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Analysis of the Case Study of BizRate.com
Table of Contents
What are the facts?
What problem exists, and why?
What additional information is needed to analyze this case adequately?
What are possible solutions to the problem?
What are the consequences of each alternative?
What decision should be made or what solution should be chosen and what is the rationale for it?
What general ideas can be drawn from this case that might have application elsewhere?
One of the founders of BizRate.com is Farhad Mohit (Khalaj, 2003), who is young, charming and full of energy. Farhad Mohit was very famous for “Ask Farhad”, a column based on advice he wrote for the Wharton’s student newspaper and was introduced to the Internet by his classmate.
BizRate was initially found with the aim of collecting data through forms on different retailer websites about the quality of services provided, thus providing research on vendors. It started off with funds adding up to $260,000 from family and friends. Mission Ventures and Media Technology Ventures invested $4.5 million in the company because they liked the core idea of collecting information using surveys (Conlin, 1999).
In the year 2000, around 2000 merchants had signed up with the survey program and it became the number 21 most visited website on the Internet. BizRate also provided Customer Analysis Reports that overviewed the experiences of online buyers for a specific merchant.
In the fall of 1999, the company had grown considerably and needed a professional team for management. Thus Chuck Davis was hired as CEO, who is a professional and has a lot of repute. In October 1999, he launched a new website with the name of "Red October" which included extra features and tools.
The changes included a new search tool for searching by type of product, other than the previously available option for searching by specific merchant. It also provided direct links to the websites of the retailers where customers were offered a rebate if they made a purchase through this process as well as a little commission from the retailer for BizRate. They also started to accept outside advertisements on their website which was previously not in the plan.
The new strategy of the website brought in a lot of success for BizRate, securing its place across the top 10 Internet Shopping Sites by December and attracting more than 4 million unique visitors per month. This helped Red October to gather an additional $50 million dollar in the next round of financing in March.
Based on the accomplishments of Red October, Davis began to explore into different e-commerce initiatives. Merchants were charged with a straight fee of referral on mouse clicks, instead of taking out commissions from purchases. Direct e-mail marketing strategies were adopted as well as promotional campaigns and special deals for customers to increase the amount of revenues. The search result lists also showed entries by default by the highest paying merchant that customers had to re-sort according to different quality criteria.
The main problem lies in deciding about the future aim of the company; i.e. whether to continue both the research idea side and e-commerce hub together or choose between one of the two.
This problem mainly exists because this decision makes a big impact on the financing that may be available for the business in the future. It affects the goals of the company and leads to conflicts and confusions about the main priorities. Thus the reasons behind the problem are the lack of direction and focus towards a specific sector, whether research or e-commerce.
The additional information required to analyze the case adequately is a report of the profitability ratios (Peavler) that have been generated separately for the research area of the business and the e-commerce area. It is necessary to check the trends that have been observed in the profits gained individually for the research sector and e-commerce sector over a fixed period of time. This can also be used to forecast future expectations of output from each sector individually and then make an estimate of what would seem a better option for more success. Whichever sector has been performing better in the past, i.e. by giving more profits with lower investments, should be the key solution to the case.
There are three possible solutions to the problem. The first one is to stick to the original aims of the business model; to carry out operations focused only on the research portal and surveys that BizRate initially provided.
The second solution is to let go of the research area of BizRate, and focus only on the E-commerce section of the website. This involves modifying all goals to match the objectives of the new competition in the e-commerce sector and leave the market research sector as a whole.
The third solution is to continue with both areas of the business, with core strength of market research and a gradual adaptation of e-commerce applications. The business can co-exist with both sides of the business and achieve benefits and drawbacks of each.
If a decision is taken to concentrate only on the market research area of the business, it can help increase or stabilize the retention rates of the merchants and customers and give a unique aim to the business. Since the business has a good history of success in this field, it will be a risk free solution. However, this will take away all of the advantages that can be gained from the booming and emerging e-commerce sector.
If the business focuses on only the e-commerce section, it can try and establish its share in the market and reach higher market caps in a shorter period of time. However, a large amount of risk is involved because BizRate does not have much experience in this sector, and already a growing amount of competition from other websites can be observed.
If BizRate decides to keep both areas of the business, it can achieve a share of profits and knowledge from both the sectors but this can lead to inefficient management of resources and lack of commitment to any specific goals of the organization. It can also affect is brand image as merchants will be disappointed by the other services provided and also disturb the financing made available to it.
I think that the business should concentrate only on its core mission of market research and work on delivering exceptional quality in that area that no one else offers. This would allow it to create a niche and stand out from all other websites, thus directing all market research survey needs to their portal. It would build trust in the customers and different merchants to rely on information gathered only from BizRate and keep letting them come to the site repeatedly in the future. It would allow all the resources to be utilized effectively with a common goal, instead of distributing them into areas and thus losing the business’s main strength. In the long run, it will allow BizRate to establish its brand and be recognized as the best Market Research Program available and build customer loyalty. Thus, it will prevent BizRate from going off track and having a sense of direction to follow throughout its future.
General ideas of diversification can be drawn from the case study. It can be seen that if a business tries to grow by offering different products or services, it can bring in both advantages and disadvantages. If a business offers new and different services, it can gather a bigger market share and consumer base (Johnston), and probably increase the level of profits. But at the same time, the business can suffer from the lack of attention and expertise (Xaxx); and thus the existing resources can be insufficient thus leading the new approaches to be quite costly.
Xaxx, J. (n.d.). The Disadvantages of Diversified Business. (Demand Media) Retrieved January 20, 2014, from Small Business: http://smallbusiness.chron.com/disadvantages-diversified-business-22155.html
Conlin, A. W. (1999, February 07). BizRate.com Banks $20 Million in New Financing. Retrieved January 20, 2014, from E-Commerce Times: http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm
Johnston, K. (n.d.). Advantages and Disadvantages to Corporate Strategy Diversification. (Demand Media) Retrieved January 20, 2014, from Small Business: http://smallbusiness.chron.com/advantages-disadvantages-corporate-strategy-diversification-62119.html
Khalaj, S. (2003, September 27). Do it now! Retrieved January 2014, 2014, from The Iranian: http://iranian.com/Diaspora/2003/September/Mohitt/index.html
Peavler, R. (n.d.). Profitability Ratio Analysis. Retrieved January 20, 2014, from Business Finance About.com: http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm