E Harmony - Porter’s 5 Forces PDF

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Cognitive Mind Map Highlighting for Strategy Assignment....

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eHarmony - Porter’s 5 Forces Threat of Substitutes - Low ● Alternatives for dating include: ○ “real-life” encounters through work or family/friends seems to still be the predominant method for couples to meet their long-term partners in 2008 ○ Social gatherings (gyms, clubs, etc.) and chance meetings poses a low threat as it is has low success-rate and can be quite intimidating for individuals ● The online dating market is growing in 2008 through network effects: ○ Social attitudes toward the medium grow ○ Technology advances – internet speed and access reach more people ○ WOM from “success stories” draws more customers ○ Customers discover the convenience and reduced perceived risk of online dating (compared to meeting strangers in real-life) ○ Mobile technology continues to improve and penetrate the market ● Social Media (like Facebook) could prove to be a strong threat of substitution, practically offering all the conveniences of online dating along with access to friends/family connections and the “traditional method” of finding a long-term partner. Threat of Entry - High ● eHarmony has a patented algorithm for matching potential couples, but competitors could create their own matching algorithm ● Some specific segments of the market - customers seeking long-term relationships and marriage - are less likely to be enticed by substitutes to eHarmony’s offering. However, other segments of the market – younger customers, more interested in casual relationships, less interested in marriage, and more confident in their own ability to find a suitable partner would be easily captured by offerings from a new competitor (i.e. Tinder). This point depends on how the market/industry is defined. ● eHarmony’s greatest barrier to the threat of new entrants is its large customerbase and well-established brand, maintained by strong marketing/advertising. New entrants may find it difficult to develop their own customer-base to levels significant enough to be a threat – at least in eHarmony’s target market segment.

However, other well-known brands in the online-space with established customers and high levels of capital – like Facebook, Google, or Apple – could not only overcome these barriers to entry but sustain viability and success in the field. Bargaining Power of Suppliers - High ● Suppliers = Advertising/marketing outlets ● There are limited “spots” on TV and Radio with high demand – advertising time is inelastic ● Strategic partnerships with related websites or business may allow for more effective marketing at lower cost – due to lower demand for advertising – e.g. banner ads, targeted ads on Facebook, Internet Browsers, etc. ● If eHarmony could rely less on mainstream channels for advertising and more on WOM (including online “influencers”) it may be able to strengthen its position relative to these “suppliers” Bargaining Power of Buyers - Low ● Buyers = Customers, subscribers, dating candidates ● Considering the lack of substitutes and few competitors in 2008, customers have low bargaining power ● Specific segments of the market (interested in marriage) have even less bargaining power as there are very few if any competitors making the same offering as eHarmony, and none with as much credibility/reputation in 2008 Internal Rivalry - Moderate ● In 2008, there are few large incumbent competitors: Match.com, eHarmony and Yahoo! Personals, are the “big names” Overall Conclusion eHarmony has a strong position in the market. As one of the first movers in the market – certainly a first mover targeting the “marriage-seeking” market segment - it has developed a large customer-base and well-established brand. eHarmony has been able to ward off competition from new entrants through shear volume of its customer-base. It sustains its position through strong marketing, especially WOM, even utilising its own customers’ “feel-good stories” in a very successful marketing campaign. However, eHarmony may still be vulnerable to social media and other “giants” in the

online-space, should they decide to compete. It may also be vulnerable to shifting trends in social-behaviour, demographics, and new competitors offering products better aligned to customer demands (better apps on mobile devices, products better targeted at different age groups or sexual preferences, etc.)

Industry Analysis eHarmony attempted to create value within the internet personals industry by targeting the long-term relationship segment. To understand how successful eHarmony was within this space, analysis of the industry and segment itself is prudent. Porter’s 5 forces model assists in analysing external factors that influence the average profitability of the industry (Dow, 2019). If compared to eHarmony, it can be established whether their success (or otherwise), is attributed to the industry as a whole or if eHarmony was able to create additional value. The platform for substitutes to paid online personals can vary between ‘real-life dating’ as well as online platforms such as free personal websites and social media. The threat of dating through the online interface is strong, as there is a significant priceperformance trade off for consumers, meaning paid personals must have a considerably greater value proposition compared to a free service with minimal switching costs between the two. Alternatively, ‘real life dating’ although still is the predominant method for couples to meet long term partners (Case reference), is unlikely to be seen as a substitute to paid online personals as the value proposition is vastly different. Another significant issue within the industry is the threat of new entrants. There are no legal barriers for entry into this space that can be identified. Moreover, economic barriers to entry are scarce as buyer switching costs are relatively low (depending on degree of subscription) and capital costs for new firms also quite low, especially for incumbents in the online marketplace that have not yet entered the paid personals subsegment (ie. Google & Facebook). Major barriers for entry would be classic competitive advantages held within the segment through strong branding, market share, economies of scope and proprietary technology, advantages that eHarmony does hold within the space. These advantages can be leveraged to combat internal rivalry within the segment. With two major competitors to eHarmony, concentration seems to be moderate in 2008. Market share is a significant driver in terms of creating value internally, so significant barriers between companies protect market share. Strength of branding and product differentiation seem paramount to success within the segment, however low customer switching costs increase the current competitive space dramatically....