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The research essay should cover a comprehensive review of the topic literature and its relevance to current e-marketing issues facing businesses.

  • Category:
    Marketing
  • Document type:
    Essay
  • Level:
    Undergraduate
  • Page:
    4
  • Words:
    2568

Contents

Executive Summary 2

Characteristics of the Shared Economy 3

Shift in Traditional Industries 4

Criticism 7

Recommendations 7

Conclusion 9

References 10

Executive Summary

The sharing economy atmosphere is a socio-economic systems that offers the dissemination of production, appropriation, exchange and utilization of goods and services by various individuals and organizations.

The sharing economy consists of a number of perspectives such as swapping, trading, aggregate buying, collective utilization, shared possession, exchanging utilized products, leasing, online networking, crowd funding, open source, open information or client delivered content among others (Paulsen, 2014). However, all these activities can be separated into two main categories of exchange; access over ownership and transfer of ownership.

Access over ownership is the most common form of peer to peer sharing and it involves the sharing of goods and services with other users for a limited time period. Alternatively the transfer of ownership may allow a user to pass ownership to another user through activities such as donating, swapping and purchasing of primarily second hand goods.

A shared economy, which Hamari, Sjoklint & Ukkonen (2015) referred as collective consumption, is expected to alleviate pollution, hyper consumption, and poverty by reducing the costs of economic coordination within communities.

Such an economy is fuelled by developments in information and communication, consumer awareness and willingness, proliferation of collaborative web communities, a need for convenience as well as social commerce sharing (Hamari, Sjoklint & Ukkonen, 2015).

This paper explores characteristics of a shared economy and analyzes how it is changing traditional industries such as automotive, retail, hospitality and media followed by identifying what opportunities are cropping up as a result. I will then delve into the challenges presented and provide possible recommendations for the same.

Characteristics of the Shared Economy

There are some core pillars that distinguish the sharing economy from ownership models in traditional industries:

Digital capacity that connect spare capacity with demand

Shared economies are hosted on digital platforms that enable real-time, precise measurement of spare capacity and connects this capacity to those who need it. While people have always traded services, the usability of the process has been revolutionized by the growing number of digital devices that match suppliers and demand in real time.

Transactions offer access over ownership

Access comes in various forms such as renting, lending, subscribing or swapping but all these forms are rooted in the ability to realize more choices while mitigating associated costs. With the shared economy, people no longer feel the need to own goods in order to use them. For example Spotify is a platform that exposes music lovers to new music and enables them to see what their friends are listening to through a public feed without ever spending a cent. This is an authentic way to sell music as opposed to I-tunes suggesting songs based on what you have already bought and therefore based on their own judgment of the music.

More collaborative forms of consumption

Consumers who trade using the shared economy tend to be more comfortable with transactions involving deep social interaction compared to traditional methods of exchange. For example ride sharing depend on users being comfortable trusting strangers.

Branded experiences that drive emotional connections

Today, the value of a brand is usually linked to the social connection that it is able to foster therefore managing these connections is important for successful marketing. By providing customers with easy use and decision making, a company moves beyond transactional relationships to a platform that feels like friendship and fosters loyalty among consumers.

Shift in Traditional Industries

A wave of peer to peer access driven businesses are shaking up established categories around the world (PwC, 2015). Examples of industry that are undergoing this revolution

  • Hospitality and dining though companies such as AirBnb,

  • Automotive and Transportation such as Uber, Zipcar

  • Retail and Consumer goods such as Tradesy

  • Media and Entertainment such as Spotify

To grasp the disruption caused by the sharing economy, consider that Airbnb averages about 425,000 guests every night which amounts to about 155 million guests every year. This is nearly 22% higher that Hilton worldwide (Pwc, 2015). Ubers valuation of about $50 billion exceeds the market capitalization of companies such as American Airlines, Delta Airlines and United Continental.

A survey by Pwc shows that 44% of US are familiar with the sharing economy, 10% say they have participated as a consumer and 7% say they have participated as a provider. Consequently, this model is changing the way consumers think of value and is leading them to assess the impact of goods and services on their wallet, on their time and on the planet.

At the heart of the change is the internet. Companies such as Amazon, eBay, Google, Apple and PayPal have softened the risks associated with peer to peer transactions. Sellers of goods have been able to upload them on Amazon or eBay who conjure up buyers on their behalf. GPS enabled smartphones point users to the nearest provider and online payment systems cement the transaction. This methods have increased the trust and confidence levels of those involved in shared economies.

Specific changes in particular industries include:

Business Model

It is becoming increasingly important that firms assess their products and brand. The automotive industries are now reevaluating their value offering and preferring to present themselves as providers of mobility as opposed to vehicles. Therefore legacy manufacturers are striving to facilitate ride sharing or partnering with public transportation in cities where systems are underused.

Consumer value equation

The consumer price value equation is quickly being disrupted by the sharing economy. The ability to monetize underutilized assets or forgo buying those assets has changed consumer purchase behavior especially when it comes to buying expensive items.

For example a potential Uber driver may opt to spend more on a high quality luxurious car knowing that it can yield a return on investment rather than being just a depreciating asset. A homebuyer may also purchase a three bedroom home instead of two bedrooms knowing that the rent from the spare room could potentially cover their mortgage payments.

The economies of owning a car are more favourable if you can profit from it therefore new variables are entering the decision making process.

Underutilized assets

The sharing economy also reduces wastage of resources. Anywhere where such wastage is happening is an opportunity for sharing to come in and reduce the waste. The different mentality of millennial and new consumers of not needing to own things to use them leads to less consumerism, less materialism and more of a community building approach.

Many corporations have car fleets that sit unutilized and garage space that sits empty. With the sharing economy, the opportunities are endless. Such companies could mimic an internal car-sharing platform for busy business travelers to swap cars as they come and go.

Empty garage spaces could be time-shared with other companies, employees or with everyday consumers as a means to generate revenues and create goodwill with employees and the local community.

The employment model

The sharing economy business model is challenging the boundaries of contracting and freelancing and what the responsibilities of the employer and the government should be. Issues around agency and the ability of contractors to set their own prices need to be ironed out but it is clear that workers are attracted to the flexibility that the model offers.

Market Segmentation

The sharing economy has introduced a new type of customer segmentation to the hospitality industry. Services such as Airbnb offer unique experiences and better pricing that is hard for incumbent brands to beat but there is a tradeoff. While some consumers are looking for unique experiences, others are looking for reassurance of consistency. This means the hotels have the opportunity to market more amenities that meet their specific segment of consumers.

Experience consumption

Today, consumers find more satisfaction from experiences rather than possessions. For retailers this means providing an experience as an extension of the product. This may be in the form of social media by encouraging customers to share their experiences or embracing of pop up shop culture.

Appeal on demand

The sharing economy is also known as the on demand economy because its consumers wants what they wants at the exact moment they want it and are willing to pay for such real time service. Therefore, if consumers are willing to pay more to see or have something earlier, but the costs can be mitigated by sharing then it represents an opportunity for firms to create a collective bargaining model that is beneficial to both consumers and providers.

Intersection of a physical-digital offering

Digital assets tend to feel less like a possession in comparison to physical ones. As a result, companies in the media and entertainment industry need to offer a relationship as opposed to an item. One way that is frequently used is subscription.

Checks and balances

In addition the sharing economy introduces a new form of checks and balances. In traditional industries. The old way of doing it was through background checks and interviews but the system of having reviews and people caring about these online reviews and their online reputation means that online review systems can act as the new checks and balances.

Criticism

However, sharing economy is not without negative publicity as regulators and government have come to question the long term impact of the business model on incumbents and communities. Courts in Belgium, France, Netherlands, Germany and Italy have declared ride sharing using non-professional drivers such as the use of UberPOP as illegal.

Uber has also been banned in South Korea in order to encourage the development of local apps that serve as alternatives. In Delhi, a ban was imposed and later revoked due to a well-publicized rape case in the Indian Capital.

As of AirBnb, the mayor of Paris set up a team to investigate illegal room sharing hosts and as a result 20 owners of 56 apartments incurred large fines (Zervas et al, 2013). In Catalonia and other regions, the government is assessing the potentially negative impact of extra tourism on pollution, rent and local convenient stores.

Perhaps the biggest challenge of all for sharing economy companies is insurance. Whether it is your home, your car or your driver, insurance is a fragmented market and insurers don’t know how to deal with people occasionally using an individual’s assets. There are also issues around people who don’t understand the risks they are taking on by allowing such an exchange.

So far, two approaches have been used to deal with this negative publicity. One is to operate as they do and respond to challenges in the courts as they arise and the other is to educate stakeholders on the benefits of a shared economy.

Recommendations

Establish facts around the shared economy’s societal benefits

A better case would be made for a shared economy if they take the focus off its employment benefit and instead associate it to various societal concerns such as pollution and female participation in the workforce. For example, ride sharing is probably playing a big role in cutting down on emissions in 93 of the Asian countries who are ranked on the list of the worlds most polluted. Uber should also highlight its pledge to ensure that they have one million female Uber drivers by 2020 (Lyons & Wearing, 2015).

Through the proper use of data analytics, sharing economy companies are in an ideal position to inform discussions with stakeholders as well as dispute incorrect factual claims. For example, contrary to popular opinion, Uber requires its drivers to have insurance and their contract with the company allows them additional coverage (Mckinsey, 2015). AirBnb also has property damage insurance of up to $1 million.

Identify common ground and build alliances

Players within the sharing economy have failed to build trade associations and alliances that are found in traditional industries. This associations are important in order to align members on an important topic and use analytical capabilities to exchange ideas and shape the discussion with stakeholders as opposed to each company fighting their own battle single handedly.

Cooperation and alliances can go beyond peer sectors. For example many feeder businesses such as rental management, cleaning services and meal delivery services thrive due to room sharing companies. If such an ecosystem was well organized and its benefits demonstrated, it could be the basis of new development models for the tourism industry.

Sharing economy companies may even consider partnerships with incumbents in the traditional industry. For example, Yandex.taxi in Russia gained market share by helping established taxi companies to increase their clientele (The Economist, 2013). Another example of such collaboration is Eatro, a food sharing company that aided another business in delivering courses prepared by professional chefs thereby creating new channels instead of bypassing them (EY, 2015).

Shape regulatory frameworks

The policy confusion about the right definition of a shared economy presents an opportunity to its players to help policy makers identify areas that need regulatory intervention. For example the European Union is set to decide whether ride sharing is a digital service, in which case it is governed under the EU services directive or whether it is a transport service in which case it is regulated by member states (Quittner, 2014).

This presents an opportunity to guide regulators by clarifying roles and responsibilities, organizing for tax collection, prevention of the abuse of data privacy and formulating ways to ensure that sharing economy companies coexists with incumbents.

Conclusion

Whatever an organizations size or core business, the shared economy is too big an opportunity to ignore and too big a risk not to mitigate. For incumbent players, the challenge is to avoid being made irrelevant. While the services in a shared economy come in different ways, it comes down to two concepts; access over ownership or transfer of ownership. People no longer feel the need to own assets and are being constantly sensitized on how they can make extra revenues lending out underutilized assets. The shared economy is contributing to industry’s business models, employments models and market segmentation and even consumer value equation.

However, the shared economy has also be criticized for being vague which makes it hard to regulate. This presents an opportunity for the industry players to influence the discussion based on facts and data analytics, identify alliances and guide the regulatory process in a manner beneficial to both the authorities and themselves.

References

Nagtegaal,F., Dervojeda, K., Verzijl, D., Lengton, M., Monfardini, E., Rouwmaat, E., Monfardini, E., Frideres, L. (2013). The Sharing Economy: Business Models based on Accessibility for for Peer to Peer Markets. Business Innovation Observatory.

Ernst & Young, LLP. (2015). The Rise of the Sharing Economy. Retrieved from http://www.ey.com/Publication/vwLUAssets/ey-the-rise-of-the-sharing-economy/$FILE/ey-the-rise-of-the-sharing-economy.pdf

Hamari, J., Sjoklint, M., Ukkonen, A. (2015).
The sharing Economy: Why people participate in collaborative Consumption. Available at: http://people.uta.fi

Lyons, K. & Wearing, S. (2015). The sharing economy: Issues, impact and regulatory responses. Retrieved from http://www.nswbusinesschamber.com.au/NSWBCWebsite/media/Policy/Tourism/Sharing-Economy-Issues-Impacts-and-Regulatory-Responses-COMBINED-POLICY-9-11-15.pdf

Marchi, A., Parekh, E.J. (2015). How the sharing economy can make its case. Retrieved from http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-the-sharing-economy-can-make-its-case

Paulsen, M. (1990). College choice and enrolment criteria. (Report No. EDO-HE-90-6). Washington, DC: ERIC Clearinghouse on Higher Education. 61

PricewaterhouseCoopers, LLP. (2015). Consumer Intelligence Series: The sharing Economy. Retrieved from https://www.pwc.com/us/en/technology/publications/assets/pwc-consumer-intelligence-series-the-sharing-economy.pdf

Rise of a Shared Economy (2013, March 9). The Economist. Retrieved from http://www.economist.com/news/leaders/21573104-internet-everything-hire-rise-sharing-economy

Byers, J.W, Zervas, G., & Proserpio D. (2013). Rise of the Sharing Economy: Estimating the Impact of Airbnb. Available at http://ssrn.com

Quittner, J. (2014). Regulation in the Sharing Economy. Retrieved from http://www.inc.com/ l