The Goals And Strategies Of Taobao
The main motivation that Alibaba had when creating a consumer oriented website was the recent acquisition of Eachnet by Ebay. This acquisition was a serious threat for Alibaba since it’s difficult to draw a line between consumers and small businesses in China. Therefore, if Ebay succeeded in establishing their business model in China, it would be easy for them to move to the B2B segment and start competing directly with Alibaba.
So, Alibaba’s CEO Jack Ma decided to be proactive and attack this matter by creating a new website that competed directly with Ebay in the C2C e-commerce marketplace. This made a lot of sense because, by diversifying into the consumer business, they were essentially protecting their Business to Business website that was working so well. It was a big investment with a lot of uncertainty, but not as big as the risk of losing their advantage in the B2B business. Taobao sought to distinguish itself from eBay in numerous ways: Marketplace DesignAchieving a local cultural design that reflected a deep understanding of Chinese consumers and an attitude of informality. Taobao wanted to deliver what Chinese consumers liked: busy and noisy web designs with strong colors and lots of links. On the other hand, eBay had a more western design with sparse sites like Google’s. FeesUnlike its U. S. competitor, Taobao did not charge listing or transactions fees.
E-commerce was new in China and people were wary of scams. Chinese consumers were not familiar with online marketplaces, and merchants were reluctant to sell online without significant incentives. They wanted the marketplace to be free so they could dip their toes in the water. Ma actually went a step further and directly challenged Whitman: “We call on eBay to do what’s right for this phase of China’s e-commerce development and make its services free for buyers and sellers in China. ”To attract buyers and sellers, the company needed to find a way to engender trust between vendors and customers. In China, in contrast with the West, affect and cognition-based trust are highly intertwined, even in business. It is important that business partners have an affective bond. Taobao developed a number of mechanisms to help create trust between sellers and buyers: Taobao sellers needed to register using their national identity card and bank account information. Taobao distinguished between a person’s reputation as a seller and a buyer. (eBay provided only one score for each user). Sellers on eBay tended to have more positive reputation scores (almost 50% had no negative scores in a six-month window) compared with sellers on Taobao (14% had no negative scores).
In 2004, the company introduced Alipay (支付宝, “payment treasure”), an escrow service designed to eliminate settlement risk among trading parties. Alipay informed the seller when it received the funds, and the seller then shipped the goods. When the buyer informed Alipay that the merchandise had arrived, it instructed its bank to release the funds to the seller. Erisman explained the significance of Alipay: Alipay was critical to Taobao’s development. Even when buyers saw a seller with high ratings, the lack of trust still created a big challenge. Alipay eliminated the settlement risk. More than 80% of Taobao transactions relied on Alipay. Taobao members were able to use Alipay free of charge. On eBay, there were many buyers who complained that they did not receive an item. Thanks to Alipay, this problem barely existed on Taobao. Taobao facilitated communication between buyers and sellers with an instant-messaging service, allowing buyers to directly haggle with sellers. Buyers and sellers use our instant-messaging service to provide continuous feedback, ask for assistance, and make suggestions. ”
As a result, “communication problems” constituted only 8% of Taobao’s non-positive feedback. At eBay, this share stood at 20%. 7Although monetizing transactions had never been Alibaba’s priority, it was time to start focusing on making their business model profitable. Zhao Cai Jin Bao was definitely a risky project, but it could also have a very positive impact on their financial situation for several reasons: One of the main motivations for sellers that use C2C Websites is that they are able to sell inventory (78,7%) and that is a good method to make money (66,2%). Taking into consideration that these are their main goals, Zhao Cai Jin Bao can be an opportunity for them. Sellers will not lose anything, meaning that they will have to paid the bid if customers buy their advertised product. Despite of the cost it means for sellers, it allows them to increase their sales and brand awareness on their products.
The main motivation of buyers are convenience and lower price, so this service will help to focus on buyers needs and company will be able to have more information about them and reach new customers. In addition, Alibaba’s company will be able to measure the performance constantly. This strategy was already working great for Google’s search engine, and everything seemed to indicate that it would also work well in the Chinese marketplace. While it’s true that this service would break the company’s most important promise of staying free for everyone, we are confident that the negative impact that this could have on the company would not be nearly as big as the growth in their profit.
