Applied Channels System - Report Example

Applied Channels System Name of client Course Name of Tutor 05th June 2012 Outline I. Introduction I. Background A) development of online shopping both in Australia & overseas  B) Impact it has had on traditional retail and wholesale market. C) overview of retail industry , the company and its online shopping site  II. Issues and challenges facing online shopping A) retail industry  B) Woolworths company C) suppliers and customers  D) relevant channel dynamics i.e. the topics covered in this quarter  III. Strategic plan to address the issues and challenges identified above A) Target you have set, e.g. time frames and sales projections B) consider your company , suppliers and customer  C) how the internet channel will look like and how it will function within the overall distribution channel of Woolworths Company  D) how the relevant channel dynamics discussed above have been addressed and how any new channel dynamic will be managed  IV. Conclusion Introduction The Australian retail industry is experiencing various challenges from its online counterparts. Online shopping also referred to as e-commerce involves buying and selling of goods and services over the internet. This industry has been on the rise mainly because of its favourable pricing. Marketing channel is a set of interdependent organisations that take part in product making or service delivery for use or consumption purposes. Channel systems are important in ensuring product and feature differentiation. As a result consumer satisfaction and perception is achieved. The aim of this paper is to evaluate the Australian retail industry as it pertains to Woolworths Limited. Background Development of online shopping both in Australia & overseas  Online shopping in Australia has been growing. This is because consumers are gaining confidence with online shopping. They also benefit from reduced prices as well as convenient purchasing. For example, within the first six months to April 2011, 62 percent of adults that used the internet purchased items online. This shows that online shoppers are increasing. The number of non-work online users in Australia has increased from 53 percent in November 2009 to 59 per cent in 2010. Additionally, adults of 35 to 44 years contribute the highest of online buyers; indeed 73 per cent of people in this age group make online purchases. The other group is the remote/ rural settlers who make 70 percent of online buyers. Price and convenience are the key motivators of this growing trend (Online Shopping: Growing in Popularity 2011). The level of overseas online purchases is also increasing. For example, between April 2009 and 2010, it rose from 12 per cent to 19 per cent. This has been contributed by improved value of the Australian dollar in addition to increased interest in online travel goods (60%), books (46%) and clothing (53%) (Online Shopping: Growing in Popularity 2011). Impact it has had on traditional retail and wholesale market Online shopping is impacting negatively on Australia’s traditional retail and wholesale market. The big retailers say that they are losing a lot of revenues to online shopping websites; they attribute their losses to cheap prices associated with online shopping. The affordable pricing has become possible because buying online enable shoppers to escape sales tax and customs duty. Consequently, traditional shoppers are losing up to 24 billion dollars annually to online shoppers. Online shopping has also affected sales of traditional retailers and wholesalers. For example, by October 2011, retail sales had dropped by 1.1 per cent. The other impact is that online shopping has led to price slashes during peak seasons such as Christmas when prices are expected to be high (Australian retailers cry foul 2010). Overview of retail industry, the company and its online shopping site  Retailers are intercessors between manufacturers and consumers. They have to ensure efficiency and effectiveness in order for consumers to access a wide variety of goods and at the best prices and quality. Woolworths Limited belongs to the retail industry. The Australian retail industry has around 140,000 businesses. These account for 4.1 per cent of the country’s GDP. Some of the retail sectors that are still experiencing increased consumer spending are: financial, education, travel and property sectors. Generally, the Australian retail industry’s sales growth has been reducing as consumers have been saving a lot and many are turning to online shopping. This is one of the major challenges affecting the retail industry. Unfortunately, the government appreciates online retailing and traditional retailers have to adopt different ways of attracting consumers back to the stores (Productivity Commission 2011). The chart below shows contributions made by retail sectors to the retail industry. The table shows the share of retail sales for 2010 which have been contributed by the retail sectors. Source: http://www.pc.gov.au/__data/assets/pdf_file/0019/113761/retail-industry.pdf The workforce in the retail industry is semi-skilled, with many young females. Additionally, the workforce involves casuals who work in shifts. Source: http://www.pc.gov.au/__data/assets/pdf_file/0019/113761/retail-industry.pdf Woolworths Limited was founded in 1924. It is an Australian and New Zealand retailer. It is the biggest retailer in both countries in terms of market capitalization and sales. It operates supermarkets, liquors, hotels, petrol stations, electronics and general merchandise. Some of the company’s supermarkets are Safeway and Flemings. Some of its liquor outlets are Beer Wine Spirits (BWS) and Dan Murphy’s. ALH Group is a hotel and Poker Machine Operator that is partly owned by Woolworths. Caltex Woolworths is a chain of petrol stations that are also owned by Woolworths Limited. Big W is the company’s general merchandise store. Dick Smith and Tandy are consumer electronics stores that are operated by the company (Woolworths: the fresh food people 2012). Woolworth’s online shopping site is flexible to use. Once a consumer is registered, he can be able to login. The site is also easy to navigate. For example, it has listed the available stocks and in the first page, the consumer can browse the available aisles, specials and recipes. There is also a page for favorites where the consumer can obtain records of previous orders, saved lists and recipes. The saved list can be available if the consumer has saved trolleys for previous shopping. This helps to reduce shopping time since a consumer might not need to select goods once more. Additionally, in order to reduce time the consumer can sort the list of available goods in to recently added, department or alphabetical order. There is a page for ‘my account’ which contains consumer’s account details, settings and addresses. The last page is for contacting Woolworths’ support group and obtaining feedback and help. The consumer can obtain details of collection points and subsequent pricing. Pricing depends on the collection point. The company’s site is also attractive and contains pictures of some goods that are in demand or essential. The ‘Click then Collect’ service enables consumers to order goods and collect them at Woolworth’s outlets such as Gosford and Miranda among others. Online shoppers can also use Woolworth’s mobile applications for shopping purposes. Virtual shopping wall in Sydney and Melbourne allows shoppers to scan 120 or more product barcodes online and include them in Woolworth’s application for payment and eventual delivery. The company’s online sales for the 2012 half financial year increased by 118 per cent (Woolworths: the fresh food people 2012). The diagram below is an example of products that are exclusive and essential to consumers during the upcoming winter season as displayed on Woolworth’s online shopping site. Source: http://www2.woolworthsonline.com.au/ Issues and challenges facing online shopping  Retail industry: Some of the issues and challenges facing the online shopping in the traditional retail industry are reduced sales revenue. As a result of reduced prices, convenience and range provided by online shopping consumers are shifting from traditional retailers to online and overseas retailers. For example, as a result of online shopping retail sales declined by 1.1 per cent in October 2010. Reduced sales lead to reduced revenues. The reduction of importation taxes for online goods worth less than $1,000 is also affecting operations of traditional retail industry. This is because such an incentive is leading to price discrimination. As a result this is leading to increased online sales but reduced sales revenue for traditional retailers. The online retail industry is also facing challenge from traditional retailers. This is because they feel threatened by growing online sales. Therefore, they might push for laws that will remove tax free importation of online goods worth less than $1,000. The tax incentive is very important to online retailers and if scrapped off, online sales will be at risk of reducing. Other challenges being faced by the online retail industry are inadequate IT infrastructure, insufficient IT literate employees and inadequate web-based knowledge (Productivity Commission 2011). Woolworths Company Woolworths Company is facing losses from online divestment and restructuring of its online stores. For example, in the first half of 2012 financial year, the company lost $217 million to restructuring of Dick Smith online retail chain. Additionally, the Company’s electronics led to fall in the overall profits. This means that price discrimination among online businesses is affecting Woolworths’ sales and profits (Woolworths: the fresh food people 2012). Suppliers and customers: Suppliers of online products face problems from unfavourable tax laws, trade barriers and requirements in different countries. Additionally, currency conversion rates affect suppliers’ income. Inadequate knowledge of IT skills is also affecting their transactions in the online retail business. Online consumers are facing fraud risks. These include online insecurity, product warranties and safety. Online shopping is full of fraudsters who want to take advantage of innocent consumers. Additionally, online goods may lack warranties and the necessary safety and safety because they only virtual until received by the end user. Therefore, these shortcomings pose a threat to confidence level of online shoppers. Inadequate IT and internet skills reduce online consumer buying because many consumers that have no access to computers, updated mobile applications or inadequate IT skills may not be unable shop. Eventually, this is leading to reduced online sales revenues. Relevant channel dynamics i.e. the topics covered this quarter  Channel dynamics involves conflicts. These conflicts can exist at the top or bottom level. The various types of conflicts are latent, perceived, felt (affective) and manifested. Latent conflict involves unaware perception among market segments. On the other hand perceived conflict is evident where perception exists emotionlessly. Felt or effective conflict is escalated and personalized differences among market players. Manifest conflict is visible behaviour that can block support. All these forms of conflict can be constructive, destructive and damaging. Power is also a dynamic that exists in marketing channels. Power is the ability of one channel member (A) to get another channel member (B) to do something it would otherwise not do. The organizations that take part in marketing channel must obtain power and use it wisely in order for the channel to work together and to be able to generate equal value to the channel players. Power enables channels to distribute costs through vertical integration in order to achieve universal benefits. Sources of channel power can be coercive, expertise, legitimate and referent. Another dynamic is clash in market dynamics. This involves intrachannel competition where downstream supplier partners sell through many of a firm’s direct competitors. Additionally, multiple channels increase competition and create barrier to market entry as suppliers use different services schemes under different channels. Unwanted channels (Gray Market) involves sale of unauthorized, branded product through unauthorized distribution channels. Such channels enable manufacturers to increase competition, reduce customer service procedures and wide market coverage. Channel gaps are dynamics that come from environmental boundaries (legal and physical constraints) and management rules such as lack of knowledge and focus in logistics. The gaps can be demand sided (single side gap ) or supply sided. A strategic plan to address the issues and challenges identified above  Set target e.g. time frames, sales projections and expected growth from existing market and competitors within Woolworths Company  Online retail sales in Australia are estimated to rise by 0.3% in December 2012 and by $10 billion by 2017. This could be attributed to increased employment as well as reduced price pressures. Revenues from Woolworth’s competitors such as Tesco are also expected to rise. Setting such targets can enable Woolworths to beat power dynamics because the company does not have to depend on market powers for decision making. Consideration of Woolworths Company, suppliers and customers  Woolworth’s Company’s revenues are expected to be over $5 billion by 2015. Additionally, online suppliers are likely to increase as consumers increase. For example, in the U.S. online 2014 sales are expected to rise by 11%. This can help the company to reduce conflicts that arise due decision making tension. How the internet channel will look like and how it will function within the overall distribution channel of Woolworths Company Manufacturers need to identify how and what the end user wants to buy. This is because consumers have different demands. In order for manufacturers to understand and respond to consumer demands, they must understand the market segments or consumer groupings. Market segmentation can be done using service output demands. Internet channel systems are service outputs that exist in order to reduce the time that an end-user takes to search for a product. The following six service outputs are used to evaluate how Woolworths’ internet channel will function within the company’s distribution chain: Bulk-breaking (high): This refers to the end-users’ ability to purchase products or services in their desired quantities. More bulk breaking leads to reduced lot sizes and increased pricing. Woolworths’ bulk-breaking should be in high demand in order enable domestic consumers to afford goods in small quantities. Spatial convenience (high): This is provided by market decentralisation of wholesale or retail stores in order to increase consumer satisfaction by reducing transportation needs and costs. Woolworth should increase convenience in order to ensure that consumers that have travel inconveniencies can access goods easily. Waiting/ delivery time (low/high): This is the time period that a consumer must wait between ordering and receipt of goods. Therefore, the longer the waiting time the higher the inconvenience and the lower the pricing. Woolworths should reduce waiting time for necessity and perishable commodities. On the other hand it can increase waiting time for luxurious commodities because consumers can cope without them. Product variety/ assortment (low, medium to high): Greater product variety leads to higher distribution costs because of increased inventory. Variety refers to different classes of goods that make product offering while assortment is the depth of product brands within a given product category. Woolworths’ remote consumers are not sophisticated. Therefore they demand low variety of goods to choose from. On the contrary, consumers within the city are in high demand of wide varieties of brands and classes of products. Customer service (low): This refers to all features of erasing the shopping and purchase process for consumers as they interrelate with suppliers and retailers. Woolworths’ customer service demand should be in low demand in order to increase delivery time and to reduce delays. Information provision (medium to high): This is education of consumers regarding a product’s attributes or usage capabilities. Information provision should never be low. This is because retailers and wholesalers should not assume that consumers have knowledge about the product. Woolworths can provide medium information to market segments that have been using the product before. On the contrary, market segments that have never used a product or have only used a product for a short period of time require sufficient product information. The following channel shows how Woolworths’ online channel for household products will look like: How the relevant channel dynamics discussed above have been addressed and how any new channel dynamic will be managed  Channel conflicts can be resolved through institutionalized mechanisms. For example, information intensive mechanisms that involves globalization of product codes and exchange of personnel in order to bring harmony. Additionally, third parties can arbitrate or mediate upon a situation in order to come up with a fair solution. Building relational norms is also conflict resolution technique that aims at establishing flexibility and solidarity among channel players. Demand side channel gaps can be closed by changing the list of targeted segments, expanding service outputs intended for the target market or by offering tiered service outputs in order to appeal to various market segments. On the other side supply side gaps can be closed by changing flows, sharing technological costs and inviting new members to specialize in market performance. Power balance is necessary in order to create healthy market relationships. This is because power does not belong to a particular individual. Mutual dependence between two channel members is necessary in value creation, coordination and cooperation. Another alternative is calculation of net dependence in order to reduce chances of one member having too much power over another. New channel dynamics can be managed by obtaining enough information and a balanced playing ground in order to ensure fair market share. This can involve a passed resolution indicating the rights and powers of channel members, clear definition of the new channel dynamics and the outcomes expected from them. This way it is possible to counteract huge negative effects of such a dynamic. It is also possible to reap the most from it. Conclusion Online shopping is on the rise and in the process its convenience and affordable nature is posing threat to traditional retailers. The Australian market is no different as seen from the recent fall in sales revenues for Woolworths’ limited; a company whose online sales contribute to less than 25% of its total sales. This calls for retailers like Woolworths among others to either adopt online shopping services or to find other means of attracting customers back to the stores. References Australian retailers cry foul as shoppers go online, viewed 05 June 2012, . Online Shopping: Growing in Popularity in Australia, viewed 05 June 2012, . Productivity Commission 2011, Economic Structure and Performance of the Australian Retail Industry, Report no. 56, Canberra. Woolworths: the fresh food people, viewed 05 June 2012, . Read More