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Gazelle in 2010 Essays

Strategic Management Gazelle in 2010 Jorge Tarzijan Questions for Gazelle in 2010 • • 1. How does Gazelle create value for and extract value from its customers? What are its key sources of competitive advantage? 2. How should Gazelle use its resources in order to grow? Choose among: • • • • a. Focus primarily on driving and executing retail partnerships b. Focus primarily on its own consumer-facing initiatives (e. g. build its own brand, launch a buyer-facing website, develop proprietary pricing technology) c. Split resources equally among these two avenues for growth 3.
Should Gazelle move towards a marketplace (two-sided platform) model? If yes, how would the two-sided platform model work exactly and what would be the advantages relatively to the current model? If not, why not? 1. How does Gazelle create value for and extract value from its customers? What are its key sources of competitive advantage? • 1. “We have always made money on the buy side” (quote from former CarMax CEO). • This is because there is very little scope for differentiation on the sell side; lots of scope for value creation, differentiation and value extraction on the buy side: • Today, individual sellers of used electronics have few alternatives. But that may change… What about the sell side? • Much more price transparency and competition on the sell side: just another car dealer or just another power seller on eBay. Note similarity of Gazelle to CarMax 1. How does Gazelle create value for and extract value from its customers? What are its key sources of competitive advantage? • What are the key sources of competitive advantage for Gazelle? • Economies of scale, scope and learning: e. g. as power seller on eBay – they translate into signi? ant bene? ts (convenience and immediacy) that can be offered to sellers. Examples of advantages relative to individual sellers. • • • • Listing process (on eBay and other platforms) is an acquired skill Shipping logistics Dealing with pre- and post-sale customer inquiries Pricing research and/or re-pricing consideration • Pricing arbitrage: Gazelle has signi? cant information advantages over buyers and sellers. Thus, it can command high margins between selling and buying prices. 2. How should Gazelle use its resources in order to grow? Choose among: • • a.
Focus primarily on driving and executing retail partnerships Can get important leverage – dif? cult to achieve big scale of operation on its own • • Check if retailers are uninterested in or are incapable of vertically integrating into trade-in business (how is their power in this relationship? ) Retailers are the only channel in which it is possible to combine the buy side and sell side in the same place (trade-in)… • This cannot be done on Gazelle. com (get cash…. go somewhere else to get new product). 2. How should Gazelle use its resources in order to grow? Choose among: • • b.
Focus primarily on its own consumer-facing initiatives (e. g. build its own brand, launch a buyer-facing website, develop proprietary pricing technology) Risk of hold-up by retailers (price hold-up, vertical integration, being overly dependent , etc. ) • • • Cannot control product quality and mix that comes from retailers Create more brand name -> extract more value Limited economies of scale/scope in dealing with multiple retailers 2. How should Gazelle use its resources in order to grow? Choose among: • • c. Split resources equally among these two avenues for growth Option value? 3.
Should Gazelle move towards a marketplace (two-sided platform) model? If yes, how would the two-sided platform model work exactly and what would be the advantages relatively to the current model? If not, why not? Stay with merchant model Moves towards TSP model Higher margins through price arbitrage Opportunities for pricing arbitrage will erode as price transparency increases and as competition increases Faster growth, easier to scale (inventory issues), lower CAPEX required, generate indirect network effects How to mitigate the loss of convenience and immediacy associated with merchant model?
Can capitalize on complementarities across various products (e. g. different parts of a PC) TSP model would lose the bene? ts of convenience and immediacy TSP model increases price transparency and more ef? cient pricing, lowering margins for intermediaries like Gazelle TSP model implies competition against eBay, while merchant model is complementary to eBay Competitors • • • • • http://buybackworld. com/index. php (almost identical to Gazelle) http://www. nextworth. com/ http://www. gazelle. com/ www. ecosquid. com (Kayak of used electronics) http://costco. gazelle. com

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