What it will take for Webvan to make returns
Webvan is a Foster City based grocery firm, which intends to start using an online business model to carry out its activities of supplying groceries to its customers more profitably. To make returns by using the new online business model, the company will have to take practical approaches to solve some of its problems that it had experienced by using the earlier business model.
To make a return, the company will have to make sales higher than its break even point.
For the company to make a return, it will have to make annual sales in excess of $150.380 million (Ashiya & McAfee 2006). This can be achieved by carrying out the recommendations discussed below.
For the firm to make returns it should have a sound supply chain management team to administer its operations effectively and execute both their short term and long term growth goals. An effective management team will make well informed decisions regarding the operations of the supply chain and will greatly assist in to ensure that the logistically difficult processes that are involved in the supply chain’s operations run smoothly without any adverse cost altering effect. Such a management team will enable the supply chain develop strategic plans which enable it to control costs and improve profitability (Hines 2004).
The company should ensure that it effectively reaches its target market while at the same time seeking to bring more customer segments to its fold. The supply chain should seek to diversify from its original target market into new markets as internet usage increases and online shopping becomes more acceptable to a larger number of individuals. Webvan limited should carry out differentiation to make their products appealing to the customers (Halldorsson, Kotzab, Mikkola & Skjoett-Larsen 2007). Offering competitive prices to customers relative to those of other supply chain firms and supermarkets and offering higher quality for a specific price will give the firm a better competitive edge in the market. The company should also seek to create customer confidence. This will enable it develop into a visible brand and thus increase its market share. This will give the company an opportunity to increase its sales and its earnings.
The company should have a robust technological infrastructure to handle all sorts of traffic in online activities by the management other company employees and customers. Some activities such as scheduling deliveries, placing online orders and customer support are transacted online and it is therefore important that the company’s online infrastructure be robust to handle the transactions (Simchi-Levi, Kaminsky, & Simchi-Levi 2007).
The company should develop an attractive online customer interface to ensure that it attracts new customers and retains its old ones. The company’s website should be comprehensive yet easy to use and should offer potential customers all the options that are available from physical grocery store locations. The company should thus invest in developing an appropriate and user friendly website as a way of increasing its earnings (Hines 2004).
The company should also seek to improve its marketing strategies to increase awareness of its services and products to consumers. The marketing strategy should incorporate the elements previously not addressed in the earlier model and should seek to increase the market penetration of the supply chain to its old and new markets. Increased market share will enable the company develop its earnings capacity and ultimately lead to a higher return (Hines 2004).
Target market for Webvan
In the old business model, Webvan’s target market was women, particularly the soccer moms, two -income families with combined income of more than $75000 and little spare time. In the new business model, Webvan’s target market is families with school going children (Ashiya & McAfee 2006).
In the original business model, the Webvan Group delivered dry and perishable goods to consumers’ homes at competitive prices within a specified 30 minute window. Customers were able to place orders at any time, pay using credit cards and schedule delivery with a 30 minute window or extend it up to four days. In this model, there was no requirement for membership fees and the delivery was for free for orders of a value higher than $50, with orders of a smaller value carrying a surcharge of $4.95. This model posed a challenge in that it was making very small margins of between 1% and 1.5% on groceries. It also presented very challenging logistical problems. In the new model, the company will start a implementing a 60 minute delivery window to allow flexibility in planning the actual delivery. The minimum order value to qualify for a free delivery will be raised to $75. This is expected to increase the company’s margins substantially. The company also started a new program in its new model called Webvan@work which allowed the company to offer small to mid sized businesses delivery of basic office supplies and other products during the mid day lull in deliveries. It plans to use the program to offer careering services for employee meals and business meetings (Ashiya & McAfee 2006).
In the original model, the company marketed itself by lowering its prices by 5% than its competitors and using advertising to promote its products and services. The company spend substantial amounts on radio and newspaper advertising in attempts to build brand loyalty at a cost of about $200 million (Ashiya & McAfee 2006). In the new business model, the company plans to use television advertising in the area the company operates in. The objective of this advertising is to change the image of the company from a dot com company and focus on its delivery service while at the same time trying to fight off competition from groceries and packed food manufacturers. The company’s new target market is families with school going children, and in the new model, aggressive and creative marketing is intended to attract this new segment. It also offered coupons and instated loyalty programs as a means of retaining customers. In the new model, the company has entered into new marketing partnerships aimed at cutting costs across the supply chain.
In the new business model, the company forms strategic alliances with other firms such as online retailers and major consumer good companies. Some of these deals were fee based and enabled the company earn margins. Others enabled the company to share its promotional costs with its partners (Ashiya & McAfee 2006).
The element which is most attractive to customers is the 30 minute delivery window and the free delivery for orders exceeding a value of $50. This was in them original business model and it’s attractive to customers because it’s most convenient and cheap to customers. These good rems make this element of the initial business model most attractive to customers.
Activities Webvan performs in the physical world and in the digital world
Receiving materials from the suppliers of the company, done by the support staff of the grocery company is one of the activities that the company carries out in the physical world. Packaging of materials in the quantities to be supplied is carried out by the pickers who are the employees responsible for assembling orders being assisted by machines. Storage of the materials in a safe place with refrigeration facilities to await deliveries as per orders is also a physical activity. Delivery is also an activity done in the physical world and involves supplying the customers with what they have already requested through an order.
The company undertakes various activities through the use of internet and other electronic means. Orders from customers are received through the company’s website which relays the messages from their physical locations through the company’s website. Store keeping in Webvan is also through automated “SKU” software. Payments are also received through credit cards from the customers. Any complains arising from the supplies made can also be relayed to the company’s head office as online messages.
The activities in the digital world have a potential of consumer value creation. A customer can, through the use of online services, make an order specifying all the requirements for the product in terms of packaging and content. The business will therefore produce customized products for each customer and this creates additional consumer value. The online business model also enables the seller to keep in touch with their customers so that any complaint is relayed to the seller for correction. For the seller, this is an opportunity to reduce the mistakes in packaging and make the product more superior than that of competitors and with it comes the opportunity to increase the earnings of the business.
The digital domain clearly presents a greater potential for customer value creation than would be possible in the use of the traditional physical model. The digital domain presents an opportunity to reduce operational costs and increase customer service delivery and convenience. The domain of choice would therefore be the digital domain.
Ashiya, M. & McAfee, A. (2006). Webvan. Boston, MA: Harvard Business School.
Halldorsson, A., Kotzab, H., Mikkola, J. H. & Skjoett-Larsen, T. (2007). Complementary theories to supply chain management. Supply Chain Management: An International Journal, 12(4), 284-296.
Hines, T. (2004). Supply chain strategies: Customer driven and customer focused. Oxford: Elsevier.
Simchi-Levi D., Kaminsky P., & Simchi-Levi E. (2007). Designing and Managing the Supply Chain. (3rd ed.). New York, NY: McGraw Hill