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E-Harmony

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------------------------------------------------- eHarmony Case Analysis
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Summary
While meeting people online to find a viable partner is more popular now than ever, online matchmaking industry initially faced challenges stemming from the stigma attached to it. The stigma subsided with time as more successful relationships evolved from online dating. Currently, people frustrated with traditional dating process which takes time and patience, prefer to meet people online for several reasons. Primarily, the convenience and accessibility is a huge benefit. There are over 20 million singles online and eHarmony states that one in five marriages started from an online relationship. Using online service not only allows you to meet other singles outside of your geographical area but also your social circle that you share common interests with. Online dating allows singles to search for a mate twenty four hours a day, seven days a week which works perfectly for a busy professional. Secondly, online sites like eHarmony provide matchmaking tools that can suggest single who are compatible with your values and beliefs, these tools make finding a potential mate easier than if you were randomly trying to meet someone in the real world. Lastly, it allows the singles to build a rapport before dating someone thus reducing the awkwardness of a first date. All of these factors play a role in eHarmony business strategy to differentiate the company from its competitors. This report examines online dating industry and assesses eHarmony’s current strategic position, potential threats and opportunities for competitive advantage and the recommendation for the future growth.
Position Statement
The online personals/dating industry is growing at an unprecedented rate and providing significant economic returns for its incumbents. Among these companies, none is better positioned to gain sustainable market dominance than eHarmony. Currently, eHarmony’s core competency is its scientific approach to matchmaking. It has highly integrated system, which is built on a foundation of in-depth research to help singles find long-term relationships. Despite the company’s current position, the threat of intrusion by new competitors remains a constant risk for eHarmony. It is necessary for eHarmony to maintain its competitive advantage and allow the company to retain paying customers over a longer period of time as well as reach the market of couples who did not meet on eHarmony. After a comprehensive analysis of its internal and external environments with the help of the data provided in the case study and evaluation of the four different options available for addressing eHarmony’s concern of growing competition, I recommend that eHarmony can protect its market share and financial performance by enhancing its differentiation advantage by growing a new business based off of internal R&D focusing on key life stages, and building a network of free eHarmony-branded websites. Adopting this strategies will improve growth, profitability and will be best alternative for the company.
Evidence
Based on eHarmony’s current position we can agree that although online dating industry has grown tremendously, it is becoming increasingly competitive. The profit potential is diminishing as the industry has become more saturated with niche markets that focus on a specific element such as religion, age, or sexual preference. Let us examine the attractiveness of the industry structure and what differentiates eHarmony from rest by using and analyzing eHarmony’s competitive advantage.
Porters Five Forces Model
Threat of new entrants- Intensity: Low and High.
With the barriers of entry low, anyone can essentially start a website and begin an online personals/dating site. The biggest threat to eHarmony and other paid dating sites are the free dating sites that were the newest entrants into the market. These sites did not have major restrictions to joining and did not necessarily do the match-making for the members. However barriers to enter the target market of individuals such as actively engaged in the search of long term relationships are high due to extensive investments in research and patented algorithm by eHarmony.
Bargaining Power of Suppliers- Intensity: High
Online dating industry has a structure that allows buyers to become suppliers. As the number of buyers increase, the database increases concurrently driving its value and appeal. Though there is significant overcapacity of bandwidth and server access (which are required for maintaining the service and data storage) which should decrease supplier power drastically but due to lack of industry experts in online dating industry and low switching cost, supplier power is high.
Rivalry among existing competitors- Intensity: High
Competition is fierce and becoming increasingly intense as they compete for similar segments with generally undifferentiated product. Competition is intense from not only niche market, but also from social networking sites and free do it yourself sites.
The threat posed by substitute products –Intensity: High
The case refers to the advent of social networking as a threat to the online personal/dating industries. With more and more people using social media, it is an easier transition for them to instantly look for potential singles. Singles can always attempt to meet through clubs, activities, bars and off-line matchmakers. Though these alternatives have been less effective in meeting unique needs of singles but due to low switching cost the threats posed by substitute is high.
Bargaining power of buyers- Intensity: Low

Though the case mentions that buyers have low switching cost and high magnitude of substitutes, the individual buyers have low bargaining power because of high number of subscribers. Since eHarmony leads the industry in terms of customer satisfaction and results, individual buyers have low power.
Competitive Advantage Of eHarmony eHarmony’s competitive advantage comes from being one of the first online dating sites focused on long-term relationship oriented individuals giving them the opportunity to build their brand identity as the trusted relationship services provider in the United States. eHarmony has extensive registration process that allows them to screen their members in detail to be able to match them with other potential relationship seeking people. eHarmony offers a tightly integrated system that encompasses a Personality Profile, which is the central part of the Relationship Questionnaire, Matching algorithm and Guided Communication System. These unique capabilities of the system are backed up by solid research in the field of relationship building and couple’s compatibility which makes eHarmony difficult to imitate by its rivals.
Facts on eHarmony * Active users of eHarmony by 2004 = Total No. of Registrations * %age of active users => 3000000* 40/100 = 1200000 active users * eHarmony converted these 1200000 active users into paying customers three times more effectively than the industry standard (Though no information is provided on what the industry standard is to find out the total number of paying members in-order to compare the data with the competitors) * Total number of paying member on online personal/dating sites => Number of US singles* 5/100 = 4700000 number of paying members.
Recommendation
Although eHarmony is positioned well in the competitive industry, to weather the storm brought on by the rivals and sustain competitive advantage, they have to implement strategies effective in ensuring eHarmony’s long-term success. That being said, a strategy that would allow them to capitalize on their company’s current resources (research and capabilities) would be ideal. However, first let us evaluate the available options with them: 1. Defend eHarmony’s leading position in the online matchmaker market by reducing barriers and promoting Fast Track Advantages | Disadvantages | Increase in paying customers | Time consuming match-making process | Maintaining core competencies | Losing out on other niche markets | Maintaining competitive advantage | Decrease chemistry from being successful | | Lacking continuous innovation | | Possible backlash from subscribers |

2. Enter into the medium-term relationship market to increase paying members (casual daters). Advantages | Disadvantages | Increase in customers base | Increase competition | Increase in revenue | Reduce core competency | Maintaining competitive advantage | Probably lower fees due to less serious relationship service | Increase market share | Lack of medium term relationship experience |

3. Growing a new business based off of internal R&D focusing on key life stages, and building a network of free eHarmony-branded websites; revenue mostly coming from advertising. Advantages | Disadvantages | Increase advertising revenue | Increase costs to build network websites | Strengthen brand image and awareness | Unpredictable revenue since sites are free | Reduce short-term competitive threats | No research conducted on key life stages subject matter | Potential for brand extensions | Possible brand dilution | Potential for diversification of growth | |

4. Rapid geographic expansion Advantages | Disadvantages | Strong European market | Have to act quickly | Untapped market segments | Competition is already active internationally | Potential for higher profit | No global brand presence yet | Reduce dependency on single market | Lacks knowledge on foreign preferences |

Looking at the pros and cons of each available option my recommendation is to go with option number 3 that is growing a new business based off of internal R&D focusing on key life stages, and building a network of free eHarmony-branded websites; revenue mostly coming from advertising. This will be an extremely viable option for eHarmony as this new division can stem from the current research and development efforts and offer expert advice and support in areas such as weddings, pregnancy-fertility, parenting, and elder care. This will allow eHarmony to strengthen and lengthen the existing relationships they have with their customers (as the customers transition through these key life stages). As few companies have taken steps in studying life after the wedding, this innovative website will differentiate eHarmony from its competitor such as Chemistry.
With revenue gained from these sites, eHarmony can re-invest it in research and development labs. Eventually research and development can be used to study the niche market for gays and lesbians and after significant exploration eHarmony can use its brand equity to start a new website targeting such niche demographic. As eHarmony will enhance its cores services and grow in market share it is unlikely that its direct competition such as Match/Chemistry and Yahoo! will be able to compete.

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