Q1. In 2007, does eHarmony have a competitive advantage?

If so, where does it

come from?

E-Harmony in 2007 still has a competitive advantage owing to the fact that it was one of the
first online personals-slash-dating site centred on connecting serious marriage minded
individuals. Acting as an online marketplace, eHarmony was able to develop a demand
advantage that was rooted in the targeting, attention attracting attribute and maintaining a pool
of substantiated quality of singles seeking a serious relationship. Through this, it did not just
only focus on connecting people but they were also selective on who they allowed to peruse
the site. E-Harmony also possess an extensive registration system which consisted of a
guided communication system, a patented matching system, and a premium payment
membership.
Men Women
Married Separated Divorced Widowed Married Separated Divorced Widowed
Total (in 000s) 2476 1031 1038 484 2442 1201 1181 1222
40s&50s Percentage 19.33333 38.66667 44 16.66667 16.66667 34 36.66667 24
Actual 478693.3 398653.3 456720 80666.67 407000 408340 433033.3 293280

Total Market for 40s and 50s 2956387

As this constitutes about 20% of paying members

Match Yahoo eHarmony

Paying Member (mil) 1.3 0.7 5
Unique Visitors (mil) 13 7 16.7
Advertise Spend (mil) 145 17 207
Average Revenue/customer/month 10 16 20
Average Subscription Price 19.99 15.99 29.95
Revenue (mil) 349 172.5 499.1666667
Advertising Spend/Sales % 41.54728 9.855072 41.46911519

NOTE:
As, eHarmony is letting go of 20% of its potential users which amount to 1 Mil, hence, the total paying members currently are 1/0.2 = 5 Mil
Assuming a customer conversion (Visitor to Paid subscriber) of 10% for both Match and Yahoo, as eHarmony is able to get 3X conversions compared to its competitors, 30% for eHarmony
Average Subscription Price has been taken for the 6 months package as it is given that on an average a successful subscriber took 4-6 months to get matched

Based on the quantitative data analysis, we can identify that eHarmony with its better
customer conversion has been able to develop a significant competitive advantage with
higher revenue generation compared to the other two competitors even with a similar
advertising spend as percentage of sales with Match.com. The average revenue generation
per customer per month is also higher for eHarmony over its competitors owing to many
advertising campaigns being wildly successful and covering up their cost which cascades into
a comparatively lesser advertising spend than its competitors.
On the qualitative front, to get over this hump, one of the founders of eHarmony, Dr. Neil Clark
Warren had the credentials, networks and experience in the field of family and marriage
relationships which can serve as the spark of trust which is essential to seed an online
marketplace in the modern world. Having practiced psychology in this certain area for over 35
years, he was able to take what he inculcated through his practice and decided to assist people
with selecting a potential partner by looking and tapping into the psyche of faith – based and
conservative communities which led to eHarmony getting a critical user volume of over
100,000 quality registrations in a few weeks’ time. As eHarmony was aimed towards single
people who were interested in a serious relationship, it helped eHarmony to distinguish itself
from other sites where people were looking for what is commonly referred to as casual hook
ups. This acted as the Point of Differentiation for eHarmony and with an initial liquidity in the
chosen market segment, eHarmony was able to manage in building several levers which
effectively captured customers. Tapping and leveraging the credibility which was associated
with Dr. Warren, eHarmony built a matching algorithm for its prospective customers which was
instrumental in broadening its base. At that time, eHarmony was the only player and no other
online dating site was providing anything even remotely close to effectively and efficiently
match highly compatible people. This state of the art algorithm acted as a powerful hook that
incentivized users to fill out a comprehensive yet extremely useful relationship questionnaire
consisting of 250 questions.
The Relationship Questionnaire was helpful on two fronts:
Firstly, it created an important filter that was able to weed out casual daters, ensuring the
quality of the marketplace;
And, second, the substantial upfront investment – in terms of time and effort – to complete the
questionnaire brought down the relative cost of the subscription.
Higher Conversion Ratio: Once the users’ personality profiles were fed into the algorithm,
users were able to see but were unable to communicate with their matches – an extremely
effective teaser for non-paying members to coax them into purchasing a subscription as a
result of which, eHarmony’s conversion ratio was almost 3x higher than that of its competitors.
Counter-intuitiveness of Business Practices: In order to sustain its customer captivity,
eHarmony enforced various measures of control that seemed counterintuitive initially such as
the rejection of the membership request of approximately 20% of its users who were willing to
pay. This additional filter even though capped the potential revenue that could’ve been earned
through these additional volume of users but conversely ensured that the quality of paid users
was very high which drove home the point of enhanced value proposition for existing and
potential members looking for a serious meaningful relationship.
Additionally, unlike other available online dating sites, eHarmony was deliberately limiting the
number of matches available to its target customers which leveraged the viewpoint of
eHarmony’s target customer and actually made sense because it reduced the level of
competition among users by artificially restrict the set of choices, indirectly increasing their
expected payoff. This also created an illusion of scarcity by limiting the number of matches
which not-so-subtly reminded that there were only a couple of fish left in the sea and
persuaded the users to pay up. More powerfully, eHarmony was able to mitigate user
skewness, a phenomenon in which a few of the most desirable members command a top-
heavy interest and hits throughout the platform by controlling and limiting the number of
matches. This is an issue that many dating sites suffer from, which would often lead to
inundation of request to a few female users by a larger volume of male users, which ultimately
leads to produce a poor user experience for both sides.
Balanced Gender Mix: Almost 60% of eHarmony’s members were women which indicated
that its user base was of high quality and well balanced at the same time.
As eHarmony gained an upper hand, in other words, a greater control over the serious
relationship-seeking customer segment, the company was able to exert positive network
effects. Each additional high quality member of the opposite sex was beneficial to both sides
of the marketplace – men and women. This cultivates a virtuous cycle which is inherently
defensible and poses difficulty in breaking for competitors looking to gain some market share.
While eHarmony’s network effects were a result and function of its expensive-to-acquire
membership base and high quality, the network effects also reinforced and enhanced its
customer captivity. Consequently, eHarmony was able to charge a 10% premium relative to
Chemistry, its closest competitor owing to the aforementioned factors.
Strategically, one of the most significant decisions that eHarmony made was choosing the
right niche segment within the online dating or personals industry. EHarmony tailored its
product and service after targeting this niche in such a way that it was able to efficiently capture
the minds and hearts of souls eyeing for “true love.”
Q2. What are the threats to eHarmony's strategy? How serious is each threat,
and how would you advise eHarmony to counter it?
The competitive threat to e-Harmony is pretty serious with a number of existing competitors
being matched up with a bevy of new players like Chemistry by Match.com to target the niche
segment of serious relationship which was the differentiating segment for eHarmony. Using
Porter’s 5 forces framework to evaluate competitive advantage for eHarmony,

Threat of New Entrants:

Low – The segment has reached a critical mass of competitors, hence, new competitors’ entry
not viable economically.

Internal Rivalry/Competition Intensity:

High – The large influx of competitors with their own distinct USPs lead to diminishing returns
and fierce rivalry situation.

Buying Power:
Low

Threat of Substitute:
High – Presence of other competitors poses a challenge and offers the customers potential
alternatives.

Supplier Power (Customer in this case):

High – The customers has the power to choose between various alternatives now which
means that the customer can afford to be much more demanding, asking for better service at
lower prices or risk customer churn.

Even though, other sites have not harmonized their membership rates or how much revenue
that has been made, it’s difficult to predict what might happen in the future. Many of
eHarmony’s competitors have tried copying their system of match making and there’s a real
possibility that one day one of the competitor may be able to take their idea and make it better
while possibly tapping into the markets that e-Harmony was not able to or was not aligned
with the business approach at eHarmony. As per the scenario presented, currently, Match.com
is their biggest competitor. Recently, Match had initiated a new website named Chemistry that
will cater to the “serious relationship market” that e-Harmony has been catering to. They have
followed a similar three step process for matching potential mates to induce added trust in the
process. A few other websites are also easier to join owing to comparatively shorter
registration process which has been able to attract customers that were deterred away from
the longer eHarmony process.
Free sites are also a considerable competitive threat owing to the fact that people tend to like
things that are free. This has resulted in these sites growing rapidly in membership. Paying is
seen as a barrier by some and these mentioned web sites notably are devoid of it. Plenty of
Fish is one such example of one of these websites and they have been receiving 20% more
visits than e-Harmony. Niche sites are a threat in our opinion as they are able to service a
completely untouched yet significantly big segment catering to the gay/lesbian market. This is
a market segment that e-Harmony has not been able to tap into. On a similar note, online
social networks such as Facebook are new threats as they serve as a valuable search tool for
people who are looking into dating someone while avoiding any surveillance.

Moreover, as part of the tetra-threat framework to quantify the threats to the competitive
advantage for eHarmony,
The threat of imitation was substantial with many similar personals site coming into
existence with time aping the strategy and offerings similar to what was being offered by
eHarmony,
The threat to private information is not imminent as the matching system offered by
eHarmony is a patented intellectual property. Apart from that, the innovative expertise of the
team at eHarmony is something which needs to be controlled so as to avoid workforce churn
to competitors.
The threats of holdup owing to external factors are slightly significant as the social
construct is continually changing and may impact the business operations in the long run
owing to uncertainty to demand. Labor holdup might be a threat as well, which needs to be
countered
The threats of slack such as lethargy in the workforce and the think-tank responsible for
making eHarmony a success on the basis of leading innovations have to deal with a sense of
laziness and arrogance which is prominent in industry leaders which may hurt the long term
sustainability for eHarmony as a firm.

Recommendation:

A recommendation for eHarmony can be for it to broaden its customer base. There are many
unexplored markets that eHarmony could cater to efficiently. The issue with this is that
broadening the customer base is in contrast of what eHarmony has utilized and tapped into to
build their member base on, which have been serious relationship oriented and marriage
minded individuals. This is why eHarmony needs to follow on a strategy something similar to
what Match utilize and start a new website that caters to casual date seeking people. This
casual dating website can also pivot into and cater to the growing niche of LGBT daters. It is
thus important that eHarmony caters to the ever-changing demographic of its’ potential
customers and bring in a new website to do so. Another recommendation would be for
eHarmony to compete more on cost leadership with the other like-minded websites by
lowering the subscription price of their membership or offer certain discounts on longer tenured
subscriptions so they can compete with sites like Match and Yahoo Personals in the long run.
Another option that can be evaluated is for EHarmony to consider a geographic expansion
which would help bring in more members if they offered eHarmony in other places across the
world that doesn’t have the site currently and have a social construct similar to what is
prevalent in the United States and other western societies.
In conclusion, in order for eHarmony to keep its title as one of the leading online dating and
personals site, they need to diversify and expand in every way. E-Harmony needs to expand
and reach into the markets that it caters to and also enlarge geographically.