Alibaba's E commerce Activities Through Economic Analysis

Document Type:Essay

Subject Area:Economics

Document 1

The company’s e-commerce presence is determined by their websites namely alibaba. com, alipay. com, taobao. com, Yahoo! China, alisoft. com, alimama. com, and koubei. com. The scale economies emanate from cost savings due to the large volume of sales. Direct competitors of Alibaba include American giants such as Amazon and eBay. However, in China, the company competes with Tencent, JD. com, and Baidu. Forums and user groups differentiate the product on the websites such as alibaba. com. Trade Manager tool for communication is also a point of differentiation. There are no explicit barriers to entry in e-commerce, but Alibaba has the upper hand as it the leading internet company in China’s market. Other aspects covered in this paper include bundling, customer lock-in and segmentation, marketing and future strategies for Alibaba’s survival in a highly competitive e-commerce environment. Introduction Alibaba is one of the largest global online and mobile companies. Jack Ma founded it in 1999 with an aim to revolutionize the trade market in China and enable small and medium enterprises that focus on entering the B2B segment. The founder was inspired to make internet trustworthy, useful, and reachable to everyone. In this backdrop, he provided businesses in the B2B markets with free online services as well as information according to industry characteristics (Hunn & Yazdanifard, 2014). The triumphant story of Alibaba is a perfect example of how a start-up company can overcome the odds and emerge as the most popular internet company in the global economy. The aim of this paper is to evaluate Alibaba’s e-commerce activities as a B2B company through economic analysis in the lens of its business model, e-commerce presence, competitive landscape, barriers to entry, fixed and marginal costs, first mover, customer targeting, product differentiation, pricing, customer segmentation and customer lock-in, marketing and bundling.

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Business Model According to Kenneth and Guercio (2018), a business model is a set of planned activities that a company designs aiming to make profits in the marketplace. When it comes to the business model of an e-commerce business, the aim is to leverage the distinct features of the internet, the mobile platform, as well as the web. It is also established that value proposition is at the heart of every business model as it outlines how a company’s service or products can help in fulfilling customers’ needs (Kenneth & Guercio, 2018). On the other hand, Alibaba trading process involves a couple of steps detailed as follows. First, suppliers post their products and service listings on Alibaba’s platform, and buyers post listings to buy. Secondly, buyers make trade inquiries and exchange information with suppliers.

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Thirdly, merchants and customers negotiate the terms of the transaction. Lastly, negotiations are finalized where the buyer places an order and delivery, and payment is executed. Alibaba e-commerce presence is determined by their websites namely alibaba. com, alipay. com, taobao. com, Yahoo! China, alisoft. com, alimama. The company’s network infrastructure connects people to service and machines. Thus, requests made by users from the web pages are received by the servers, in which the database server gives backend data storage. The figure below represents Alibaba network infrastructure. Source: Alibaba Cloud Economies of Scale Scale economies refer to the efficiencies emanating from the increased size of the business due to the use of fixed production systems at full capacity (Kenneth & Guercio, 2018). Most of the international companies such as Amazon, Google, and IBM have achieved economies of scale through the establishment of server farms, which are strategically located in the globe (Kenneth & Guercio, 2018).

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What is more, information is available to everyone meaning that consumers are more empowered than ever before. They can quickly identify the lowest cost provider. It is also worth mentioning that the internet has a myriad of opportunities that aim to create value, brand products, enlarge the physical offline companies such Sears and Wal-Mart, and charge premium prices (Kenneth & Guercio, 2018). Alibaba’s business model is unique due to its exclusive third-party platform, which adds value to the company. The participants of Alibaba core business entail a payment system, logistics provider, marketing affiliates, retail operational partners, professional service providers, and independent software vendors. However, compared to Amazon, Alibaba is not involved in the distribution channels, and it is not involved in direct selling. Thus, Alibaba differs from the America multinational though it has some characteristics that are similar to e-Bay.

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What is more, top competitors of Alibaba in China include Tencent, JD. com, and Baidu. On the other hand, Alibaba’s indirect competitors are from service providers such as Internet search engines as well as traditional trading venues including shows, exhibitions, and trade magazines (Lai, 2010). It is also worth mentioning that Alibaba has differentiated its way of e-commerce as users can communicate with merchants in real time via the Trade Manager. Barriers to Entry It entails the total costs associated with entering a new marketplace. The concept of barriers to entry underpins factors that may prevent new entrants in the industry (Kenneth & Guercio, 2018). Some of them include the high initial cost of investment and property barriers such as copyrights and patents. These barriers to entry may make it impossible for thousands of small and medium e-tail shops to build-up.

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The core aim of segmentation is to offer something that is truly unique. Customers are diverse in various ways including the willingness to engage in business, capabilities, needs, and demographic features such as size, age, education, and levels of income (Lynn, 2011). Also, geographic location where people live and work, behavioral factors such as spending and consumption are vital elements that can be considered when the company intends to segment its customers. The primary goal of segmentation is to win and retain customers. As such, the customer lock-in policy is achieved. This target market has played a significant role in the success of e-trade. These forms of customer segmentation have played a critical role in the global success of Alibaba. Pricing Pricing is an essential element in any form of business. It entails adding value to products and services.

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Price is an integral element of the marketing mix. One of them is membership subscription fees (Hunn & Yazdanifard, 2014). The other source of revenue is the money charged customers for value-added services and listing fees. Notably, the company uses competition to prices its services by comparing the prices offered by competitors. In so doing, it sets the price at a level that is not different from that of competitors, but the price is low and matches with the quality. This pricing strategy has played a critical role in attracting customers. Sponsorship aims to assert the brand name in a positive way (Kenneth & Guercio, 2018). Current Strategy and Future Position Alibaba’s current strategy is to help small and medium enterprises to do business easily through the application of B2B e-market in China.

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Under this strategy, Alibaba provides SMEs with online services and information concerning different companies as well as the characteristics of the industries under which they operate. Moreover, B2B e-market needs strategic partners, and Alibaba has been keen on securing the transaction procedures, which has been made possible through strategic alliances with third parties and banks. The former entails the authentication agents as well as credit rating companies (Wang et al. Also, the company has an online presence through its main websites namely alibaba. com, alipay. com, taobao. com, Yahoo! China, alisoft. com, alimama. Alibaba group announces March quarter 2018 results and full fiscal year 2018 results. Alibaba Group, 1-42. Retrieved from www. alibabagroup. com/en/news/press_pdf/p180504. The review of Alibaba’s online business marketing strategies which navigates them to present success.

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Global Journal of Management and Business Research: E-Marketing, 14 (7), 1-9. Kenneth, C. L. Guercio, C. Electronic Version, 1-14. Retrieved from https://pdfs. semanticscholar. org/c736/f493cf24b9414dcc47c6862f9875ce8537f5. pdf Rowley, C. V. Value creation in B2B e-markets of China: a practical perspective. BLED 2008 Proceedings, 34, 145-155.

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