IT Trends Assignment Internet Trends Selling Wine on the Internet

IT Trends Assignment 2 – Internet Trends Selling Wine on the Internet Lynda Bourne Director Casablanca Management P/L Student Number: 1019524 0408 556 917 lbourne@ozemail.com.au Lynda Bourne No: 1019524 10/10/02 1 IT Trends assignment 2 I declare that this assignment is based on my own work and that all material previously written or published in any source by any other person has been duly acknowledged in the assignment Lynda Bourne 27 November, 1999 Lynda Bourne No: 1019524 10/10/02 2 IT Trends assignment 2 Selling Wine on the Internet Introduction The Internet has come a long way from being a support tool for the education and research communities. Statistics reported in July 1999 indicate that more than 200 million people in over 11 language communities are using the Internet world wide, including 88 million non-English speakers. 1. The Booz Allen & Hamilton/Economist Intelligence Unit survey reports that respondents say the Internet will reshape the World marketplace by 2001, through reinventing and resurrecting commerce. Within the intense competition of the new marketplace, companies are transforming into extended enterprises, there is renewed focus on the customer and sales and brand management, and managing knowledge and adding business value are key to surviving the intense competition.2 The Booz Allen & Hamilton survey concentrated on large companies. Outside the Corporate world, the success of ‘legends’ such as Amazon.com and Dell Computer Corp show that it is possible to profit from the Internet revolution. But is it too late for small startup companies? Can they compete with the ‘big guys’ and the ‘legends’ both in traditional markets and through the Internet? This case study will focus on what an Australian startup company might have to do to successfully sell wine through the Internet. Firstly, I will look at how others have approached e-commerce –how some traditional companies have joined the online sales and marketing movement and then some examples of startup online 1 Australian Computer Society, It Trends Study Guide, 1999, module 3, p2. Booz Allen & Hamilton “Senior Executives say the Internet is transforming Global Business – regardless of Industry or Geography”. Quoted in: It Trends Study Guide 1999 Module 3 Lynda Bourne No: 1019524 10/10/02 3 IT Trends assignment 2 2 Wine sites. Then, based on data from this research, I will explore the process required to set up a new site. What can I learn from those already participating in e-commerce? Traditional, ‘bricks and mortar’ companies face a dilemma. The strong perception in the business community is that Companies must participate in e-commerce or miss out. They are moving their Web businesses from the traditional, accountant driven bottom-line world of shareholder value and quarterly financial reports to the world of Internet commerce start-ups. 3 Traditional ‘bricks and mortar’ companies are acquiring ‘Internet currency’, share or stocks in online companies, so they can operate in the same way as their Internet competitors, who are more focussed on increasing market share and revenue than making profits. The expectation is that the pay-off will come when doing business on the net is accepted as just another aspect of commerce. Coles Myer is such a company. When the Board and Senior Management team of Coles Myer visited Microsoft headquarters they learned that their main asset was their customer base. They also learned that a customer base is useless unless it is augmented by knowledge of a customer’s buying patterns.4 Through the customer data captured from the FlyBuys program and the discount for shareholders, Coles Myer now knows who buys at least half its turnover.5 They now leverage off this knowledge through special offers that focus on each customer’s preferences. The Coles Myer Website also offers opportunities to compare products and services, thus allowing the customer to browse electronically through a much wider range of merchandise that smaller online sites can offer. 3 4 Dalton, G., Wilder, C and Bacheldor, B, “The e-business Dilemma” , Information Week, November 8, 1999 p 24 Gottliebsen, R, “Coles Myer gets a glimpse of its future in the cyberspace-age”, www.brw.com.au, Quoted in: It Trends Study Guide 1999 Module 3 5 Ibid Lynda Bourne No: 1019524 10/10/02 4 IT Trends assignment 2 Coles Myer is diversifying into the online liquor retailing business. Coles now captures 15% of the liquor retailing market through outlets such as Vintage Cellars.6 They are also investing in Winepros an online wine site soon to be listed on the Stock Exchange. Winepros will derive revenue from two sources: • • Advertising on its site to be unveiled in February Commissions on traffic passing through it as transactions for the sale of wine and other products are made. Coles Myer is taking a seat on Board and its Vintage Cellars business will be the ‘preferred supplier’ for customers buying wine through the Winepros site.7 Coles Myer is an example of a traditional company that acquired ‘internet currency’ through various means, including expanding current operations to the Web as well as being part of an Internet startup company. Wine Planet, on the other hand, was launched last year, and has grown significantly in that time. As the first serious local online wine seller, it has been compared with amazon.com. Although online sales are not yet high enough to deliver a profit, its owners believe that the advantage of being first in the market it vital. They built on the concept of mail order wine sales, a concept that has been well accepted by Australian consumers, and just took the next step to online marketing and selling of wine and wine related products. Most online sales are to consumers, rather than to the Corporate world – the average price per bottle is around $15 and delivery is free. They have plans for a new magazine style format and international expansion in 2000.8 In studying how both traditional retailers like Coles Myer and new players like Wine Planet have established online wine sales, it is clear that the following issues are important in setting up a new site, irrespective of the size of the company: • 6 How do they find me Treadgold,T “Liquor Mouse dares to dance with elephants”, BRW , Nov 12, 1999 p78 Lynda Bourne No: 1019524 10/10/02 5 IT Trends assignment 2 • • • • • • • • How quickly can they access my site How long will they stay there What mix of graphics/text will I have What mix of information/sales/data gathering facilities will I offer How will I differentiate myself from the others How will I persuade the customer to buy What other goods/services can I sell or provide access to How can I put my customers at ease (privacy/security) The solutions to these questions are either technical or creative – some are both. For the purposes of this Case study, I will focus on the non-technical issues. While it is important to get technological issues such as response time, security support and inference engines right it is the creative, business enhancing activities that are key to success or failure of the Web site in my opinion. Issue Setting up the site - Establishment How do they find the site? – ‘Discovery’ How quickly can they find me? – ‘ease of navigation and speed of access’ How long will they stay there? Content – info, sales, related sites, interactivity Differentiation – repeat visits How can I put my customers at ease – Privacy, security Creative Technical √ √ √ √ √ √ √ √ √ √ √ 7 8 Evans, S. “Winepros eager to pluck net profits”, Australian Financial Review, Nov 17, 1999 p23 Nicholls, S. “Vintage Advantage”, The Australian, November, 27-28, 1999 p46 6 IT Trends assignment 2 Lynda Bourne No: 1019524 10/10/02 How can I sell my goods or services - Completing the transaction Using the data – Marketing and Sales, e-segmentation √ √ √ √ These are all-important questions, and ones that have to be carefully considered for any Business Plan or marketing strategy. What would I have to do to start up this company? 1. Establish a logical presence. Batstone suggests that the best way to startup an online company is to “sell a physical item and pick one that had a high lifetime value per customer,” a value that ensures recurring purchase 9. A site selling wine and associated products, information and services fits this category nicely. Batstone adds that the secret is to acquire customers cheaply and leverage their relationship by forming relationships with other entities in the wine business.10 For the purposes of wine sales online, the most obvious way to achieve this relationship is to establish a Wine Portal. A Portal is a Gateway to other Web sites or applications built around search engines.11 A prime example of a Portal is Yahoo!, “a collection of hyperlinks based loosely on the Dewey Decimal library catalogue system”.12 A Hub, on the other hand, is built around transaction capabilities – it often focuses on a specific subject.13 So, the Wine Portal will be primarily a Hub – supporting a community of interest built around wine – sales, information, news and events. The Wine Portal is planned to have hyperlinks to a number of the larger, well-known sites (Cellarmasters, WinePlanet. Dan Murphy’s etc). Reciprocity may be negotiated, so that their sites also have links back to The Wine Portal. Anything beyond the text hyperlink will incur a small cost. There is enormous 9 Batstone, D, “Micropayments” in Business 2.0 March 1999, p110 Ibid 11 Ballon, M Quoted in IT Trends Study Guide 1999 Module 3.11, p14 12 Montgomery, P. “Portals open the door for naviagatiors”, Image and Data Manager,May/June 1999 p12. Quoted in IT Trends Study Guide 1999 Module 3 13 Ballon, (op cit) 10 Lynda Bourne No: 1019524 10/10/02 7 IT Trends assignment 2 opportunity for adding value to text hyperlinks through graphics, inference engines etc. Small wineries or even Wine Regions will be offered the opportunity to improve their image online through this means. The next step is to choose a Business name and the name of the site. The site name should be memorable, unique and appropriate. The process of registering a Business name and the name of the Wine site may be the most expensive and time consuming of all (it could take a few weeks). 2. Establish a physical presence The requirements for a physical presence are minimal; there is no need for a Front office, and staff requirements should be minimal. Startup capital may be a different situation, however. There will be a need to support an intense telemarketing effort in the beginning, as well as the technical costs of establishing a Web site. After the establishment of the site, provision and delivery of goods is a little easier. The best solution is to make use of the concept of Negative working capital14 as illustrated by Dell Computer Corporation’s financial arrangements. In this model, the customer pays (by credit card) with the order; Dell pays its suppliers on invoice (received later). This is an ideal model for online companies with very little physical inventory, few overheads and minimal cash flow. Finally, a central distribution point to receive and ship the wine orders is a practical solution for The Wine Portal. This arrangement reduces the costs and effort of maintaining and managing inventory. 3. Discovery - How do my customers find me A search on Yahoo! for ‘wine’ resulted in 10,000 listings; ‘wine sales’ showed nearly 2 000 listings. Alta Vista has an established page that allows sites to be added. But to stand out from the crowd, a memorable, unique and appropriate site name is essential, as is creativity in advertisement of the Slywotsky, A. – How Digital is your company, www.fastcompany.com Quoted in: It Trends Study Guide 1999 Module 3 Lynda Bourne No: 1019524 10/10/02 8 IT Trends assignment 2 14 site and display of the site name. This is the reason why so much technical and creative effort must go into establishing a fully functional and fully linked Wine Portal. The startup phase must incorporate a strong marketing focus to target potential users of The Wine Portal, both from a content perspective and an access perspective. 4. Navigation and access Response time is important – potential customers will self-select to another site if the first one takes too long. Issues of load balancing, server utilisation etc are technical issues and must be addressed effectively. However, issues such as the balance between the creative aspects of ‘colour and movement’ and the practical considerations of navigation and access times, must be seriously considered.15 5. Content and differentiation In a survey of rival wine sites such as Cellarmasters and WinePlanet, a pattern starts to emerge of: • • • • • • special offers, wine tasting notes, special events, recruitment opportunities guarantees of product quality assurances of privacy and security. Differentiation, in the context of wine related products and services, will be challenging. Perhaps differentiation can be achieved through a flexible selection of products, or through recipes, tasting notes that accompany the price quotation, or even feature articles on winemakers. With the flexibility of approach and presentation offered through the Web, it is possible to try different 15 Creating a Business Model for E-commerce, www.cio.com, Quoted in: It Trends Study Guide 1999 Module 3 9 IT Trends assignment 2 Lynda Bourne No: 1019524 10/10/02 approaches. Data such as number of ‘hits’ on the site and actual sales data can monitor the effectiveness of different approaches. 6. Privacy and Security “Significant trust related issues are potential risks to the growth of electronic commerce. From concerns over privacy, authentication and security, to a perceived lack of network and information security in the technology area, to limits on encryption and absence of authentication standards in the public policy area, and to fears of opening systems to suppliers, procurers and customers in the internal business processes areas, the issue of trust emerges time and again as among the top obstacles to EC.” 16 Concerns about security of personal data and of financial transaction details have been reported as the main barriers to consumers making online transactions. Online companies should: • • • • Define both a privacy policy and a security policy and publish them prominently on the site Educate employees and associates on appropriate security practices Use technical means to guard against breaches of security eg audit trails, alarms etc Collaborate with suppliers and customers about supply chain security issues”17 7. Completing the Transaction There is often only one chance to persuade the customer to purchase, and the experience of that one transaction will affect whether or not the customer returns to the site. The focus here is to ensure that the transaction is a positive one, from the act of payment, through to speedy and accurate delivery. Whatever can streamline the transaction should be given high priority. How does the potential customer pay the seller for the goods or services? Unless some previous account/invoicing arrangements have been made, the only practical way to pay for the goods or 16 Sabo D., Electronic Commerce Barriers Survey Results, www.itaa.org Quoted in: It Trends Study Guide 1999 Module 3 17 Creating a Business Model fro E-commerce, www.cio.com. Quoted in: It Trends Study Guide 1999 Module 3 Lynda Bourne No: 1019524 10/10/02 10 IT Trends assignment 2 services is by credit card. The risk of this transaction is solely with the credit card owner. This situation emphasises the need for good security and privacy practices. The concept of eCash or micropayments may be appropriate for business-to-business commerce but impractical for business-to-consumer transactions, given the infrequent nature and the small size of the transactions. Negotiations on price, terms and/or conditions can be conducted through a ‘chat room’ arrangement, or by telephone or even e-mail, if time is not a consideration. Once terms and payment have been agreed, it is absolutely essential that the distribution process works well. There needs to be an efficient process in place and the ability to track the progress of each delivery. 8. Using the Customer Data E-segmentation -where customers provide essential marketing intelligence through their buying patterns or online feedback is a unique feature of e-commerce.18 This data and the data on ‘hits’ to the site and perhaps more detailed data of e-mail addresses is essential for marketing purposes. This data coupled with an inference engine to make recommendations for new purchases, based on previous buying patterns is an invaluable tool for encouraging repeat business at reduced cost of sales. With high involvement goods such as wine, real estate or cars, this technique works well.19 The data can also be used for special offers or bargains, once again based on the inference engine. Summary It is absolutely essential to focus on the creative and customer aspects of setting up a successful wine site today. Given that there are already many other wine sites to choose from, the customer service aspects will most likely be the deciding factor in the competitive arena of online wine sales. 18 19 Ibid www.jewelz.com Quoted in: It Trends Study Guide 1999 Module 3 11 IT Trends assignment 2 Lynda Bourne No: 1019524 10/10/02 Assuming that the technical development and support of the Web site is as good as the other sites, the differentiation will be in the personal touch, almost in the form os personal invitations to potential users and advertisers to participate in the site. The way small business does business will not radically change with e-commerce, it will just be easier to gain entry, but not necessarily easier to be successful. Lynda Bourne No: 1019524 10/10/02 12 IT Trends assignment 2