allocated.

The Customer Perspective

The Company operates in service industry, and customer service is crucial to the overall firm’s success and reputation. Therefore, the company needs to ensure that the customers, paying above-market prices for membership receive high quality service. It is important to focus on differentiation strategy, whereas the company offers its services to premium segment. The company needs to differentiate itself from the competitors setting low prices and setting the profiles of all customers online. eHarmony might focus more on such aspects as trustworthiness, reliability, confidentiality, etc.

The Financial Perspective

Effective combination of the above discussed three perspectives will inevitably help the company to achieve higher profitability. Consumers who will be clear with the benefits/advantage of eHarmony’s service will be ready to pay higher price. This strategy will allow the company to achieve sustainable long-term growth.

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

Recommended strategies

Based on the above presented analysis it is possible to suggest two strategies for eHarmony, which will allow the company to overcome potential threats, to address the problem of increasing competition and to ensure sustainable growth development.

Strategy 1:

The company should not consider the option of broadening the customer base for including more casual daters as thus it will become similar to its competitors. Instead, the company should focus on differentiating its service focusing on specific niche of the market: those who seek for long-term relationships and/or marriage. The company should utilise its unique knowledge and expertise, otherwise it will become “one of”, while it should be “the only”. However, this strategy will limit the company’s perspectives for growing its market share. Therefore, it is crucial for the company to expand internationally. The company already has a well-develop product, which it can sell in foreign markets. Thus, eHarmony will be able to capture new markets and expand its customer base, while reducing its dependence on the US market. As Dr. Warren is a professional in this sphere, he will be able to adjust the platform and matching criteria based on cultural/social patterns. Moreover, such countries, where marriage is a major priority in society eHarmony might have significant success.

Strategy 2:

The company should focus on R&D and concentrate its efforts on diversifying and expanding its business. Launch of such projects focused on key life stages such as weddings, fertility, pregnancy, parenting, etc. will be a logical continuation of the marriage process. One the one hand, the company has a required knowledge, expertise, and reputation/credibility of Dr. Warren, on the other hand, the company has an extensive database of customers (especially those who got married due to the eHarmony website).

The above suggested two strategies are not mutually exclusive and should be implemented simultaneously. By implementing these strategies, eHarmony will be able to utilise effective its unique knowledge/product, to diversify risks, to extend the business life-cycle of its product. All these would help the company to stay ahead of competitors and ensure financial growth.