Market Opportunity eBay
Brand management principles are widely understood and applied in the traditional economy. Their application in e-commerce is less appreciated, even though the need for branding is often as compelling. According to David Bunnell, Meg Whitman made building the eBay brand one of her first initiatives. First she sort to clarify exactly what eBay stood for. A personal trading community where users can buy and sell almost anything”.
Meg Whitman This definition set eBay apart from its existing competitors and most of its future ones. She then set about making sure that all marketing communications reflected this unequivocal definition. The second part of her strategy was to segment and analyse the eBay community. Serious collectors and small dealers were identified as the heaviest site users, accounting for 80% of the total eBay revenues even though they only represented 20% of the registered users. Based on this knowledge, the company decided to concentrate its brand building resources. With tens of thousands of sites appearing on the Web each year, eBay’s challenge was to stand out above the clutter. A number of different aspects contribute to an effective brand identity as detailed in figure 1. eBay used a combination of these to effectively develop their brand in
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2.2 Brand name and positioning
When eBay entered the online auction market it was the only real player, thus the competition it suffered was from other generic forms of purchasing 2nd hand goods. The main forms of competition as detailed in the case study were newspaper ads, auctions, and garage sales/ flea markets. eBay needed to position itself favourably against these competitors. When the firm and indeed the concept was first established it was seen to have extremely high risk attached (see perceptual map below – figure 2). Over the 5 years of the case study eBay’s strategy was to reposition their brand as more trustworthy. This was an extremely successful strategy and was achieved through use of other elements in figure 1
2.3 Marketing Communications The marketing communications mix has a number of elements, and eBay used a combination of these to effectively build their brand in an e-commerce environment 2.3.1 Personal Communications eBay used personal communications including word-of-mouth and customer service to help build their brand. By 1997 the number of auctions being held on eBay had risen to 150,000 a day and eBay were finding difficult to provide adequate customer service. The solution that they developed was a two-stranded strategy. Including self-service instructional material and specific topic related bulletins boards. Other users originally answered questions, which was an ingenious ides as it also helped build the sense of community.
Another aspect of personal communication that eBay used effectively to their advantage was word-of-mouth. eBay harnessed the willingness of customers to promote the service, and encouraged people to let others know about fantastic experiences by giving them the opportunity to post reviews of eBay on the discussion boards at the eBay cafï¿½. A more in-depth analysis of the personal communications used by eBay can be found in appendix 1.
Advertising Initially eBay conducted limited marketing, then entered into cross-promotional agreements with a number of other web based companies (see appendix 2 for list). “eBay’s boldest and most costly effort of gaining greater name recognition began in August 1998, when it entered into a three year marketing deal with America Online” David Bunnell – The eBay Phonomenon Cross-promotional agreements were a particularly effective solution because at that point Internet usage was not as wide spread as it is today. If eBay had advertised in national media such as newspapers then the message would have been irrelevant to a large percentage of readers.
The next stage of brand building was targeted at specifically identified segments of the customer base. eBay wanted to establish itself as a site for trading collectables, and this was done by advertising in 70 specialist collectors’ publications and exhibiting at collectors trade shows. They used these adverts to create awareness about their service offering, as collectors were often unaware that people sold their relevant collectable on eBay. eBay were extremely good at harnessing the latest consumer collectables craze early on and milking it for all it was worth. The Furby craze in 1999 is a perfect example of this (more details of this campaign can be found in appendix 3).
Advertising plays an important role in providing prospects with factual information about the service and educating customers about the features and capabilities of the service. eBay sort to get wider recognition of, and build their brand by launching a national radio and press campaign in the USA. Building the recognition of the eBay brand was extremely important for building trust in the brand. According to a University of buffalo study web users still look for the names of “socially entrenched” institutions. The risk perceived by customers is reduced considerably if the transaction is guaranteed by a familiar and trusted name.
eBay has often failed to consider the consequences of not monitoring what is sold on the site. As they grow larger and more popular one challenge they will face is greater pressure from buyers, consumer groups and others to take greater responsibility for transactions on its site. Millions of annual transactions on the eBay site currently produce a remarkably small amount of complaints from users. However, as the number of auctions increases, problem transactions are bound to increase. The company’s stated goal is to reduce the absolute number of problem transactions by working with law enforcement and its content owners to identify and ferret out illegal and infringing items and fraud and they need to make sure that they do this.
As the size of the user base increases another challenge that eBay will face is providing adequate customer service, which will have to be in a number of different languages. As the competition increase things such as level of user support offered will become imperative to the consumer choice of which site to use. A centralized site encompassing customer service advisors who could communicate in the required languages would probably be the best solution, as this would allow eBay to monitor and manage its users problems.
Increasing product categories and promoting new ones During the duration of the case study eBay moved from a fully focused position to a market focused position (see appendix 6 for full details) eBay have in recent years managed brand extensions extremely well and have experienced significant growth through the management of acquisitions and alliances. They do however need to be extremely careful that they do not become unfocused. Their current clarity of mission and strategic focus make them an effective operation, but this could all change if they become unfocused.
Fostering community affinity One of the main challenges that eBay will face is maintaining its sense of community among users as the number of participants grows and expands across national boundaries. John Perry Barlow, cofounder of the Electronic Frontier Foundation, believes this is quite possible, citing his own neighborhood in New York City, a vibrant community within a huge metropolitan area. “Like New York, eBay has lots of neighborhoods. You’ve got the neighborhood of stamp collectors, the neighborhood of Pokemon collectors, glass elephant collectors, and so forth. If you look at those little enclaves, they seem very much like communities.”
The community values of openness, equality, empowerment, trust, and mutual responsibility set down by Omidyar are the basis of the community and these might be lost as the community expands. It is vital that eBay exact what influence they can to maintain these. Enhancing site features and functionality eBay have a history of problems with thier website performance and this will be a huge challenge for them.
Although they claim to have put in systems to overcome this they have experience problems as recently as Novem,ber 4th 2002. They need to put an emphasis on site stability as the livelihoods of the people who run small business on eBay depend on them and they will not put up with poor service forever. eBay recently reported that it experienced 99.9 percent uptime in the third quarter, but these statistics do not include the company’s weekly planned outages to update the site. This kind of denial will only anger those affected by this problem that eBay must focus heavily on solving.
Company culture disappearing When Pierre Omidyar conceived his auction community as one reflecting values of honesty, openness, equality, empowerment, trust, mutual respect, and mutual responsibility, he expected that eBay would be built on the same values. It is imperative that eBay do not loose site of these values as they are one of the cornerstones of the success that it has today. Although it will be a challenge as the workforce expands they should make sure that these values are instilled into every new employee.
Changing marketplace All marketplaces are constanly evolving and eBay will face the challenge of having to evolve with the market. Long-term it looks like business-to-consumer auctions will take over from person-to-person auctions in terms of transaction numbers, participants, and gross sales. This is because for manufacturers, retailers, and airlines alike, auctions are an efficient way to liquidate unwanted inventory. There is however plenty of room for both types of auctions and because eBay has a flexible business model there is nothing to stop them from expanding further, although they will have to consider that different seller group have their own definitions of a winning site so they will have to adapt accordingly.
Competition Competition from name-brand merchandisers on FairMarket, Amazon, Online, and other sites is increasing and is bound to upset the balance of market power currently enjoyed by eBay. They will have to address this by maintaining and improving on their competitive advantage. Auction aggregators The newest challenge to eBay’s position is auction aggregators. These are sites, which collect listings directly from eBay and other auctions and then aggregate them on their own sites, making it possible for bidders to compare prices and monitor many auctions at once. eBay threatened legal action, claiming that they are unlawfully accessing its site and making unauthorized copies of its content, but this threat did little to stop the aggregators. Auction aggregators pose such a danger to eBay because its greatest competitive strength is its transaction volume.
Sellers use eBay because it has the most sellers and buyers. If buyers can monitor auctions from another site, then sellers theoretically have less incentive to list on eBay. Buyers can see products whether they listed on Yahoo, Amazon, or any one of the niche sites, and many of these other sites charge less and have reputations for better seller support. The aggregator sites also pose a huge threat to the sense of community that eBay have worked so hard to foster. As well as pursuing this through legal channels eBay have to work harder to provide their customers with what they want such as good customer service. This way they will not want to go elsewhere.
Learning points EBay offers a number of important learning points that can be equally applied to e-commerce or bricks and mortar retailers. An examination of eBay’s strategy shows two extremely important aspects. The first is an unambiguous mission that employees from top to bottom understand. eBay’s goal was to be “the worlds largest P2P online auction company” The second is a focused strategy for pursuing that mission. eBay’s strategy had five distinct elements that they followed (see appendix 7). Having a focused strategy should not however that you are unadaptable. One of the successes of eBay is that its strategy has evolved with the appearance of different market opportunities. eBay has grown form a P2P trading site to an Internet marketplace encompassing B2C, B2B, and B2B2C transaction models. The story of eBay is one of successfully managing brand extensions, alliances, and growth into new markets.
Every business transaction is based on a greater or lesser degree of trust, and online purchases are at the greater end of the spectrum. eBay recognized the critical importance of trust between auction participants and developed programs aimed at building up the natural sense of trustworthiness that it assumes animates its user community. These programs are designed to increase the user’s comfort level in dealing with unknown trading partners in cyberspace.
Most businesses understand the importance of creating value for customers through carefully structured and managed relationships. These relationships have always existed, but rarely commanded the importance they do today. eBay’s continual focus on user participation and satisfaction has driven the formation of the thriving eBay community. Together with its users eBay has built a unique community from which all benefit. It is clear that the site would never have achieved its current success without that sense of community.
This is one of the most important lessons that any business in any industry can take from the success of eBay. Whether or not eBay can achieve the massive growth predicted and keep the values and sense of community that has made them so successful remains to be seen, but so far they have managed and implemented a good strategy very effectively.