4. WITHIN-CASE ANALYSIS
4.2 Alibaba Case Study
4.2.1 Provide attractive pricing and curated content
For the first practice of providing attractive pricing, Alibaba is currently fully
implementing this practice. Alibaba focuses on providing shared-revenue platform for
merchants to list their products for sale, and to provide technologies that help merchants
operate their business on Alibaba. This attractive service pricing to merchants in turn
allows merchants to operate with a lower cost and to sell products at an attractive pricing.
In the second practice of providing consumer-generated content and reviews,
Alibaba has fully implemented this practice into their ecommerce site. Customer reviews
for products are easily found on product pages, providing an additional level of trust for
the product quality. In addition, there are curated product promotions found throughout
the platform regularly to promote a more personalized shopping experience. These
curated promotions are especially visible during special holidays like the annual Singles
Day created by Alibaba on November 11th. Merchants are encouraged to offer products
at steep discounts in order to gain exposure for their shops on the Singles Day curated
sales.
4.2.2 Harness the power of data and analytics
In the first and second practices, Alibaba is currently fully in control of the data from
social channels and mobile channels. Aside from the usual social media marketing
analytics, Alibaba also incorporate social aspects into their mobile applications. In
Alibaba’s B2C subsidiary, Taobao, Taobao’s app enable customers to chat in interest
specific groups and also read news specific to the users’ interests. This social aspect
encourages customers to actively check the app on a daily basis and promotes more
possibility of buying items on Taobao. In the data perspective, the more users interact in
the app the more data Alibaba collects on its customers and will be able to build a more
complete profile to market to those customers.
For the practice of collecting data from local channels, Alibaba is fully implementing
this practice. Since 2014, Alibaba has started focusing on strengthening their reach in the
physical retail channels; Alibaba made a $692 million stake in Intime Retail, a department
store chain with 30 outlets across China in April 2014. In August 2015, Alibaba purchased
one-fifth of Suning.com, a retailer with 1600 stores across 298 Chinese cities. In 2016,
Alibaba bought into a 32% stake of Sanjiang Retail, a high-end supermarket chain in east
China. Also in 2016, Alibaba completed a deal worth $2.6 billion for 74% of Intime Retail.
These series of acquisitions positions Alibaba to be able to influence data flow to the
parent company for analysis of local channels’ customers.
4.2.3 Avoid price comparisons
In avoiding price comparisons, Alibaba does not directly employ the first two practices
of sourcing products with distinctive features and exclusive produces to the platform.
Alibaba also does not manufacture any products themselves and hence does not directly
control any of the product selection on the site. The selection is mainly left in the hands
of the merchants, who are likely to post the same items across various different
ecommerce platforms. We conclude that the first two practices are not implemented by
Alibaba.
In the third practice of using product bundles to avoid price comparisons, again
Alibaba does not directly influence if bundles are being sold on the platform. However,
merchants do regularly bundle popular items together for sale on Alibaba. Combined with
automatic product suggestions, Alibaba only achieves a partial implementation on
product bundles.
4.2.4 Learn to sell niche products
The practice of selling long-tail products online exclusively is fully implemented at
Alibaba. Sellers that list products on Alibaba have a huge incentive to list long-tail
products online since Alibaba operates with a shared revenue model. Sellers do not have
to worry about listing fees that will eat away the revenue stream from items that take a
long time to be sold.
With mid-tail products, Alibaba has partially implemented the practice of selling
these products through a mix of online and offline. Along with the acquisitions and
investments in various offline retailers, in early 2017 Alibaba also announced a new
partnership with Bailian Group, a large retail conglomerate in China. This new
partnership gives Alibaba access to the 5000 retail outlets owned by Bailian Group across
200 cities in China. Fully utilizing these physical channels will eventually allow Alibaba
to fully implementing this practice of mixing online and physical channels for mid-tail
products.
4.2.5 Emphasize product knowledge
Alibaba has exemplified the practice of sharing product knowledge across platforms. One
of the key goals the company has is to redefine the way consumers view retail. This at a
very simple level includes sharing the same product knowledge across different channels
such as website, mobile site, and mobile app. In addition to this, the company plans on
adding ordering systems and real time service solutions to the physical stores in the
Bailian Group retail outlets. This augmentation of information systems in physical stores
aims to unify product information online and offline in order to create a more seamless
shopping experience for the consumers.
4.2.6 Establishing switching costs
For the first practice of establishing switching costs, Alibaba has fully implemented this
practice on their consumer platforms, Taobao and Tmall. In these two platforms,
consumers may rack up points through purchases and positive ratings to achieve different
levels of VIP status. The higher the VIP status, the more discounts and perks the member
can receive. Perks include guaranteed returns, instant fund reimbursements and special
holiday discounts. Aside from discounts, members can use the accumulated points in
place of cash to purchase items.
In the second practice of creating exclusive user experiences for members, Alibaba
is currently fully implementing this practice. Aside from the membership perks and
discounts mentioned above, Alibaba also offer a social aspect with their online shopping
experience. Being able to chat and share interesting purchases with members of similar
interest is something that keeps members visiting the site on a daily basis. Furthermore,
Alibaba is aiming to break the barrier between offline-shopping and online-shopping by
designing technology specific to aid omnichannel retail in outlets owned by the Bailian
Group. When this redesign of retail is completed, it will further confirm Alibaba’s
commitment to providing an exclusive shopping experience.
4.2.7 Embrace competition
For the strategy of embracing the competition, Alibaba has only partially implemented
the first practice of improving products. One of the main complaints about shopping on
the platforms of Alibaba is the complaint of low quality items and merchants selling
imitational goods in the place of brand name goods. To combat this widespread negative
experience, in 2016 Alibaba has enlisted brands to open their own flagship online stores
on Alibaba and Tmall to give consumers an official channel for authentic brand name
products. In addition, Alibaba has also taken a zero-tolerance stance against companies
selling counterfeit items and actively removing listings found to be illegitimate. However,
due to the fact that Alibaba does not directly influence the products improvements, we
deem this practice to be only partially implemented.
With the second practice of improving services, Alibaba is currently fully
implementing this practice. Another complaint with the Alibaba platform is the reliability
of being able to negotiate a return with individual sellers on the platform. To help with
improve this process, Alibaba has introduced an exclusive return guarantee for their VIP
members, effectively making sure the sellers follow through with their after-sales services.
Another area of improvement is Alibaba’s dedication to changing the retail experience.
Their pioneering of technology to merge online and offline shopping experience will be
soon seen in the outlets in China as part of the deal with the Bailian Group.
As for the third practice of embracing competition through improving prices,
Alibaba has always been fully implementing this practice. From the beginning, Alibaba
has focused on developing technology to help merchants easily manage their business
online. Through making their platform service easy to use and accessible to merchants of
all sizes, Alibaba encourages a high level of competition and massive number of active
merchants on their ecommerce platforms. With the increased number of competitors and
practices to encourage lower prices for better visibility, Alibaba has continued to push
lower prices for the consumers.
4.2.8 Invest in complementary services
In the first practice of investing in complementary services such as 3rd party payment,
Alibaba currently implements this fully with Alipay. With 400 million users and just under
half of China’s online payment market, Alipay is the largest 3rd party payment system
used in China. Alipay not only helps Alibaba inject cash flow into operations, but it is
also one of the reasons Alibaba and online shopping became prevalent in China. Due to
the counterfeit culture in China, there is a great deal of wariness from consumers in the
Chinese online ecommerce industry. Alipay solved this dilemma with its transaction
process where Alipay only releases the funds to the seller when the buyer confirms the
products are satisfactory. This escrow-like process generates even more cash flow
compared to other 3rd party payment systems that transfers funds immediately.
For cloud infrastructure investments, Alibaba has also been heavily investing in their
cloud services arm, Aliyun in the last few years. Alibaba announced a one-billion-dollar
investment into building up the Aliyun business in the US back in 2015. Although Aliyun
is a new comer to the cloud service provider industry, Alibaba has made a number of
partnership deals that will allow Aliyun to quickly expand to new regions and markets.
For example, an agreement was announced in June 2015 with Equinix, an internet service
provider, to provide access to Aliyun in Hong Kong, China, Silicon Valley, and California.
A joint venture was also announced in December 2016 between Alibaba and Softbank, a
Japanese telecom conglomerate, to launch Aliyun in Japan. For these partnerships and
aligned strategy behind Aliyun, we conclude that this practice of investing in cloud
infrastructure is fully implemented at Alibaba.
4.2.9 Build scalable logistics network
Although Alibaba does not directly operate the fulfillment and logistics part of their
supply chain process, they have various investments and partnerships in companies that
take care of those processes. In China, the logistics industry is very fragmented by the
enormous geographical area that the country covers. Launched in 2013, Cainiao Network,
the logistics technology company under Alibaba, aimed to consolidate the various
different logistics providers and fulfillment centers together to form a singular unified
service. Through providing these providers with a data platform and end-to-end logistics
solutions, Cainiao Network is able to support logistics operation across 12 major Chinese
cities, and support rural areas in China through 1200 village-based service centers and
more than 100,000 delivery stations. In this practice of building a scalable fulfillment
warehouse infrastructure and logistics network, Alibaba has fully implemented both these
two practices.
For building key partnerships for global distribution, Alibaba has been hard at work
signing agreements with various logistics providers of the international markets they seek
to enter. For example, in 2014 Alibaba bought 10% stake in SingPost, the national postal
service provider of Singapore for $249 million. Additionally, in 2015 Cainiao Network
partners with U.S. Postal Service to develop shipping solutions specific for cross-border
ecommerce orders. Partnerships and investments like these strengthen Alibaba’s global
distribution network and their position in an ecommerce market moving towards
globalization. We find that Alibaba has fully implemented the practice of building key
partnerships for global distribution.