Effects of Current Credit Market Conditions - PayPal - Essay Example

Business proposal Introduction PayPal is a new online payment system that allows traders to exchange money through the internet thereby enabling electronic commerce. The new service is in an industry that has other online payment platforms such as western union, MoneyGram, and other conventional payment services. The service thus sought to address the incompetency’s of the existing payment platforms by coming up with a system which was subject to the sanction laws of the U.S government but still met the demands of many people globally. PayPal operates as an intermediary between any two people engaged in a commercial transaction. Operating as an acquirer, PayPal processes payment for commercial users at a fee before transferring the money to the other party whom it further charges yet another fee. The receiver of the money gets it in a preferred currency including respective local currencies after converting at the prevailing market rates as determined by the foreign exchange rates. Purpose of the paper This report introduces the service into the market. In doing this, the report analyses the potential market and the probability for profitability. The product introduction is the basic marketing procedures that involve market determination. This requires effective consideration of the opportunities and threats presented by the market and the strengths and weaknesses of the product that the marketer must consider before positioning the product. The market that the service target is an oligopoly implying that it has various firms offering similar services; the new product will therefore face intense competition from the existing companies. However, the various companies have a marginal control of the market thereby creating room enough for the growth of the new player. With effective marketing, the new service will possibly claim a share of the market and even become a monopoly. This will rely on the marketing features employed by the marketers both at introduction and in subsequent marketing operations. E-commerce is real time and it required a competitive payment system that would match the transactions carried out. In essence, the payment systems needed to be instant. This is a feature, which was yet to be realized. PayPal thus positions itself as the only intermediary capable of processing and availing the money to the appropriate parties within the time that transactions are made. The demand for online payment solutions has increased with the advent of electronic commerce. Most companies currently have websites and support electronic transfer of goods and services. Other businesses exist entirely on the internet. Coupled with e-markets such as e-bay, the demand for an efficient electronic money transfer has been quite challenging over the years. Price elasticity Elasticity refers to the measurement of the effects of each variable in a transaction. The main variables in a company are demand and supply. The two factors affect each other thus influencing the profitability of any company. PayPal maintains a competitive fee per transaction; price is a fundamental marketing feature that affects the profitability of a company. With the increase in e-commerce, the demand for online payment mechanisms increases. Companies such as eBay, Amazon, and various other academic writing companies have further expanded the market thereby increasing the demand for the efficient online payment mechanism. The increase in the demand for the services of PayPal has come with the company increasing the cost of money transfer. However, PayPal has maintained a fixed cost of online money transfer. The company has diversified its services and increased its reach as it currently operates in various countries throughout the world. The expansion was a way of increasing its market reach thereby expanding the scope of demand for its services. Among the countries the company first targeted included the United States, Japan, India, China, Brazil and Canada. The large population in the countries provided a market that the company needed to exploit. With time, the company has increased its reach globally. Currently, it has a competitive presence in nearly every country including African states. This makes the transfer of funds easier since it enables the transfer of local currencies in some countries thereby increasing efficiency. Hypothetical data The data shows possibility for growth and increased profitability as the company advances its services. Volume of money transacted Profits generated Year 1 $ 51,000,000 $ 500,000 Year 2 $ 100,000,000 $ 1,500,000 Effects of current global economic conditions Currently, the global economy is stable with international trade heightening. Such develop conducive environment for the growth of the business. Increased global economic activities coupled with minimal crises in the stronger economies as has been the case currently results in increased international monetary transfers as expatriate employees send money back to their home countries. Additionally, companies expand their territories in a bid to capitalize on international trade and the expanding markets thereby increasing the scope of business for the money transfer company. While the expansion sought to increase the demand for the company’s services, it began facing competition since other companies started providing similar services. With the increased reach resulting from the expansion, the company began competing with local financial institutions such as banks that facilitated money transfers and mobile money transfers. An increase in competition demands that the business puts in place various marketing strategies in order to maintain or increase its profitability in the wake of the rising competition. Usually, price is the most preferred marketing element that influences the demand even for the online payment system. Consequently, PayPal has learnt to manipulate its services in terms of price in an attempt of increasing the company’s profitability. The company charges a fixed fee for money in different brackets. Such include as US$ 35 for any transaction between US$ 1 and US$500 and US$ 55 for a transaction between USD$ 501-1500. The company claims that overseeing the transaction of large amounts of money is cheaper than for smaller amounts. Therefore, it charges more for larger amounts of money, which in turn increases its profitability. Likewise, the low charges on small transactions make the company retain that niche of clients who happen to be the majority as well. Local economy’s stage in the business cycle Local money transfers constitute the local market. The strong economy in the country has intensified monetary flow across states and cities as people settle their bills and expand their business. The local economy therefore forms the basis of operations for PayPal money transfer. The company will target families living far apart and parents sending money to their children in schools and colleges. The expansion of the company’s market will therefore depend on the reception of the service in the local market. As stated earlier, pricing affects the elasticity of any commercial organization. The service industries such as PayPal make their profits by charging a fee for their services. The transaction fee should not only sustain the operations of the company but also be profitable hence facilitating the growth of the company. PayPal has service fees that market the company’s services. The fee places the company as competitive. Besides, the company says that when looked at keenly, transactions involving large amounts of money are cheaper. The claim that clearing larger amounts is cheaper than clearing smaller amounts is a marketing strategy that positions the company’s services as competitive. Most people transfer smaller amounts but the illusion that a larger volume costs less convinces such clients thus sustaining the demand for the company’s services. This way, the company continues to make more profits (Kates, 2007). Effects of current credit market conditions The prevailing credit market conditions influences the operations of the infant company. The influx of money in an economy revamps various sectors in an economy thereby resulting in the growth of companies globally. The quantity of the transactions will affect both the marginal costs as well as the marginal revenue. Most of the transactions are of smaller amounts of money thereby earning the company more revenue. However, big companies such as eBay and Amazon transact using large amounts of money as they pay their suppliers. Such companies thus incur smaller operational costs. However, the amount is relatively equal to that incurred by those clearing smaller volumes after factoring in various operational variables and breaking it down to the respective suppliers. This way, the company increases their revenue while minimizing its marginal costs. This implies that the company’s revenue relies on its ability to woo more customers. A key non-pricing element that influences that company’s market is efficiency. This refers to the rapidity of the money transfers. Clients demand a fast yet secure money transfer mechanism. PayPal guarantees the rapidity of the money transfers often clearing the payments within hours. With such speed, the company faces security threat from hackers who strive to steal from the company’s customers. PayPal employs strong security measures in order to secure the money transfers. Additionally, the efficiency test of such services relies on its determination to prevent fraud and money laundering. To achieve this, the company accepts payment from established businesses and legitimate citizens with both physical addresses and identification documents only. This eases investigations thus making the payment mechanism secure and efficient. Reference Kates, S. (2007). Free Market Economics: An Introduction for the General Reader. Cheltenham: Edward Elgar Pub. Read More