SQQP 5023
DECISION ANALYSIS
Individual Assignment 2: E-commerce
Submitted to:
DR. Martino Luis
Prepared by:
LILAMBIKHA RAJA VIKRAMAN VARMAN (820275)
Date of Submission: 29th July 2017
1. Introduce briefly the Company business background
Pay Pal was found in 1998 by Max Levchin an online security specialist and Peter Thiel,
a hedge fund manager. The company was originally known as Field Link. PayPal was
then launched in October 1999 with 6 employees. PayPal surged from 12,000 accounts
to 2.7 million between January and August 2000. In 2002 PayPal acquired eBay, where
its their main strong account. PayPal also supports payments in 19 currencies.
2. Explain the Company e-Business Strategy
PayPal must provide value to customers and merchants continually integrate and expand
its customer base, therefore these are the e-Business strategy that it came up with.
Grow our active account base: There are two types of accounts which are personal, and
business accounts. Through PayPals business model, they have adopted an aggressive
marketing campaign between 1999-2000 by depositing $10 into new users account and
$10 for new users which they recruit. In this way users will be motivated to keep their
account active.
Increase customer engagement: Pay Pal has always come with new strategies to keep
their customer engaged. Quite recently, PayPal and Facebook have expanded their
partnership to ensure ease for PayPal customers to link Facebook and Messenger with their
PayPal account. Moreover, they have made PayPal as their main payment platform for
wide range of shopping features in Facebook. In one of the deal, PayPals Braintree
collaborated with Facebook and Uber in December 2015, where customers can make
payment for their trips made in Uber through Messenger.
Increase merchant adoption of solutions:
With emerging payment platforms and constantly changing new technologies in the current
market, a merchant acquirer has to keep looking forward in way of adopting these
solutions. They have to constantly research on how customers accept these technologies.
Offering various payment technologies will attract more merchants. They have to ensure
there are no disruptions while customers use their platform; therefore they have to evaluate
and choose the best option and solution for them
Expand globally: PayPal has done various innovation in order to expand its business
globally. One of it is through PayPals One Touch., which is one of PayPals product that
has been quickly accepted by 22 million customers. It is available in all markets PayPal
operates in. One Touch is an expansion of PayPal, where payments can be done across the
web, in which customers can easily checkout from a merchants website without having the
need to enter their user ID and password again and again. This has expanded globally where
over 50% merchants have One Touch enabled.
Drive innovation to launch new services: PayPal has constantly kept up with their work of
progress in innovation of new services, from the usage of computers up to clicks away
through mobile phone. In example they have Braintree payment, a mobile payment system
which is a payment processing and software integration, that quickly sets up and assist in
fast check out.
Equip developers with best tools: By creatively brainstorming and welcoming ideas of
developers to innovate new features that would be easier, faster, and also secure for
customers and merchants. To provide the best they are equipped with best tools to ensure
there are no disruptions while development of product or services.
Leverage and extend risk management: PayPal has increased revenue over the years as
they keep up with their innovation and security of services. They have their best risk
management team that analyzes capital investment, margin expansion and find new ways to
keep the users secure, engaged and delighted.
3. (a) Select one of the Companys products or family products and analyze the demand
pattern for that product.
The core product that i choose to study is Mobile Wallet. Digital wallets are a trendy
payment innovation, where customers can simply manage their daily lives easily by paying
and transferring money through their Smartphone. PayPal has given a great customer
experience that eventually increased the purchase conversions. The digital wallet is currently
in its development stage where it is going through slow adoption. From my point of view,
this Digital Wallet uses a combination of two demand pattern which is a Trend and a
Seasonal pattern. Reason being, mobile wallet is still new in the market and the demand can
be due to the sale season, yet the demand of the product will increase in the near future due to
constant innovation and convenience of purchasing which is expected by customers.
Previously, it was slow as the Mobile Wallet was new to the market and once it has
introduced a secure and convenient payment within a click away through Smartphone, the
demand has increased in years. Moreover, since there are sales that occur online in e-
commerce websites like e-Bay and etc, the demand pattern of customers usage gives a
seasonal pattern. In example, during Christmas or New Year online sales or year end
discounts.
(b) Is the demand affected by seasonality pattern? If yes, do you think that the
Company should filter out the seasonality pattern? If no, do you think the seasonality
pattern is an obstacle for the company to forecast the demand?
The demand is affected by seasonality pattern in a way, where it increases perhaps due to the
increase of sales during festive seasons, or any discounted periods. The company should
filter its seasonality pattern. Reason why, because if the pattern is seasonal then the demand
will only increase during festive or holiday season, unlike having a constant Trend demand.
The Seasonal pattern is somewhat an obstacle for PayPal to forecast its demand, knowing the
demand pattern will be easier for an organization to forecast in the future. The obstacle that
could affect PayPal is it will be a little unproductive in terms of capacity, fixed costs. On the
other hand, it might cost and excess of the promotions and marketing of the firm. This will
affect the business and its organization is some way including its profitability. So when the
pattern is seasonal it will be periodic and repetitive which will be bit difficult to forecast in
certain ways.
4. Discuss some benefits for the Company to use forecasting to support their future
business strategy?
There are various benefits for PayPal to use forecasting to support its future business
strategy. Firstly, it will assist the firm to predict the future, where you will be able to get a
general idea on the business pattern in the coming years. This will also give a path for the
company. Secondly, PayPal will be able to predict on the demand of customers in order to
fulfill their orders accordingly. Thirdly, to avoid mistakes that might have occurred in the
past, the future could be predicted for a better business perspective. Next, it will assist PayPal
to perform an improvised financial planning, where it helps in managing the finances better.
Fifth benefit is, forecasting will give the organization and improved staffing. This is because,
when you are predicting or assuming, it will be easier to manage the amount of staffs needed
for the demands accordingly. Other than that, the production management will be enhanced.
In example, PayPal will be able to use Just-In-Time (JIT) methods to schedule their
production according to the expected sales or delivery needs which will eventually reduce the
carrying cost of its inventory.
5. (a) Discuss the advantages of the quantitative techniques (such as time series and
regression methods) for forecasting have over qualitative techniques
Qualitative techniques such as time series methods and regression methods, uses historical
data or the development of associate model in order to perform a forecast, where it
comprises of analyzing objective or hard data. The functional or positivist paradigm that
guides the quantitative mode of inquiry is based on the assumption that social reality has an
objective ontological structure and that individuals are responding agents to this objective
environment (Morgan & Smircich, 1980). Quantitative research involves counting and
measuring of events and performing the statistical analysis of a body of numerical data
(Smith, 1988). There will be an objective truth behind this assumption using quantitative
methods, where this technique is also reliable and valid. According to (Frankfort-Nachmias
& Nachmias, 1992), quantitative technique formulates the research hypotheses and then
authenticates it on a given set of date. Moreover, it clearly states its both dependent and
independent variable that is under the research. It is more authentic due to its controlled
observations, analysis and research. Other than that, unlike qualitative technique, this
method removes minimizes judgments. Apart from that, time series will be able to forecast
according to the Time factor, where it aids for short range and sometimes for long range
forecasting. Regression on the other hand, helps to measure the relationship of one variable
to another variable.
(b) What limitations do quantitative techniques have?
The limitation of quantitative technique is it involves external factors which can vary the
forecast. Moreover, using this technique is very time consuming and expensive. Other than
that, it can also lead to inaccuracy of forecasts. Another limitation is improper data sources
in terms of target population, which will lead to miscalculation. Next is lack of resources
for collection of data.
6. Based on Question No. 5, analyze which forecasting methods that the Company
should adopt to estimate sale, demands or productions in the future
In my opinion, I think that PayPal should use both qualitative and quantitative techniques
for their business, as they can give powerful forecast in their own individual way by using
different approaches. PayPal should focus on quantitative method rather than qualitative
method. Qualitative is very useful as it uses creative thinking and method such as mind-
mapping and conversation analysis. The approach has been less intuitive in some ways, yet
it has improved in recent years through tools like computer. This method allows PayPal to
research on details of human behavior and their emotions, and also characteristics which
quantitative methods cant do. Through analyzing the behaviors of users, their expectation,
needs and routines, it will help PayPal to design a product accordingly.
PayPal has to use quantitative techniques more compared to qualitative, because it gives a
numerical prediction which can be more accurate. On the other hand, it will be easier to use
the historical data to perform statistical test like mean and median to provide certain
statements. These statistical tests allow us to obtain important facts and predictions.
Moreover, the data that has been collected by PayPal would be more descriptive, valid and
reliable.
7. (a) What are some factors that make forecasting at the Company challenging
Based on my studies, there are various challenges that make forecasting in PayPal
challenging. One of the factors is, regardless of micro or macro, there is only much that can
forecast by the Head of Research of PayPal, due to the irregular behavior of customers. The
base of customers are very expansive, therefore the buying criteria are also wide based on
different regions. Besides that, there might be some quantitative uncertainty of the accuracy
of the historical data on new customers and also the seasonal demand patterns. Another
challenge of PayPal might be on determining the independent variables due to large base of
customer that it has. Besides that, PayPal might have challenges on forecasting its new
products or services, as it depends on its lifecycle. Another challenge might be the sales
volume in which quantitative and qualitative has to work hand in hand. Next, would be the
challenge of forecasting promotion demand, as it is not feasible and accurate to forecast on
the promotions based on past sales data. Another challenge that PayPal might have is lack
of common forecasting tools or methodologies, as different managers think differently,
where there would be no common forecasting model. It is not easy to capture managers
forecasts, as the assumptions are based on their own comprehension and perspective.
(b) In your opinion, should the Company set some rules to manage their online
demand?
In my opinion PayPal should set some rules to manage the online demand due to its demand
pattern which is a combination of Trend and Seasonality pattern. Reason being, it will be a
guidance to forecast on the stocks according to the demand and supply. Another reason to in
setting rules is due to cyber security which PayPal provides. This is crucial as consumers
need a secured platform to have a great customer experience. Moreover, rules are needed to
be able to invest in promotions and advertising according to the business demand. Other
than that, rules has to be set to avoid service disruption in PayPal website, where their apps
and interface has to strictly use friendly. Moreover, government regulation and policies, is
required for PayPal to set rules in order o control and manage their demand accordingly to
avoid any dispute.
8. In forecasting, it is known that forecasting results associate with forecast errors.
Discuss some implications of forecast errors which impact to the Companys demand.
The errors which are presented during the demand forecasts will impact on PayPals
reliability. The main area that will be in impact is the supply chain, where it affects the
inventory costs and shortages, which will give a large impact on its product supply and
demand. The forecast errors impact on PayPal can be divided into three categories: planning
impacts, capacity impacts, and inventory impacts. The planning impacts will give
difficulties in scheduling the product demand and supply, which leads to instability. On the
other hand, the capacity impacts leads to lost capacity and also uneconomical use of
capacity, as the accuracy are unknown. Besides that, inventory impacts have high chances to
cause PayPal to have excess inventory that will increase the holding costs. Moreover, it will
lead to obsolescence in the long period of time. Next this will give great impact on the
margin and also lead to lost of sales cost. All these impacts will directly and indirectly
impact PayPals demand as well as their service level.
9. Would it be useful to use judgmental/ Qualitative forecasting techniques (such as the
Delphi method) to predict the future sales or productions in the Company. Please
justify your answers
Qualitative forecasting techniques are useful to predict future sales when there are very less
historical data available. Generally expert opinions are used for systematic prediction, in
example for sales of new product, environment, and technology. The Delphi method can be
very useful as the responses from survey can be made at their convenience, and it is free of
social pressure, influence and dominance of individual. This will aid in independent
thinking which will lead to reliable judgment of the results of forecast. Moreover, opinions
from a number of experts will be used to predict on the sales, based on their experience and
expertise. Besides that, this research method is inexpensive compared to the others. Other
than that, the participants can remain anonymous yet still participate in forecasting the sales
of productions of PayPal.
10. Discuss the differences on forecasting techniques of a conventional bricks and
Mortar to an online operation?
Forecasting is base used for business in order to reduce risk for operations to smoothly.
Conventional businesses which is also known as bricks and mortar will be able to forecast
their inventory management and supply chain, as they can physically and manually count
the stocks and predict the demand and restock accordingly. Online business can easily
forecast within few clicks away, as they will automatically be updated with the stocks,
therefore the quantitative measures are faster and more efficient.
On the other hand, quantitative and quantitative measurement of forecasting for online
business is useful for seasonal promotion and discounts, as it will be easier to view on the
view list, wish list and total purchase of particular products to predict for future business in
demands and the needed supply. As for bricks and mortar business, forecasting is a little
hard, since the business doesnt know on the time and amount of crowd which will be
coming in to buy or just do window shopping.
Apart from that, customer database of past history which is the quantitative forecasting is
easier and faster for online business rather than conventional business which might use
qualitative technique. As the database is available, forecasting on sales, economics, and
demand can be determined in a speed way for e-commerce business compared to
conventional business.
Certain business lines also affect the forecasting technique of both the business types. In
example to buy a car, one has to go through the brochures and price range yet they still
have to physically go to the car showroom to test drive to purchase a car. Therefore, the
subjective and objective technique from experts predicts the economical fluctuation and
forecasts the conventional business accordingly.
Finally, business people regardless of online or conventional business will be forecasting
based on the technological advancement. As the technology grows, businesses done
through e-commerce can forecast qualitatively and also quantitatively on their future
business, as consumers gets advanced and updated along the technological growth,
therefore convenience and speed and reliability comes first hand priority. Therefore,
qualitative forecasting on consumers behavior, preference and demands through surveys,
and views of experts are crucial in prediction of future business.
11. Provide the website or link of your chosen company.
[Link]
References
[Link]
digital-wallets
[Link]
gen/na-payment-survey/pdfs/Accenture-Digital-Payments-Survey-North-America-
[Link]
[Link]
more-than-30-this
[Link]
[Link]
[Link]
[Link]
[Link]
[Link]
Appendix
Forecast of PayPal