Sample Masters Merit Marketing Analysis

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Market Analysis of Chegg

Table of Contents

1.0 Company Overview

2.0 Competitive Retail Environment

3.0 Internal Analysis

4.0 External Analysis

5.0 Competitors

6.0 Conclusion

7.0 References

1.0 Company Overview

  Chegg, Inc. is an American-based education company that operates out of Santa Clara, California. The business focuses on the American textbook industry and allows for students to rent books, “for a semester, a quarter, or just sixty days” (Chegg, 2018). Since its inception in 2001, the organisation has grown into offering services in; homework help, online tuition, scholarship searches and college application advice. Chegg’s primary customer demographic are students attending high-school and college in the United States.

  The company operates two product lines; required materials and Chegg services. The required materials include the sales and rental of textbooks (both print and eBooks), as well as the commission received from Ingram who are the sole textbook publishers. Chegg Services encompasses all of their digital products and services for students. However, it’s the Chegg’s online tutoring platforms which make up the core revenue for the company with 77% of total net revenues in 2018 (Chegg, 2018).

  In 2019 Chegg reported that over 2.2. million students have subscribed to Chegg services, an increase of 31% since 2018 (Chegg Investors, 2019) All of this combined has led the company to grow 27% in 2019 to reach a revenue of $97.4 million (Chegg Investors, 2019).

  As a result of this, Chegg remains one of the market leaders with the textbook rental market, however the US education industry is undergoing dramatic, long-term restructuring which is leading to an increase in competition as more companies want a stake in an increasingly lucrative digital market (Chegg Investors, 2019).

2.0 Competitive Retail Environment

  The US textbook industry is highly competitive with the US Government investing heavily in textbook rental companies to help meet the needs of students and pushing to technological develop the US schooling system. As a result of this, Chegg faces a lot of competition. This comes in the form of two areas; the textbook rental market and online tuition.

  The textbook rental market has many organisations operating within it. Firstly, there is competition from on-site campus bookshops, some of which are operated by Barnes & Noble and Follet; two huge U.S. distributors (Chegg, 2018). Furthermore, competition from Amazon.com is intense as unlike many brands, they offer similar offers on book rentals to Chegg (Chegg, 2018). Amazon also use their financial advantage to adopt aggressive pricing policies and devote substantially more resources to marketing their services than Chegg can afford to.

  Finally, the textbook market is volatile to change. A new emerging trend which competitively threatens Chegg is book publishers moving to their own digital eBook platform. In 2019, textbook publisher Pearson announces the creation of their own eBook service in which students can rent directly from them, cutting out the “middle-man” service like Chegg (Waterson, 2019). Cengage Publishing’s announced in 2017 they planned to move 90% of their textbooks to a self-owned digital platform by 2020 (Bond, 2017). A move, if successful, could heavily undermine a key product line for Chegg

  Meanwhile, for Chegg study there are numerous competitors who provide study materials and online tutelage. While there are many smaller brands (Varisty Tutors, Nerdify, Skooli), in regard to Chegg’s market position there is one main competitor; Tutor.com. Tutor.com is another U.S.-based online tutoring service established in 1998. Unlike many of the smaller competitors, Tutor.com competes with Chegg due to their similar approach and support from educational institutions. However, the brand has a longer operating history than Chegg, which has allowed it to build strong relationships. As a result, in 2008, the brand was awarded a contract with the U.S. Army to provide military families access to tutoring (Tutor.com, 2008). A contract which provides a strong competitive advantage for Tutor.com.

3.0 Internal Analysis

  To create an effective internal analysis, a report must identify the strengths and weaknesses of an organisation that offers it certain advantages and disadvantages in meeting the needs of its target market (Gurel, 2017). Strengths refer to its core competencies that give a firm an advantage (Gurel, 2017). However, strengths are only meaningful when they assist an organisation in meeting customer needs. Similarly, weaknesses refer to any limitations a company faces when implementing a strategy (Gurel, 2017). The important step according to Hollensen (2010: 243) is to convert these weaknesses into opportunities, being mindful of any internal threats that would lead to deterioration in profit/sales. Using this framework, a SWOT analysis will be conducted. 

Figure 1: A SWOT analyse of Chegg

Strengths

Weaknesses

  1. Inhouse proprietary technology that allows for accurate management of book purchases, deliveries, returns and setting prices in real time to meet demands. This is a core competitive advantage that is unique to Chegg.
  2. While individual competition exists, Chegg is unique in offering a range of academic services under one brand.
  3. Strong partnerships with academic institutions, endorsement from the U.S. Government and an exclusivity deal with the Ingram Content Group.
  4. Strong investment in online resources and eBooks to meet the emerging trends for digital-only content through U.S. schools.
  5. After initial investments, high profit margins due to repeat customer subscriptions accessing digital content.
  1. Reliance on the partnership with publishing service Ingram for the sales and rental of textbooks.
  2. The textbook rental business model requires high initial upfront investment and reliance on multiple rentals of the textbook to return investment.
  3. Reliance on students returning textbooks in a timely manner and in good condition so they can be re-rented.
  4. Reliance on third-parties to operate; Amazon Web Services, UPS, book vendors, PayPal etc.

Opportunities

Threats

  1. Expanding into adjacent markets; new services on mobile platforms to meet current customer expectations.
  2. Developing personalised services; like A.I. driven essay-reading tools, developed from the acquisition of WriteLab in 2018.
  3. Further growth into new countries; currently Chegg operates in Brazil and China with international operations representing 5% of the total company. 
  1. Continuing to attract and retain students to increase engagement with Chegg’s learning platform.
  2. Manging the growth of the business, including unforeseen expenses
  3. Developing and scaling a high-performance technological infrastructure to meet the increase in students.
  4. Create a pricing model to compete with companies that offer similar services and products
  5. Seasonal business due to the Academic calendar leads to demand fluctuations.

Sources: Chegg, 2018; Chegg Investor, 2019; Seeking Alpha, 2019; Yahoo Finance, 2019

  Using the SWOT analysis (figure 1), this report is able to see several core competencies offered by the brand. Firstly, Chegg has invested heavily on their own proprietary technology which is unique to them. As a result, despite competition from small brands, Chegg are able to offer a unique service to the customer based on their book rental platform. This strength is increased by the careful growth of the brand in the range of services they offer. As highlighted previously, Chegg operates in a highly competitive segment. Which threatens Chegg with competitive pricing and offers that the brand cannot match. However, unlike the competition, Chegg offer a range of student-focused services under one brand. This advantage allows them strong brand recognition. This strength allows has allowed Chegg to develop strong partnerships with academic institutions, government-bodies and exclusivity deals that allows a competitive advantage.

  However, despite these strengths, the nature of the business that Chegg operates in has some key weaknesses. Firstly, one product line relies on high initial investments yearly to purchase in-demand text books. This investment, along with a reliance on the partnership with Ingram leaves Chegg potentially weak if there was any disruption to the service. This is extended to Chegg’s reliance on numerous third-party services to operate, all of which can cause potential issues if mismanaged. To combat this weakness, Chegg has begun costly investments in online resources to move the business away from physical books. Opportunities from acquisitions and potential high-profit margins allows for strong future growth of the brand.

  However, this growth is reliant on continuing to attract and retains students, as well as being able to scale technologies to meet this new digital focus. If successful, Chegg can expand into new countries by launching this technology without the need for physical resources. Which if capitalised on would combat the threat of seasonal demand from many of Chegg’s services being based on the U.S. academic calendar.

  To further analyse Chegg a VRIN analysis has taken place to assess the resources the firm has and the way they combine them to make the firm different from the competition (Cardeal & Antonio, 2012). A firm’s resources form the analysis and they are measured for their strategic importance as; valuable, rare, inimitable and non-substitutable. For Chegg, the brand banks on its value proposition of offering a number of services and resources under one brand. Along with this, Chegg is one of the few brands to offer a unique business model of ‘buying back’ rental books from students. This requires a strong initial investment and a valuable brand name which creates strong brand-recognition.

  The business model of the rental market is highly competitive, however Chegg have their own valuable propriety software which is not imitable by the competition. This is further strengthened by the valuable partnerships and acquisitions Chegg have made which allowed the brand to offer rare services not replicated easily by other competitors.

Figure 2: VRIN Analysis of Cheggs

Capabilities/Resources

Valuable

Rare

Imitiable

Non-Substitutable

Chegg Business Model

YES

NO

YES

NO

Book-rental model

YES

YES

NO

YES

Brand Reputation

YES

NO

YES

NO

Acquisitions

YES

YES

NO

NO

Partnerships

YES

YES

NO

NO

4.0 External Analysis

  An external environmental analysis allows for an organisation to identify the external strain on their activities and develop the opportunities which are considered benefits (Porter, 2004: 34). A PESTLE analysis is a tool to scan the external macro-environment in which the organisation operates in (Porter, 2004: 34). It can be used to evaluate whether the market is in growth or decline (Porter, 2004: 35). This report will use the PESTLE analysis to analyse the U.S. market Chegg operates within and offer recommendations for the potential direction of the business based on the analysis using frameworks.

Figure 3: PESTLE Analysis of Chegg

Political

Economical

  1. Government and political stability with a continual focus on the education sector.
  2. Bureaucracy from the U.S. Government within the education industry.
  3. Intellectual property protection from digital piracy – costs publishers $70-$100m a year.
  4. Pricing regulations surround schooling fees.
  5. Trade regulations and tariffs related to the service industry.
  6. Government regulations surround public data and the education industry.
  1. Economic stability within the U.S. – currently U.S. is at its slowest economic growth in five years.
  2. Strong growth within financial institutions has led to Chegg acquiring a £800 million capital raise.
  3. The U.S. education system is a trillion-dollar market which over 15% of the U.S. population engages with daily.

Social

Technological

  1. In the U.S. over 20 million Americans were enrolled as students in college or above.
  2. However, a social change for students with 3 out of 4 college students working jobs while in education.
  3. 25% of college students are also full-time parents as well.
  4. Over 40% of 2018 college students are over the age of 25.
  1. Changes to internet search engines and new laws surrounding internet advertising.
  2. Growth in smartphones and access to the internet (U.S. one of the largest smartphone markets with 69.9% market share)
  3. Major book publishers (Pearson, Cengage) are exploring their own competitive online services.
  4. Rise in Chinese-owned online competition within the tutorial market targeting international students.

Legal

Environmental

  1. Chegg is still recovering from a 2018 data breach which led to the loss of 40 million registered user’s data. As a result, the company is being investigated by U.S. regulatory authorities.
  2. Chegg are subject to numerous U.S. laws surrounding data, privacy, taxation, promotions, education and quality of service. All of which provide daily challenges to the brand.
  1. Chegg have six server locations, three located on the East Coast and three on the West Coast. Despite the various locations, incremental weather has led to periodic service interruptions.

Sources: Chegg, 2018; Bond, 2017; Duffin, 2019; Flemming, 2019; Jack, 2019; Holst, 2018

 Chegg is reliant on the U.S. government policies surround education and the stability within the sector. Under the Trump administration, he is seeking over $3bn in budget cuts to the education department and tuition aid (Washington Post, 2019). For Chegg this would impact on student numbers and access to potential customers. This is further enhanced by economic growth being at its slowest in five years (Fleming, 2019). As a result, financial aid is potentially threatened which will hurt subscription numbers for Chegg services.

  However, despite economic worries, there is strong growth within the U.S. financial centre (Fleming, 2019). Banks are seeing the potential growth in the Chegg brand and in 2019 awarded an £800 million capital raise for the company. As a result, Chegg are able to further invest in new technology to meet current U.S. student demands. One of the emerging technology trends for Chegg to invest in is apps and smartphone technology, with over 69% of Americans having access to a smartphone (Holst, 2018). As a result, Chegg are seeing more uptake of their services via smartphone devices. By directly targeting customers with tools they feel comfortable with, it helps reduces to the barrier to entry for the customer to access the service being offered (Pehrsson, 2009).

  Although, this rise in easy access to technology has led to a rise in low-cost competition from markets like China. While competition within the book-rental market is local based due to the physical nature of the service. Online tuition services from abroad are undercutting services like Chegg Tutors (Chegg, 2018). This is because the U.S. education market is at its all-time highest, with over 20 million Americans enrolled in college in 2018 (Duffin, 2019). Despite threats to aid, overseas students continue to boost U.S. college numbers are form a key segment for Chegg to target with tuition help. (Chegg, 2018). 

  Internally, with 3 out of 4 US students working full-time to help fund college, there is more of a demand for free services. This has led to an increase in digital textbook piracy and reliance on free search engine services for answers. Traditional approaches to marketing are questionable in a marketplace where customers have access to massive amounts of information (Keller, 2009). As a result, Chegg must continuously adapt their product offerings to meet these new trends and attract customers (Kapferer, 2012: 121).

  Finally, Chegg have suffered numerous legal issues in 2018 surrounding a data breach the company suffered (Reed, 2018). As a result, over 40 million users’ logins were compromised. For Chegg the brand suffered heavily in loss of consumer confidence, as well as is under investigation from U.S. regulatory authorities. This has led to a drop in. confidence from the U.S. public as they become wary of how Chegg, and numerous other educational institutions manage customers data – many who are underage and vulnerable (Reed, 2018). This legal challenge remains key for Chegg as they announced new security measures and increased focus on the protection of their customers (Chegg, 2018).

5.0 Competitors

  Porter’s five forces theory allows for the analysis of an industries attractiveness that Chegg operates in. The tool created by Porter allows for an organisation to look beyond the actions of their competitors and examine what other factors could impact the business environment and erode profitability (Porter, 2004: 47). The following section explore the industry that Chegg operates within and the impact of the five forces on their competitive advantage.

Threat of Entry: HIGH/ LOW: This segment is split into two answers. Firstly, within the product line of required materials, the answer is a low threat. Initial investment is costly for new competitors as textbooks need to be purchased. Furthermore, partnerships with publishers and relationships with academic institutions all take time and high investment. However, for the product line of Chegg services the threat is high. Due to the rising need for online services to support U.S. schools, low-cost competitors from Asia threaten Chegg through undercutting them on pricing. However, Chegg are in a position of offering a strong brand name and alliances within institutions to keep the brand ‘front-of-mind’ with students.

Threat of Substitutes: HIGH: Chegg, along with the other competition are facing challenges with students seeking free alternatives to their services. Along with using search engines to find answers, digital piracy has risen over the years through illegal text-book downloads. This trend deeply threatens Chegg’s profitability as students potentially won’t use the textbook rental service. However, to combat this, Chegg are moving towards an ‘all-in-one’ subscription model to offer a range of services for one low-cost price.

Bargaining Power of Buyers: HIGH: Buyers control the market due to so many choices being available, which leads to a high level of disloyalty (Jobber & Ellis-Chadwick, 2019: 231). Chegg faces numerous threats from both online competition and on-campus book stores. To create loyalty, Chegg have moved to offer various services away from academic help, whether it is job searches or college searches to create a brand that students can trust.

Bargaining Power of Suppliers: MEDIUM: This is an area which could create future issues for Chegg. Currently Chegg have an exclusivity deal with Ingram publishing who control a vast stake in the academic textbook market. Due to this investment, Chegg have managed to gain deals with brands like Pearson and Cengage. However, in 2019 both publishers have announced plans to diversify on their own and create their own online rental business. If Chegg loses these critical partnerships the brand will suffer financially as the text-book segment is a key earner for the brand. To combat this potential threat, Chegg has begun investing in their own digital resources in which they control the rights to offer customers.

Rivalry among Competitors: HIGH: Competitors within this market are very strong. Online brands like Barnes & Noble and Amazon have the financial investments to spend on marketing and promotional advertising to undercut Chegg. However, Chegg offers the advantage of their proprietary database which can accurately supply students with books at real-time competitive pricing. This advantage allows for Chegg to continuously offer a good deal, as well as the unique advantage of buying books back from students.

6.0 Conclusion

  In conclusion, Chegg are in a strong financial and market position within the U.S. education sector. Despite the competition, Chegg have made strong investments in proprietary software and keen acquisitions of companies to strengthen the brand. However, the future could prove to be complicated. Increasing low-cost competition and threats from publishers going independent could threaten Chegg’s entire business model. However, as demonstrated in this report, the brand appears to be preparing for that future with numerous key investments. The move towards their own digital content and focus on expanding into new markets could secure new competitive advantages if managed right.

7.0 References

Bond, S. (2017) Educational publishers’ experiment with eBooks and rentals. Financial Times. [Online] available at: https://www.ft.com/content/39ee32a8-e402-11e7-8b99-0191e45377ec [Accessed 27/07/19].

Cardeal, N., and Antonio N.S. (2012) Valuable, Rare, Inimitable Resources and Organization (VRIO) Resources or Valuable, Rare, Inimitable Resources (VRI) Capabilities: What Leads to Competitive Advantage? African Business Journal. 6 (37), pp. 10159-10170. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2347978 [Accessed 28/07/19].

Chegg. (2018) Annual Report 2018. Chegg.com. [Online] Available at: https://s21.q4cdn.com/596622263/files/doc_financials/2018/annual/2018-Annual-Report-(Final).pdf [Accessed 27/07/19].

Chegg Investors. (2019) Chegg Reports Q1 2019 Financial Results and Raises Full Year 2019 Guidance. Chegg Investors Relations. [Online] Available at: https://investor.chegg.com/Press-Releases/press-release-details/2019/Chegg-Reports-Q1-2019-Financial-Results-and-Raises-Full-Year-2019-Guidance/default.aspx [Accessed 27/07/19].

Duffin, E. (2019) College & University – Statistics & Facts. Statista. [Online] Available at: https://www.statista.com/topics/829/college-and-university/ [Accessed 28/07/19].

Fleming, S. (2019) US economy: statistics at a glance. Financial Times. [Online] Available at: https://ig.ft.com/sites/numbers/economies/us/ [Accessed 28/07/19].

Gurel, E. (2017) SWOT Analysis: A Theoretical Review. Journal of Social and Scientific Research. 10 (51), pp. 994-998. [Online] Available at: https://www.researchgate.net/publication/319367788_SWOT_ANALYSIS_A_THEORETICAL_REVIEW [Accessed 27/07/19].

Hollensen, S. (2010) Marketing Management: A Relationship Approach. 2nd Edition. London: Financial Times/ Prentice Hall.

Holst. A. (2018) Smartphones in the U.S. – Statistics & Facts. Statista. [Online] Available at: https://www.statista.com/topics/2711/us-smartphone-market/ [Accessed 28/07/19].

Jack, A. (2019) Pearson accelerates push to digital-first publishing. Financial Times. [Online] Available at: https://www.ft.com/content/c1940696-a74d-11e9-984c-fac8325aaa04 [Accessed 27/07/19].

Jobber, D., and Ellis-Chadwick, F. (2019) Principles and Practice of Marketing. 9th Edition. London: McGraw-Hill Education.

Kapferer, J. N. (2012) The New Strategic Brand Management: Advanced Insights and Strategic Thinking.5th Edition. London: Kogan Page.

Keller, L. K. (2009) Building Strong Brands in a Modern Marketing Communications Environment. Journal of Marketing Communications. 15 (2-3), pp. 139-155. [Online] Available at: https://pdfs.semanticscholar.org/f180/3ea131a96817d142900777cc1c73b41ee6c4.pdf [Accessed 28/07/19].

Lidia, E. (2017) How to strengthen customer loyalty, using customer segmentation? Journal of Social Sciences & Economic Theory. 9 (58), pp. 51-60. [Online] Available at: https://doaj.org/article/afe116fa648245ddaf7c35de4353b47a [Accessed 29/07/19].

Pehrsson, A. (2009) Barriers to entry and market strategy: a literature review and a proposed model. European Business Review. [Online] Available at: https://www.emerald.com/insight/content/doi/10.1108/09555340910925184/full/html?mobileUi=0 [Accessed 28/07/19].

Porter, M. E. (2004) The Competitive Strategy: Techniques for Analysing Industries and Competitors. 4th Edition. U.S.: Free Press; Export Edition.

Reed, J. R. (2019) Ed tech company Chegg plunges after disclosing data breach. CNBC Business. [Online] Available at: https://www.cnbc.com/2018/09/26/ed-tech-company-chegg-plunges-after-disclosing-data-breach.html [Accessed 28/07/19].

Seeking Alpha. (2019) Chegg Is A Long-Term Winner Worth Buying on Weakness. Seeking Alpha. [Online] Available at: https://seekingalpha.com/article/4267917-chegg-long-term-winner-worth-buying-weakness [Accessed 27/09/19].

Tutor.com (2008) The Marine Corps Contracts with Tutor.com to Offer Live Homework Help. Tutor.com. [Online] Available at: https://www.tutor.com/press/press-releases-2008/20081007 [Accessed 27/07/19].

Washington Post Staff. (2019) What Trump proposed cutting in his 2019 budget. Washington Post. [Online] Available at: https://www.washingtonpost.com/graphics/2018/politics/trump-budget-2019/?noredirect=on&utm_term=.346676762f6a [Accessed 28/07/19].

Waterson, J. (2019) Pearson shifts to Netflix-style subscription model for textbooks. The Guardian. [Online] Available at: https://www.theguardian.com/media/2019/jul/16/pearson-netflix-style-rental-academic-textbooks [Accessed 27/07/19].

Yahoo Finance. (2019) Chegg (CHGG) Earnings Expected to Grow: Should You Buy? Yahoo Finance. [Online] Available at: https://finance.yahoo.com/news/chegg-chgg-earnings-expected-grow-143102356.html [Accessed 27/07/19]

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