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Eharmony Strategic Analysis

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    Strategic Analysis of eHarmony ————————————————- CONTENTS EXECUTIVE SUMMARY4 ANALYSIS & EVALUATION:4 EXTERNAL ANALYSIS:4 ECONOMY:4 DEMOGRAPHICS:4 INCOME DISTRIBUTION:4 ETNIC MIX:5 GEOGRAPHIC DISTRIBUTION:5 AGE STRUCTURE:5 SOCIAL AND CULTURAL TRENDS:5 GLOBILIZATION:5 TECHNOLOGICAL TRENDS:5 GOVERNMENT INTERVENTION:6 BUSINESS TRENDS:6 MICRO LEVEL ANALYSIS:6 BUSINESS CYCLE:6 MAJOR PLAYERS IN THE INDUSTRY:7 DIRECT COMPETITORS:7 INTERNAL ANALYSIS:7 OPERATIONS MANAGEMENT:7 COST CONTROL7 RISK:8 CUSTOMER MANAGEMENT:8 WHO EHARMONY WANTS TO ATTRACT:8 HAVE THEY SEGMENTED THE MARKET:8

    HAVE THEY FIGURED OUT WHO THEY DON’T WANT TO ATTRACT? 8 MARKETING AND SALES8 LOYALTY PROGRAMS8 GETTING CUSTOMERS TO BUY MORE9 INNOVATION:9 DO EHARMONY HAVE GREAT R&D PARTNERS? 9 TESTING METHODS9 SOCIAL AND LEGAL:9 ISSUES AND SOLUTIONS? 9 ANALYSE OVERHEAD:9 TOP MANAGEMENT9 EFFECTIVE IT SYSTEM10 PORTER’S 5 FORCE ANALYSIS:10 Exhibit 1: Competitive Analysis10 Exhibit 2: Analysis of Internal and External Environment12 ISSUES and/or PROBLEMS:13 EXHIBIT 3 – ALTERNATE ANALYSIS:13 Exhibit 4: Comparative Option Analysis15 RECOMMENDATIONS:16 EXHIBIT 5 – ACTION PLAN:17 To: eHarmony From: Best Consultants

    Subject: Proposed strategy for eHarmony to respond to the growing competitors. EXECUTIVE SUMMARY The online dating industry is one of the few Internet content segments that has survived the late 1990s “boom to bust” phenomenon and is growing at an unprecedented rate while providing significant economic returns for its incumbents. Among these companies, none is better positioned to gain sustainable market dominance than eHarmony. The following analysis examines the online dating industry and eHarmony’s current strategic position, potential threats and opportunities for competitive advantage and the recommendation for the future growth.

    Despite the Company’s current position, the threat of disintermediation and encroachment by new competitors remains a constant risk for any online business. eHarmony needs to protect its market share and financial performance by enhancing its differentiation advantage, expanding globally and preempting positional disintermediation. ANALYSIS & EVALUATION: EXTERNAL ANALYSIS: ECONOMY: * The online Personal market was growing very slowly, reaching $40 million in 2001. * By 2005, the situation changed dramatically, with 16 million people to have visited at least once. * In 2007 the industry grew to $900 million.

    There was downward trend in the number of people visiting dating sites, but the number of paying subscribers increased leading to this growth in the industry. * Observers believe that industry will double in size in 2012. DEMOGRAPHICS: * Initially younger groups came on dating sites. * Soon 40 -50 year olds became fastest growing market segment. Nearly 20% in this group pay membership. * The dating website is facing a growth mainly in US, UK, Europe and in the middle east. * Of those people who ever used personals website, 45% had never been married, 31% were divorced, separated or widowed; and 23% were married. More than 5% of the 94 million U. S. singles were paying members of an online personals site, allowing the industry to grow to $900 Million in 2007. INCOME DISTRIBUTION: * 14% of people who visits personals website have a household income less than $30,000 * 13% of people who visits personals website have a household income between $30,000 to $49,000 * 10% of people who visits personals website have a household income between $50,000 to $74,999 * 9% of people who visits personals website have a household income greater than $75,000 ETNIC MIX: * 10% of people who visits personals website are Whites. 13% of people who visits personals website are Blacks. * 14% of people who visits personals website are Hispanic. GEOGRAPHIC DISTRIBUTION: * 13% of people who visits personals website live in urban areas. * 10% of people who visits personals website live in suburban areas. * 9% of people who visits personals website live in rural areas. AGE STRUCTURE: * 18% of people who visits personals website are in the age group 18-29 * 11% of people who visits personals website are in the age group 30-49 * 6% of people who visits personals website are in the age group 50-64 * 3% of people who visits personals website are in the age group 65+

    SOCIAL AND CULTURAL TRENDS: * 12% of people who visits personals website are men * 9% of people who visits personals website are women. * 7 million people gone on dates with people they had met through online personals site, with 40% entering some type of long term relationship. * Of the 2. 2 million marriages that took place every year in US, reportedly 120,000 occurred between people who had met on online personals. * After 2005, the percentage of internet users who visited online personals fell from 20% to 10%. 20% of paying members on online dating sites comprised of people who signed up at the request of their families, although this number -varied depending on the target market of the site. GLOBILIZATION: * Increasing growth in Europe, U. K and Middle East. * Many of the dating sites have already expanded to the other parts globally. TECHNOLOGICAL TRENDS: * Technical advancement gave the DATING SITES, the opportunities to improve its existing products and innovate to bring in novel and user friendly services for customers. Increase in the innovation of existing products and having patented technological applications. * Increase in the use of Customer Relationship Management (CRM) in dating industry to improve customer satisfaction. GOVERNMENT INTERVENTION: * The existence of The Unruh Civil Rights Act (a piece of California legislation), that specifically outlaws discrimination based on sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation draws a big line in the dating industry. BUSINESS TRENDS: * Mergers and acquisitions play a big part in the dating industry. Many big players acquire a decently established dating site to enhance its brand name -and its presence in various demographics. * Most companies spend money in overseas expansion. Acquiring an already existing company in that place makes the work easier for the company. * The growing trend is that, most of the dating sites started to have alliances with Social networking sites to advertise and also to bring in new members. MICRO LEVEL ANALYSIS: KEY SUCCESS FACTORS: * Conversion rates. Conversion of non paying members to paying members. * Number of clicks registered in the website. Brand image of the company. * Customer satisfaction. * Bringing new customers. Attracting a larger customer base. * Business continuity. Using the best user friendly website, this is the key to the company’s success. BUSINESS CYCLE: * Beginning of late majority. In between early and late majority. Innovators Early Adopters Early Majority Late Majority Laggards Online Personals Industry MAJOR PLAYERS IN THE INDUSTRY: The rapid growth and attractiveness of the online dating market has drawn an increasing number of new entrants and even spurred the symbiotic growth of online dating aggregator and review sites.

    The big players in the Online Personals Industry include Paid Do-It-Yourself sites, Free Do-It-Yourself sites, Niche sites, and Online social networks. Free Do-It-Yourself sites like Plenty of Fish, OKcupid, craigslist and also Niche sites targeting particular communities (BlackPeopleMeet. com, LDSsingles. com, Hindu-Dating. com, Muslima. com) were in competition with eHarmony. Online Social Networks such as MySpace and Facebook provide the important substitution threat to the online personals industry.

    These sites were used less often by people in their 40s and 50s, making them less useful for that segment of the population. Many in the industry believed that social networks played in a different space and only about 5% of people meeting online, had met through a social networking site. DIRECT COMPETITORS: MATCH: eHarmony considered Match as its biggest competitor. Match was acquired by InterActiveCorp (IAC) in 1999, and contributed roughly 5% of IAC’s revenue. The company had signed extensive co-marketing agreements with AOL and MSN, which increased the number of paying customers to 93,000 and revenues to $185 million.

    In 2006, Match launched a new brand called Chemistry to challenge eHarmony in the serious relationship segment. In 2007, Chemistry started a “rejected by eHarmony” ad campaign, aimed to rope in the customers who were denied a membership by eHarmony Yahoo! Personals: eHarmony also competed with Yahoo! Personals which attracted 7 million unique visitors and 5% of all visits to dating sites. Yahoo! ’s overall profitability was at least 5 percentage points lower than it was in 2006, as operating expenses increased faster than revenues.

    Yahoo! Personals was present in 15 different countries. Yahoo! Personals Premier was launched in 2004 in response to eHarmony’s success, the new service used results from relationship and personality tests to search and match individuals. INTERNAL ANALYSIS: OPERATIONS MANAGEMENT: COST CONTROL – Advertising expenses and R&D, infrastructure, facilities. The successful advertising formula made eHarmony one of the few online companies that made offline marketing work and pay for itself and thus saving lot of money.

    Since its inception, eHarmony has made significant investments in R&D, culminating in the opening of eHarmony labs in 2007. The labs boasted over 2000 sq ft of clinical space including several rooms set up with chairs and couches. The Company concentrated its development efforts on creating an easily navigable and attractive end user interface, which required relatively low capital investment and made it easy for new users to rapidly and painlessly learn how to use all of the sites functions.

    The low investment costs and declining average cost structure (due to the low marginal cost and high value added of servicing new customers) associated with its strategy, has endowed the Company with meaningful economies of scale. Despite an investment of only $3 million in capital expenditures in 2000, the company achieved a break even in 2002 and thus enabling positive cash flows from the following year. RISK: Operating risk and Technological risk. The technology should be constantly updated and eHarmony should make sure that, it does not fall behind in competition. CUSTOMER MANAGEMENT:

    WHO EHARMONY WANTS TO ATTRACT: eHarmony is mainly about serious relationships and helping people find lasting love. eHarmony wants to attract people who are looking for serious relationships and long lasting love. HAVE THEY SEGMENTED THE MARKET: * eHarmony focus mainly on serious relationships resonated well with faith communities, a market segment untapped by traditional dating sites. * eHarmony restricted the entry of customers by having strict rules. The main idea behind this is to keep the customer pool really healthy. HAVE THEY FIGURED OUT WHO THEY DON’T WANT TO ATTRACT? Harmony did not cater to Gays/ lesbians and casual daters. MARKETING AND SALES * The successful advertising formula made eHarmony one of the few online companies that made offline marketing work and pay for itself * Marketing expenses reached as much as $80 million a year. eHarmony advertised only on national cable networks & radio and avoided broadcast television. * Three quarters of marketing budget on TV and radio, remainder on online marketing, including internet search and banner ads. LOYALTY PROGRAMS eHarmony doesn’t have separate loyalty program.

    But satisfying customers by providing perfect match gives them the most loyal customers, who in turn bring in new customers to eHarmony. GETTING CUSTOMERS TO BUY MORE It’s the conversion of non paying members to paying members. eHarmony is very famous for being able to convert active members to paying members three times more effectively than the industry average. INNOVATION: DO EHARMONY HAVE GREAT R&D PARTNERS? Since its inception, eHarmony has made significant investments in R&D, culminating in the opening of eHarmony labs in 2007. TESTING METHODS Warren and his team surveyed over 2000 couples before the website was launched to come up with the personality profile. * eHarmony also did numerous rounds of matching algorithm validation with over 4000 couples. Because of this validation, the algorithm could predict to a high degree of accuracy whether they would have long term relationship happiness. * The company has also invested substantial resources into a 5 year study of 400 couples. Couples were enrolled during their engagement and followed through their marriage and subsequent life stage transitions. SOCIAL AND LEGAL:

    ISSUES AND SOLUTIONS? * The existence of The Unruh Civil Rights Act (a piece of California legislation), that specifically outlaws discrimination based on sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation draws a big line to eHarmony. * eHarmony has to make sure they follow this act and should not involve in discrimination. * Right now eHarmony does not cater to gays/lesbians. eHarmony has to come to a solution to avoid discrimination. * Two lawsuits of discrimination filed against eHarmony by a married man, nd a lesbian woman. ANALYSE OVERHEAD: TOP MANAGEMENT Dr. Neil Clark Warren itself is an intangible asset to eHarmony. BOARD OF DIRECTORS: Dr. Neil Clark Warren| chairman of the Board of Directors and a founder of eHarmony| Greg Forgatch| Greg co-founded eHarmony in 2000 and served as CEO until 2006| Alex W. “Pete” Hart| | Jay Hoag| | Jaynie Studenmund| | Greg Waldorf| | MANAGEMENT TEAM: Greg Waldorf | Chief Executive Officer| Greg Steiner | President and Chief Operating Officer| Scott Eagle | Chief Marketing Officer| Cary Berger | Vice President, Legal Affairs & General Counsel|

    EFFECTIVE IT SYSTEM IT systems play a main role in dating industry in general. eHarmony has a very strong user friendly website. PORTER’S 5 FORCE ANALYSIS: Exhibit 1: Competitive Analysis ____________________________________________________________ _____________________________ BARRIERS TO ENTRY – LOW * Emergence of more and more technology. * Internet dating services are rapidly becoming one of the biggest e-commerce customer-to-customer (C2C) industries. * Low start-up cost. High Revenues. * Companies have to produce products which are distinct from others to sustain in the market.

    Developing a Patented algorithm to compete with top players will need many years of research. * The potentially high revenues and profit margins. ____________________________________________________________ ______________________________ COMPETITION – HIGH * Traditional competitors with established customer base. * Newer competitors coming in the market very often. * Competition is not alone from niche market, but also from social networking sites and free do it yourself sites. * Intense competition from not only within the market, but also externally from substitute services. ___________________________________________________________ ______________________________ BARGAINING POWER BUYERS – LOW – Moderate * Low bargaining power because of high number of subscribers. * Low switching costs. * Low Price sensitivity. * eHarmony leads the industry in terms of customer satisfaction and results. ____________________________________________________________ _____________________________ SUBSTITUES – LOW to MODERATE * Singles can always attempt to meet through clubs, activities, bars and off-line services High number of substitutes available for people to meet their partners. These alternatives fail in a variety of different ways to meet the unique needs of singles and are increasingly perceived as less effective. * Traditional dating lacks the stigma of online dating. ____________________________________________________________ _____________________________ BARGAINING POWER OF SUPPLIERS: LOW * An interesting aspect of the online dating industry is that due to the structure that allows free access to content, eventually buyers become suppliers. As the number of buyers increase, the database increases concomitantly driving its value and appeal. * The significant overcapacity of bandwidth and server access, which are required for maintaining the service and data storage, drastically reduces supplier power. ____________________________________________________________ __________________ Exhibit 1 presents the competitive analysis taking into consideration five key parameters: * Barriers to entry * Competition * Bargaining power of suppliers * Bargaining power of buyers * Substitutes

    The analysis classifies each of these parameters as ‘green’, ‘yellow’ and ‘red’ where green indicates a highly favorable environment, yellow indicates an environment that is neither favorable nor unfavorable, and red indicates an unfavorable environment. Threat from New Entrants LOW Bargaining Power of Suppliers LOW Bargaining Power of Buyers LOW – MODERATE LOW – MODERATE Threat from Substitutes Competitive Rivalry HIGH SUPPLERS – Subscribers BUYERS – Subscribers Exhibit 2: Analysis of Internal and External Environment ISSUES and/or PROBLEMS: How to face the competition and how to grow? Competition in the dating industry is getting very intense. eHarmony faces Intense competition from not only within the market, but also externally from substitute services, therefore eHarmony needs to respond soon to the growing market. * Expanding globally in Europe or Canada will need new research partners and a possible tweaking of the matching algorithm to meet the needs of a different culture and environment. * Difference in subscription rate. The Subscription rate for eHarmony is nearly twice as much as its competitors.

    Do eHarmony need to reduce the price by cutting costs? Or keep the same price? * Expanding the market to include more casual daters will expose eHarmony to more intense competition but at the same time may dilute eHarmony brand name and its value proposition. * Limited resources available in eHarmony which may be a barrier for eHarmony to expand. EXHIBIT 3 – ALTERNATE ANALYSIS: Option 1: Do Nothing Advantages| | Disadvantages| No extra costs| | Stagnation| No added management complexity| | Not aligned with eHarmony strategy of constant evolution| | | Might lose out to competition|

    Option 2: Enhance CRM All the value proposition of online matchmaking services boils down to the ability to provide appropriate matches through successfully business-to-customer (B2C) customer service enhanced by the web and based on sound customer relations management practices. Advantages| | Disadvantages| Customization Improves Customer Satisfaction and also Loyalty. | | Enhanced privacy and confidentiality should be provided to customers information, which will be be expensive and will take time to implement. | Enhance customer base. | | | Less expensive to implement. | | |

    Increases word of mouth advertising, which will be a great benefit to the company in return. | | | Option 3: Expand Geographically Expand eHarmony rapidly, starting with English speaking countries and then rolling out the services to European nations to compete strongly in the competitive environment. Advantages| Disadvantages| Compete with Match, which has its presence worldwide. | High start up costs. | Can use its existing strong brand image, so marketing costs will not be high. | Complexity involved (with respect to implementation, management etc. )| Enhance its brand name and can have a strong presence worldwide. | | | Option 4: Target Niche Segment Target the Gays/lesbians segment. This segment consists of 10% of the entire population and is a very attractive market. This option will further strengthen eHarmony’s position and also would expose eHarmony to more intense competition with yahoo personals and match. Advantage| Disadvantages| Enhance customer base. | Complexity involved (with respect to implementation, research etc. )| Less expensive to implement. | | Will not have issues with the Unruh Civil Rights Act and there will not be any discrimination issues. | | Does not ignore gays/lesbians – is comprehensive| |

    Option 5: Include Casual Dating to enhance customer base Target the medium-term relationships segment without seriously undermining its credibility with marriage-minded individuals. This option also would expose eHarmony to more intense competition with yahoo personals and match. Advantages| Disadvantages| Enhance customer base. | Possibility of losing their brand image, which was wide known for catering to people looking for serious relationships| Compete with Match, yahoo personals, which are widely known for casual dating. | Customer satisfaction is one of the grass roots eHarmony and, will go down as a result of casual dating. Low start up costs. | | Would have a unique competitive advantage. | | Option 6: Open various sites with the help of R&D Labs This option is called for growing a new business based on eHarmony’s own research and development efforts. This option would entail building a network of eHarmony-branded sites. Advantages| Disadvantages| Enhance customer base. | Complexity involved (with respect to implementation, research etc. )| Compete with Match, yahoo personals, which are widely known for casual dating. | High start up costs. | Exhibit 4: Comparative Option Analysis

    Exhibit 4 evaluates the 6 options that eHarmony has and rates them on 4 key factors: * Strategy alignment * Added Value * Ease of implementation * Leveraging core competencies The analysis classifies each of these parameters as ‘green’, ‘yellow’ and ‘red’ where green indicates a highly favorable (alignment), yellow indicates neutral alignment, and red indicates an unfavorable alignment for eHarmony. 6 Do Nothing Enhance CRM Expand Geographically Target Niche Segment Include Casual Dating Open various sites RECOMMENDATIONS: Based on the analysis of eHarmony (Exhibit 1, Exhibit 2) we compared the various options that eHarmony has (Exhibit 4).

    Looking at the Comparative option analysis grid, the recommendation for eHarmony would be to implement two of the best alternatives, which would be “Expand Geographically” and “Target Niche segments” such as the “gay/lesbian market”. eHarmony can also look into enhancing CRM (customer relationship management) as this would not be very expensive for eHarmony to implement at the same time, it will be very beneificial for the company and can be a great POD from its competitors. In the short term, eHarmony must preempt competitors from gaining access to economically viable positions if it wants to dominate the online dating industry.

    One specific way to achieve this goal is to focus on niche markets (gays/lesbians). This segment consists of 10% of the entire population and is a very attractive segment. This option will further strengthen eHarmony’s position and also would expose eHarmony to more intense competition with yahoo personals and match. They should not have a separate site for the niche segment instead, the main page of the website should have links to both their target segments (straight and homosexual), and this in turn will avoid discrimination against the homosexuals.

    In the long term eHarmony should expand rapidly, starting with English speaking countries and then rolling out the services to European nations to compete strongly in the competitive environment. Before launching eHarmony globally, the management should develop partnerships with research labs in different countries and should conduct research for the matching algorithm as the US research may not be the same for other countries. Harmony can also acquire some mid size dating sites in various countries to strengthen its brand name globally, this will in turn reduce the complications and the initial efforts eHarmony should take if they launch in new countries. And in the short to medium term, eHarmony should focus on customer relationship management (CRM). All the value proposition of online matchmaking services boils down to the ability to provide appropriate matches through successfully business-to-customer (B2C) customer service enhanced by the web and based on sound customer relations management practices.

    This will not cost eHarmony much to implement and will also in turn yield great results as the customers are both the suppliers and buyers who in turn play a major part in the company’s success. EXHIBIT 5 – ACTION PLAN: LAUNCH LAUNCH Market Research: * Do research for Matching Algorithm in various Countries. ____________________________________________________________ ____________________________________________________________ _ ACTIVITIES Website & IT: * Design, build and test new Functionalities and website. * Analyze Legal implications. Enhance CRM. ____________________________________________________________ ____________________________________________________________ _ Human Resource: * Define and launch Internal Communication. * Hire new resources. * Train resources. ____________________________________________________________ ____________________________________________________________ _ Sales & Marketing: * Define external communication And marketing * Launch marketing campaign Including promotions ____________________________________________________________ ___________________________________________________________ _ Operations: * Testing the website and other user interfaces Before launching Exhibit 5 shows of the action plan for the implementation of two strategies. Recommended Strategy 1, expand globally is represented in grey and It is launched in 10 months and the launch is represented in black. Recommended Strategy 2, Target Niche Market, is represented in red and its launched in 7 months and the launch is represented in red. The Bar represented in both colors in one shows that, both strategy are implemented in the same time frame.

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