Times are tough. Times are tough all over. This just happens to include China. Over there, one of China’s most prominent web-based companies is taking some innovative steps to deal with the current global recession. What they are doing to stay successful holds a lot of lessons for product managers everywhere.
When Things Get Tight…
Loretta Chao over at the Wall Street Journal reports that Alibaba.com provides a fairly simple service to their customers: they are sorta like a Chinese version of Ebay for businesses. They provide product listings on their site for Chinese firms that want to export goods and they provide translation services for firms that want to buy Chinese goods.
Back in 1Q08, they started to notice that their core manufacturing customers were starting to delay membership renewals and that the number of new members who were signing up was dropping off.
So what did Alibaba do? The company’s business model operates by charging sellers for having listings on their site and for other services. The company responded to the downturn by cutting prices for the kind of customers that make up the core of their business. Additionally, they created a new program to help their customers find loans that would see them through the current financial crisis.
Immediately after introducing the new pricing scheme, Alibaba experienced 12,000 new paying members. This was 10x the number of members who had bought the package at the higher price in the previous 9 months.
The new pricing was put in place by creating a new category of customer: they get to purchase a “starter-pack” subscription that has fewer services than their main product, but its price is also 60% lower than the standard product’s price.
The Bottom Line
Yes, this new product offering is putting the squeeze on Alibaba’s profit margins. They were at about 45% last year and now they are hovering at 27.7%. Additionally, some existing customers have chosen to renew their memberships at the new lower rate (with fewer features).
However, most analysts agree that by changing its business model, Alibaba is now well positioned to grow its market share and become bigger and stronger when the economic slowdown is over.
Questions For You
Would you consider changing your product’s pricing to help your customers in these difficult times? Do you think that this would cannibalize your existing products? Do you think that this would improve your product’s position when the recession is over? Leave me a comment and let me know what you are thinking.
What We’ll Be Talking About Next Time
I’m going to bet that your firm already has a web site that talks about your product in some shape or form. I’m also going to hazard a guess that you’re not terribly happy with the way that it looks or works (or doesn’t) today…
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