Managing Quality of a Customer-to-Customer Transaction

Methodology:

The research topic, quality management and control over peer-to-peer based companies in relation to the customer, relied on the use of academic readings, newspaper articles, and research studies to formulate evidence to back statements made by the writer. These were accessed through the use of online databases, websites, and the use of the class textbook, which were then in turn placed in the paper using the APA format of citation. These citations were used to find the research, however, the analysis of these findings and application to the topic was formulated by myself and does not require citations. All research, either used or unused, will be included in a references section to properly give credit to the works used to help formulate this research paper. The research can be found under a references section, which will be included at the conclusion of the writing.

Abstract:

This research paper will focus on the analysis of how different factors influence the quality of Uber and eBay. These companies were chosen because they were both pioneers and industry leaders in their markets that rely on managing a transaction between two individuals or users as opposed to selling to a consumer. Some factors that will be analyzed are costs considered, customer satisfaction, customer retention, investing and managing quality, supply networks, user security and risk, problems during the growth stage, and the solutions they have come up with to become and maintain profitable companies with large user bases. These platforms will be analyzed based on their ability to meet the user’s expectations.

Introduction:

Advances in technology have long been revolutionary for companies when trying to reach their potential consumers. At the turn of the 20^th century, the advent of the radio allowed for advertising to be broadcast across long distances for the first time. Several years later, the television was created and widely sold, which expanded the reach of corporations into the popular nighttime shows that saw a high volume of viewers. However, no technology has had a greater impact than the invention and expansion of the Internet. This tool connects someone with anybody across the globe with just one click of a button. The speed and reach at the disposal of corporations is endless, which is why many companies began to make their own online marketplaces, known today as E-Commerce. Companies in the 1990s began to experiment with E-Commerce by managing online transactions between two consumers, that has come to be known as the peer-to-peer transaction system. This system has seen a rapid growth over the past decade due to the increase in online shoppers, in addition to a growth in conspicuous consumption or paying for goods and services frequently. These systems in recent years have been adapted to support the increase in mobile technology that was pioneered due to the innovations by companies such as Apple and Samsung. As the number of online and mobile users grows each year, it has become apparent for companies like Uber and eBay to invest time, money, and manpower to the building of their software systems. The difficulty of managing the quality of the buyer and seller experience has been a key obstacle for industry leaders in E-Commerce, such as Uber and eBay.

Analysis:

The basics of a p2p system revolve around the interaction between a buyer, seller, and a holding company. Conventional companies follow either a business-to-business or a business-to-consumer model, which makes the model of managing peer-to-peer online transactions a new and unique concept. For example, eBay serves as an intermediary during these transactions by providing a platform to buy and sell. These transactions are monitored using various tools on the site, and the control over the sale, advertising, and delivery is almost entirely dependent on the buyer and seller. Similarly, Uber provides the technology to connect a driver to a potential customer without directly being involved with the process. This means that an Uber driver must deliver a consistent quality of service for the riders that can be monitored by software created by Uber. Both of these companies charge fees for allowing somebody to use the software, in addition to also providing financial security for every transaction. Therefore, the business model for these companies is simple; manage these transactions and charge fees for both parties who choose to use the software.

This system allows for these companies to overlook many costs that traditional companies have to deal with. Many of the costs incurred by these companies, similar to many of the tech giants, have occurred during the start-up and early phases, such as building a platform and entering a market.  For example, in an article written by Maya Kosoff for Business Insider, Uber, a multi-billion dollar company, had “issues paying off investors going into 2014” which, in a statement by Uber, they “credited this loss for the need to invest and grow”(1). Amazon had a similar problem where they went almost a decade until they incurred a profit. This is due to the need of significant investment to boost and improve quality, build a platform for the transactions to occur on a large scale, and build brand recognition to improve customer retention and trust. Moreover, in order to do this, many tech companies must sign loans or give out equity in the company that is unfavorable but necessary for them to build. This puts them at a disadvantage to more traditional product-based companies because they cannot make a single dollar until their product is well made and ready to be scaled quickly since the tech market is filled with booms and busts. Companies in the growth period need to invest to build, but tech companies in particular have to take much greater risks in order to penetrate their competitive industries.

Penetrating the tech market relies heavily on the ability to meet the needs of the customer. Customer satisfaction ratings are a key metric for any company when measuring your reach.  Refer to the line graph below:

Illustrated by the graph on the previous page, one can see that E-Commerce companies are not only growing in size, but also in quality. This data is measured by the American Customer Satisfaction Index, which uses resources such as surveys and company records in order to establish the ratings for each year. The values shown are averages amongst the top companies for each industry since the beginning of the century. Since 2000, there hasn’t been a year that customer satisfaction ratings for retail companies surpassed that of E-Commerce companies. This means that expectations for these companies are favorable, but there is an issue with having consistently high customer satisfaction. Meeting these expectations and maintaining them year in and year out is a great challenge for companies such as EBay and Uber going forward.

Uber and eBay face a unique challenge when managing customer expectations. Most companies have to focus on the design and marketability of their products because they deal directly with their customer base. However, Uber and EBay do not have direct contact with the customer, and they have to deal with the person selling a good or service on their platform. They use the concept of allowing people to operate similar to sales agents, but leave the authority of conducting a transaction almost entirely to the individual. This brings up an interesting problem: How do you manage a system where every transaction between buyer and seller is unique and performed independently of your company? These companies have championed the use of business analytics and scientific management because of their need to meet the customer’s expectations. It is hard to find a metric for satisfaction when people purchase everything from baseball cards to Lamborghinis on eBay or spending several dollars on an Uber ride around the corner to several hundred dollars going from one city to another. A clever solution to this problem, used by both Uber and EBay, can be found using one tactic: letting buyers and sellers manage the quality themselves.

The rating system used by these companies’ gives them the ability to monitor and police the users of these platforms. For example, Uber has a strict rating system for drivers. They require that you, according to James Cook’s Business Insider article, “maintain an average rating of around 4.6 out of 5 stars” or else the driver is in threat of losing their right to use the app. Similarly, eBay uses a “rating system that allows users to praise, complain, or have no comment on their purchase” (Cook 1). Both of these systems are designed in order to make sure that the buyer has their expectations met by the seller. These include time till good or service is received, communication with the seller, and ensuring the quality expectation is met with every transaction or ride. Therefore, not only is the holding company collecting a fee for doing little to no work on a transaction, but also they are even having their users self-regulate and improve the quality of their systems.

The ratings even serve to help make sure the seller has their expectations met as well. Uber uses a similar rating system that they use for their drivers: did they meet their expectation as a rider, did they communicate well, and were there any complications that prohibited the driver from accepting more rides after that one was performed. It is no secret that the driver is under greater threat of losing privileges, but Uber will prevent a customer from using their system if it is warranted. The reason why they and EBay can block users is simple; both have such a high volume of users and annual traffic that it has little to no effect on their revenue.  It seems extreme to ban a customer from being allowed to utilize their software, but peer-to-peer companies rely heavily on their quality.

The ability for these companies to control who can use their software is dependent on the amount of traffic their systems see. For example, eBay has “around 170 million active users”, according to their annual report at the end of 2016. With a customer base equal to about half of the population in the US, they can afford to be selective in order to meet the expectations of the consumer. In addition, Uber has seen a similar explosion in both their drivers and riders, which boosts both business and helps them improve the quality of both the driver and the rider. This exponential increase caused both of these companies to grow rapidly, which has lead to a developing problem for both companies when managing the satisfaction of their users. In their attempt to expand quickly, they have begun to lose many existing customers and have created a barrier between their subscribers and the company itself.

Uber is having a serious issue with the overload of riders and drivers, which has created problems for both parties in metropolitan areas.  Their focus on the “surge pricing” has led to a schism being formed between the customer base and the holding company. The issue is difficult because of fluctuating surge pricing that leads to drivers being upset when the rate should be higher than it is, and riders being upset when they have to spend much more than expected, especially in US cities. This issue directly hurts the experience of the user and can cause people to reach out to competitors such as Lyft or local taxis that have more consistent rates. This brings up a major issue Uber has had to overcome in scaling. They are growing at a rate where the supply, drivers, and the demand, riders, are fluctuating to extremes rather than maintain a balanced rate. This has to do with time and location, but Uber has no way to manage how many drivers can turn their app on. Surge rates can get out of control because drivers choose to or are not aware of the spikes in demand at any given time. Therefore, drivers are missing out on potential income and riders are spending more than desired, which hurts the quality of the service performed.

Uber, in addition to dealing with problems with their growth, are having issues with retaining their customer base. To see the extent to which this is a problem for them, refer to the chart below:

This chart, provided by a marketing research firm called Quettra, illustrates a snap shot of the retention rates for Uber and their competitor, Lyft. This graph shows the number of customers who, once they order their first ride, stay with Uber or Lyft over some duration of days. Shockingly, within a week Uber drops down to about ten percent customer retention. This can only mean one thing; they are acquiring customers at a fast pace, but cannot hold on to them. Retention rates are important metrics when analyzing the ability for companies, such as Uber, to maintain their profits down the road. These rates fluctuate for many reasons, but managing the transaction of a high quality product or service to a customer is a great way to retain more customers.  

Many tech companies have experienced similar issues to Uber during the growth stage. Investment and planning around gaining new customers leaves your ability to retain them in question due to the lack of focus on how to improve the platform. Companies, especially centering on tech, must keep improving in order to keep the interest and the business of their customers going or else they will experience failure. This has been the story for companies, such as Atari, who went bankrupt because “they believed their revolutionary gaming system would last until competitors ran them out of the market.” This comes from a Bloomberg article written by Douglas Wong and Andrew Harris, which describes how a “lack in innovativeness caused for their French partner to not yield a profit in over a decade” (1). To avoid a significant loss such as the one suffered by Atari, companies must focus on quality instead of reach to keep themselves from losing their customer base, profits, and even their business.

Total quality management in a peer-to-peer company is essential in order to continue to hold onto a large number of consumers. The range of the variation for goods or services performed is too large to use as a metric. Thus, eBay and Uber would most likely rely on the use of fishbone diagrams to find causes for a customer to switch to a competitor. For example, miscommunication between the buyer, seller, and company could cause one of these parties to have complaints and issues with making a transaction. Since these companies cannot manage the process of a transaction directly, it makes them have to correct issues with their software to hold on to customers. However, in a tech article provided by BBC News, eBay “set a guaranteed standard for 3-day delivery.” This allows them to set standards and guidelines for their sellers using numbers to hold individuals accountable who go against this norm and improve transparency between the buyer, seller, and company if there is a complaint. This has led to these companies performing research to find what are the core problems with their systems, and what does the consumer value most when using their software.

eBay’s customer base, along with Uber’s, has experienced technological issues with the protection of confidential information required to make a username. Cyber security and the threat of being hacked is a major threat to companies as they make the transition to electronic platforms. In 2014, in an article written by Jose Pagliery for CNN, EBay saw a large-scale attack that affected “many of its 148 million accounts resulting in a loss of account information, addresses, phone numbers, and email accounts” (1). One of the fundamental roles of the holding company is to ensure the transactions and private information of each customer is secure from other users and hackers. Stealing that much data cost EBay customers and a great deal of money to fix. Uber has not seen a large scale hack, however, people have often complained of rides being significantly more expensive than the estimated fare rate.

Cyber security is a differentiating point between high quality and lower quality p2p companies, which is why Uber and EBay have prioritized making an effort to increasing their protection. In an interview with a Belarusian hacker conducted by Howard Amos, a reporter for The Guardian newspaper, he asked about the security of various systems. Sergei Pavlovich, who is serving ten years for crashing systems of companies and government agencies, stated, “it’s easier to hack an election than it is to hack eBay” (2). This comment shows the investment that companies like eBay and Uber are doing to increase the security of their users. It is frightening to think that a group of people with computers can steal hundreds of millions of profiles that could generate them billions in stealing people’s assets. In addition, Uber, according to a news report by Arjun Kharpal for CNBC, was responsible for “handing over 12 million peoples information to US officials” (1). With privacy being a big issue in the US over the past couple of years, this makes their consumers uneasy and more inclined to stop their use of the product. Therefore, companies with large revenues have to make the effort to protect their networks from the threat of a cyber attack. This is one of many costs the companies must deal with to ensure their personal quality checks are met.

The main cost incurred by eBay and Uber, since they do not have to deal with holding, creating, or selling inventory, is opportunity cost. For Uber, this means that they focus on targeting high growth markets to bring in customers away from their competitors. Their opportunity is based on acquiring more customers from the taxi companies, Lyft, and chauffeurs. However, for eBay, their opportunity cost is based on advertising the sales of users more frequently, since most transactions on the website never happen. This means that both of these companies are missing out on millions upon millions of dollars in more revenue because they cannot directly affect their inventory system. Therefore, conventional means, such as measuring their total productivity measure and the use of six-sigma, would not work because these metrics vary greatly due to the vast difference in the price and location of each transaction between buyer and seller. Therefore, a strategic approach could be to find out what initially drew the customer to using their service in the first place, which would entail asking existing customers questions to get valid research. However, their challenge is that they have no sales people and they have no direct line to a seller, which means that measuring these factors is difficult. Therefore, they rely heavily on the use of trends in their industries to find out how to properly reach their consumers.

The use of benchmarking has been critical for Uber and eBay when measuring their quality of services performed. For eBay, they set quality marks using their main competitor, Amazon. Refer to the graph, accessed through Ina Steiner’s article on Ecommerce, on the graph depicted below:

This chart, provided by Foresee, a researching firm, portrays the customer satisfaction ratings for eBay, Etsy, and Amazon. Evident in this graph, Amazon is the benchmark for this industry since their satisfaction scores in 2013 were better than their top competitors. This means that, along with an internal review, eBay should do more research on the practices of Amazon to better reach the customer. However, their business models vary and Amazon has the ability to have much greater control over their distribution process, which they are renowned for being one of the best companies in the world for doing. These scores may not seem that far apart; however, the difference of even six percent satisfaction encompasses millions of users for eBay that could switch to dealing with online retailers and go to Amazon. Uber struggles with these scores as well, which is why you can see the rise of competitors who offer a very similar platform, such as Etsy and Lyft, taking away some of their market share and potential revenue. Another factor that plays into these poor scores is reflected by the difficulty that Uber and eBay have is their partnering with “suppliers.”

Uber and eBay do not have any direct suppliers, however, they rely on the sellers or drivers to fill that role. In any supply chain network, cooperation and transparency amongst the company and its suppliers is crucial to operating efficiently at a large capacity. While many companies are relying on large distribution channels to deliver a product or service, these are unique because they go from supplier directly to the consumer for each transaction. The two companies decentralize their organization meaning they give control over various parts to individuals in order to promote increases in quality for each transaction. In eBay’s case, they rely on individuals to procure good that they do not want or need anymore that allows for a potential buyer to make the purchase and give eBay their profits in holding fees. This means that they have a large number of stockpiled goods on their site awaiting a sale, which occurs during different seasons for a variable amount due to each being unique. In Uber’s case, they rely on their ratings system to promote supplier preferencing or the ability to control that is going to provide the service to the customers. However, for both of these companies, they struggle to create long-lasting partnerships, which hinders their ability to consistently provide a good or service at the best quality. Since they cannot draft new expectations for each ‘supplier’, they must be dependent on the honesty and ability for the transaction to occur to the customer’s expectations. Trusting a supplier is something that many traditional companies have both issues and doubts about, but peer-to-peer transaction based companies will not be successful unless the suppliers can deliver. Therefore, it is important for eBay and Uber to make their company attractive to the best possible suppliers of their good or service.

Developing an attractive platform for people to offer a product and time on has allowed companies like Uber and eBay to bring in high quality individuals to increase the brand image of these companies. For example, a report written by Niall McCarthy, based on information provided by The National Bureau of Economic Research, states Uber drivers can make 1.5 times the amount a traditional taxi driver can make when driving on the app. In addition, their slogan “Get your side hustle on” markets to the working middle class Americans who want to work part time to make extra cash, which helps broaden the amount of candidates they can choose from.  Moreover, as a person who grew up right outside of New York City, the prices of taxis can get very high depending on the time of day, and based on experience, an Uber costs less, and is much more convenient to find than a taxi cab. Similarly, eBay markets itself by allowing people to make extra cash on the goods they do not want, while also providing a discount for the buyer. Since they have to find a way to market to each side of the transaction, these companies made sure to be competitive amongst both the companies selling these concepts on top of the people who are purchasing them by slashing prices and increasing profits for the buyer and seller. This is also a big reason why they have not been profitable for years because they had to grow and build with not a lot of cash inflow. Therefore, creating a platform attractive for consumers has allowed for them to both grow in size and take in quality people to represent the company and bring in profits.

The ability to create an attractive platform to increase customer satisfaction has been influenced by their ability to offer their good and service at a large scale. Similar to an economy of scale, these companies create a stockpile of drivers and products in their system awaiting use or sale. For example, Uber understands that when people want a ride, they need to get a ride to someplace that can be dependent on time. This means that having a large amount of drivers available is important to make sure a customer can get to their destination within a reasonable amount of time so their expectations are met and they continue to order rides. Similarly, people use eBay to find deals or odd items you can’t find at a regular store, so it is important to have a diverse set of products on their site to connect the right buyer with the right customer. In both of these cases, the companies satisfy their users needs to keep the satisfaction with the company high. However, an important aspect for these platforms, especially in the tech world, is the need to continue to innovate their user experience to improve their ability to satisfy the customers.

eBay has invested a great deal of money in order to make the quality of their platform better for their users. They have been able to do this by increasing their investments into the acquisition and developing of programs that would improve their software. A graph portraying how they choose to use this investment is included below:

Shown above, included in a blog post based on statements from eBay’s CEO, John Donahoe, are the various investments made for eBay’s growth. This data was acquired from CB Insights, a subscription based website providing metrics and analysis on companies across various industries. According to the pie chart above, the most notable percentages are ecommerce, their online platform for transactions, and the investment in their payment system being PayPal. In a press release by eBay on their website, PayPal, a system for payment developed by eBay, Inc., made transactions amongst users more efficient, which is why there are “more than 152 million accounts” (eBay, Inc. Staff). To invest in a system that helps to grow their website was important because consumers can see when a company decides to make their product more user friendly. Moreover, all of their acquisitions can be reflected on the need to improve and retain their customers from moving to other more appealing designs.

A company must know how to connect with their consumer in order to improve to their satisfaction. In addition, acquiring other companies that can improve your own is essential for holding on to their market share. This is because maintaining a high value product that leaves the customer dazzled with each new improvement allows for companies like eBay and Uber to continue to, as CEO John Donahoe said in his statement about PayPal’s separation from eBay, “understand how to innovate and deliver compelling experiences for customers.” In a market where innovation happens seemingly every day, it is essential to continue to grow and build your company in order to compete. Having large amounts of revenue streams, such as those held by Uber and eBay, has allowed for these companies to invest in their software to prevent other competitors from overtaking them. On top of this, being one of the first companies into their market gives them a competitive advantage because they get to set the prices and standards that would be competitors have to meet and challenge.

Setting standards and correctly identifying factors that influence a customer’s satisfaction rating is important for remaining profitable and competitive. A graph, provided by an article written by James Cook for UK Business Insider, depicts Uber’s information on their most frequent complaints from riders using their app. This graph can be seen below:

This graph depicts the top five complaints help by riders when they provide feedback for why they did not give a driver a five-star or high quality rating. This chart can be used by quality control employees to properly identify and fix issues that people have with the app. In response to these issues, “Uber, back in 2014, released to their largest market at the time, San Francisco, a list of how to improve their ratings.” (Cook 1). A statement such as this one not only improves the satisfaction of the drivers using the app, but can help to improve the quality of the services performed as well. Since Uber is a product that provides a service for riders, and drivers, it could take feedback such as this and conduct a QFD analysis on how they can improve as a whole. For example, Uber started making drivers use Google Maps, which could very well be a response to the large amount of negative feedback focusing on the poor routes drivers are taking. Moreover, I remember them updating the app to allow you to track and preview the shortest possible route for your trip. A QFD analysis finds the most sensitive areas of customer feedback and the product or quality of service, and compares them to find what is the source of positive or negative feedback of a company. One can say that the complaint about driver route can be reflected on the company, so it is in their power to provide systems to improve the quality. However, complaints such as poor driving or being disrespectful to the customers reflects poor quality on the driver, which is why Uber has the ratings system to find the individuals with the most complaints so they can be replaced to improve the quality of the brand and service. Thus, it is important for Uber and eBay to continually have contact with the customer to understand their expectations and complaints in order to continually meet their expectations when they use their company’s products.

An important factor to consider with customer expectations is that they are constantly changing. Consumers enjoy updates and new designs when it comes to using a product. As a user of Uber and eBay, their designs change frequently in response to the need to keep a consumer engaged and bring them back to the app or website. This is accomplished through marketing research, which supports quality management because it provides up to date information on various types of consumers. Such updates are crucial in staying competitive in their markets.

Conclusion:

Uber and eBay, like many technology platforms, experienced many challenging issues with their products, but maintaining a high quality has allowed them to persevere. They have faced problems from cyber attacks and user security, issues with the functionality of their software, difficulty managing the relationship between the buyer and seller of the good and service, issues with generating a profit due to the need to invest in growth, and the constant threat of innovation from a competitor that could drive them out of business. These problems have cost them greatly, and it is no secret that these have all been barriers to entry for new companies because only one with the manpower and funds are able to handle them without fearing bankruptcy. No company is bulletproof or has no flaws despite their size, so the need to innovate and remain attached to the expectations and feedback of the consumers is what has allowed for Uber and eBay to remain profitable over many years. These companies have championed the quality control issues that have arose due to their large investment capability and research into the minds of their consumers. In addition, their research lets them control the people offering a good or service, which has helped them improve quality by pinpointing individuals or trends that are causing customers to complain and give negative feedback. They have entered a market where they depend on not only consumers using their product, but individuals taking on the role as employees to uphold the company image and quality of the product. In an industry filled with incredible successes and miserable failures, the risks have always been high, but these companies have been able to survive and thrive thanks to quality management.

References:

• Simpson, N., & Hancock, P. (2013). Practical Operations Management (C. Rose, Ed.). Naperville, Illinois: HERCHER Publishing Incorporated.
• Dellarocas, C. (2001, July). Analyzing the Economic Efficiency of eBaylike Online Reputation Reporting Mechanisms (Tech. No. 102). Retrieved http://ebusiness.mit.edu/research/papers/102_Dellarocas_eBay.pdf
• Amos, H. (2017, March 29). Belarus New East network ‘It’s easier to hack an election than eBay’: confessions of a Belarusian hacker. The Guardian.
• Kosoff, M. (2015, August 5). New revenue figures show $50 billion Uber is losing a lot of money. Www.businessinsider.com.
• Pagliery, J. (2014, May 21). EBay customers must reset passwords after major hack. Retrieved from money.cnn.com
• McCarthy, N. (2016, November 29). Fare Deal? Taxi Drivers’ Earnings Compared To Uber. Retrieved from www.statista.com
• EBay, Inc. (2014, September 30). EBay & PayPal to Become Independent Companies in 2015 [Press release]. Retrieved from www.ebayinc.com
• Steiner, I. (2014, January 8). How Amazon, eBay and Etsy Fared in Holiday Customer Satisfaction.
• Wong, D., & Harris, A. (2013, January 22). Atari’s U.S. Operations File for Chapter 11 Bankruptcy. Www.bloomberg.com.
• MarketingCharts Staff. (2013, March 5). Customer Satisfaction With E-Commerce Sites Continues to Outpace Traditional Retail. Retrieved from www.marketingcharts.com
• BBC News. (2017, March 21). EBay launches guaranteed three-day delivery in US. Www.bbc.com/news/technology.
• Kharpal, A. (2016, April 13). Uber gave US regulators data on 12 million users. Www.cnbc.com.