Dixons Retail Group e-commerce - Assignment Example

?Introduction Dixons Retail Group is among Europe’s leading specialist electric retailer and services company that sells consumer electronics, photographic equipment, domestic appliances, personal computers, communication products and related services. As at the June 2011, the company was trading through over 1,200 stores and online in 28 European countries (Dixons Retail, 2011). In 2011, the group employed 38,000 people and reported a turnover UK ?8,154.4 million. Dixons Retail Group is operates under four divisions split geographically. These divisions, arranged according to their contribution to the overall group in terms of revenue in descending order are UK & Ireland, Nordics, Other International and Pure play e-commerce respectively. Dixons Retail Group’s pure play e-commerce division contributed 16% of its total sales in 2011 which outlines its significance to the Group’s overall performance. The pure play e-commerce division comprises of PIXmania and dixons.co.uk. This report is specifically focused on dixons.co.uk which targets the UK and Ireland customer segments alongside the multi-channel brands of currys.co.uk and pcworld.co.uk. Market Analysis According to Aaker (2007) market analysis can be viewed at through seven dimensions: market size, market growth rate, market profitability, industry cost structure, distribution channels, market trends and key success factors. I. Market Size The market size for electrical retail products and services is big globally. In 2009 the top 53 ‘hardlines’ and leisure goods retailers – wherein electrical retailers fall – made average retail sales of US $ 10,842 million as compared to US $ 10,300 by the top 56 companies in 2008 (Deloitte, 2011). In the same report Best Buy, a specialist electrical retailer, was ranked 17 among the top 250 retail companies in the world. II. Market Growth Rate In Europe’s retail sector, the electrical retail industry has been the hardest hit firstly by the economic policies within Europe and the UK aimed at reducing budget deficits rather than stimulating growth and secondly by discretionary consumer spending (Gordon, 2011). Worse still, with value added tax (VAT) to go up in the UK, consumer spending will only go lower implying a similarly low to modest at best market growth rate (Deloitte, 2011). III. Market Profitability This is largely determined by the five forces identified by Porter (2008) as: power of buyers, power of suppliers, threat of new entrants, threat of substitutes and competitor rivalry. These are looked at in detail in the micro-environment section below. However, market profitability is low here because of intense competitor rivalry, strong buyers, high threat of substitutes and moderate threat of entry. IV. Industry Cost Structure According to Goldmanis et al. (2009) the introduction of e-commerce into an industry results in the shrinking and sometimes exit of high-cost firms and a shift in market share to low-cost firms, and with some additional assumptions about the firm type and consumer search cost distributions, a drop in the number of producers as well. Of the ten cost drivers related to value chain activities identified by (Porter, 1998) Primark derives its cost advantage largely from four: its vertical integration, economies of scale from the Group, capacity utilisation and learning. V. Distribution Channel Dixons.co.uk leverages the centralised supply chain and distribution network of the Group’s physical stores. At Newark the company operates one of Europe’s largest distribution centres. Another Regional Distribution Centre (RDC) is located at Bristol to supply goods to all South/South west UK branches of Dixons Retail Group (Dixons Retail, 2011). Using the Group’s warehouse makes dixons.co.uk cost to serve relatively low (Chiles & Dau, 2005). VI. Market Trends Online retail industry is still largely in a state of flux due a range of factors. Firstly, the technology platform on which online retailing is based is still undergoing rapid change such as 3D virtual technology. Secondly, with increased use of Web 2.0 tools customers want to engage in product reviews, and social networking as they shop. Thirdly, the rise of apps over web pages due to increased use of smartphones and tablets will necessitate redesigning of online retail sales channels. Finally, as e-commerce matures it also attracts extra legislation such as introduction of sales tax (Heller, 2011). VII. Key Success Factors From the above market analysis the key success factors for dixons.co.uk are four: (1) economies of scale to sustain its low-cost strategy; (2) leveraging of the Dixons Group’s distribution channel to help keep its operation costs low; and (3) investment in online technologies to keep up with the changing consumer demands. Infrastructure According to Chaffey (2009) e-business infrastructure consists of five layers: applications layer, systems software layer, network layer, storage layer and data layer. To give a more detailed analysis of dixons.co.uk’s e-business infrastructure requires more detailed information from the organisation. However, given that one can do shopping on the website, we expect there to be a web-based ordering system, e-mail confirmation of sales, robust database management system to store details of products as well as registered customers, and some data mining tools for collecting and analysing different kinds of metrics that are relevant to the business. As an e-commerce website, dixons.co.uk inherently faces three types of risks: security of customer data, consistency in order-fulfilment and accuracy in inventory management. Security risk arises because the company will have to store various forms of customer data such as contacts, purchasing habits and credit card records. The company will therefore have to invest in staff security awareness training and security technologies. With regards to order fulfilment, dixons.co.uk must ensure that it has the right processes in place that guarantees the customer receives what she ordered for in the right state, at the right location and at the right time. An effective and efficient order fulfilment process will save the company time and resources spent in handling returns and complaints. Finally, inventory management is important because it supports distribution and order fulfilment. However, the risk to be highlighted here is the synchronisation between the items advertised on the website and the actual items available in the company’s warehouses. Consumer confidence can easily be lost in instances where customers order for a product that is no longer available at the company’s warehouse yet it is displayed on the website. A critical look at the above risks informs us that security of customer data, consistency in order-fulfilment and accuracy in inventory management are market qualifying factors in e-commerce. Hill’s methodology on marketing strategy define qualifying factors as those factors that a business must fulfil in order to be considered for business by customers (Greasley, 2008). According to Hill dixons.co.uk’s performance with regards to securing customer data, consistency in order-fulfilment and accuracy in inventory management must be at a certain level in order to gain business from customers. If the industry level with regards to these risks is not met the e-commerce organisation may quickly find itself out of business. Micro and Macro environment Macro-environment I. Social A report by eMarketer (2010) stated that in the UK more than 44 million people were online in 2010 and around 70% of households had broadband and the numbers are expected to grow in the coming years. Also, males were the dominant internet users. These two traits are favourable for electrical retailers given that males are the major consumers of electrical products and services. Secondly, according to Datamonitor (2010) the 35 – 44 year demography are the dominant online shoppers. This is good for retailers in the short term considering the rising unemployment among the lower age group. Thirdly, even though the online electrical retail industry’s growth has been slowing down, eMarketer (2010) predicts more seniors going online and this creates a possible new market segment. Finally, the current credit squeeze in the UK economy is good for online retailers because they have gained the market positioning of being more price friendly in comparison to physical stores (Datamonitor, 2010). II. Legal, ethical and taxation Growth of e-commerce has seen a similar rise in different legislations to protect both businesses and consumers. Chaffey (2009) outlined eight areas of law which online companies need to be concerned with such as laws concerned with electronic contracts, authenticating online contracts, making and accepting payments, advertising on the Internet, data protection and protecting intellectual property. Taxation has been one of the trickier parts for e-commerce to grapple especially where products are bought from one country to another. However, given that dixons.co.uk operates only in the UK and Ireland, the problem of tax jurisdiction will not be a major challenge to this organisation. III. Economic The impact of the recession of 2008 and UK’s current struggling economy to the electrical retail and services industry is two-fold. Firstly, consumers have changed their spending habits to be more discretionary. This means that the industry will experience lower sales that could adversely affect their cash flows needed for day-to-day operations. According to Gordon (2011) the electrical retail industry has been the hardest hit retail sector by the double recession. Secondly, investor confidence is also low. This affects the costs of capital as well as sources of liquidity that shall be available to retailers. This will limit investment in capital intensive projects that may be important for developing new competencies. IV. Political According to Chaffey (2009), the political environment is shaped by the interplay of government agencies, public opinion and consumer pressure groups. However, most of the political factors that would affect dixons.co.uk will come in form of any of the factors that have been discussed above, which is as legislation, taxation or economic factor. V. Technological Jones and Marsden (2006) predicted mobile Web access as the next big thing for both mobile devices specifically and Web services in general. This trend is being supported by the increased affordability and variety of mobile devices that offer Web access on the go. The challenge brought about by the mobile Web is that these devices demand a different viewing experience from the conventional desktop and laptop. For starters there user interfaces and screens are smaller, which implies use of micro-browsers. This implies that companies engaged in e-commerce have to design multiple versions that shall seamlessly integrate with the different user devices. Secondly, with increased adoption of Web 2.0 technologies such as social networking, video on demand, blogging and virtual realities among consumers, e-commerce businesses will also have to incorporate these tools to keep up with their consumers. Micro-environment I. Customers Online consumers have increased bargaining power over sellers because of the ease with which they can access information from industry rivals (Porter, 2001). According to Datamonitor (2010) price is still a major reason why customers shop online and over the internet it is easy and cheap to scan a variety of offers because of search engines and price comparison websites. In addition to this, the Internet has led to the emergence of a range of consumer types with rapidly changing behaviours. This makes it laborious for organisations to accurately target their online value proposition across the range of consumer types. II. Suppliers Dixons.co.uk is part of the Dixons Retail Group, one of Europe’s leading specialist electric retailer and services company. The e-commerce business therefore leverages the economies of scale of its parent company to gain bargaining power over suppliers. This is more so for the UK where Dixons Retail Group has the leading market share. Therefore supplier power is low to moderate at best. III. Competitors In the physical electrical specialty stores arena, Dixons Retail’s major rival was Kesa Electricals that owns Comet brand which offers direct competition to dixons.co.uk. Both organisations online businesses have largely benefited from the brand image of their brick-and-mortar strategic business units (SBU) to win over consumers. However, according to the UK electrical retail market has proved to be too small for many big players with Kesa Electrical’s announcing plans to dispose of loss-making Comet and Carphone Warehouse closing all its Best Buy shops in the UK (Gordon, 2011; BBC, 2011). However, Dixons.co.uk still faces competition from the numerous fronts. First, there are the non-specialty e-commerce sites such as ebay.co.uk, amazon.co.uk. Then there are the small specialist brick-and-mortar retailers and the non-specialist retailers such as Tesco Stores. Finally, given that dixons.co.uk is operated as a separate entity, it also competes against other SBUs from the Group: Currys and PC World. IV. Intermediaries Intermediaries are very important in e-commerce, given that they could influence consumer traffic for example when a customer types on the browser search bar for a given product. The intermediaries that have the biggest impact on the dixons.co.uk’s industry are: marketplace/auction sites such as eBay; price comparison sites such as moneysupermarket.com; horizontal portals such as Yahoo; and search engines such as Google. According to Chaffey (2009) in 2008 eBay, Yahoo, Google and Moneysupermarket.com were received among the highest Internet traffic in the UK. Dixons.co.uk must develop strategies to utilise one or more of these intermediaries to increase its web presence and customer traffic. E-Business Strategy Dixons Retail Group’s corporate strategy has over the years been organisational growth. The Group achieved this over the years through related diversification and international growth. Related diversification has been characterised by its numerous acquisitions that moved it from being primarily a photography and camera and accessories retailer in the UK to its current state of being a broad electrical products and services retailer in Europe. The Group identified the Internet as an important channel to expand its opportunities and launched several multi-channel sites for its stores such as currys.co.uk and pcworld.co.uk. However, the Group identified that with the changes in society there is a particular set of customers who prefer to be served wholly online and a particular set of products that can best be served without the need for physical assets. For this reason the Group started a pure play e-commerce division that consist of PIXmania that serves Europe and dixons.co.uk that serves UK and Ireland (Dixons Retail, 2011). The Group’s e-business strategy is therefore focused on sell-side e-commerce. As a pure play business dixons.co.uk competes on price and hence pursues cost leadership as a generic strategy. Dixons.co.uk sustains its low-price strategy with a low-cost base by leveraging on the Group’s resources. For example its orders are fulfilled by the Group’s main UK & Ireland main warehouse at Newark, the Group’s staff training and development initiatives and the centralised supply chain management system (Dixons Retail, 2011). Also, in line with the Group’s corporate strategy of organisation growth, dixons.co.uk e-business strategy reflects a market development strategy. Here too, dixons.co.uk leverages the Group’s core competencies in selling electrical products and services to exploit the “new” online market segment. Supply Chain Management According to Chiles and Dau (2005) before deciding which specific activities will be employed by a company to improve supply chain performance, one must first determine what type of supply chain is appropriate for a company's products. Dixons.co.uk deals in functional products that have predictable demand and typically low-margins thus its supply chain design is focused on improving efficiency, reducing cost, and reducing inventory. This is in line with its low-price generic strategy that demands achieving low cost operations. Dixons.co.uk relies on the Group’s supply chain infrastructure. In 2005, Dixons reviewed its supply chain and distribution network from a National Distribution Centre, a Large Goods Hub, and 18 Local Distribution Centres scattered around the UK and Ireland into a more centralised system in two locations, Newark and Bristol. At Newark the company set up one of Europe’s largest distribution centres to house Regional Distribution Centre (RDC) and Small Products Warehouse for its store network and a Customer Home Delivery Centre for the Home Delivery network (Dixons Retail, 2007). Newark is the primary branch, and it supplies North of the UK, and slow moving goods to the entire UK Electricals branch network, either directly or via transhipment and cross-docking through the Bristol RDC. At Bristol the company set up its secondary RDC which supplies goods for all South/South west UK branches. According to Chiles and Dau (2005) reducing the number of internal facilities in the supply chain, from 20 to two in Dixons case, and supporting direct distribution helps improve statistical economies and economies of scale by facility. These economies of scale are reflected as low-cost which eventually supports the e-business’ low-price strategy. E-procurement Dixons uses an on-demand Web-based e-procurement known as web3 developed by Wax Digital. The system allows electronic exchange of invoices and orders. Also the system has been integrated with the Group’s SAP enterprise resource planning implementation (Wax Digital, 2012). Wax Digital web3 covers all the Dixons Retail Group’s UK network of businesses and stores. Some of the benefits of this system have been: (1) the electronic matching of invoices against approved purchase orders which according to Turbman et al. (2006) enhances budgetary control; (2) improved information management through centralisation of data because the system is provisioned via the Web; (3) as an on-demand system the company only pays as for what it uses, when it uses it. The major risk that arises from using Wax Digital’s web3 is that Dixons may lose out on good deals from suppliers who are inexperienced in working with e-procurement systems. This may be more so for SMEs since they do not have the resources to invest in such technologies by themselves. Marketing Communication Dixons.co.uk market communication is not effective. A lot of essential components are missing. First of all, it does not have its own unique customer acquisition technique separate from the Group’s. The site appears to be reliant on the strengths of Dixons Retail Group (in Appendix A), brand image and consumer base, as its primary customer acquisition strategy. According to the Annual Report for 2010/11 one of the main reasons for establishing the pure play dixons.co.uk was to enable management to understand and compete in the pure play electrical retail section of the market (Dixons Retail, 2011). For this reason, dixons.co.uk needs to have its own unique customer acquisition strategy. Secondly, there is no clear online value proposition. The proposition given is “low, low prices on premium brand appliances” and “free standard delivery on all products” (Dixons, 2012). The former is too broad to be a value proposition. For example one cannot tell either what is implied by low, low price or what a premium brand is. It would have been better to use a percentage such as prices reduced by up to 20 per cent. Nevertheless, the second statement on free delivery is a good value proposition because it leaves no room for ambiguity. On a positive note, dixons.co.uk’s website has incorporated the “6 I’s” of e-marketing that differentiates new media from traditional media namely: (1) interactivity via its “Get Satisfaction community”; (2) intelligence and individualisation – achieved once customer signs up for an account when making a purchase, subscribing for newsletter or contacting customer support; (3) integration of marketing communications such as twitter, e-mail and telephone; (4) industry restructuring and independence of location (Chaffey, 2009). Customer Relationship Management (CRM) As Chaffey (2009) stated, CRM typically is used to refer to customer retention and extension activities rather than the whole customer cycle, which should be the case. This section shall borrow that approach and focus on these two activities. Customer retention focuses on identifying individual needs and matching them with relevant offering in order to keep existing customers whereas customer extension refers to increasing the range of products that a customer purchases from the organisation. In e-business, the former requires tools that can isolate individual customer preferences while the latter needs tools that encourage customers to make other purchases. Dixons.co.uk ensures that it captures customer data whenever a purchase is made, an enquiry through its customer service or signing up to its deals newsletter. All these activities require the user to create an account with the company. Once user has an account her purchasing habits, enquiries and contributions to the “Get Satisfied Community” are recorded and can easily be used to personalise offerings to the customer’s taste. Opportunities for cross-selling and upselling are initiated through targeted e-mail offers and the general newsletter. The community also offers a great platform for customer extension. For this reason dixons.co.uk should use tactics to keep the “Get Satisfied Community” active. E-Business Service Optimization In order for dixons.co.uk to make the most of its investment, the company will need to achieve an optimal balance between website traffic and conversion rate. A balance is necessary because neither high-traffic with low conversion nor high conversion with low traffic is good for business. E-business service optimisation seeks to increase both website traffic and conversion rate so as to generate more orders and sales leads. For dixons.co.uk we shall use Google Analytics and Google Ad words to achieve these two objectives. Google Analytics provides businesses with the ability to measure the effectiveness of their websites from impact of design, to importance of navigation to the relevance of use of specific words as major traffic generators (keywords). Under Google Analytics there are five broad categories: visitors, traffic sources, content, goals and e-commerce (Google, 2008). Visitors’ category allows the business to study the behavior of people when they are on the company’s website. Traffic sources group informs the company of the best place to focus its online marketing and advertising. Content group enables the company maximize on its search engine optimization. Monitoring goal conversions enables the company to measure how well the site contributes to its business objectives. Lastly, the e-commerce section contains reports on merchandising and revenue. However, all these categories only provide the company with data. For actual business intelligence, Google Analytics enables the company cross-reference data obtained in the categories, compare timelines or even compare two metrics against each other in order to make sense out of the data (Clicksharpmarketing, 2008). Moreover the derived summaries could be presented in diagrammatic representations and even be shared throughout the organization through email in different formats such as PDF or XML. Recommendations From this report’s analysis the following recommendations are made: I. Dixons.co.uk needs to consider using the services of intermediaries to drive traffic to its website as a customer acquisition tactic. It is understandable that Dixons being a well-known brand in the UK it is wary of its name appearing just anywhere on the internet. Dixons.co.uk could prevent this from happening by being selective when picking the affiliates that they feel is brand-appropriate and that cover the right demographic. II. Dixons.co.uk must seek to create an unambiguous online value proposition. As it is one cannot make a distinction between the site’s offerings with currys.co.uk, pcworld.co.uk and the brick-and-mortar Dixons Retail stores. A SWOT analysis of the business in Appendix A provides possible avenues for creating such value propositions. Examples include introducing Internet-only products and services or through web-based value addition. III. Although dixons.co.uk has a community portal, it has under-exploited the potential of social networks. A research conducted by Testify Digital (2012) found that Dixons Retail Group had 3,247 followers in Twitter, 1,245 people in its Get Satisfaction community and an inactive Facebook page that directed people to Currys PC World Facebook page. These numbers are too small for a company that is by far the market leader in UK and Ireland electrical retail industry. This is symptomatic of the company not taking a keen interest on its social media presence. References Aaker, D. (2007). Strategic Marketing Management. 8th Ed. New York: John Wiley & Sons. BBC (2011). Carphone Warehouse to close all 11 Best Buy shops. [Online]. 7 November 2011. BBC News. Available from: http://www.bbc.co.uk/news/business-15616445. [Accessed: 8 March 2012]. Chaffey, D. (2009). E-Business and E-Commerce Management: Strategy, Implementation and Practice. 4th Ed. London: Prentice Hall. Chiles, C.R. & Dau, M.T. (2005). An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and Amazon.com. Cambridge, MA: Massachusetts Institute of Technology. Clicksharpmarketing (2008). Google Analytics for Business Intelligence. [Online Video]. 3 April 2008. Available from: http://www.youtube.com/watch?v=Of3uc2Aum-o. [Accessed: 23 January 2012]. Datamonitor (2010). UK e-Retail 2010. London: The Datamonitor Group. Deloitte (2011). Leaving home: Global Powers of Retailing 2011. Dixons (2012). Low Prices on TVs, Cameras, Washing Machines, Fridge Freezers and more. [Online]. 9 March 2012. Dixons. Available from: http://www.dixons.co.uk/gbuk/s/home.html. [Accessed: 9 March 2012]. Dixons Retail (2011). 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[Online]. 20 April 2011. Forbes.com. Available from: http://www.forbes.com/sites/lauraheller/2011/04/20/the-future-of-online-shopping-10-trends-to-watch/. [Accessed: 8 March 2012]. Jones, M. & Marsden, G. (2006). Mobile Interaction Design. Chichester, UK: John Wiley & Sons. Porter, M.E. (2001). Strategy and the Internet. Harvard Business Review. (R0103D). p.pp. 62–78. Porter, M.E. (2008). The Five competitive forces that shape strategy. Harvard Business Review Online. R0801E. p.pp. 1–18. Testify Digital (2012). Dixons Top Line Social CRM Study. [Online]. 1 March 2012. Testify Digital. Available from: http://www.slideshare.net/Testify_Digital/dixons-top-line-social-crm-study. [Accessed: 9 March 2012]. Turbman, E., King, D., Viehland, D. & Lee, J. (2006). Electronic Commerce: A Managerial Perspective. 4th Ed. London: Pearson Education. Wax Digital (2012). On Demand P2P and spend management solutions for the world’s leading companies. [Online]. 9 March 2012. Wax Digital. Available from: http://www.wax.co.uk/customers_r.asp. [Accessed: 9 March 2012].  Appendix A: SWOT analysis of dixons.co.uk Dixons.co.uk Strengths -Existing brand -Existing consumer base -Existing distribution Weaknesses -Intermediary use Opportunities -New markets -New services SO strategies -Launch new web-based products or value-adding experiences WO strategies -Search marketing acquisition strategy -Affiliate-based acquisition strategy Threats -Customer choice -Channel conflicts -Social network ST strategies -Introduce internet-only products / services -Add value to web services -Create customer reviews WT strategies - Customer engagement strategy to increase conversion, average order value and lifetime value Read More