1. business and industrial

Masarykova univerzita
Ekonomicko-správní fakulta
Studijní obor: Podnikové hospodářství
BUSINESS PLAN AND STRATEGY OF A
COMPANY IN THE E-BUSINESS FIELD
Podnikatelský plán a strategie podniku v oblasti ebusinessu
Diploma thesis
Diplomová práce
Vedoucí diplomové práce:
Autor:
Mgr. Ing. Jan ŢÁK
Lukáš STRNIŠTĚ
Brno, 2011
Th e ful l na m e of t h e a ut hor:
Lukáš Strniště
Th e t i t l e of t h e di pl om a t hes i s :
Business plan and strategy of a company in
the e-business field
Th e t i t l e of t h e di pl om a t hes i s i n czech:
Podnikatelský plán a strategie podniku v
oblasti e-businessu
Th e d epa rt m ent :
podnikové hospodářství
Th e s uper vi s or:
M gr. Ing. Ja n Ţá k
Th e yea r of d efen ce:
2011
Annotation
The goal of the thesis “Business plan and strategy of a company in the e-business field” is the
definition of the business level strategy. The first section deals with introduction of important
theoretical concepts. The second section is focused on the external and internal analysis of the
current situation of the company and to-be situation. Last section presents the strategy that is
designed along the most influencing factors.
Anotace
Cílem diplomové práce „Podnikatelský plán a strategie podniku v oblasti e-businessu“ je
definování business strategie podniku. První část diplomová práce se prezentuje teoretické
koncepty. V druhé části jsou teoretické koncepty pouţity v analýze vnějšího a vnitřního prostředí
podniku v současné situaci a v budoucí situaci. Závěrečná část diplomové práce uvádí strategii,
která byla pro podnik navrţena na základě faktorů, které mají vliv na jeho působení.
Keywords
Strategy, e-business, e-commerce supply chain, e-fulfilment, Porter’s 5 forces, PEST, value
network, value chain
Klíčová slova
Strategie, e-business, e-commerce supply chain, e-fulfilment, Porterův model konkurenčních sil,
hodnotová síť, hodnotový řetězec
Prohlášení
Prohlašuji, ţe jsem diplomovou práci Podnikatelký plán a strategie podniku v oblasti e-businessu
vypracoval samostatně pod vedením Mgr. Ing. Jana Ţáka a uvedl v ní všechny pouţité literární a
jiné odborné zdroje v souladu s právními předpisy, vnitřními předpisy Masarykovy univerzity a
vnitřními akty řízení Masarykovy univerzity a Ekonomicko-správní fakulty MU.
V Brně dne 30. června 2011
vl a s t n or u čn í p od p i s a u t or a
Poděkování
Na tomto místě bych rád poděkoval Mgr. Ing. Janovi Ţákovi za přípomínky a podnětné rady při
zpracovávání diplomové práce.
Table of Contents
INTRODUCTION ................................................................................................................. 7
LITERATURE REVIEW ...................................................................................................... 9
1
STRATEGIC MANAGEMENT ..................................................................................... 9
1.1
1.2
2
Vision and goals ................................................................................................... 10
Strategy ................................................................................................................ 11
STRATEGIC ANALYSIS ............................................................................................ 12
2.1
Frameworks for strategic analysis of external environment ................................... 12
2.1.1
PESTEL – the macro environment ................................................................. 12
2.1.2
Porter’s 5 Forces – industry / sector ............................................................. 13
2.1.3
Strategic Groups – competitive markets......................................................... 15
2.1.4
Additional analytical approaches .................................................................. 15
2.2
Frameworks for strategic analysis of the internal environment .............................. 17
2.2.1
Financial Analysis ......................................................................................... 18
2.2.2
Value Chain .................................................................................................. 19
2.3
Frameworks for identification of opportunities and threats .................................... 19
2.3.1
SWOT............................................................................................................ 20
3
E-BUSINESS STRATEGY .......................................................................................... 21
3.1
Specifics of the strategic analysis in an online environment................................... 21
3.1.1
Porter’s 5 forces in online environment ......................................................... 21
3.1.2
Value chain and value networks .................................................................... 23
3.2
E-business supply chain strategy ........................................................................... 26
3.3
E-Commerce supply chain strategy ....................................................................... 26
3.3.1
E-commerce supply chain outsourcing - Drop-Shipping strategy ................... 27
3.3.2
E-commerce supply chain outsourcing – eFulfilment strategy ....................... 28
METHODOLOGY AND ANALYSIS .................................................................................. 31
4
METHODOLOGY ....................................................................................................... 31
4.1
Thesis objectives ................................................................................................... 31
4.2
Analyzed company................................................................................................ 31
4.2.1
Market sector ................................................................................................ 31
4.2.2
Strategic groups ............................................................................................ 32
4.2.3
Capabilities ................................................................................................... 32
4.2.4
Strategy ......................................................................................................... 32
4.3
Frameworks for external analysis .......................................................................... 33
4.3.1
PESTEL ........................................................................................................ 33
4.3.2
Porter’s 5 forces............................................................................................ 33
4.3.3
Strategic groups and market segments ........................................................... 34
4.4
Frameworks for internal analysis ........................................................................... 35
4.4.1
New value chain ............................................................................................ 35
4.5
4.6
5
Opportunities and threats...................................................................................... 35
Methodology for the strategy definition ................................................................ 35
ANALYSIS OF THE EXTERNAL ENVIRONMENT ................................................ 37
5.1
Analysis of macro environment ............................................................................ 37
5.2
Analysis of the industry ........................................................................................ 41
5.2.1
Czech online retail market ............................................................................ 42
5.2.2
Czech e-fulfilment market ............................................................................. 49
5.3
Market segments and strategic groups .................................................................. 55
5.3.1
Online retailing SBU .................................................................................... 55
5.3.2
E-Fulfilment SBU ......................................................................................... 58
6
ANALYSIS OF THE INTERNAL ENVIRONMENT ................................................. 60
6.1
6.2
7
Online retailing SBU ............................................................................................ 60
E-fulfilment SBU ................................................................................................. 65
OPPORTUNITIES AND THREATS .......................................................................... 71
7.1
7.2
8
Online retailing SBU ............................................................................................ 71
E-fulfilment SBU ................................................................................................. 72
STRATEGY FORMULATION ................................................................................... 74
8.1
Corporate strategy ................................................................................................ 74
8.1.1
Definition of corporate strategy .................................................................... 75
8.1.2
Definition of horizontal strategy ................................................................... 75
8.2
Business strategy ................................................................................................. 76
8.2.1
Strategic business goals ................................................................................ 76
8.2.2
Product ........................................................................................................ 77
8.2.3
Price............................................................................................................. 81
8.2.4
Place ............................................................................................................ 84
8.2.5
Promotion .................................................................................................... 84
8.2.6
People .......................................................................................................... 86
8.2.7
Process ......................................................................................................... 87
8.2.8
Physical evidence ......................................................................................... 88
8.2.9
The impact of the horizontal strategy on the business strategy ...................... 89
8.2.10
Operational strategies .................................................................................. 90
8.2.11
Financial indicators and hypothesis ............................................................. 93
CONCLUSION ................................................................................................................... 95
REFERENCES .................................................................................................................. 98
TABLES ............................................................................................................................105
TABLE OF FIGURES ......................................................................................................105
LIST OF APPENDICES ...................................................................................................106
6
Introduction
Internet shopping is on the rise, the customers are becoming more and more
demanding and the online retailers are not winning them just through the provision of
standard service but with customization and responding to their needs. The customers have
started to pay more attention to the level of delivery service which is becoming for them of
higher importance. Success is becoming to be granted with the speed of the order fulfilment.
New and challenging requirements are posed on the e-commerce supply chain and the ease of
starting selling online is offset by the fact that the inventory is getting to be a must.
Nevertheless, not every online retailer may afford to have substantial inventory holdings. In
order to optimize the e-commerce supply chain and abolish the rising barriers for small
retailers the concept of drop-shipping was introduced. Using the drop-shipping in the supply
chain the inventory lies within the premises of the supplier and the supplier then takes care of
the delivery. However, this approach has its disadvantages and thus a new approach came up
that introduced a new element in the supply chain between the online retailer and supplier, an
e-fulfilment. The e-fulfilment is basically an outsourcing of the supply chain of the online
retailer. The scope of the outsourcing can range from only warehousing to complete supply
chain management outsourcing including the procurement. This e-commerce supply chain
outsourcing approach is not that popular yet and its development goes hand in hand with the
development of online retailing market. As a logistics service, e-commerce supply chain
outsourcing is considered to be a business with significant barriers to entry in terms of the
initial investments.
This thesis investigates how a small business entity can engage in the e-fulfilment
without significant initial investment, what benefits this approach yields and what strategic
approach has to be chosen in order to implement the e-fulfilment on the online market of
sports equipment in the Czech Republic.
The first section of the thesis presents the theory of strategy and frameworks that are
used for the strategic analysis of internal and external environment of the chosen company.
The section is complemented with the theoretical background of e-business strategy and ebusiness supply chain. Using the presented analytical approaches, the second section
embodies an internal and an external analysis of the business. Further, the results of the
analytical section are then translated in the third section into the formulation of a strategy for
establishing an e-fulfilment provider. The introduced strategy is designed according to the
7
outcomes of the internal and the external analysis and enables the verification of the
assumptions made by the author of this thesis. The conclusions and outlooks are summarized
in the last section.
8
Literature Review
1 Strategic Management
Strategic management is giving answers to many questions that arise from the
variability and complexity of the external environment as well as the internal environment of
a business itself. Even though strategic management makes use of different variables in order
to create efficient long term decisions that correspond with the future situation, the
interpretation of these values is in the end determined by a human factor. Keřkovský and
Vykypěl (2006) defined a framework for the strategic management that presents their
understanding of the discipline as a cycle with recurring and mutually interdependent steps.
Vision and goals
Strategic
Analysis
Strategic
Management
External and Internal
Environment
Scenarios
Optimalization and
strategy selection
Evaluation of
strategy
realization
Strategy
implementation
Figure 1: Strategic Management framework. Source: Keřkovský and Vykypěl: Strategické řízení 2006,p. 7
This perception corresponds with the five development phases of Chaffey (2009):

Stating the vision and objectives

Strategic analysis as continuous process,

Strategy development1,

Strategy implementation, and

Monitoring.
1
This step absorbs two elements of the Keřkovský and Vykypěl (2006) namely Scenarios and
Optimalization and strategy selection.
9
1.1 Vision and goals
Vision and mission
The vision of the business is the overall philosophy and purpose of the future
organization and as such has to be more than only short and generic but broaden by clearly
“referencing key business strategy and industry issues and goals; referencing aspects of
customer acquisition, conversion and retention; making the message memorable and linking
through objectives and strategies” (Chaffey, 2009). The existence of every business is defined
by “the mission that builds on the vision of the founding business partners” (Keřkovský and
Vykypěl, 2006). Mission could be defined as a set of principles or values that in a nutshell
outline the markets segments, special competencies, and eventually inspirational values
(Jelassi and Enders, 2008).
Strategic goals
The profitability of the business in the long term could be reached only if there are
scenarios that anticipate future constellation of known parameters that have a direct influence
on the business. This anticipation enables the business to define the goals that are reasonably
delimited by the external and internal influences and balance the organization in both spheres.
Strategy is defined as a vehicle that empowers the business to attain the desired goals which
comply with SMART definition and consider following factors of the influence:

External environment,

Stakeholder expectations,

Available resources,

Internal relations,

Managerial skills, and

Past achievements (Chaffey, 2009).
Keřkovský and Vykypěl (2006) refer to goals as benchmarks for the evaluation of the overall
business performance, and thus all the goals have to be specific enough.
10
1.2 Strategy
“Strategy is the direction and scope of an organisation over the long term, which achieves
advantage in a changing environment through its configuration of resources and competences
with the aim of fulfilling stakeholder expectations.”
(Johnson et. al., 2005)
An enterprise in many cases operates several different markets that have distinct
characteristics, and thus development of separate strategy for each segment is desirable. If the
business operates more than one strategy, then each of these strategies is implemented by a
different strategic business unit (hereafter SBU).
“A strategic business unit is a part of an organisation for which there is a distinct external
market for goods or services that is different from another SBU”
(Johnson et.al., 2005)
Many companies are composed of only one SBU, and thus there is no need for an
overarching concept of corporate strategy that encompasses all the SBU‟s business strategies
but only for one integrated business strategy. Corporate strategy defines the areas of business
and is considered to be “an elaboration of the mission of the company” as well as the base for
the derivation of business strategies. (Keřkovský and Vykypěl, 2006)
All the SBU‟s strategies are in the baseline aligned with either following the focused
or broad “cost leadership” or “differentiation” strategy that are further on extended with more
specific approaches, i.e. “market penetration”, “market development”, “product development”
and so forth (Keřkovský and Vykypěl, 2006). Moreover, there has to be a horizontal strategy
in place in order to avoid potential disintegration. Functional strategies are specifically
designed for areas such as marketing, IT, finance, research and development and so forth.
These strategies either solely develop the specific area only within the SBU or are designed as
cross-SBU operational strategies.
The extended marketing mix that defines besides the traditional four elements also
influence of people, process, and physical evidence is good framework for organizing the
strategy definition (Keřkovský and Vykypěl, 2006).
11
2 Strategic Analysis
Strategic analysis is a method that uses a distinct set of tools to analyze the most
important variables that can have an impact on the way the business is done. This thesis is
guided by the definition of the strategic analysis taken from Chaffey (2009):
“Strategic analysis is a collection and review of information about an organization’s internal
processes and resources and external marketplace factors in order to inform strategy
definition”.
2.1 Frameworks for strategic analysis of external environment
The success of the business is given by the extent to which it adapts to the external
environment, and thus “the external analysis has to be focused predominantly on the
identification of the trends in the external environment” (Keřkovský and Vykypěl, 2006). The
overall external environment can be broken down into many layers depending on the level of
the detail the position of the company should be analyzed to. There are different
interpretations of the number of the layers, i.e. Keřkovský and Vykypěl (2006) divided the
analysis of the external environment into only two echelon model of common environment
and professional environment. The applicability of this model is not questionable but
depending on the level of the specialization of the business, more detailed approach could be
desirable. Johnson et al. (2005) proposed a three-layered model that incorporates the element
of specialization. These three different spheres of the external environment are “the macro
environment”, “industry or sector”, and “competitors markets” (Johnson et.al, 2005).
Following chapters will present analytical approaches for each of the above mentioned
layers of the external environment.
2.1.1 PESTEL – the macro environment
PESTEL analysis considers the influence of the factors from six distinct categories
political, economical, social, environmental, technological and legal (Johnson et.al, 2005).
Political and economical elements are very tightly interlinked and the factors the strength and
influence of which has to be analysed, forecasted and ranked are “interest rates”, “inflation
rates”, “personal savings rates” and so forth (Hitt et.al, 2009). Social factors predicate mainly
about the values of the society, among others also about the integration within the standards
(adoption of social standards as i.e. number of children within the family, the level of the
emancipation of women) and the level of social perception (having higher need to educate
12
yourself; taking better care of yourself in terms of health). Disrupting technological
inventions are bridging the old paradigms and developing new ones that bring competitive
advantages but also threats for substitute evolutionary or revolutionary products that will be
based on the new paradigm. Technological progress is especially of higher importance to the
companies that pursue the differentiation strategy and want to be a step ahead of the
competitors by earning larger market shares as first entrants or developers of a completely
new market (Hitt et.al, 2009). Not just because of the increasing importance of the ecology
and more pressure being put on not exhausting the non-renewable resources, and the
technologic requirements related to that, have to be environmental and climatic factors looked
on properly but also because of many businesses producing goods and services that are
suitable solely for special environmental and climatic conditions (Keřkovský and Vykypěl,
2006). Legal environment sets many regulations to the business conduct that have to be taken
into consideration.
2.1.2 Porter’s 5 Forces – industry / sector
The positioning of the company within the industry is given by five main factors of
influence which have an impact on the “competitive actions”, “competitive responses” and
“above-average returns” (Hitt et.al, 2009).
POTENTIAL
ENTRANTS
(Threat of new entrants)
SUPPLIERS
INDUSTRY
COMPETITORS
BUYERS
(Bargaining power of
suppliers)
(Rivalry among existing
firms)
(Bargaining power of
buyers)
SUBSTITUTES
(Threat of substitute
products or services)
Figure 2: Competitive Forces; Source: Porter, M.J.: Competitive Strategy, 2004
The customers govern the market trends and the requirements of each customer or
customer group are very individual depending on what is the objective and purpose of
enquiring the product or service. The outcome of the analysis of the common environment is
an important input that has to be considered, especially the social factor, when the component
13
of customers and their bargaining power is analysed (Keřkovský and Vykypěl, 2006). When
analyzing the bargaining power of the customers it has to be looked into following attributes
respectively “importance of the customer”, “switching costs” (customers could be bound to
the supplier mainly by the exclusivity of products or services), equal distribution of
information, existence of substitute products, and demand elasticity (Porter, 2004).
The fractionalism of the market, product heterogeneity, availability of information and
the competitiveness of the environment in which the business is conducted determine the
bargaining position towards suppliers (Keřkovský and Vykypěl, 2006). The emphasis is put
on the maximization of the added value by means of close cooperation with the suppliers and
efficient utilization of input resources, i.e. labour force, energy, intermediate products
(Keřkovský and Vykypěl, 2006).
The level to which could be the competitive advantage on the market sustained is
given by the difficulties the potential competitors encounter when trying to capture the share
of different market. These difficulties are given by “expected retaliation” from the side of the
already competing companies and by barriers to entry such as “economies of scale”, “product
differentiation”, “capital requirements”, “switching costs”, “access to distribution channels”,
and “expected retaliation” (Hitt et.al, 2009).
The markets with the products that fulfil a similar need for the customer and serve a
similar purpose have to be taken into consideration. Depending on the actual preference of
customers or the group of customers the markets with the substitute products are considered
as side competitive environments. The threat of the substitutes is designated by “switching
costs”, “cost efficiency”, and “distribution efficiency” (Keřkovský and Vykypěl, 2006).
The competitive rivalry on the markets acquires many forms in terms of price, specific
complementary products services, marketing and so forth. The intensity of the competition on
the market is highly dependent on market growth and overall market potential. The most
intense rivalry is to be found on the mature markets with high barriers to entry as well as high
barriers to exit. The increasing rivalry on the market forces cost cuttings and in many cases
this is achievable only when specific technological infrastructure is in place that increases the
barriers to exit significantly. The competitive rivalry could be relaxed by technological
change that is essentially decreasing the fixed costs or by building forward and backward
value networks (i.e. common product developments with suppliers or special product related
services). (Porter, 2004)
14
2.1.3 Strategic Groups – competitive markets
The analysis of strategic groups further subdivides the proximate environment of the
company based on the strategies of individual market participants (Grant, 2005). The
companies within the industry that pursue similar strategies are exposed to even more intense
competition that comes about dimensions of “technological leadership”, “product quality”,
“pricing policies”, “distribution channels”, “customer service” (Hitt et.al, 2009). There are
two significant groups of characteristics that identify the strategic groups, the scope (“product
range”, “coverage”, and “range of distribution channels used”) and the resource commitment
(“brands”, “marketing spend”, and “extend of vertical integration”) (Johnson et.al, 2005).
Furthermore, most of the small businesses will not compete directly with established
incumbents on all the markets within the same strategic group since they may lack the
experience and efficiency in such a big scale. The other important element that has to be
considered is slight difference in customer needs within the strategic groups. These
differences are i.e. buyer‟s behaviour (“direct buying”, “through third party”, etc.) or purchase
value (“high-value bulk purchases”, “frequent low-value purchases”) (Johnson et.al, 2005).
2.1.4 Additional analytical approaches
There is a variety of analytical approaches that could be used for the analysis of the
external environment and some of them are particularly useful in certain situations. Some of
these analytical approaches are introduced below.
BCG Matrix
BCG Matrix is used for the analysis of the product portfolio along two dimensions
namely “the market growth” and “the relative market share” Gottschalk (2006).
Relative market share
The market growth
High
High
Stars
Low
Cash Cows
Low
Problem
Children
Dogs
Figure 3: BCG Matrix; Source: Keřkovský and Vykypěl: Strategicke rizeni, 2006
15
The threshold values that divide the matrix into four segments are 10 % for the market
growth dimension and 1 for the relative market share dimension. Stars and Cash Cows bring
significant cash-flows and are an established source of competitive advantage. However, Stars
require further financial investments that in turn bring significant revenues. The investing is
needed as long as the market is growing. Once the growth of the market is minimal and the
product offerings more stabilized, then the Stars shift automatically to the sector of the Cash
Cows where no further financial incentives are needed while significant revenues are
generated. On the other hand the Problem Children products or the Dogs respectively have to
be either subsidized significantly in order to reach higher market share or taken out of the
product portfolio. (Keřkovský and Vykypěl, 2006) Based on the lifecycle, the successful
products go through all the stages of the product portfolio matrix (Gottschalk, 2006).
Sector Attractivity and Company Positioning Matrix
This matrix combines quantified factors from the internal and external environment
such as “market growth”, “competition”, “technology”, “inflation”, “location”, “market
share”, “costs”, “efficiency” and so forth just to name few (Keřkovský and Vykypěl, 2006).
100%
Strong
Average
Weak
Leader
Try stronger
Double the effort
Attractive
or Cancel
0%
Attractivity
-100%
Leader
Growth
Growth
Guardianship
Revenue generator
100%
Draw down
Average
Draw down
Cancel
Unattractive
0%
-100%
Position
Figure 4: Sector attractivity and company positioning matrix; Source: Keřkovský and Vykypěl:
Strategicke rizeni, 2006.
This matrix analyses the product portfolio along the dimensions of the attractivity and
positioning and is basically an extended BCG matrix that expands the determination of the
product portfolio of average values. Thus, if we abstract from the average sectors, the revenue
generator, leader, double the effort or cancel, and cancel sectors correspond with cash cows,
stars, problem children, and dogs respectively. However, average values allow analyzing the
portfolio further down into the detail and creating strategies that correspond more closely with
16
the actual position of the product. The move along of the products along the horizontal axis is
influenced by the company, whereas the vertical shift cannot be biased (Keřkovský and
Vykypěl, 2006).
Market Forecasting and Trends Exposal
Market potential and market equilibrium are the attributes that have a significant
impact on the strategy in terms of the mutual relationship of a price and a quantity of the
produce. Market potential is given by the demand curve as a multiple of the price and the
quantity and ingenuous market equilibrium is defined by the equilibrium price, the full
consumption, constant prices, and no regulation (Keřkovský and Vykypěl, 2006). Below are
introduced two approaches that could be used for forecasting a future development of
influential factors, MAP analysis and Scenario development.
MAP Analysis
MAP method selects the factors from PESTEL analysis that will have the highest
impact on the strategy development, looks at the historical development and potential future
directions, and assesses each factor as either threat or opportunity (Keřkovský and Vykypěl,
2006). MAP analysis is very selective and is missing the element of embedding the estimated
progression of the selected factor into the overall picture of the complete environment.
Scenario forecasting
Compared to the MAP analysis, scenario analysis is developing different views on the
complete complex environment. A scenario is basically an extrapolation of historical trends
development adjusted by the change in the attributes that have the most significant
discrepancies in comparison to the historical values (Keřkovský and Vykypěl, 2006).
2.2 Frameworks for strategic analysis of the internal environment
The viability of the company to compete on the market is given by the capabilities of
the internal environment. These capabilities bring a competitive advantage when the core
competencies efficiently process the unique resources the company disposes of (Johnson et.al,
2005). Moreover, if the company possess the capabilities for the competitive advantage, it is
assumed that the company also fulfils the requirements of having threshold resources and
competencies that are absolutely essential for the company to be competitive.
17
“Capabilities represent the ability of a firm to use resources effectively to support value
creation”
(Chaffey, 2009)
2.2.1 Financial Analysis
Financial analysis is an essential instrument in terms of determining the overall health
of the company. This methodology uses a set of indicators to demonstrate the financial
performance of the business (for the overview of the indicators please see Appendix 1). Each
of the indicators has distinct predicative ability.
The most popular indicator that is very often used in the businesses is DuPont. DuPont
analysis is making use of the ROI (Return on Investment) indicator and its dissolubility to
particular additional indexes (Keřkovský and Vykypěl, 2006).
From the perspective of strategic management the future value of the money when doing
strategic planning is an essential metric. Financial analysis offers two indicators (1) present
value and (2) net present value.
(1) The present value indicator approximates the current value of the money paid in the
future and the definition is as follows (Keřkovský and Vykypěl, 2006):
The following definitions apply:
S0
present value of the future returns
Sn
discounted future returns
r
discount rate
n
the number of years.
(Keřkovský and Vykypěl, 2006)
(2) The net present value appropriates the value of the net returns after specified number
of years upon constant interest rate (Keřkovský and Vykypěl, 2006):
The following definitions apply:
NPV
FVi
18
net present value
yield in the i-year
r
discount rate
n
number of years
I0
one-off investment.
(Keřkovský and Vykypěl, 2006)
2.2.2 Value Chain
The resources within the company interact in the mutual relationships creating a chain
of value-adding activities. All the activities that are conducted in the chain have to positively
contribute to the company‟s position on the market (Keřkovský and Vykypěl, 2006).
Moreover, the company has to make sure that the total value generated overlaps the total costs
in order to sustain the profitability (Hitt et.al, 2009). The value framework decomposes the
process of delivering final value to the customer to the individual value-adding steps
(Chaffey, 2009). The company‟s value chain comprises of primary and secondary (support)
activities. The main value is produced and carried by the primary activities and these are
“inbound logistics”, “operations”, “outbound logistics”, “marketing and sales”, and “services”
(Johnson et.al, 2005). The secondary supportive activities such as “firm infrastructure”,
“human resource management”, “technological development”, and “procurement” enhance
the value created by primary activities (Hitt et.al, 2009). Companies seldom concentrate all
the activities that are necessary to deliver the final product to the customer under one roof but
rather cooperate in the networks of partners where each partner has the internal value chain
that adds to the total value (Johnson et.al, 2005).
2.3 Frameworks for identification of opportunities and threats
Opportunities within the competitive environment are given by “strategic gaps” that
are a niche spaces that have not been explored by any strategy of any competitor on the
market (Johnson et.al, 2005). Furthermore, Johnson et.al (2005) divides the potential niches
into six categories of opportunities namely “in substitute industries”, “in other strategic
groups or strategic spaces”, “in the chain of buyers”, “complementary products and services”,
“new market segments”, and “over time”. The definition of strategic gaps can have in general
positive and negative connotation depending on the viewpoint. The strategy that is very well
adjusted to the market and balances all the influencing factors will aim to address the gaps as
opportunities. While the strategy that does not respond very well to the changing market
conditions, will address strategic gaps as threats and will have to be adjusted to meet the
current market settings. The optimal strategy has to be responsive enough and address both
the opportunities as well as the threats in terms of internal capabilities (Gottchalk, 2006). If
19
there is a current existing strategy in place that is not responding to the changing market
conditions properly, the current strategy has to be scrutinized within current market
conditions. Only then, if the status quo of the environment is different from the conditions
when the strategy was formulated, and strategic gaps are significant, then the strategy itself
has to be adjusted to meet new “opportunities and threats” (Keřkovský and Vykypěl, 2006).
The outcome of the analysis of opportunities and threats clearly outlines the sources of
competitive advantage as well as defines the critical success factors (Keřkovský and Vykypěl,
2006). Critical success factors define the success of the product or service within the group of
customers by having the features that meet the requirements of the group and increase the
perception of the value-added (Johnson et.al, 2005).
2.3.1 SWOT
SWOT analysis provides a general summary of the most important factors of the
external and the internal environment that are most likely to impact the performance of the
organisation (Johnson et.al, 2005). These factors impact the organisation within four segments
(1) strengths [S], (2) weaknesses [W] (both internally oriented), (3) opportunities [O], and (4)
threats [T] (both externally oriented (Stoehr, 2002). The analysis technique could be applied
to the overall settings of the company or focus only on a specific business unit, department or
even smaller organizational units with very specific focus and customer groups (i.e. B2B sales
team within the sales department) (Gottschalk, 2006). As Keřkovský and Vykypěl (2006)
pinpoint the SWOT analysis has to contain only the factors that will influence the business in
the long term, and thus have a strategic impact.
20
3 E-Business strategy
The e-business strategy is the key factor for the online business that influences also the
overall corporate strategy and projects to “Marketing / CRM 2 strategy”, “Supply Chain
Management strategy”, and “Information Systems strategy” (Chaffey, 2009). The e-business
strategy may be developed as a complementary strategy to the already existing physical
channels, to supplement these channels or to create channel that exists along but is not the
sole and preferable one. Pure online business models have the e-business strategy in their
core, in the corporate strategy, and the physical channels are used only as support to main
value creating processes. The strategic approach of the company should be continuous
innovation and focus on reinvention of the business processes and value creating activities in
order to gain the first movers advantage that yields temporary competitive advantage (only
until the source of the competitive advantage is mitigated by other market participants)
(Gottschalk, 2006). If the competitive advantage is to be sustained, the only approach is to
create a chain of interlinked competitive advantages which become obsolete from the very
first one until the end (Knudsen, 2003). The strategy in the networked economy can build on
features of internet such as “network externalities”, mediating, time-shrinking (readily
accessible information), and creative destroyer (revolutionizing process and changing
paradigms), to name the most significant (Gottschalk, 2006).
3.1 Specifics of the strategic analysis in an online environment
The above mentioned features of internet, that strategy can make use of, have also
impact on the frameworks that are used for strategic analysis. In order to incorporate the
internet features some of the traditional frameworks were reintroduced to fit the environment
of the networked economy. Among those approaches that were made obsolete were Porter‟s 5
forces and value chain analysis framework. Both of the new approaches are introduced in the
following subchapters.
3.1.1 Porter’s 5 forces in online environment
In order to capture all the specifics of the e-business in the analysis of the external
environment Chaffey (2009) altered Porter‟s 5 forces framework and the mew approach
considers all the important characteristics of the online environment namely availability of
information, mitigation of services, high innovative potential, and emphases on specialization
and outsourcing of non-core activities.
2
CRM – Customer Relationship Marketing
21
Buy-side threats
Supplier
Threats
Sell-side threats
Intermediary
threats
Intermediary
threats
Customer
threats
Organization
Competitive threats
New digital
products
New entrants
New business
models
Figure 5: Porter’s 5 forces in the online environment; Source: Chaffey, D.: E-business and E-commerce
management, 2009
Competitive threats
Due to the borderless online environment, while doing the analysis of potential
competitors, the analysis have to be extended to the international environment. Chaffey
(2009) gives few examples of successfully entries of foreign institutions on the domestic
markets, especially in the banking sector. Furthermore, he emphasizes that the threat from the
international environment may come only from the already very well established brands with
positive reputation. Thus, he redefines in these terms the barriers to entry to “barriers to
success” meaning that the successful penetration of the multinational markets via online
environment is not given by the fixed initial investments but rather by the customer
acquisition costs. Gottschalk (2006) argues that each barrier in the networked economy could
be torn down throughout the time by the competitors by catching up with the pioneer or
bringing a disruptive change. Any disruptive innovative approach that moves the fulfilment of
customer needs or the part of the fulfilment process to the online environment becomes a
threat for the specific sector, if not responded to it timely and appropriately. These disruptive
approaches replace traditional products i.e. by the digital media “newspapers, magazines, and
books” as well as the delivery of the products i.e. “music distribution, and software
distribution” that is done through internet (Chaffey, 2009).
22
Sell-side threats
Due to the availability of the extended offering from one central point, internet, more
and more products are being commoditized, and thus the suppliers have to compete on prices
not on differentiation. Moreover, the intermediaries order the information for the end
customers and the bundled offerings give them wider choice to select the desired product
(Chaffey, 2009).
“Commodization is the process whereby product selection becomes more dependent on price
than differentiating features, benefits and value-added services.”
Chaffey (2009)
The chain of delivering the final value to the customer is very long and there are many
steps that could be mediated and offered with higher value if taken out. However, this
intermediary business models could become a serious threat for the suppliers as they may lose
the face to the customer and vice versa the suppliers may established intermediary competitor
in order to be close to the customers (Chaffey, 2009).
Buy-side threats
The threats may arise from the side of the supplier that are trying to enforce usage of
specific technologies, and thus to create a “lock-in”. Nonetheless, these cases are rather rare
and the contrary is the case that the bargaining power of the suppliers is rather lowered due to
the wider choice. Buy-side intermediaries pose a threat by the virtue of the very nature of
their revenue models, the commissioning of the mediating services. (Chaffey, 2009)
3.1.2 Value chain and value networks
The traditional definition of the value chain analysis draws a clear line between the
primary and secondary activities, where the secondary activities are the enablers for primary
activities which contribute to an actual delivery of the finished service or product (Chaffey,
2009). The networked economy enables to make an order in the information from the
secondary activities and create an additional value that in many cases overlaps the value
produced by the primary activity (or the primary activity earned the value due to the
information provided from the secondary supportive activity) i.e. let customers choose the
type of the delivery from different business partners based on the real time information about
the price and delivery time (the main source of the final value for the customer is the
23
information complemented by the actual performance of the delivery and compliance with the
delivery promise). This led to the introduction of virtual value chain. The virtual value chain
is mirroring and supporting the actual physical value chain and does not treat the information
as only a supportive channel for the primary processes but defines them as the very source of
the added-value itself (Rayport and Sviokla, 1995).
Gathering
Organizing
Selecting
Synthesizing
Distributing
Figure 6: Virtual value chaim; Source: Rayport and Sviokla: Virtual Value Chain, 1995
With the introduction of the virtual value chain, the importance of primary physical
activities is not diminishing, contrariwise they are of higher importance and they have to fulfil
even more demanding requirements (Gottchalk, 2006). Chaffey (2009) argues that the
traditional concept of value chain analysis does not reflect anymore the current environment,
and thus he proposes an altered approach that combines both the physical value chain and the
virtual value chain.
Market
Research
New
Product
Development
Market
Products
Procure
Materials
Procure
Products
Manage selling
and fulfilment
Figure 7: New value chain. Source: Chaffey, D.: E-business and E-commerce Management, 2009
Many of the e-business start-up companies choose a very innovative approach and
create new markets or explore market niches by offering a service or product that dismantles
and reconfigures the value chain of the company (Hitt et.al, 2009). These examples of
innovators in the area of e-business supply chain are i.e. Shipwire or Shutl.
24
Value Drivers
The value in the e-business is driven by (1) “efficiency”, (2) “complementarities”, (3) “lockin”, (4) “novelty” (Amit and Zott, 2001).
(1)
(4)
VALUE
(3)
(2)
(1) Efficiency
- search costs
- selection range
- symmetric inform.
- simplicity
- speed
- economies of scale
- etc.
(2) Complementarities
- products and services
- vertical and horizontal
- on-line and off-line
- technological
- activity based
(3) Lock-in
- positive network
externalities
Switching costs
- loyalty programs
- dominant design
- trust
- customization
(4) Novelty
- transaction structures
- transaction content
- participants
- etc.
Figure 8: Value Drivers; Source: Amit and Zott: Value creation in e-business, 2001
Value networks
The value network is a mediated marketplace that connects and provides value-added
services to business partners (Gottschalk, 2006). In many cases these links are visible only
internally within the marketplace but are not completely revealed to the business partners.
“External value chain or value networks are the links between an organization and its
strategic and non-strategic partners that form its external value chain.”
Chaffey (2009)
The value chain analysis could be used to analyze the whole sector of the industries
not only micro environments within the boundaries of the company (Chaffey, 2009). At the
company level the value chain analysis is done only in the isolated environment that is not
biased by the external factors. From the strategic point of view, it is essential to consider the
value chain analysis in an broader spectrum and include the business partners and not only
work with the company as the sole entity that is delivering the end value. The supporting
reasoning is the increasing specialization in products and services offerings and outsourcing
of non-core activities, thus relying on business partners and value chain integrators to deliver
the promised value (Chaffey, 2009).
25
Manufacturing
Inbound
logistics
Product
Warehousing
Value chain integrators
Suppliers
Fulfilment
Core value chain activities
Buy-side
intermediaries
Sell-side
intermediaries
Value chain integrators
Finance
Human
Resources
Administration
Figure 9: Value network; Source: Chaffey, D.: E-business and E-commerce Management, 2009
3.2 E-business supply chain strategy
Supply chain processes are one of the areas where the networked economy brings
additional value and enables the outsourcing of the processes to the third party logistics
provider. The superior services, customization and personalization to which are the customers
becoming more and more used to are being reflected also to the physical activities. Therefore,
the e-business supply chains have to be flexible, cost effective and responsive enough to
address the needs of all of the network business partners (Gunaserkaran et.al, 2008). “Vertical
integration”, “Vertical disintegration”, and “Virtual integration” are three concurrent supply
chain approaches that are defined by the level to which are the supply chain processes
outsourced upstream (Chaffey, 2009).
3.3 E-Commerce supply chain strategy
The rapid evolution and proliferation of online shopping pose new and challenging
requirements on the logistics to many extents. Delivering to the customer became in many
cases the basis for differentiation strategy, and hence the online shops seek for more costefficient, faster and reliable logistics solutions. Logistics providers and online shops
themselves have to cope with a relatively high rate of product returns, parcels small to the size
but large in number, volatile volumes, also provision of delivery services with very high
coverage at a reasonable price, and the requirement of specific delivery services in terms of
26
speed (i.e. same day shipments) (Cho et al., 2008). The effective e-commerce supply chain
has to be capable of (1) having at disposal an appropriate quantity of products that could be
delivered at the shortest possible time (stock forecasting and demand forecasting is essential),
(2) providing efficient, secure and reliable transportation (including the reverse logistics), (3)
cost-efficient supply of products, and (4) keeping the order promise (Militaru and Serbanica,
2008). Since e-commerce supply chain activities are very uniformed, non-core, and does
require necessarily any specific approaches (except handling large volume of returns), many
online retailers without own sophisticated warehousing systems look for opportunities in the
outsourcing. The outsourcing of the supply chain activities enables the online retailers to
make use of the competitive advantage of the third party and yield additional superior value
for the customer (Hitt et.al, 2009). The basic e-commerce supply chain outsourcing covers the
inbound and outbound transportation, order fulfilment, warehousing, packaging, and returns
management. However, the extent to which are the e-commerce companies outsourcing the
supply chain activities is much larger and the trend is to pass on the third party “as much of
the logistics portion of their business as possible” (Cho et.al, 2008). There are two ecommerce supply chain outsourcing approaches drop-shipping and e-fulfilment.
3.3.1 E-commerce supply chain outsourcing - Drop-Shipping strategy
Drop-shipping is a model of upstream supply chain outsourcing where the order
fulfilment, warehousing, and delivery is passed on to the direct supplier or manufacturer of
the product. However, drop-shipping requires the supplier or manufacturer to diversify into
logistics which can become very costly in terms of missing knowledge that can lead into lost
customers and lost sales. The second limitation of the drop-shipping is the limited offering.
Most of the online retailers operate networks of suppliers and each of them provides different
inventories. Thus, the drop-shipping approach as the guiding strategy for the e-commerce
supply chain is suitable only for very specialized online retailers, i.e. one-brand shops, since
they will be most probably supplied only by one partner. The disadvantage of the dropshipping is also increased delivery costs. This is illustrated on the diagram below where one
online order with two items that are each provided by different supplier has to be fulfilled in
two separate deliveries.
27
Supplier 1
(drop-shipping of
item 1)
Supplier 2
(drop-shipping of
item 2)
Online retailer
(2 separate order
fulfilment requests)
Customer
(1 order – 2 items)
Figure 10: Simplified order fulfilment process in drop-shipping model with two suppliers
Nevertheless, the drop-shipping strategy could be a value added complement to the
general inventory holding and in-house order fulfilment strategies.
3.3.2 E-commerce supply chain outsourcing – eFulfilment strategy
eFulfilment is an evolutionary step in the e-commerce supply chain that breaks the
chain of the activities and introduces an intermediary business model that is the focal point of
the concentrated fulfilment value network. This intermediary business acts as linkage between
suppliers, online retailers, customers of online retailers, and third party logistics providers
(Burn and Alexander, 2005). The strength of this marketplace network model lies in the value
added by facilitation of buyers and sellers interactions and aggregation on a demand and a
supply side (Thomson, 2001). E-fulfilment is basically a business model that dissolves the
limitations of drop-shipping by adding an intermediary on the link between the online retailer
and supplier. The simplified model of order fulfilment below illustrates the benefit.
28
Supplier 1
(drop-shipping of
item 1)
Supplier 2
(drop-shipping of
item 2)
E-fulfilment
(shipping of ONE
parcel)
Online retailer
(ONE order
fulfilment request)
Customer
(1 order – 2 items)
Figure 11: Simplified model of order fulfilment process in e-fulfilment mode with two suppliers
The scope of the e-fulfilment services differs based on the individual needs of the
online retailers but delivering to the customer with additional value is the ultimate service that
is used by all. The particular e-fulfilment services according to Burn and Alexander (2005)
are:

picking, customized packaging and labelling,

customer service (tracking, call centers, etc.),

financial transactions,

warehousing,

transportation, delivery and complementary delivery services (i.e. installation),

procurement (demand forecasting, etc.),

information systems integration, and

after-sales services – reverse logistics.
The e-fulfilment makes a promise to the buyers and sellers to offer extensible
knowledge of supply and demand market, maximize the availability of information, cost
efficiency, decreased lead times, and use of network externalities (the more participants in the
marketplace the more options for online retailers to obtain the supplies under favourable
conditions and vice versa the more options for suppliers to create a lock-in and cover larger
spectrum of the demand side) (Petersen et.al, 2007). Reverse logistics is the key point where
29
the e-fulfilment providers could essentially differentiate themselves. The internet retailing is
experiencing a high rate of returns due to the fact that “the customers cannot try and feel the
product beforehand” (Agatz et.al, 2006). The internet retailers assume that the e-fulfilment
providers are able to offer cost efficient, fast and viable solutions to manage the bottleneck –
the product returns (seen as an essential source of a differentiation strategy if approached
effectively). The strategy for the product returns has to be effectively addressed since it yields
improvements in the area of customer satisfaction but on the other hand it is very costly
(decreased value of the products, lost sales, additional costs for warehousing) (Jack et.al,
2010). E-fulfilment logistics provider has to have specific capabilities that suit the needs of ecommerce supply chain and these are according to Cho et.al (2008):

“pre-sale customer service”,

“post-sale customer service”,

“delivery speed”,

“delivery reliability”,

“responsiveness to target markets”,

“delivery information communication”,

“web-based order handling”,

“widespread distribution coverage”,

“global distribution coverage”,

“selective distribution coverage”, and

“low total cost distribution”.
30
Methodology and analysis
4 Methodology
This thesis is guided by the strategic management framework by Chaffey (2009) and
focuses on three steps of the strategy cycle (1) analysis, (2) definition of visions and goals,
and (3) development.
4.1 Thesis objectives
The objective of this thesis is to develop the strategy for the introduction of new
strategic business unit in the e-fulfilment field and investigate the impacts of the new
business. The strategy will be developed based on the outcomes of the internal and external
analysis.
The hypotheses that will be validated are as follows:
H1:
The introduction of the new e-fulfilment business unit will decrease the
relative delivery costs3of the online sales per order by 10% in 2012 compared
to 20104.
H2:
There is a market niche to be explored in the e-commerce supply chain
outsourcing on the Czech online retail market with the first mover advantage.
4.2 Analyzed company
The company that will be analyzed in this thesis is a family run business. The owner of
the company wished not to disclose the name, therefore further on the organisation is referred
to only as “the company”.
4.2.1 Market sector
The company is an online retailer selling sports equipment and apparel mainly on the
Czech market with occasional deliveries to Slovakia that has been on the market since 2008.
The company was one of the early entrants to the online retailing with sports equipment and
apparel and was able to establish solid market position in specific market segment.
3
4
By delivery costs is meant an average negative profit on parcel.
The full set of data was not available for 2011.
31
4.2.2 Strategic groups
The company successfully explored a niche market and matched the demand for
sporting equipment and apparel of the sporting clubs and schooling institutions with the
supply of the quality and quoted produce of secondary sports brands (the traditional and
world-wide known brands were no the items that were traded). These sports brands
manufacture products that are not to be sold in the street shops because their target market is
sports associations. The sports associations that competed at the highest levels in the Czech
Republic in the past were supported by the main sports brands but on the other hand there was
huge potential on the market to explore the segment of the regional and local associations that
were rather looking for qualitative and less costly equipment. The same potential applied to
the schooling institutions. Plus, until the company entered the market there was no official
supplier specialized in providing the sporting equipment to the schooling institutions. Thus,
schooling institutions and local and regional sports associations became the strategic
customers and two strategic groups the company is still focusing on.
4.2.3 Capabilities
The early entry and exploration of that market niche enabled the company to establish
tight relationships with several suppliers and until today the company is still the preferable
selling and distribution channel for the supplier even though the competition is intensifying
and the competitive advantage declining. Even though the company is yielding the benefits of
being the preferred distribution channel, discounts for bulk purchases, the first channel to
introduce a new suppliers‟ product to the market, cooperation on product development with
suppliers (optimisation of product offerings for strategic customer i.e. schooling institution),
and gaining many repeating purchases, the company has been recently significantly losing its
relative market share to the other competitors.
4.2.4 Strategy
The strategy is based around building close relationships with the customers, no
commodization of online sales, and competing on prices and value added services. Part of the
offering was also complementary service of printmaking that is frequently used and its cost
effectiveness gives the company a competitive edge in selling team sport jerseys. It has been
observed that most of the customers preferred timely delivery and increased delivery costs
rather than cost efficient delivery with increased lead times. This was a perfect match with the
suppliers since in many cases the suppliers were not able to fulfil the orders of the company
timely with low costs. Therefore, the company was not losing sales but delivering the promise
32
to the customer and being profitable at the same time (the increased delivery costs from the
supplier were projected to the customer delivery costs or the profit margins were sufficiently
covering them). The company was making partly use of the outsourcing of order fulfilment
upstream to the suppliers. The drop-shipping from the side of the suppliers was done for the
consignments that were bulk and needed to be delivered within very short timeframe. By
omitting one step in the e-commerce supply chain the customer‟s costs very reduced, the
company did not incur any additional warehousing and order processing costs, and the overall
value of the delivery promise increased. Nevertheless, the suppliers were not equipped with
sufficient knowledge and technology to manage the drop-shipping on an ongoing basis.
4.3 Frameworks for external analysis
The expectation is the introduction of completely new strategic business unit that is
making use of the current resources and competencies of the company. This implies that the
approach to the external analysis has to be two fold. First, the current company as it is has to
be analyzed in all the aspects. Second, there has to be second analysis of the industry and
strategic groups to estimate the future competitive environment of the new business unit.
4.3.1 PESTEL
All of the factors the PESTEL analysis focuses on have direct or non-direct influence
on the e-commerce (new technologies, adoption of internet, disposable income, etc.). The
outcome of the analysis presents the overall picture of the economy within which the
company is framed. Even though the international element has increasing importance and the
barriers to entry to other markets within economically integrated countries are lower, the
PESTEL analysis focuses solely on the domestic Czech market as a starting point for the
introduction of the new business unit. Nevertheless, few “international” elements will be
mentioned due to their immediate impact on the domestic market.
4.3.2 Porter’s 5 forces
The analysis does not aim to analyse the position of the company at the market in
terms of product portfolio since the number of the products sold by e-commerce company is
enormous but the actual product of the company is only one – the bundle of services – and is
customizable based on the customer (the bundled product could be potentially sliced into the
core service plus additional products‟ value adding services). Since the aim is to develop a
strategy for an intermediating business model in the e-commerce supply chain, the
competitive environment analysis provides the answers that will help to formulate that
33
strategy. Moreover, taking into consideration the narrowed focus on particular online retailing
sector, the competitors analysis is preceded by the overview of the overall online retailing
industry as it has substantial implications to the company‟s sector.
The company is a pure online business and thus the competitive environment of the
company has to be captured with the features of the network economy. For that reason, the
altered Porter‟s 5 forces framework for the online environment proposed by Chaffey (2009)
was chosen as the appropriate analysis approach. Even though that the online retailing may
seem as a relatively stable concept that is not being revolutionized by the introduction of new
business models, the contrary is the truth and there are many new business models and
intermediary business models that change the online retailing environment. This is a second
underlying reason for the application of the adjusted Porter‟s 5 forces framework, since the
new modification takes these new approaches and business models into consideration.
The outcome of the first analysis of the current competitive environment will also
present a valuable input for the later strategy development for the new business. This is due to
the fact that the specific group of current competitors becomes the strategic group of the new
business strategy. The second analysis focuses on description of the competitive environment
in the area of e-fulfilment and makes use of the results of the first analysis. Since the efulfilment is a pure online intermediating business model, the same analytical approach is
applied as in the first analysis.
4.3.3 Strategic groups and market segments
The approach to the analysis of the strategic groups and market segments has two
steps that are to the certain extent mutually dependant. It is assumed that the specific
requirements and needs of the market segments of the e-commerce business unit especially in
terms of lead times, product returns management, and particular value-added services within
the e-commerce supply chain, partially mirror requirements and needs of the market segments
of the e-fulfilment business unit on the buy-side. There is though an opposite side to the buyside, a second market segment of the same importance - the supply-side, which requirements
and needs have to be properly investigated as well.
There is a clear link since it is assumed that the outsourcing of the activity passes the
requirements and needs of the customer to the third party but also ads additional ones that are
placed by the company that seeks the outsourcing. Thus, the analysis of strategic groups and
market segments is done in two steps. First, the strategic groups and market segments of e34
commerce business unit are analyzed. Second, the same is done for the e-fulfilment business
unit.
4.4 Frameworks for internal analysis
The internal analysis of the ecosystem of the business is done in two steps. Firstly, the
analytical framework is applied on the current business situation. Second, the assumptions on
the internal environment in terms of value creation potential are made employing the known
outcomes of researches.
4.4.1 New value chain
In order to analyze the value created in the value chain thoroughly the individual
elements of the value network have to be clearly outlined. Chaffey‟s (2009) scheme of value
network will be used in order to identify all the elements. Only after the individual elements
of the value network are defined, it will be acceded to the investigation of the value chain
according to the “new value chain” framework proposed by Chaffey (2009) which is a more
appropriate approach to investigate the services in the e-business area. Since the company is
not at the moment conducting the e-fulfilment business the internal analysis will be an
analysis of a hypothetical e-fulfilment business model. This model will be based on the
capabilities of the e-fulfilment providers identified by Cho et.al (2008) and scope of efulfilment presented by Burn and Alexander (2005).
Since the e-fulfilment model is expected to create additional value for an e-commerce
retailer, the new value chain of the online retailer will be outlined including the incorporation
of the e-fulfilment partner. The additional value created by this incorporation will be
summarized along four dimensions using the Amit and Zott (2001). This will help the
identification of the key selling points of the e-fulfilment service and it will also contribute to
the determination of the business strategy.
4.5 Opportunities and threats
The most important and influencing factors from the external and internal
environment will be summarized in the SWOT analysis. The SWOT analysis is done for both
of the SBUs individually.
4.6 Methodology for the strategy definition
The strategy as an outcome of the thesis is defined based on the results of internal and
external analysis. The defining process makes use of the marketing mix framework in its
35
extended version Keřkovský and Vykypěl (2006). Furthermore, the process focuses solely on
the initial year of the operations, and thus some of the mention elements are rather of an
operational character.
36
5 Analysis of the external environment
The foundation for the external analysis is formed by the data and the information
provided by the company and the data and information collected from macroeconomic and
industry reports.
5.1 Analysis of macro environment
Political factor
The political situation in the Czech Republic is not very stable in terms of the power
of the ruling governmental coalition. This also affects the potential of the country to adopt the
Euro currency any time in the following few years. Based on the Transparency International
report, the Czech Republic is perceived to have an element of corruption in the public sector
and according to the evaluation (4.6) the country belongs to the second half in the whole
world (the scale is 0 to 10, 10 being the most transparent) (Transparency International, 2010).
There are no inferences on the company in terms of the political setting.
Economical factor
Czech Republic was hit by the economic downturn since its economic performance is
tightly connected to its largest international trading partner Germany (30% of Czech
international trade) and also to the automobile industry (CzechTrade, 2011). The GDP of the
Czech Republic has been steadily rising again after reaching the very bottom in few years in
2009 and the trend of growth is predicted to continue in the following years ahead (CNB,
2011). The virtual economy is slicing off larger piece of the GDP and it is expected to rise on
a rate of 12% annually and to produce 5.7% of GDP5 by 2015 (BCG, 2011). Due to the
unstable conditions the level of the oil prices is expected to rise in 2011 and reach the level of
the year 2008 which could potentially have substantial impact on the transportation (MFCR,
2011). The bank loans interest rates react to the change in the market interest rate with the
delay of few months therefore the expected rise in 2011 is projected to the cost of loans only
in 2012 (MFCR, 2011). Czech Koruna is expected to strengthen against the two most
important currencies, US dollar and Euro, in the following years which can shuffle the
balance of trade. The government is introducing legislation that attempts to unionize by 2013
the value-added-tax (VAT) and abolish the existence of impaired VAT that applied only to
the certain product categories (MFCR, 2011). Both, positive and negative effects on the prices
5
The overall contribution of the virtual economy in 2009 reached 3.6% of GDP (BCG, 2011)
37
of some produce are expected. Even though the disposable income has been steadily
increasing since the stagnation in 2008 and 2009, the relative share of the savings on the
disposable income is estimated to be lower (MFCR, 2011). This is explained in two ways.
First, the decrease of the relative share of savings on the disposable income is offset by the
increasing disposable income. Second, this is due to the fact that the economy is recovering
and the population is not anymore afraid to spend more money on services instead of saving
for the bad times to come. The government instituted a program to financially support the
innovations within the small and medium sized business by providing them the access to the
European Union finances until the year 2013 (MPO, 2010). On top of that, CzechInvest is
planning to support around 3000 small and very small business in the area of ICT until 2013
by offering them subsidies amounting between 2000 CZK up to 500.000 CZK (ITBiz, 2011b).
The increased spending due to the recovering economy could have positive impact on
the company. The delayed reaction on the changes in the prices of petrol and credit has to be
also carefully observed by the company (i.e. in the case of short credits the company would
have to optimize the cash flow). Lastly, the company may consider making use of the framer
program of MPO to apply for the financing for the e-fulfilment business which would in a
larger scale require robust warehousing facility.
Social factor
Czech customer tends to buy rather foreign brands of products that have long life
cycle and the shopping is significantly influenced by tradition and the amount of people that
give the preference to the pure Czech brands has been declining for years (FactumInvenio,
2011a). The research shows that predominantly woman shop online and most of the online
shoppers have higher education and also belong to higher income groups (FactumInvenio,
2008b; CzechPosition, 2010). According to the NewMedia TrendWatch (2011) the highest
percentage of the population shopping online based on the age groups is between 25 and 34
years has the highest percentage of online shoppers 44.5% 6. On average, 19.000 CZK per
head were spent through the online channel in 2009 and the total amount is predicted to rise
annually on average by 19% (BCG, 2011). Czech online shoppers also fancy very much
shopping on the US market as well as recently the market has seen rise in the deliveries from
China‟s online shops where the main article is technology.
6
Aged 16-24 38.8%, aged 25-34 44.5%, aged 35-44 34.7%, and aged 45 - 54 22.1% (NewMedia
TrendWatch, 2011)
38
The company should consider focusing on selling top brands with long tradition and
high brand awareness in the population. These well known brands are relatively expensive in
the Czech Republic and applying the strategy of importing the produce from US market
would not yield desired results. On the other hand the new trend of selling cheap UK
imported products from well known brands may be good prospect.
Technological factor
The penetration of the internet access in Czech Republic is 66% including both home
and work access (FactumInvenio, 2011b; NewMedia TrendWatch, 2011). Wireless internet
connection is the most commonly used type that offers lower speed as well as lower costs
(FactumInvenio, 2008a). Moreover, the trend predicates that the speed continues to increase
in the future. Decreasing prices of the smart phones and provision of higher connectivity of
the mobiles to the internet network, increases significantly the potential of mobile shopping
(QFinance, 2011). Even though, the use of internet in the mobile is yet not that common, the
potential of mobile sales is very high since 90% of population owes a mobile device but
currently only 7% of them is using the mobile internet (FactumInvenio, 2009).
Typical Czech customer is very conservative and risk averse and these are the main
reasons why i.e. the adoption of online credit card payments is very slow, and thus cash on the
delivery remains preferred payment type (Apek, 2008a). BCG (2011) study reveals that only
10% of the payments in the online shops were done using any kind of a different payment
mean7 than cash on delivery.
Utilizing very sophisticated and IT infrastructure demanding elements on the online
shops is not recommended due to the speed of internet connections. However, this will change
rapidly and the mobile devices, both mobiles and tablets, will become top shopping platforms
within few years. Therefore, the company should carefully follow the trends and start
adapting as soon as possible. All the e-commerce retailers have count on paying handling fees
to the logistics providers for cash-on-delivery finance services because it still remains the
preferred payment option when shopping online.
Environmental factor
The increasing influence of the preference of non-polluting activities and not
exhausting of non-renewable resources is starting to be projected to almost all the areas of
7
Credit card, PayPal, PaySec, mPenize, ePlatby, MojePlatba
39
business. Two consecutive studies done by academic researchers in 2009 showed that
shopping online decreases the environmental pollution by two thirds (QFinance, 2011). This
could have potentially positive influence on the environmentally sensitive segments of the
population. The positive effect may be that fragment of population will incline towards online
shopping.
There are no direct implications for the company.
Legal factor
Governments of many countries instituted special legislation that concerns the returns
and refunds connected to the online shopping. The online shopping was defined as a blind
purchase since the customer has no touchable experience with the product before buying.
Czech Republic adopted in 2000 a legislation that allows customers to return the undamaged
and originally packed product with all the accessories within fourteen days from the product
delivery (Sagit, 2000). The customer may claim refunds to full extent of the products‟ value,
however based on the Civil Code the online retailer is allowed to cut back the price by the
costs incurred for the returns delivery management (BusinessCenter, 2011). The body for
business conduct controlling (COI – Ceska Obchodni Inspekce / Czech Commercial
Inspection) carried out a mystery shopping investigation in 2011 into the online shopping
with the focus on the business misconducts. In 76% cases the online shops were guilty of not
having law-compliant terms and conditions such as accepting the returns only within 3 days,
not providing correct information about the product, or not informing the customer clearly
about the contract conflicts (ITBiz, 2011c).
The unofficial regulation of the e-commerce environment is attempted by the
Association for the Electronic Commerce (APEK) that offers a certification that assures that
the online retailer complies with the basic procedures of the safe internet shopping (Apek,
2008b). Moreover, the organisation is also aiming to introduce a delivery codex that creates a
standard for definition of delivery lead times for internet retailers (Apek, 2008c).
Nevertheless, this organisation is not officially instituted, and thus only online retailers with
high customer service approach opt for the certification and codices. European Union is also
planning to contribute to the regulation of the online retailing market in order to minimize the
number of frauds, assure quality to the customer and reduce the number of discrimination of
the customers purchasing from abroad. The “Code of EU Online Rights” encompasses
40
introduction of common European mark of trust that will become valid in 2012
(BusinessInfo.cz, 2010).
The company should pay an attention to the returns since not always they mean a lost
sale. In order to improve the image of the company, it is recommended to comply with all the
codices and obtain all the possible certification to prove the customers the reliability and
security.
5.2 Analysis of the industry
The internet shopping is not enjoying that high popularity in Czech Republic due to
the fact that the customers are afraid of complicated returns processes, high prices for the
delivery and other delivery problems (FactumInvenio, 2008b). On the other hand the Czech
online shoppers are the most active out of 13 Central and Eastern European countries by they
still lag behind the average of Western Europe where 19% 8 more of the overall population
shops online (CzechPosition, 2010). Even though the dominant commodity on the Czech
online market is consumer electronics and IT, the potential for higher sales in the area of
sporting goods and clothing is increasing and these two categories of articles are becoming
one of the preferred ones to shop for online. The overall strong increasing trend of online
sales is illustrated with the steady rise in the last three years on the fixed annual percentage
rate of 22% (FinancniNoviny, 2011a). Moreover, the economic downturn was not projected to
the sales in 2009 due to the fact that the customers sought to find better offers more online
instead of reducing the consumption.
milliards
CZK
% increase
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1
NA
2
100.00%
4
100.00%
7
75.00%
10
42.86%
14
40.00%
18
28.57%
22
22.22%
27
22.73%
33
22.22%
Table 1: Online sales throughout the decade; Source: Financni Noviny: Internetove obchody loni utrzily
rekordnich 33 mld. Kc (2011b)
As it was outlined above, following section focuses on the investigation of the
competitive environment on the Czech online retail market specifically in the sporting goods
sector. In order to be able to assess the market conditions properly it is important to define the
meaning of the term e-commerce. By e-commerce this thesis is referring to the selling of the
consumers‟ goods and to it adjacent value-added services online – online retailing.
8
Population aged between 16 – 74 shopping online: EU(15) 42.2%, Czech Republic 23.7%
(CzechPosition, 2010)
41
5.2.1 Czech online retail market
The targeted group of potential customers is relatively large and encompasses 25% of
the internet population that practices sport actively (mostly users up to 30 years of age)
(FactumInvenio, 2011b).
Competitive Threats
New Entrants
Czech online retail market is dominated by several purely Czech shopping malls that
bundle the offerings of different product categories and have strong market positions namely
Mall.cz, Alza.cz, Kasa.cz, Obchodni-dum.cz, to name the first four with the highest monthly
rate of visitors (Ystats, 2010). Another very important player in the area of B2C e-commerce
is an auction server Aukro.cz that is said to be the leader in terms of the number of unique
visitors per month (Ystats, 2010). The increased saturation of the market especially in the
category of the consumer electronics was signalized by the consolidation of two of the top
five shopping malls (Kasa.cz and Obchodni-dum.cz) under one roof in order to make use of
the economies of scale (Lupa, 2008).
The increased number of shops that offer the same products gives a rise to the
commodization, and thus the companies are forced to compete on services and prices. The
price competition has its limits that are given by the maximal achievable level of the bulk
discount. Competing on services in many cases means streamlining and simplifying the
process flow of shopping procedures or changing the actual shopping steps that form the
shopping experience. These improvements require new technologies and integration of new
features (i.e. social shopping) that significantly raise the fixed costs of IT. Moreover, the
investment costs may be also amplified by the need of the warehousing facility or sufficient
inventories due to the fact that the availability of the product and the lead times are very often
deciding factors (in the e-commerce study of the Czech market respondents quoted the long
product delivery times as the most frequently encountered problem (Gemius, 2010)) (Porter,
2004). The fact that the Czech customers in general do not trust the security of online credit
card payments and that the payment methods such as PayPal, PaySec, mPenize, eKonto,
MojePlatba and so forth are not that popular yet increases the costs of the retailer in terms of
the need to invest in the security and marketing to convince the customer. Nevertheless, the
data from PayU, that is owned by the parent company of Aukro.cz, shows that the electronic
payments were on the rise in 2010 especially when the fast payment processing was required
42
and the usage increased by 60% (ITBiz, 2011a). On the other hand, it also increases the costs
of the customer since the cash-on-delivery payments also include financial handling fees (i.e.
around 1/4 of the PPL cash-on-delivery price is formed by the financial handling fees (PPL,
2011)).
The pronounced leader of the sports apparel and equipment sector is Sportobchod.cz
followed by strong positions of sport departments of shopping malls Mall.cz, Kasa.cz and
Obchodni-dum.cz. The competition was intensified by the entrance of two typical brick-andmortar retailers, Sportisimo and Hervis. Even though the position of these brick-and-mortar
retailers is in the offline world very strong, their online presence is not that sound yet.
However, Sportisimo has recently made a move to strengthen the online position and acquired
Tvujsport.cz one of the direct competitors of the company and its five selling websites in
order to profit from and established position. There are numerous smaller online shops with
the nation-wide market focus. The robust market analysis showed that based on the
assortment advertised and sold the company has 233 competitors of different polarization,
size and potential impact (Appendix 8)9. However, this number does not include online
retailers from categories such as outdoor, cycling, skiing, snowboarding, fishing, street sports,
adrenalin sports, golf, fitness and some of the less important shopping malls. The online
retailing segment of sports apparel and equipment is growing very rapidly. Even though that
the sports apparel was not considered to be good article to be sold online due to the need of
trying out and seeing the fit, the online shoppers are more getting used to the fact that they
can make use of returns which by the law allows them to return the product within 14 days
from the purchase. Nevertheless, the sports apparel and equipment segment is not just being
flooded with new online retailers but some acquisitions and exits ushering the consolidation
of the market were accomplished. Besides the Sportisimo‟s acquisition, the market leader in
the floorball segment Florbal.com bought one of its strong competitors Florbal-shop.cz. In
addition to that, BigSport s.r.o., one of the direct competitors of the company operating five
online shops with the specialization in football and shoes, has been sent to the bankruptcy
proceedings on 25th May 2011 (Justice, 2011).
The market segment is becoming saturated with retailers that do not specialize in any
particular category of articles, thus the competitive environment is becoming more intense
and the focus is pointed to the direction of specialization on few strategic groups rather than
9
The division of the competitors into the strategic groups follows in the later subchapter.
43
generalization. The specialization is done based on the brand, product type10, sport or group
of sports11. In 2010 the market witnessed the appearance of many new sports online outlet
shops that specialize in importing highly discounted renowned sports brand 12. These shops are
gaining on the popularity due to their business model of selling cheap quality clothing that
enables the consumers to distinguish themselves and improve the image of the social status.
It is expected that the inflow of new specialized retailers that focus only on one or few
groups of strategic customers and narrow down the categories of articles sold will increase.
As a supportive argument is the fact that the Czech households are significantly increasing the
spending on the sports equipment. First, the annual expenditures in that category amount to
23.220 CZK, which is a year to year increase of around 9%, and the 86% of which is spent on
the sports clothing and equipment (iHned, 2009). Second, only 14% of all the sporting
equipment was bought online which means that out of the transactions amounting
approximately to 20.000 CZK13 only 2.800 CZK went through the online channel (BCG,
2011).
In addition to that, market can also expect that foreign renowned and established
brands of shopping malls (i.e. Pixmania) will enter Czech market as it is seen to have very
high potential in terms of the numerous IT brains and strategic location for entering other
Eastern European markets (iHned.cz, 2011). On the other hand, the number of the new purely
domestic market potential entrants that do not specialize and try to cover the widest possible
spectrum of customers will be minimal, since the competition with the established brands is
getting tougher and acquisition costs of the customer are becoming higher due to the fact that
it is growing significantly difficult to convince customer to overcome the switching costs.
These switching costs are generated through the user-friendliness of the website, customer‟s
learning curve, range of the services offered, and match with the customer needs.
New digital products
Traditional e-commerce channel is currently not being challenged by any new digital
product that would potentially change the paradigm of online shopping as such. The online
shopping experience could be significantly influenced by the development and
implementation of the concepts of augmented reality that is said to increase the conversion
10
Specialization in fitness machines or sport outlets with imported branded products from UK
i.e. ball sports or racquet sports
12
As of the end of May 2011 there are altogether 10 sports outlet shops with identical assortment
13
86% out of 23.220 CZK is spent on the sports clothing and equipment.
11
44
rates, emotionalise the shopping activity and abolish the impediments (EcommerceLounge.de,
2010). However, this concept is in very early stage and also requires adoption of the
appropriate technology. The concept of augmented reality could be applied to all the retailing
categories and the change it can bring to the online shopping would revolutionize the ecommerce. In principle, the current e-commerce is using fixed static digitalization of the
product in terms of pictures (or eventually videos). The augmented reality shopping alters the
digitalization of the product and brings the digital duplicates of the products to the real world.
The augmented reality has the potential to merge both concepts of online and offline shopping
into one enhanced experience by bringing the off-line shopping environment to the home of
the customer using the digital technology. The fact that is approach could be very appealing to
the customers is supported by the results of the study that asserts that the customers like the
offline shopping experience that is very often connected with the preliminary online research
(MultiChannelretailer.com, 2009). This is also supported by the results of the study to the
CEE e-commerce markets indicating that 64% of the respondents want to see and evaluate the
product prior the purchase (CzechPosition, 2010).
New Business Models
The online retailing environment is being challenged by the new models of the
discount sales (Slevomat being the market leader), exclusive sales websites with time limited
offering (BigBrands.cz) or social shopping (Zoot.cz). All three types have significant
potential to enhance the business models of the general e-commerce websites. The increased
number of the online shops gave rise to the intermediary business models that use a virtual
value chain (Rayport and Sviokla, 1995) to generate additional value to the customer by
making order in the products‟ information provided and allowing the comparison of different
offerings, thus increasing information transparency and bargaining power of customers
(Porter, 2004). The most pronounced comparison websites are Heureka.cz
14
or Zbozi.cz.
These intermediary business models are potential threat to the online retailers since they can
seize the customer base in terms of unique visits and become the main face to the customer,
thus slowly initiate the transformation to the marketplace (i.e. Heureka.cz is set in that
direction with the constant innovativeness). The increasing importance of the comparison
websites was illustrated by the results of the BCG (2011) study to the Czech online market
stating that 80% of the customers of small online shops and 15% of the customers of the big
shop are generated through the comparison websites. The positions of the comparison
14
Significant stake in the Heureka.cz project is controlled by Aukro.cz.
45
websites is even accentuated with the fact that they implement revenue models where online
retailers have to pay per click per product. If not strong enough the online retailer could
become only another piece in the upstream supply chain of that marketplace and eventually be
leapfrogged which could force the costly reinvention or exit.
Online shopping has been gaining on the offline shopping throughout the years and
the difference between the growth of the offline and online commerce has been in double
digits in recent years (Forrester, 2011). Some predicted that the off-line shopping experience
will diminish, cease to exist and online becomes the main shopping channel. This expectation
was significantly shaken by the proliferation of mobile applications and the introduction of
the concept of m-commerce which seemed to support the take off of the online commerce on
the physical stores. However, as well as the offline stores started opening online stores and
vice versa, the mobile commerce is of particular benefit for both. Mobile commerce
significantly enhances the offline shopping experience by offering applications that are
capable of product recognition or offer rewards for the offline shopping (i.e. Shopkick.com).
Nevertheless, the Czech online retail market does not have to face these new technological
developments in the direction of m-commerce yet, since there is a market lag between the
pioneer of e-commerce and new approaches, US, and Central and Eastern European markets.
This lag is justified two fold. First, by the fact that only 7% in the overall population in the
Czech Republic uses mobile internet and out of those 7% only 27% would make use of the
mobile commerce15 (FactumInvenio, 2009). Second, only 23.7% 16 of the Czech population
aged between 16 – 74 shops online compared to 42.2% average of EU – 15 or 66.1% of the
largest e-commerce market in Europe, UK (CzechPosition, 2010). However, the process of mcommerce adoption could be potentially speed up due to the Mopetcz17 initiative that is
supported by two mobile operators and four banking institutions and aims to develop the
market of mobile payments. The Mopetcz product will be introduced to the market at the end
of 2011 (Mopetcz, 2011). Needless to say, that the tablet devices generate the two-thirds of
the mobile e-commerce traffic and this phenomenon has been named as a T-commerce and
has been given very bright outlooks (Forrester, 2011).
15
According to the data from CSU (2011) about the population as of 31 st March 2011 together with the
percentage results of Factum Invenio research, there are approximately 199.127 potential mobile
commerce users.
16
Approximately 2 million (BCG, 2011)
17
The investors of the initiative are Telefonica O2 Czech Republic, Vodafone, Ceska Sporitelna a.s.,
GE Money Bank a.s., Raiffeisenbank a.s., UniCredit Bank a.s. and A-communications (Mopetcz, 2011).
46
Sell-side threats
Customer threats (bargaining power of buyers)
The bargaining power of customers is significantly increased by the price comparison
/ shopping comparison aggregators that wider the choice for the customer and save searching
costs. The study of the Czech online customer purchasing behaviour shows that the 60% of
them use the comparison websites to look for the best offer (BCG, 2011). There is no
uniformed approach to the shopping process and the design and functionalities vary from
shop to shop, therefore the bargaining power of the customers is reduced by the switching
costs incurred in terms of being at the beginning of the learning process when shopping with
different retailer.
Power of intermediaries
The intermediaries can significantly influence the balance of the competitive forces on
the market. This is the case of Heureka.cz
18
(shopping comparison portal) that by providing
certification, when certain number of satisfied customer is reached, creates a lock-in and
significantly influences and amplifies the competitive environment. This exploration of the
market gave a competitive edge to the early entrants (online retailers that started to participate
at the portal) as well as to the fast followers that initiated the cooperation with the
intermediary at the very beginning. The early cooperation is now yielding the results by
eating into the sales of the rest of the competitors (including the chosen company). Aukro.cz,
as the leader of B2C e-commerce in Czech Republic based on the unique visitors per month
(Ystats, 2010), spurs the price competition among the retailers by being an alternative sales
channel for the new products as well as the product returns of which original value cannot be
recovered to the full extent. The Aukro.cz as an intermediary for sales is gaining a momentum
by attracting professional sellers which contributed substantially to the increase of the
exhibited subjects by 55% in 2010 (FinancniNoviny, 2011b).
Buy-side threats
Supplier threats (bargaining power of suppliers)
The suppliers have relatively strong bargaining position especially the big labels in the
sports apparel and equipment sector (Adidas, Nike, and so forth). The demand is very
18
Other important comparison websites on the Czech market are Zbozi.cz, Hyperzbozi.cz, Monitor.cz,
Srovname.cz.
47
fragmentized which gives the suppliers lot of online shopping windows to place the products
in. Larger suppliers that distribute the four top brands in Czech Republic Adidas, Nike, Puma
and Reebok offer selective distribution (FactumInvenio, 2004). Only those online retailers
that are able to fulfil basic requirements in terms of committing to the minimal monthly /
quarterly / annual volumes and sticking to the policy of conserving minimal retail prices can
sell the products of those brands online. The small online retailers that are not capable of
fulfilling the conditions have to purchase those products from the wholesalers which
significantly decreases profit margin. In addition to that, the wholesale of those brands
through unofficial channel is not allowed and mostly the official channels also place some
basic requirements that may be difficult to be fulfilled. On the other, the brands that are not
that strong do not limit the distribution and supply the whole market. What all the suppliers
have in common is that they have the statuses of official national or regional distributors, and
thus this link of the e-commerce supply chain cannot be left out. The bargaining power of the
suppliers of non-established brands is considerably inferior but balanced with the strength of
the small retailers. The bargaining power of the suppliers is off-set by the fact that the
shopping of 48% of the population is not brand-dependent (FactumInvenio, 2004). Therefore,
the smaller retailers are able to generate profit. Especially the smaller online retailers are to
the certain extent very dependent on the logistics providers that dictate the pick-up times of
the deliveries and also the approximate delivery lead times. On the other hand, the retailers
that produce large volumes of parcels have more favourable positions towards the logistics
providers due to the revenues they generate for them.
Intermediary threats
Since for most of the market followers the online retailers are the only customers
(bricks-and-mortar shops usually sell only the top brands in particular categories), some of
them aim to establish their own face to the customer and pursue dual strategies that bring
them additional benefits and free them from the dependency and decrease the bargaining
power of the online retailers (Dumrongsiri, 2008).
48
5.2.2 Czech e-fulfilment market
E-fulfilment occurred as an efficient combination of the drop-shipping model operated
by some of the suppliers and the online marketplace offsetting the disadvantages of the
previous one.
Competitive threats
New entrants
The market landscape could be substantially altered after the announced entry of
Pixmania that attempts to establish the headquarters for Central and Eastern Europe in Brno,
Czech Republic (iHned.cz, 2011a). This is due to the fact that Pixmania is a very strong
player in the area of e-fulfilment and one of the biggest in terms of consumer electronics in
Western Europe (Fair-News.de, 2011). As of today, there is only one known provider of
fulfilment services for the online shops on the Czech market 19, ComGate Logistics20. In
addition to that, the two dominant companies that deliver the small parcels on the Czech
market PPL (a partner of DHL) and Czech Post do not offer any specialized services in any
direction of e-fulfilment (iHned.cz, 2011b). E-fulfilment market has a significant entry and
exit barriers due to the capital requirements in terms of warehousing facilities and investments
into the inventory purchasing. Currently, the distribution channels do not constitute the barrier
to entry and it remains as long as none of the logistics providers does not decide to disintermediate the e-commerce supply chain and offer own e-fulfilment services. This would
epitomize significant barrier to success. E-fulfilment aims to push the delivery prices lower
but that can potentially intensify and make the competition fiercer since the big B2C online
retailers and shopping malls admit that they earn profit on delivery fees (iHned.cz, 2011b).
The need of having sufficient and proper IT infrastructure that is connected to the back-end
systems of online retailers, suppliers and logistics providers significantly increases the IT
investments.
New digital products
E-fulfilment services have a potential to be used also in the distribution of the digital
products. With the increased broadband connection more users are making use of paid movie
streaming services online. Nevertheless, not many e-commerce models are based around
19
The largest international provider of e-fulfilment services is ShipWire (http://www.shipwire.com) a
US based company that operates warehouses in US and also one warehouse in UK. For example the
attempts to mitigate the business model in Germany were done by Fulfilment by Amazon, DHL‟s
eParcel or Hermes.
20
http://www.comgate.cz/cz/logistika/logistika-pro-eshopy
49
offering streamlined movies for a commission since the hardware and software requirements
are very financially demanding. Digital products fulfilment could functions as an efficient
backend storage that is connected to the front ends that take care only for the shopping
experience (i.e. fulfilment of online streamlined movies). Taking into consideration the notion
of the virtual value chain by Rayport and Sviokla (1995) the new digital product could be
generated by the way the information about the delivery is gathered, synthesized and
presented to the customer. Nevertheless, there is no eminent progress in that direction, no
shakeout is expected.
New business models
Forrester (2011) reported that the recommendations in the area of strategy for the
following months to come is the partial reinvention of the multi-channel strategy in terms of
providing web-enabled kiosks or in-store picking options. It is expected that the online
retailers will aim to establish the offline presence and vice versa. The preferences of
customers in terms of delivery parameters differ substantially and some business models
make use of it by offering customized delivery options. These options are provided to the
shopping baskets in a real time based on the data gathered about the customer and product to
be ordered (customer‟s delivery address, location of the warehouse and other customer
preferences). Shutl21, an UK based start-up has started offering this service in 2010 and since
acquired many big customers, i.e. Argos the largest retailer in UK. This approach is very
efficient and useful especially in the big agglomerations where the same day delivery and
specific time slots could be offered. Offering a real-time auction based model of the delivery
times and rates to the customers could become a significant complementary feature of the efulfilment business model. The recent research of Snow Valley (2011) showed that this model
is implementable due to the fact that the preference of the consumers is switching from “the
low delivery price” to “as fast as possible”.
The big sporting goods offline retailers (Sportisimo, Hervis, Intersport-Drapa, and
Gigasport) have very convenient infrastructure including pick-up spots (shops) and several
warehousing and distribution facilities (iDnes, 2007). The fact that the actual selling space of
retailing facilities run by those retailers usually covers only one third of the total facility can
potentially enable them to run the e-fulfilment services for the online shops, and thus improve
their presence in the online world and also their future outlooks (CT24, 2010).
21
http://www.shutl.co.uk
50
Sell-side threats
Customer threats (bargaining power of customers)
The established online retailers already have warehousing facilities of different size.
These retailers are the market leaders. The rest of the market is very much fragmentized and
most of the retailers do not have sufficient warehousing facilities and keep fewer inventories
and rather purchase from the suppliers in smaller amounts losing the opportunity of bulk
discounts. In these terms the bargaining power of customers is very low and the e-fulfilment
provider that would manage to concentrate at least few suppliers in the marketplace gains
significant competitive advantage and also very strong bargaining power over the online
retailers. It is expected that the number of the online retailers that are specialized in certain
category or customer group will rise also due to the fact that the sporting equipment and
clothing is becoming more popular article to shop for online (APEK, 2010). This will
contribute to the fragmentation of the demand. The e-fulfilment provider also subcontracts the
third party logistics providers for delivering parcels and commits itself to certain volumes
which in return grants the provider substantial advantages of larger customer, especially lower
delivery prices. The provider of e-fulfilment services can easier initiate collaboration with the
third party logistics providers by representing a group of internet retailers. This collaboration
could potentially lead to a new product development that is based on the specific needs of ecommerce. That would in turn decrease the bargaining power by creating a lock-in, since the
retailers would be bound to the unique services under unique conditions that could be
obtained only with the e-fulfilment provider. Moreover, the e-fulfilment model would provide
retailers with variety of delivery options which would increase the lock-in due to the fact that
based on the research on largest e-commerce market Europe, UK, the sports retailers are least
likely to offer variety of delivery options (Snow Valley, 2011). The bargaining power of the
customers is also slashed by the fact that the online retailers will earn significant price
discounts when they initiate the bulk purchasing through the e-fulfilment provider together
with the other market competitors. Overall, the benefits in terms of price are illustrated by the
case study of ComGate (2011) that pinpoints that costs savings of 15% were reached together
with an annual increase of sales of 20%.
51
The potential customers that do have warehousing facilities at least at the medium
size22 may become a threat. They may decide to pursue diversification strategy and leverage
their knowledge about e-commerce and enter the e-fulfilment business. The already existing
warehousing facilities of appropriate size will significantly lower the barriers to entry the efulfilment business.
Intermediary threats
The potential intermediary threat that can occur is that the customers initiate
cooperation with other retailers and create a drop-shipping marketplace with the aim to
minimize the inventory holding costs on the site of the provider as well (neutral noncommissioned model similar to e-fulfilment but sourced directly from suppliers). This would
mean that the marketplace would connect directly suppliers and online retailers and shut off
the intermediary e-fulfilment model. Even though the suppliers may not have the capacity and
experience to provide the service at the moment, when the cooperation on the side of the
online retailers shows that the demand for the drop-shipping options is significant, the
suppliers may develop necessary capabilities to enter the drop-shipping business. The
potential is substantial while the drop-shipping would offset the costs in terms of commission
incurred from the usage of intermediary e-fulfilment provider.
Buy-side threats
In terms of the e-fulfilment business model, the providers of the physical delivery
services and the suppliers / distributors of the products are considered to be the main
stakeholders of the e-fulfilment demand‟s side.
Supplier threats (bargaining power of suppliers)
The e-fulfilment provider will simplify the pick-ups of the parcels for the Czech Post,
PPL, DPD and other providers so that they would not need to plan different routing for
different collection points for different online retailers but they would have to focus only on
one or few collection points, central warehouses. In addition to that, the provider also
concentrates significant volumes of parcels and due to the fact that the complexity of the
collection is reduced, the revenues of the logistics providers will increase which will be
projected into the delivery price. On the other hand, the e-fulfilment provider has to tightly
22
By the medium size warehouse facility is understood a lease of a facility that serves
specifically
for warehousing. The offline shops or collection points of small retailers do not comply with the
definition.
52
cooperate with the logistics providers and try to develop a delivery product that would suit the
needs of e-commerce which slightly decreases the bargaining power. On top of that, Czech
Post and PPL are the two most often chosen delivery options among the customers in the peak
period of the year with Czech Post being the first option for 46%, PPL for 21%, DPD for
13%, TopTrans for 10% and other delivery options23 for remaining 10% of customers
(FinancniNoviny, 2011a). Even though the reliability of the delivery service provided by
Czech Post is very low and rather decreases the satisfaction of the customers, the Czech Post
plays an important role due to the tradition, chain of offices and lower prices. This argument
is supported by the fact that 60% out of 233 competitors of the company offers the services of
Czech Post compared to 48% offering deliveries through PPL (Appendix 9)24. The bargaining
power of the logistics providers is enhanced by the fact that they are able to offer very high
discounts to key-accounts. These discounts are so beneficial that some of the online shopping
malls earn profit on the delivery charges (iHned.cz, 2011b). This is illustrated in delivery
rates overview of seven largest shopping malls where the gap in one delivery type between
the top three Kasa.cz, Obchodni-dum.cz, Mall.cz and one of the small shopping malls
Nakupnicentrum.cz amounts to 49 CZK (Appendix 3). The logistics providers will become
substantial threat for the e-fulfilment provider when the e-fulfilment brand is not enough
established on the market and they decide to introduce e-fulfilment services into their own
warehousing facilities. Collaboration is the key to success, and thus the bargaining power of
the suppliers of delivery services could be balanced with the bargaining power of the efulfilment provider in the case the common warehousing or fulfilment facility is introduced.
The substantial obstacle may be encountered when the e-fulfilment provider will aim
to become the one face for the group of the customers since some suppliers explicitly prefer
the personal approach to the customer. On top of that, the suppliers would not cease the
option of selling directly to the online retailers and other subjects. This would put the supplier
and e-fulfilment provider into the competition for the provision of the services for online
retailers if the boundaries and market segments are not clearly aligned between them.
Since the positive effect of the marketplace is increasing with the number of the
contributors (Petersen et.al, 2007), the impact on the bargaining power of the suppliers would
be significant. At the beginning of the introduction of the model the suppliers are expected to
have significant leverage over the e-fulfilment provider which would in turn push up the
23
24
General Parcel, GLS, Messenger (courier), HDS, etc.
42% offers at least combination of both
53
customer acquisition costs. On the other hand, with an ongoing operation of the model on the
market the benefits for both the online retailers and suppliers will become clearer, also due to
the positive effect of marketplace (decreased delivery rates, etc.), which will in turn result in
the increased bargaining power over the suppliers. This model is applicable only to the
suppliers that do not posses significantly large warehousing facilities.
On the other hand, suppliers may be substantially threatened by the rising bargaining
power of the e-fulfilment provider. Since the small and inflexible suppliers or official
distributors on the Czech market may become not efficient enough and satisfy the needs of efulfilment and its customers, the provider may overcome the rigid element in the chain by
direct negotiations with the manufactures in the home country and ensure the online retailers
more efficient imports and order handlings.
Intermediary threats
The number of the parcels that are delivered on behalf of online retailers is increasing
annually and e-commerce is becoming a strategic area for logistic companies. Many logistics
providers started offering also order fulfilment services for online retailers in the western
European markets, i.e. in DHL and Hermes in Germany or ComGate Logistics in the Czech
Republic. Since e-fulfilment is seen as a very important business, it is expected that with the
increasing smaller parcel deliveries on the Czech market logistics providers will attempt to
source the fulfilment in-house. This would be of an immense benefit, since the online retailers
would be potentially able to make use of warehousing at different locations, and thus increase
substantially the product delivery. Nevertheless, this threat is time-dependant and the
customer acquisition costs may become very high in the case that there was an early
incumbent entrant on the market that offers e-fulfilment deliveries for the prices that are
significantly lower due to the bulk purchases than the prices offered by the fulfilment follower
businesses of logistics providers.
Many suppliers do not dispose of the logistics capabilities in order to operate larger
warehouses and offer value-added services in the product deliveries. Nevertheless, some
suppliers may decide to diversify the portfolio and start offering drop-shipping services for
the online retailers by which the disintermediation occurs and one step in the supply chain is
overleapt. By offering drop-shipping services the suppliers are able to control the order
fulfilment and also give preferences to the more profitable customers. On the other hand,
online retailers profit from the shortened lead times, zero costs for the inventory holding and
54
zero costs for the intermediate delivery from the site of the supplier to the warehouse of the
online retailer or e-fulfilment provider. The largest B2C e-commerce retailer in the world
Amazon is substantially benefiting from this concept (Forrester, 2011).
5.3 Market segments and strategic groups
The identification of strategic groups of online retailing business unit will also easily
enable the definition of the strategic customers of the e-fulfilment business unit.
5.3.1 Online retailing SBU
The basic market segmentation could be according to the span of the different
categories offered. Based on this dimension we can clearly make a distinction between the
shopping malls, which have the sports products as complementary offerings to their dominant
categories, and the pure sporting goods retailers. The strategy of the online malls is to keep
assortment of quality products from big labels and focus on the sports categories that offer
variety of products and which require the customer to buy more than one specific equipment
to have the complete gear for practicing the particular sport. Nevertheless, the differentiation
of the strategic groups will be placed along two dimensions the span of assortment and the
strategic customer group. The „specialization‟ categories are shopping malls, sporting goods
retailers, specialized sporting goods retailers, sporting goods outlet retailers, and one-brand
sporting goods retailers. The „strategic customer group‟ categories are as follows sports
fashion, active sports, and teams and schooling institutions. This matrix creates a potential for
fifteen different strategies.
The chosen company is defined as pure sporting goods retailer of several categories
with two brand-only specialized shops with the focus mainly on the active sportsmen and
teams and schooling institutions. Thus the matrix of strategic groups is narrowed down to
three-on-two only – sporting goods only retailers, specialized sporting goods retailers and
one-brand sporting goods only retailers contrary to active sports and teams and schooling
institutions. The company itself cannot be in the competition with the shopping malls‟ sports
equipment categories due to the size of those companies as well as to the lower level of
specialization of the shopping malls. Moreover, the company is not in the direct competition
with the sporting goods outlet retailers due to the fact that their main focus is on the big
labels and fashionable side of sports. In addition to that, the customers that are looking for
sports fashion do not the targeted group of strategic customers. In other words, the goal is to
55
offer functional and quality sporting equipment for reasonable price for both occasional and
also very active sportsmen.
The individual strategies of the company will be extrapolated on each of the strategic
groups. Following description is making use of the wording small and big labels. By big
labels is meant each sporting brand that is the general population familiar with (i.e. Puma,
Adidas, Nike, Reebok, etc.). On the other hand, the small labels are the sport brands that are
well known only to the fragment of the population with particular interest.
The strategic groups of the company are formed by the one-to-one combination of
individual categories of each of the dimensions. The competitors in each of the strategic
groups are further evaluated based on the threat they pose to the company. The userfriendliness of the website, offer of services and delivery options and brand name were the
main attributes.
Specialisation
The common thing for the specialisation is that the retailers attempt to sell also value
added services but besides that the main competition is on price. On the other hand, the
retailer at the other end of the spectrum offer value added services and expertise but price is
not that main factor.
Sporting goods only retailers – This category is selling several categories of sporting
goods and these categories are equally distributed between the individual and team sports
types. The typical is the offering of variety of brands big and small where the smaller labels
are in the majority. There are no special value added services for the customer. The product
lines are rather reduced so that the choice for the customer is made easier by limiting the
number of products that have the same attributes. The variety of product categories also
means that the offering is not covered with the inventories completely and some products
have longer delivery times. The shopping experience is an important factor since most of the
starters in this category do not poses sophisticated IT software and efficient infrastructure that
would offer superior customer experience. Therefore, the level of the offered services may be
lower. The company competes within this strategic group with 140 other similarly focused
retailers out of which 58 are the very closest competitors (Appendix 8).
Specialized sporting goods retailers – This category is focused on different types of
the equipment and apparel needed for the particular sport. The typical is to offer variety of big
56
and small labels where the majority is created by the smaller labels that produce category
specific quality equipment. Some categories that are focused on the activities that are popular
only in particular region (i.e. Floorball – Europe, especially Nordic countries) do not have the
traditional big labels at all. The product lines of the brands are rather kept as wide as possible.
The inventory coverage of the offering is significantly higher with shorter delivery times. If as
a line of specialization is taken the assortment sold, then the company has to compete with
online retailers that focus on football, floorball, in-line, tennis, racquet sports (squash,
badminton, speedminton, and tennis as well), thermoclothing, basketball, shoes, sport
protections, handball, ping-pong and aerobic. However, the there are much more categories
such as outdoor, cycling, skiing, snowboarding, fishing, street sports, adrenalin sports, golf,
fitness and some other smaller shopping malls where the company does not participate at all.
In terms of specialization, out of total of 65 competitors the closest ones are altogether only
19 in football, floorball, in-line and basketball category (Appendix 8).
One-brand sporting goods only retailers – This category sells only particular product
line or the whole production line of a particular label. The focus is on the brand experience
that is often complemented by value added services 25. The product lines are kept as wide as
possible. The inventory coverage of the offering is significantly higher with shorter delivery
times. The company pursue strategy of offering two small labels (Jako and Legea) through
separate online shops to the wide public as well as to teams and schooling institutions
including the printing services. This area is where the company is particularly strong and
generates main revenues. Among the shops that specialize only in selling one brand has the
company 28 competitors out of which 12 are the closest ones. The most numerous groups of
these specialized retailers sell Adidas (5), Legea (2) and Jako (2). The rest is attributed to
Hummel, Nike, and Reebok (Appendix 8). The company competes with the one-brand only
shops not just with the two specialized online shops but also with the third that is focused on
more categories.
Nevertheless, all the retailers that fall into the above mentioned categories are among
themselves in the mutual competition – i.e. the one-brand sporting goods only retailers are
eating into the sales of the specialized and non-specialized retailers by luring away the
customers that seek the brand experience. That actually means that the company is
cannibalizing the sales of the online shops owned since both one-brand specialized shops may
compete with the generally focused one and vice versa.
25
In case of team jerseys it is usually a printing and design.
57
Strategic customer group
Active sport – This category aims to address the active sportsmen as well as the
occasional sportsmen. The wide offering includes many variants and alternatives of each
product. The offering includes big and small labels.
Teams and schooling institutions – The retailing of the sporting goods for the
collective sporting activities requires the development of bundled products that offer a good
value for a reasonable price. The teams on the regional and local levels as well as the
schooling institutions are targeted with the offering of bundled products of smaller labels. The
offering is supplemented with the value-added services (in most cases printing services). The
speed of the delivery plays an important role, and thus usually one bundled product has to it
few other alternatives with very similar attributes in order not to lose the customer‟s purchase
due to the inventories run out. The policy of lower profit margins and large bulk discounts is
standard.
Using the chosen approach for the selection of the competitors, none were found that
could be distinguished as exactly belonging to one of these two categories, therefore this
dimension is not applicable.
5.3.2 E-Fulfilment SBU
The e-fulfilment business model with the focus on the sports apparel and equipment
belongs to the two-widely defined strategic groups - the logistics providers and the suppliers
of the sporting goods.
The strategic group of the logistics providers – The e-fulfilment provider competes
with the third party logistics providers on prices and variety of delivery services offered. In
addition to that, the offer of additional value added arising from outsourcing plays a very
important role (inventory management outsourcing, etc.). This source of the competition is
expected to be very subtle and the logistics providers will rather tend to embrace the efulfilment model. As a direct competition is considered ComGate Logistics that already
services few online shops with fulfilment. However, none of the customers are yet from the
sports sector.
The strategic group of the suppliers of the sporting goods – The e-fulfilment provider
competes with the suppliers of the sporting goods on prices and variety of assortment options
offered. In addition to that, the e-fulfilment provider is also in direct competition with the
58
drop-shipping models of the suppliers in terms of prices for inventory keeping and variety of
delivery options offered.
59
6 Analysis of the internal environment
6.1 Online retailing SBU
Value network
The value network of the online retailing branch does not have high level of
complexity and includes suppliers of the sporting goods, buy-side intermediaries (sporting
goods wholesalers), IT infrastructure provider, financial services, and the logistics providers
that handle the outbound logistics services. Based on these finding the Chaffey‟s (2009)
diagram of the value network looks as follows:
IT Services
Financial
services
Suppliers
Outbound
logistics
Core value chain activities
Buy-side
intermediaries
Sell-side
intermediaries
Figure 12: A value network of the online retailing business unit
Many of the value chain activities are done in-house and not being outsourced to
partners. That is the reason why i.e. human resources or administration are missing on the
diagram. Inbound logistics is not included due to the fact that the inbound deliveries are
managed by the suppliers in their value chain and the company does not have any partner in
this area. The IT services are outsourced to two providers based on the platform. The
outbound logistics is managed by either PPL or Czech Post.
Value chain
The new value chain presented by Chaffey (2009) has six essential components
namely “market research”, “new product development”, “market products”, “procure
materials”, “procure products”, and “manage selling and fulfilment”.
Market research
The company is monitoring the behaviour of customers in terms of responsiveness to
the promotional actions. In addition to that, the research on the website of competitors helps
to adjust the product offering or promotion. On the other hand the monitoring of cart
60
abandonment, delivery options preference and payment options preference does not exist. The
approach of the company represents the push strategy rather than pull strategy which is the
very common among the online retailers.
New product development
Most of the products in the offering are suitable articles for the printing service which
is offered by the company as a value added service. Provision of this service is very
individual and so is then also the commodity, i.e. jersey, which is complemented by the
printing service. In terms of the provision of this value added service the company works very
closely with the customer on the development of new customized product. The company has
substantial expertise with the schooling institutions. This expertise is employed in the new
product development together with the suppliers.
Market products
The company has minimal expenditures on the marketing. All the marketing activities
done online are for free or for symbolic commissions, therefore the expenditures on the
marketing activities do not boost the products‟ price. The missing presence on the most
important comparison website Heureka.cz and not clearly defined marketing strategy at
Zbozi.cz makes from the company that was one of the first entrants once of the many market
followers with decreasing orders. The company is not making use of the PPC (Pay-per-click)
advertisements on any of the two dominant search engines Seznam.cz and Google. According
to the owner of the company the PPC advertisements were tested but due to the lack of
knowledge in that area the strategy was not very well shaped which lead in turn to the very
low conversion rates and very low number of customer‟s acquisitions. The customers of the
online retailer also miss on any kind of a bonus system or redeemable vouchers. Due to the
very low inventories only few products are marketed with very concrete delivery times and
the rest is only vaguely marked as to be delivered within certain timeframe. On top of that, the
company is not making use of any CRM system, thus it becomes very difficult to keep track
of the customers and address them with special offers.
Procure materials
The products and services that have to be bough in order to make the product final
include the outbound logistics. The outbound logistics is bought on the ad-hoc basis and there
are no frame contracts or volume commitments. Basically, there is no scheduled arrival of a
61
courier of PPL or Czech Post to pick up parcels for delivery. Depending on the number of the
orders and the delivery options requested, the parcels are usually in bulk transported to the
Czech Post terminal or if needed the PPL pick-up is arranged. The only systematic evidence
of the procurement of outbound delivery is to be found in the accounting.
Procure products
The procurement is done either on the ad-hoc basis depending on the sales and
promotional actions of the suppliers or on the fit-to-order basis. The overall trend in the
inventories at the ends of 2008 and 2009 indicates that the policy is to keep the total value
under 200.000 CZK. Throughout the calendar year, there are several occasion for buying
highly discounted goods from the suppliers. In addition to that, one of the suppliers (Legea)
provides the company with special partnership agreement by which is the company allowed to
order inventories for free amounting to 5% of the turnover within six previous months. These
occasions are the only periods of the year when the valuation of the company‟s stock is higher
than usual. There is a lack of the automated inventory management system. All the inventory
evidence is done manually.
The inbound logistics is part of the product procurement, since it is arranged by
suppliers the company has no influence over it. The close collaboration with suppliers of
Legea and Jako sporting apparel enabled the company to offer printings as a value-added
service that is being procured as a complementary product on fit-to-order basis. The
purchasing processes are done through emails and there is no back-end tracking system for
the product procurement.
The company is having significant bulk discounts with some of the suppliers (i.e.
Legea). The discount amounts to 18% of the total purchasing price excluding the cases of
promotional offers from supplier.
Manage selling and fulfilment
The order fulfilment is done in-house as well as the inventory management,
packaging, and labelling. The products are sold to the customers through two channels, first
channel being the e-commerce and second direct selling channel. Majority of the sales is done
via the e-commerce channel26 and the rest through direct channel (Appendix 6). The total
revenue from products sales (excluding the cash on delivery charges) is relatively stable with
26
2008 53%, 2009 51%, and 2010 73% of total sales
62
slightly growing attitude in 2010 and shallow drop in 2009 (Appendix 4). Relatively stable
revenue from products and increasing revenue from cash on delivery charges signifies that the
shoppers rather shop for smaller and individual items than making big bulky purchases. The
e-commerce channel is divided into three additional sub-channels each representing different
selling site. Altogether the e-commerce channel produces around 1700 orders annually
(Appendix 4). The company operates two one-brand only sporting goods shops and one
online shop with a universal focus. The second selling channel is used to target sporting teams
and schooling institutions usually via email or direct marketing leaflets. The company has
significant expertise in the sporting area, and thus the recommendation and advices improve
the shopping experience. Each order is given a personal attention.
The orders containing products that are in stock are dispatched on the same day if
possible or on the next day in the morning which means that they can be delivered within 24
or 48 hours depending on the chosen service. The ordering of the products that are not in
stock is done in the morning of the next day after the order was received. This substantially
increases the delivery times as outlined in the table below. The inbound and outbound
logistics is handled either by Czech Post or PPL and the variety of the delivery options is not
wide.
Czech Post (days)
PPL (days)
Standard
2
2
Express
1
1
Standard
2
2
Express
1
x
Inbound
Outbound
Table 2: Delivery options and times of the company
This gives altogether 12 different variants of delivery time with the shortest one being
3 days and the longest one being 5 days (inbound + outbound logistics + 1 day order
processing). Nevertheless, most of the customers aim for less expensive delivery option which
means that the delivery time less than 4 days is impossible. This is optimal scenario presumes
that all the products are in stock with supplier and no administrative delay or mistake occurs
throughout the process. Bulky items are being transported by own special delivery service that
is arranged by the company ad hoc as needed. The pricing of the delivery options is relatively
very close to the median values of the delivery rates of the analyzed 233 competitors – PPL
63
COD: 115 CZK / DP: 85 CZK and Czech Post COD: 135 CZK / 95 CZK (see Appendix 9).
Currently, the online retailing business unit is charged variable fees depending on the weight
and cash on delivery value which makes the company to offer cash on delivery rate 115 CZK
and bank transfer payment rate at 85 CZK both with 10 CZK mark-up in 90% of the cases.
On the other hand, remaining 10% of the cases are bulk shipments valued more than 4000
CZK, which is a threshold for the free delivery, that consume even more than the mark-up is
and the company pays the logistics provider 26% more for the services than is actually
collected for the delivery charges from customers (Appendix 10). Instead of making use of
the carton boxes for packaging, the company is using black stretchable foil that protects the
merchandise and also significantly reduces packaging costs27. The company‟s premises are
located in the middle of the triangle of three PPL depots located in Hradec Kralove, Brno, and
Olomouc28. Nevertheless, the company is serviced only from the utmost one. Deliveries are
tightly connected to the Payment options. In terms of the inbound logistics, the company is
either having invoicing arrangements (short term credit arrangements with the maturity of 30
days29) or has to use cash-on-delivery. In terms of the outbound delivery, the customers can
choose either from cash-on-delivery or invoicing option. However, the invoicing option is
available only for big orders, repeated orders, and returning customers. Other payment
options i.e. PayPal, PaySec, mPenize, Credit Card are not offered due to the insufficient
technical infrastructure.
To conclude, the overall value that is created for the customer is on average very low
and the benefits could be reaped only in terms of lower prices and customization of some
products.
27
For example the costs of packaging of products with the measurements 400 x 500 x 200 mm
will
flow around 1.3 CZK per package.
28
PPL Depot 05 – vychodni Cechy, PPL Depot 06 – jizni Morava, PPL Depot 09 – stredni Morava
29
Applies only to the suppliers of Lege and Jako products
64
6.2 E-fulfilment SBU
Value network
The value network of the e-fulfilment branch has a higher complexity. The network
includes sporting goods suppliers, logistics providers, IT services, financial services, customer
IT services, marketplaces, and the online retailers.
Inbound
logistics
Outbound
logistics
Product
warehousing
Value chain integrators – logistics providers
Suppliers
Online retailers
Core value chain activities
Marketplaces
IT Services core
Financial
services
Customer IT
services
Figure 13: A value network of the e-fulfilment business unit
Upstream value chain partners are suppliers of the online retailers. On the other hand
on the downstream side are the online retailers plus online marketplaces that sell products on
behalf of the retailers. The core value chain activities of the e-fulfilment model concentrate
the features of buy- and sell-side intermediary with additional value adding service. The
logistics providers are key transportation partners for the inbound logistics from the suppliers
to the warehousing facilities as well for the outbound logistics from the warehousing facilities
to the end customer of the downstream value chain partners. Besides keeping the entire
inventory in-house, the e-fulfilment provider may consider initiating the collaboration with
some of the logistics companies and place some of the inventories directly in the distribution
centres based on the indentified patterns in sales. The IT infrastructure is outsourced to the
third party provider as well as the financial services in terms of accounting and payment
services. The customer IT services refers to the specific partner that takes care of the
implementation and maintenance of online retailers‟ front ends and back ends. In other words,
part of the service offering is the customizable solution of an online shopping platform that is
highly compatible with the e-fulfilment core IT systems.
65
Value chain
Since the e-fulfilment strategic business unit is currently not in the operation, the
analysis of the internal value chain will be based on the researches in the area of e-fulfilment
that defined the scope of the e-fulfilment services as well as the e-fulfilment capabilities. The
scope of the e-fulfilment services is taken from Burn and Alexander (2005) that summarized
thirteen essential functional items from previous researches and the eleven e-fulfilment
capabilities were determined by Cho et.al (2008). The new value chain presented by Chaffey
(2009) has six essential components namely “market research”, “new product development”,
“market products”, “procure materials”, “procure products”, and “manage selling and
fulfilment”.
Market research
The market research is two-fold. The needs of the customers have to be investigated
internally and externally as well. The external market research refers to the scanning of the
environment outside the e-fulfilment model and looking for new trends, new categories of
products and latest market entrants and their specifics (i.e. product lines, value-added service,
etc.). On the other hand, the internal market research refers to the actual customer of the efulfilment provider and optimization of their value. Following value-adding activities refer to
the internal environment.
The e-fulfilment provider aims to identify the patterns in the data and based on those
patterns offer to the customer the most preferable delivery option. There are two approaches
in terms of parcels‟ deliveries that depend on the level of the integration of the systems of the
online retailer and the e-fulfilment provider. First, in the case of the lack of the direct
integration, the retailer offers on its website only the general delivery services that are offered
by e-fulfilment provider. Some of the general delivery options may be customized on the
retailer‟s request (complementary assembling service for heavy fitness machines, etc.).
Second, in the case of the direct integration, the real time delivery option widget is integrated
within the retailer‟s shopping basket (i.e. similar functionality is offered by UK based
company Shutl that cooperates with the largest housewares retail store Argos). This
functionality attempts to determine the delivery options by matching the customer‟s data such
as the location and the measurements and height of the products against the actual delivery
times and rates of the logistics providers. If the customer realizes repeating purchases, the
historical data enables the determination of the preferences based on the previous inclination
66
of the customer either towards the fast delivery or low price for the service. This way the
delivery service becomes more personalized. The integration allows the customers to select a
personalized delivery service (i.e. in the case the speed is the preference of the customer and
the customer is located within a big agglomeration, the integration enables to choose directly
in the shopping basket of the online retailer from the different courier deliveries based on the
real time information such as courier delivery within 90 minutes).
The e-fulfilment provider is able to estimate the future inventories holdings based on
the historical data. Since the aim of the e-fulfilment provider is also to procure the products
for the online retailer, the inventory forecasting may yield substantial savings.
The e-fulfilment provider also facilitates re-selling of the excessive inventories to
other online retailers. These re-sales are based on the urgency for the need of the inventory
and demand forecasting – when an online retailer requests through an e-fulfilment
marketplace to be provided with certain type of inventory, firstly, either the internal
environment of the marketplace is scanned for excessive inventory holdings (if found, the
costs for the online retailer for the excessive inventory holdings are reduced and the lead time
for the retailer with the lack of inventory is zero), or the supplier is approached for inventory
replenishment.
New product development
As well as the market research is two-fold, the new product development has to refer
to the external and internal environment as well. The e-fulfilment provider adjusts particular
delivery types to the changing needs of customers and also specific requirements of some of
the newly established product categories.
Based on the identified trends in the returns and refunds, the e-fulfilment provider
attempts to design an optimal and efficient returns and refunds policy together with the
particular retailer. New customized deliver options are developed as well as new inventory
and warehousing policies that lower the costs of the online retailers but maintain or increase
the customer satisfaction.
Market products
The newly introduced product or approach to the inventory management is offered
internally either to the entire customer basis or only to particular customers because of the fit
of the services to the special requirements of the product lines. The e-fulfilment services
67
product improves the conversion rates and satisfaction of the end customers of the online
retailers since the customers see the exact delivery dates for each of the products.
Procure materials
The most important product for the online retailers and end customers that is procured
is the outbound delivery. There are two ways of procuring the outbound delivery depending
on the level of the system integration. First, the least integrated customers are offered standard
delivery options with standardized rates and delivery times. Second, the online retailers that
are more integrated with the e-fulfilment system can make use of a system that displays the
end customer directly in the shopping basket based on the customer data all the delivery
options available.
In addition to that, the inbound delivery also influences the costs but the customers do
not place any special requirements except of the speed in the case the inventory replenishment
is very urgent. Besides the logistics services, the e-fulfilment is also procuring the labelling
and packaging materials. The packaging boxes are bought in bulk and in different sizes that
appropriately fit the product and do not waste the empty space in the box which in turn
contributes to the lower costs.
Compared to the IT services, the customer IT services are outsourced to the third
parties. The customer IT services includes the provision of online shop front end solutions
that are integrated with the e-fulfilment system and server hosting. The customers are offered
a customized front end open source shopping system solution from Magento. The customer IT
services are outsourced to the strategic partners.
Procure products
E-fulfilment provider can represent the customers (online retailers) in the procurement
and the negotiations with the suppliers. This significantly improves the bargaining power and
moves it downstream since the e-fulfilment provider will negotiate bulk purchases and also
regular inventory replenishment that is based on the demand forecasting and analysis of
historical trends. Internally, the bulk discount from the supplier is fractionalized into
individual bulk discounts, that are based on the inventory volumes bought for the particular
online retailer, and distributed across the spectrum of the online retailers. This is combined
with the bulk rate negotiations for delivering the parcels to the end customers of the online
retailers. The overall discount on the parcel deliveries is distributed individually among the
68
online retailers depending on the volume and types of parcels send. The combined price for
the procurement, inventory holding, and delivery service lowers the costs of the internet
retailer.
Manage selling and fulfilment
The end customers of the online retailers are provided with concrete delivery time that
is defined based on the inventories and scheduled delivery services. Each parcel has a trace
and track option so that the customer is able to follow the whole process of the order
fulfilment. The e-fulfilment provider offers customizable packaging and labelling services
that could promote the brand of the online retailer. Systemization of the inventory is also very
important element in order to shorten the warehouse picking times. The orders are transferred
via the integrated link between the shopping system and e-fulfilment system and scheduled
for the fulfilling. The fulfilment IT system is a solution that integrates the online retailers,
suppliers, and logistics providers.
The e-fulfilment provider is also offering customized e-tailing front-end solutions.
Since there are numerous platforms for online shops, the e-fulfilment has to focus only on
provision of one or few solutions that offer the direct integration with the e-fulfilment system.
The direct integration streamlines order fulfilment processes and allows customers and
retailers to leverage the whole e-fulfilment potential. Specific customer oriented IT solutions
are provided by the customer IT strategic partners.
Impact of E-fulfilment on the online retailer value chain
The incorporation of the e-fulfilment provider into the value network substantially
redesigns the network infrastructure and the upstream value chain partners diminish
completely in the case the complete product offering is dedicated to the e-fulfilment. The
potential network infrastructure may look as follows.
IT Services
Financial
services
e-Fulfilment
Core value chain activities
Sell-side
intermediaries
Figure 14: A value network of an online retailer with an outsourced supply chain
69
The IT services in terms of web hosting and web site management can be taken over
by the e-fulfilment customer IT services partner. Nevertheless, this is will not be the case of
all the online retailers, since some of them dispose of sufficient IT infrastructure or the IT side
is handled by third parties.
Value creation of the E-fulfilment
The additional value that is generated by the e-fulfilment model is identified along
four mutually dependent dimensions defined by Amit and Zott (2001). The value drivers of ebusiness that were identified in this study are translated into the e-fulfilment specific factors.
The table below presents a summary of the factors that increase the value of the online
retailers‟ value chains.
Value Drivers of E-fulfilment
Efficiency
-
decreased search costs for the optimal
Lock-in
Switching costs
and efficient delivery services
-
variety of cheaper delivery options
zero search costs for the suppliers (the
-
e-commerce expertise
search is done by e-fulfilment)
-
variety of products
-
wider selection range of the products
-
zero inventory keeping costs
-
wider inventories (including product
-
larger inventories
variants)
-
direct integration of the shopping system
-
-
wider selection of delivery options
-
tracking options
-
increased transparency over the market
-
elimination of the warehousing and
inventory costs
with the e-fulfilment
-
free of charged customized e-commerce
platform
-
substantial procurement discounts
Positive network externalities
-
order fulfilment process outsourcing
-
economies of scale from the aggregated
side of suppliers increases the interest of
activities of e-fulfilment provider are
the online retailers
projected on the online retailer
-
-
increased number of participants from the
increased number of participants from the
-
returns handling
side of online retailers increases the
-
e-commerce consultancy
interest of the suppliers
-
undiscerning cash-flow model
70
Novelty
-
Complementarities
novel approach to the e-commerce
-
inventory management
-
demand
forecasting
product
returns
and
exchanges
management
-
inventory and demand forecasting
optimization
-
financial services
-
re-selling of excessive inventory
-
inbound logistics (from the suppliers‟
-
new
delivery
and
options
inventory
(i.e.
night
deliveries, couriers, etc.)
-
only
virtual
site)
-
transactions
with
the
e-commerce consultancy and platform
outsourcing
customers
Table 3: Value drivers in e-fulfilment
7 Opportunities and threats
The outcomes of the external environment and internal environment analysis are
summarized in SWOT tables below. Each item ranked based on the importance and potential
impact on the scale from 1 to 3, with 3 having the highest importance.
7.1 Online retailing SBU
STRENGHTS
WEAKNESSES
[3] Leader in selling to teams and schooling [3] No price comparison websites marketing
institutions
(Heureka.cz, Zbozi.cz)
[2] Close suppliers‟ relationships (Legea, Jako)
[3] Innovativeness
[1] Printing services
[3] E-commerce expertise
[2] Market knowledge
[2] Very low inventories
[2] Dependancy on few smaller suppliers
(Legea, Jako, Rucanor, Canadien)
[1] No partnership with Czech Post or PPL
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OPPORTUNITIES
[3] Increasing spending for the sporting goods
THREATS
[3] Expansion of shopping malls and offline
online
stores online
[3] 1/4 of the internet population practices
[3] The power
sports actively
aggregation sites
[3] Very few suppliers for teams and schooling
[2] Suppliers going dual-channel
institutions
[2] M-Commerce
[2] M-commerce (mobile shopping)
[2] T-Commerce
[2] T-commerce (tablet shopping)
[2] Increasing importance of delivery
[1] Augmented reality
[2] International competition
[1] Increasing barriers to success
[1] Specialized online retailers
[1] Very fragmented competition
[1] Increasing barriers to success
of the comparison and
Table 4: SWOT of online retailing business unit
7.2 E-fulfilment SBU
STRENGHTS
WEAKNESSES
[3] Minimization of inventory costs of online [3] High inventory investments
retailers
[2] Reliance on the logistics partners
[3] Real-time delivery times and rates
[2] The warehousing facility, location and the
[3]
Demand
forecasting
and
inventory extent of the premises
optimization
[2] Location and the extent of the premises
[2] Buy- and sell-side aggregation
[1]
[2] Faster and more reliable delivery
(Magento)
[2] Returns and refunds management
[1] Auction model for selling excessive
inventories
[1] Shopping system provision and integration
(Magento)
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Only
one shopping
cart
integration
OPPORTUNITIES
[3] Increased spending for online shopping
THREATS
[3] Suppliers‟ drop-shipping
[3] Very few online retailers with larger
[3] International competition
warehousing facilities
[2] Drop-shipping marketplace
[3] First entrant
[2] Expansion of shopping malls and offline
[3] Developing product fitting the e-commerce store online
needs (i.e. overnight shipping)
[2] Offline stores with warehousing facilities
[2] Increasing importance of delivery
[2] Logistics providers
[2] M-commerce
[1] Value-added services
[2] T-commerce
[1] Suppliers‟ dual channel
[2] Fragmented demand (numerous small
online retailers)
[2] Returns and refunds management
[2] Value-added service (i.e. assembly)
[2] Collaboration with logistics providers
[1] Higher barriers to entry (initial investment)
Table 5: SWOT of e-fulfilment business unit
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8 Strategy formulation
The internal analysis revealed that the company was made up only by one business unit.
In addition to that, the strategy the company was pursuing before in the area of online
retailing was not clear and some delimitation elements were missing (i.e. clear definition of
strategic groups, strategic customer segmentation, and so forth). Therefore, before the
business strategy for the to-be business unit is introduced, the overarching corporate strategy
has to be defined in the most important elements. This thesis focuses only on the definition of
the business strategy for the e-fulfilment business unit. The re-definition of the strategy of the
currently operating online retailing business unit is out of scope of the strategy formulation.
The strategy of the online retailing business unit will be touched only in the definition of the
horizontal strategy. The horizontal strategy is in place in order to ensure the utilization of
synergies.
8.1 Corporate strategy
Vision
“Our aim is to become a strong online group with innovative approach, diverse portfolio of
distinct e-commerce related businesses, and international reach.”
Mission
Our goal is to excel in all our fields of business and become market leaders and
preferred partners in any e-commerce related business. We offer superior customer service
with high personalization together with long term detailed expertise in the e-commerce.
Corporate strategic goals
The strategic goals are defined from the beginning of 2012 until the end of 2015, 4
year period.
Objective (1): To increase the sales on the Czech market annually by 15%
Objective (2): Optimalize the cost structure by decreasing the costs on an annual rate of 3%
Objective (3): Innovate – bring 2 innovative approaches to the market by 2015
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8.1.1 Definition of corporate strategy
The company is providing e-business services in the online retailing and e-fulfilment on
the Czech as well as occasionally on the Slovak market. The two business units the company
is made of are mutually dependent and from the corporate organizational point of view
vertically integrated. The backward integrated business unit providing e-fulfilment services
focuses also on the rest of the market, on the competitors of the online retailing business unit.
The related diversification to the new business unit by backward vertical integration is in line
with the mission of the company (capture and explore as many aspects of e-commerce as
possible). As defined in Keřkovský and Vykypěl (2006) the company is aiming to become the
offensive innovator in the industry by having enough flexibility, introducing new products
and being proactive.
8.1.2 Definition of horizontal strategy
The online retailing business unit will take advantage of the e-fulfilment services and
completely formally in-source the supply chain to the e-fulfilment business unit. The efulfilment provider will also take care of the e-commerce platform management and the
current e-commerce systems landscape will be transferred to the Magento platform30. The
goals that are pursued by the horizontal strategy are as follows.
Objective:
25% of sales of e-fulfilment business unit are generated internally on an
annual basis
30
The company currently runs three online shops on two distinct platforms.
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8.2 Business strategy
The e-fulfilment business unit operates only on the Czech market and focuses mainly
on smaller online retailers in the sector of sports apparel and equipment that do not have
substantially large warehousing facilities. The focus on the market is given by the expertise of
the company on the corporate level as well as by the limited resources and very low
propensity to risk at the side of the management. Due to this reasons the management aims to
postpone the investment into the larger warehousing facility at better location and rather
wants to run the operations of the e-fulfilment business unit within the current premises. The
definition of the strategic goals focuses solely on the first year of operations, 2012, and thus
due to the short period the description is more detailed and thorough than would normally be.
The business strategy itself is then described using an extended marketing mix as proposed
framework by Keřkovský and Vykypěl (2006). The explanation of the way the strategy covers
identified threats and weaknesses of e-fulfilment business unit is to be found in Appendix 12.
8.2.1 Strategic business goals
The categorization of the corporate goals and its translation into the business goals and
selection of those business goals that are relevant for the tracked period (2012) are
summarized in the table below.
Category
Objectives (2015)
Customer base development
Cover 30% of the competitors of
the online retailing business unit
Customer base development
Cover 5% of all of the online
retailers
Customer base development
Engage 50% of the customers
base in the procurement
Cover 100% of the suppliers of
the online retailing business unit
Increase the number of
partnership agreements with
suppliers annually by 5
Develop 2 new delivery options
suitable to e-commerce by 2015
Develop full integration with 20
major shopping cart solutions
Build a network of 4 logistics
distribution points
Supplier base development
Supplier base development
Innovations
Innovations
Infrastructure
Financial indicators
31
Objectives (2012)31
reach 5 partnership agreements with
the online retailers within the
strategic groups (1)
reach 5 partnerships with the online
retailers out of the strategic groups
(2)
Reach at least 4 procurement
agreements (3)
Have 4 supplier partnership
agreements (4)
Develop integration for four main
shopping carts (5)
Increase the inventory turnover
on an annual rate of 5%
The numbering in the brackets at the end of each of the goal statements serves the purpose of linking
the goals of the operational strategies to the business strategy goals.
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Increase sales on the Czech
market annually by 15%
Financial indicators
Reach the revenue of 18 mil - out of
which 25% internally from the
online retailing business unit (6)
Table 6: An e-fulfilment business strategy objectives
8.2.2 Product
The business unit offers outsourcing alternatives for the e-commerce supply chain. The
supply chain could be outsourced completely or only partially. The aim is to concentrate the
complete order fulfilment process including the procurement into one product package.
Nevertheless, the product itself is designed that way that the online retailers may configure
the e-commerce supply chain outsourcing based on the following modules.

Order fulfilment management
(Compulsory core module that includes the order management, warehousing, inventory management
and outbound logistics)

Inbound logistics management
(The procurement and logistics is done by the online retailer. The logistics activities for the onboarding of the products to the warehouse are done by the e-fulfilment provider. Otherwise, the
transportation of the inventories to the e-fulfilment distribution centre is done by the online retailer)

Returns and refunds management

Product procurement including the inbound logistics
(Leveraging the marketplace functionalities and instituting the e-fulfilment provider as an official
procuring channel for the most of the suppliers – depending on the supplier partnership agreements)

E-commerce solution management
(Provision of e-commerce scalable open-source solution from Magento with fully integrated shopping
cart to the e-fulfilment system)
Each of the above mentioned modules can be positioned within the product offering as an
individual service.
Order fulfilment management
The orders are managed fully through the e-fulfilment system that schedules the order for
fulfilling depending on the upcoming ordered collections and inventories. According to the
level of integration of the customer with the e-fulfilment system, the orders are transferred
automatically on a daily basis, in a real time, or manual upload is necessary.
The company stores the inventories of the online retailers in its premises and vouches for
the security and safeness of the products. The warehousing space is allocated based on the
77
area needed to store the product(s). In order to reduce the warehousing costs as low as
possible and taking into account the limited premises, the e-fulfilment provider attempts to
optimize the warehousing space by allocating two generic types of storing areas.

Medium
Medium slots are allocated especially to products that are bought boxed in higher
quantities. Some more bulky individual products may also fall into this category (i.e.
fitness machines or bikes). It is expected that the medium storage place will be
occupied only with the boxes of same products since the introductive strategy is to
focus on the non-bulky smaller items with higher turnover.

Small
Since the online retailers that are in focus are rather small businesses, it is expected
that many products sold by them do not have very high turnover, therefore storing
only few items of that product would be sufficient (i.e. five pieces of very thin
sporting rain jacket)
Each inventory type disposes of so called rack-switching signal level. This index helps
to optimize the costs of the inventories for the online retailer (i.e. when there are only four last
pieces of the product that was previously boxed and stored in the rack for medium sized
assortment, the alert is triggered in order to reallocate the inventories to the optimal rack – if
available) and also optimize utilization of free racks for the e-fulfilment provider. The online
retailer may choose whether to store just loose products (individual items without any box),
boxed products (higher quantity of the same product in the box provided by supplier), preboxed products by the supplier (i.e. each inline skate pair has own box), or the products preboxed by the online retailer (once the matching order comes only labelling is needed).
The inventory levels are monitored by the e-fulfilment system. Each retailer will have
different need and frequency of inventory replenishment, therefore the signal indexes of
inventories will be diverse. The index is dependent on the turnover of the inventory and lead
times from the supplier (the worst case scenario when the distributor has to place the order
with the manufacturer since the required assortment missing is considered as well). The
turnover of inventory is dependent on the demand and inventory forecasting that is done by
the e-fulfilment system. If the online retailer outsources also the procurement of the products,
the inventory replenishment request is generated and sent for confirmation to the online
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retailer. In the latter case the inventory replenishment recommendation is sent to the customer
and the procurement is done solely by the customer.
The outbound logistics is handled by the staff and it concerns picking the right
products from the warehouse based on the accepted order from the online retailer, packaging
and labelling, and delivery service. The packaging is handled depending on the way the
product is stored (loose, boxed, pre-boxed). The loose and boxed products are packed in the
boxes that offer minimal possible volume to fit in all the products from the particular order.
The pre-boxed products from the suppliers are packed using non-transparent
stretchable foil. On the other hand, there is no packaging needed for the pre-boxed products
from the online retailers. The labelling is simply done based on the delivery address stated in
the order utilizing the printing and labelling online services provided by the logistics partners.
The delivery services are outsourced to the logistics partners. The e-fulfilment provider makes
use of the delivery network of Czech Post, PPL, DPD and General Parcel. The online shops
benefit of two types of collaboration the real-time integration of the delivery rates (the
customers of the online retailer are offered premium service by having wider choice of
cheaper delivery options) in the shopping cart or standard choice of delivery types (the online
retailer chooses from variety of partners and delivery types for its customers). The online real
time delivery rates are available only for the customers of the online retailers that opt for ecommerce solution management module32.
Since the initial strategy is to make use of the premises of the company, the offering of
the outbound delivery services for the first 12 months of the operations does not include any
courier services or same day deliveries due to the inconvenient location. These will be added
after the expansion plan that will be initiated commencing the thirteenth month. The outbound
delivery services in the preference order:

PPL – Private address delivery – next day delivery (2 days) / pick-up / recipient
contact (2) / evening deliveries (17:00 – 21:00) to the chosen locations (mostly in
surroundings of the distribution centres) / re-delivery

Czech Post – standard delivery services
32
The integrations with the complex landscape of the already existing e-commerce platforms will be
part of the growth strategy later on since this would require considerable investments into software
development. Nevertheless, the e-commerce platforms developers will be approached and the
collaboration will be initiated.
79

DPD Classic – next day delivery (3 days – standard next day plus one day for ordering
the delivery service) / pick-up / re-delivery

General Parcel – next day delivery
The end customers of the online retailers are provided with a track and trace functionality.
Inbound logistics management
The inbound logistics management module presumes that the procurement of the
products is done on the side of the online retailer but the rest of the order fulfilment process is
outsourced to the third party provider. The e-fulfilment provider offers an inbound logistics
management in two modifications:

From supplier‟s premises (preferred variant) – the transportation of the products
from the supplier premises is arranged between the supplier and the e-fulfilment
provider

From online retailer‟s premises – the online retailer wishes to pre-box the products
before ceding them to the e-fulfilment provider, or the online retailer‟s premises
are simply a halfway house
The e-fulfilment provider makes use of the services of PPL, DPD and General Parcel
for the inbound logistics management.
Returns and refunds management
The e-fulfilment provider offers organized collection or exchange of the products
together with the refunds to the customer. The returns and refunds management also includes
the re-stocking of the item.
Product procurement including the inbound logistics
It is expected that the procurement of the products is connected with the warehousing,
inventory management and logistics module. Outsourced product procurement is managed
based on the needs for the inventory replenishment of individual online retailers. The efulfilment provider relies on the information systems that initiate and manage the whole
procurement process. Newly acceding customer has to provide estimation of volumes for the
following months until the year-end that are based on the history of orders. The procurement
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negotiations with the suppliers are done once in three months or in a situation of urgency on
an ad-hoc basis.
E-commerce solution management
The online retailers that opt for the integration of real time delivery rates are provided
with a customized e-commerce solution that is based on the open-source platform Magento
and has automated communication linkages to the e-fulfilment system. The e-fulfilment
guarantees the provision of appropriate IT infrastructure, maintenance, regular updates, and
customization of functionalities of the e-commerce front-end and back-end. The solution is
provided by the e-commerce consultancy partner that also supplies the IT infrastructure. The
number of the transactions, size of the offering and amount of traffic to the online retailer‟s
website determine the selection of appropriate IT infrastructure. The new entrant online
retailers are provided with same service in terms of software. However, the IT infrastructure
in terms of hardware is reduced down to the virtual servers for the reason of cost savings and
identification of the viability of the new business.
8.2.3 Price
Pricing is based on the modularity of the product therefore there are five different
pricing strategies. In general, the pricing strategy is focused on acquiring new customers and
increase of the market share. The most important customers are automatically managed by the
system of bulk discounts. The product is not aimed to be perceived as a premium or luxurious
service but rather as a value-adding efficient service with a reasonable cost structure that is
affordable for the small retailers. Each module is individually priced on the cost plus pricing
basis but the e-fulfilment service itself is priced as a bundled product. The pricing overview is
to be found in the Appendix 11.
Order fulfilment management
Since the top four largest shopping malls selling sports equipment have a relatively
stable pricing strategy for the deliveries of small parcels (Appendix 3), the competitive and
attractive prices are reachable only in exchange for profit. Nevertheless, the objective for the
pricing of the outbound logistics is to develop prices that are in the lower interval of the
average price of all the competitors on the one side and the price of the four big shopping
malls on the other side.
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Internally, the pricing for outbound logistics has three components packaging and
labelling, warehouse handling, and outbound logistics. In order to keep the rates as simple as
possible and since the company will start offering only basic delivery options, the policy is to
maintain unified prices for the product delivery for each of the four providers. On top of that
the fixed fees of the warehouse handling and variable fee for packaging and labelling are also
included in the final price for the delivery that is paid by the end customer of the online
retailer. Inventory management including the functionalities of the e-fulfilment system is
commissioned by a fixed rate. On the other hand, warehousing is calculated per individual
item per type of the rack and the area needed for stocking.
Externally, the services for the online retailers are priced as a percentual commission
of the total value of a fulfilled order. The e-fulfilment as contractor with the logistics
providers is managing the financial side in terms of cash-on-delivery orders. The accumulated
finances from cash-on-delivery orders are transferred to the online retailer‟s account once in a
month and serve as short term collateral as well as a short credit. The commissions for the
orders that are fulfilled with a bank transfer type of the payment are deducted against the
liability of the e-fulfilment provider in terms of cash-on-delivery finances. To conclude, the
overall price of the fulfilled order is shared between the e-fulfilment provider and the online
retailer. The e-fulfilment provider absorbs the delivery costs paid by the end customer plus a
percentual commission of the total order value (excluding the delivery costs).
Inbound logistics
The inbound logistics is priced as a separate item only if the procurement module is
not chosen by the online retailer and the online retailer requests the transportation to be
carried out by the e-fulfilment provider in both ways either from the retailer‟s premises or
from the supplier‟s premises. The online retailer then covers the full costs according to the
contract rates provided by the logistics partners. Internally, in terms of the costs structure, the
inbound logistics fee consists of the transportation and warehouse on-boarding fee. The online
retailers that become customers of the e-fulfilment provider and do have certain amounts of
inventories in their premises, which they wish to be transported to the premises of efulfilment, have the initial transportation and warehouse on-boarding free of charge.
Returns and refunds management
Returns and refunds management is priced as a premium service. The costs for this
service are incurred only on the side of the online retailer. The end customer has the service
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free of charge. The returned item is managed as a warehouse on-boarding service and the
exchanged item is managed as a new discounted delivery plus warehouse on-boarding
service.
Product procurement including the inbound logistics
The price for the procurement services is dependent on the negotiated discount with
the supplier. The negotiated discount is than evenly spread among the online retailers
depending on the size of the inventories that is bought on behalf of them. The e-fulfilment
provider accrues the proportional amount in percentages per retailer. There is one uniform
level of the relative commission for every customer. Since the value-added in the procurement
service lies mainly in the option of having much larger stock than it would be normally
possible for financial reasons, the value of the inventories is repaid back in monthly
instalments that are adjusted to the turnover of the inventory. The maximum value of products
stored depends on the average inventories and standard average customer conversion rate of
2% plus additional flexible 3% on top that express the inventory credit. The rate may be
slightly adjustable depending on the importance of the customers and other conditions such as
growth trend or payment discipline. The online retailers have to either provide trustworthy
and verified information about the conversion rates in their online shops or their contracts use
the standard rate. The example calculation is to be found in Appendix 7. This method
increases the average inventory of the online retailer up for almost 150%. The upper limit has
to be set in order to protect the company from a fraudulent behaviour. The value of procured
products is than based on the difference between the value of inventories in stock and the
maximal value or the value suggested by the online retailer itself. The discount gains are
projected to the value of inventories of the online retailer. The costs of the inbound logistics
are dissolved into the price of the procured products.
E-commerce solution management
Since the aim is to on-board on the open source shopping system as many customer as
possible, is this module priced rather using the penetration pricing. The customer does not
incur any costs for the software part of the e-commerce solution including initial
customization, installation, filling with products and regular updates. The maintenance and
special customization requests are charged separately. The only change to the customer‟s cost
base could occur from the expenses on the IT infrastructure. The number of the transactions,
83
size of the offering and amount of traffic to the online retailer‟s website determine the
selection of appropriate IT infrastructure.
8.2.4 Place
Due to the requirements from the side of the management of the company the products
location will be in the current premises in Svitavy. However, the location is not convenient
since optimal seat to start with would be Brno and close surroundings where all four logistics
partners have considerable distribution facilities33. The parcels will be managed by the
partners using following depots (with collection point Svitavy):
Provider name
Depot location34
PPL
Olomouc
DPD
Pardubice
General Parcel
Hradec Kralove
Czech Post
Svitavy
Table 7: An overview of the nearest depots of business partners
The product will be marketed only in Czech Republic but the provision of the outbound
delivery services applies also to Slovakia if requested. E-fulfilment is the enabler and
facilitator of the efficient indirect distribution of final products from the supplier, through the
online retailer, to the end customer.
8.2.5 Promotion
The aim is to promote the whole bundled package of services, the complete
outsourcing of e-commerce supply chain. The product will be presented as a flexible value
added service that enables cost reductions. Potential customers will face only simplified
pricing of the bundled product.
The potential customers are segmented into three groups “starters”, “runners“, and
“jumpers”. First, Starters are retailers that have launched the e-commerce platform only
recently, have rather lower inventories and do not posses complex market knowledge.
Second, Runners are retailers that have been operating online for at least period of 18 months,
do have inventories but not larger warehousing facilities and posses the market knowledge.
33
For example the logistics centre of ComGate Logistics, the e-fulfilment on the Czech market, is
located within the premises of distribution centre of PPL / DHL.
34
Based on the proximity of the depot and the information provided by the company, i.e. PPL is
currently handling the parcels sent by the online retailing business unit through the depot in Olomouc.
84
Third, Jumpers is a very important group of customers since they usually start the ecommerce platforms with sufficient market knowledge and perfect customer approach and
dispose of sufficient inventories. The potential customers are in the whole segment of sporting
goods online retailing. The focus will be given on winning customers within the strategic
groups of online retailing business unit. In general, each potential customer will have a chance
to trial-test the services of e-fulfilment by sending 3 parcels inclusive collection. The main
features of the product that will be emphasized within different customer groups are as
follows:

Starters – E-commerce solution management – emphasizing the free of charge
customized implementation

Runners – Complete E-fulfilment product

Jumpers – Complete E-fulfilment product but instead of the offering e-commerce
solution management the direct integration to the existing shopping cart is
accentuated (It is estimated that the Jumpers invest at the very beginning
significant financial sum to the development of their e-commerce solution and
these switching costs would be hardly overcome)
Initially the online retailers that sell the products of Legea and Jako will be the
focused group of strategic customers in order to build upon the strong relationships of the
online retailing business unit. The company will approach the customers through internet and
direct channel. The promotion through the internet channel will be done as follows:

Search engine optimization (SEO)

PPC campaigns on Seznam.cz and Google.com

Partnerships with the catalogues of e-commerce websites
Through the offline channel the customer will be approached via:

Direct marketing – e-mailing

Direct marketing – offer distribution via mail
The offline campaigns will be focused mainly on the online retailers selling the
products of Jako and Legea since those might be the easiest wins and the campaigning will be
done in the collaboration with the supplier of these two brands. The suppliers will be
encouraged to support the model by the fact that their inventory holdings costs will decrease.
85
This will however not take the burden of the inventory holdings completely from the supplier
since there will always be certain level of safe stock and inventory for the offline retailers.
The sales from the customers‟ websites will be encouraged by the collaborative
development of discount vouchers with promotional delivery price and product price. These
vouchers will be distributed through the discount servers35. This will promote the e-fulfilment
service as well as improve the sales of excessive inventories and increase the sales of the
online retailers.
8.2.6 People
The company aims to communicate to the employees through the personal marketing
the innovative spirit and dynamics potential. This communicated through the main initiative
that bears the name “improve & profit” that is supported by two tools. First, in order to
encourage the ownership feeling, the employees will be offered premium bonuses for their
submissions of idea that could contribute to the improvement of the system. Each idea
submission is anonymous and everyone can also anonymously vote and evaluate the proposed
improvement or solution to the problem. The bonus for realized improvement or new solution
amounts up to 5% of the calculated cost savings. Second, the employees are seen as potential
customers. Since they experience the product on the daily basis, they understand the value and
see the benefits. Therefore the employees are offered an e-commerce consultancy services36
free of charge that enable them to open they own online stores and manage their inventories
from the premises they work in37.
The complete staff of the company has to be lectured in the e-fulfilment service
product to get the full understanding and to reach the identification with the benefits. The
superior customer care is the main value, therefore the employees are expected:

to answer each email from the customer that is received within the working hours
as soon as possible but at latest within 3 hours after the reception 38
35
The most important clones of Groupon.com on Czech market – Slevomat.cz, Vykupto.cz and
Zapakatel.cz
36
Inclusive Magento shopping cart – customization, installation, filling with product details and
training on marketing.
37
This enables the e-fulfilment provider to create also a hub of online retailers and increase their
switching costs and yield considerable influence over their decisions. Nevertheless, the e- fulfilment
provider may face the alliances in hub that could potentially threaten its position.
38
Customers‟ emails received in the later working hours have to be dealt with in the morning of the
next working day.
86

handle each complaint appropriately and in exchange offer the customer some
benefits
8.2.7 Process
The notion of the process in this strategy definition through marketing mix is
understood as the way the customer is experiencing the service.
End customers
The customers of the online retailers are provided with either real time or standard
delivery rates when closing the shopping basket. The order can be changed or cancelled
within the following three hours after its placement. Once the order is set to be fulfilled, the
customer is notified via email with tracking number and additional delivery information. The
parcel also contains vouchers with significant discounts to some of the products of the online
retailers that cooperate with e-fulfilment provider.
Every parcel is equipped with bar code sticker and return address. When the customer
wishes to return the product, the request has to be submitted via website or through the call to
the customer service. If it is just the case of product return, the parcel is submitted to the post
office with the return sticker and money is collected by the customer few days later. On the
other hand, in the case of exchange, the customer has the choice to either follow the process
of standard return or hand over the package to the delivery service on the arrival of a new
exchanged item. The returns and exchanges are of no costs to the customer.
Online retailers
The inventories of the newly acquired online retailers are transported from their
premises for free. If possible and allowed, the shopping cart of the online retailer is integrated
with the e-fulfilment system. The integration serves as an interface for the online retailer to
track the progress on the orders. The system sends notification about the dispatch of bulk or
individual orders. By logging into the system, the online retailer also sees the up to date status
of the inventories. In the case the inventory replenishment is needed, the online retailer is
notified and either only the transportation of the inventories from supplier or also
procurement is arranged by the e-fulfilment. All the products returns and exchanges are
managed solely by the e-fulfilment provider. The online retailer is only informed about the
87
change in the inventories and about the status of the returned product 39. When the online
retailer chooses also to outsource the product procurement, it is granted a credit in form of an
option to stock inventories of higher value than would be normally financially possible. The
inventories are also obtained with a substantial discount due to the bulk purchasing. The
provision40 of the e-commerce platform is offered to each online retailer for free. On top of
that the part of the offer is also that the responsibility for maintenance and run of the system is
taken over so that the online retailer can focus on other activities than IT.
Suppliers of products
Each supplier has a profile in the system where the procurement requests and the
offers to sell the excessive inventories are managed. The procurement requests are based on
the inventory forecasting and each supplier is notified about every procurement request
around 1 month in advance. Once the procured products are ready, the collection of the
inventory is arranged. In the case that the supplier is only official distributor and the complete
merchandise has to be with the manufacturer abroad, the delivery can be arranged directly to
the e-fulfilment premises instead of placing the inventory with supplier. Suppliers may sell
through the system excessive inventories or also advertise special offers and limited
discounts.
Logistics partners
The logistics partners are provided through the system with the lists of delivery
destinations as well as the information about the collection points for the returns and
exchanges. Besides that, the logistics partners are also engaged in the transportation of the
inventory from the supplier to the warehouse and from the online retailer warehouse to the efulfilment warehouse.
8.2.8 Physical evidence
The actual way how the end customer is experiencing the product in terms of the
physical evidence is mainly the kept promise of the delivery time. This could be substantially
influenced by the e-fulfilment provider but the final experience of the physical delivery is
done by the logistics partners. Since this is out of the scope of direct influence of the
company, each parcel is provided with a feedback form together with a discount voucher in
order to encourage the submissions. In addition to that, each parcel is provided with a pre39
40
It will be difficult to recover value of some products up to 100%.
It includes customization, installation, filling with products and regular updates.
88
paid return sticker which enables the customer to return the product in the same box for no
additional price.
8.2.9 The impact of the horizontal strategy on the business strategy
The horizontal strategy aims to leverage the synergies of both business units and
focuses of complete insourcing of the e-commerce supply chain of the online retailing
business unit to the e-fulfilment business unit.
Objective:
Generate 30% sales internally from the online retailing business unit
89
8.2.10 Operational strategies
Some operational areas will have a crucial impact on the business performance,
therefore there is a need for a closer specification and translation of the business goals on the
operational level.
ICT41 strategy
Objective (1): To develop the e-fulfilment system integrations with FastCentrik, ShopSys,
PrestaShop, Jednicky. (5)42
Introduction of an e-fulfilment business unit will place significant requirements on the IT
infrastructure. In order to improve the infrastructure the company will make use of the
CzechInvest program subsidizing small and very small business with the amounts of up to
500.000 CZK. The company will apply for the subsidy amounting to 450.000 CZK since the
necessary expenses on the ICT will be as follows:

dedicated server hosting
4500 CZK / month43

warehousing platform
100.000 CZK44

improved ICT infrastructure
40.000 CZK

E-fulfilment web platform
250.000 CZK45
Logistics strategy
Objective (1): To process at least 12.000 parcels within the first 12 months. (6)46
Objective (2): To process at least 9.000 parcels for external customers within first 12
months. (6)47
Objective (3): To fix the rates with PPL after first 6 months on 70 CZK for transportation fee
and 30 CZK for the cash on delivery fee. (4)48
41
ICT: Information and Communication Technology
The related business objective: To develop integration for four main shopping carts. (Jednicky –
http://www.jednicky.cz; PrestaShop – http://www.prestashop.com; ShopSys – http://www.shopsys.cz;
FastCentrik – http://www.fastcentrik.cz)
43
The dedicated server hosting be for the new e-commerce platforms of the three online shops
plus
for the run of the e-fulfilment collaboration platform. The company will included in the request a
dedicated server hosting costs for the period of 12 months.
44
The e-fulfilment collaboration platform will be built on the warehousing platform.
45
The development of the e-fulfilment web platform will be insourced and done in-house.
46
The related business objective: Reach the revenue of 18 mil CZK out of which 25% internally from
the online retailing business unit
47
The same as 39.
42
90
The company will aim to close partnership agreements with PPL, DPD and Czech
Post that would assure the e-fulfilment provider fixed rates per parcel without taking into
account the measurements and weight. Based on the analysis of a small sample of rates
(Appendix 10), it was found that discounted fixed rate of 65 CZK per parcel with 25 CZK for
cash on delivery payment and the free delivery threshold of 2000 CZK bring the online
retailer nearly the same negative profit but definitely have higher potential to attract
customers preferring lower rates. The strategy for contracting the outbound logistics is:

To enable the online retailers to deliver to their customers for the fix rate of 99
CZK in the case of cash on delivery and 79 CZK in the cases of using digital
means

Encourage the customers to make use of PPL transportation as the main
partner instead of choosing i.e. Czech Post
Procurement strategy
Objective (1): To provide the procurement services to 3 customers within the first 12 months
including the online retailing business unit. (3)49
Objective (2): Sign at least two procurement partnership agreements with suppliers within
the first 12 months - one with Legea and the second with another supplier,
preferably Jako. (4)50
The procurement strategy aims to optimize the scheduling of the procuring process
with each supplier. Every procuring process has to be initiated with highest possible amount
of required products in order to yield the bulk discounts plus to decrease the costs of the
process. This requires proper calculation in terms of inventory forecasting and also having
some security inventory in order to cover the time difference 51. The procurement provides the
online retailer with higher inventory on a credit which level is highly dependable on the
online retailer‟s performance. The provision of the inventory credit has substantial rules.

The short term inventory credit has to be repaid within 3 months from the purchase
in maximum 3 instalments at latest on the transaction day52.
48
The related business objective: Have 4 supplier partnership agreements
The related business objective: Reach at least 4 procurement agreements with the online retailers
50
The same as 41.
51
The time difference between the needs for the inventory replenishment of the online retailers could be
several days.
52
Transaction day is the day when the e-fulfilment provider transfers proportion of the collected money
on cash on delivery to the online retailer reduced by the fees for the services. The transaction day is the
first working day in the month.
49
91

The inventory of the online retailer can be replenished every month or at each
scheduled procurement event but only up to the difference between the current
value of the inventory and maximum allowed limit.

In the case that there is an inventory that is in stock for more than 3 months, the
online retailer has to either do a promotion or the e-fulfilment provider will offer
the excessive inventory to other customers.

The inventory turnover is assessed at the beginning of each month for the previous
month. There is a fluctuation interval for the inventory turnover index. If the value
is within that interval, there is no change to the value of the inventory. On the
other hand, if the value is out of that interval, the e-fulfilment has either the right
to offer the excessive inventory to other customers (in the case that the value
decreases) or the online retailer has the right to request additional inventory
replenishment that amounts to the gap between the old and new value of inventory
holdings index. The reassessment of the correctness of the maximal value of
inventory provided on credit is done once in three months (Appendix 7).

The e-fulfilment provider is obliged to hold sufficient security inventory in order
to cover the unexpected occurrences of fast inventory sales.

The online retailer has to inform the e-fulfilment provider about an upcoming
promotion so that there is enough inventory at disposal.
The procurement strategy enables online retailers to purchase and hold more inventory
within the premises of the provider than would be normally at once possible. The potential for
the maximum value of the inventory holdings is assessed based on the conversion rates. The
assessment is done based on the index that makes use of the average inventory and inventory
holding index. The inventory holding index is a fixed rate that is stated in the contract 53.
Financial strategy
The company has to assure that there is a sufficient line of credit in order to cover the
time differences between the individual instalments for the inventory credit. In order to abide
the good payment discipline, the company has to be able to cover 3/4 of the total inventory
held. The partnership agreements with suppliers have to include a paragraph that defines the
53
The inventory holding index is a ratio of contracted inventory credit rate and the standard customer
conversion rate. The contracted inventory credit rate states for how much percentage of the visitors of
the online retailer‟s website would be the inventory sufficient. Generally, the inventory credit rate is 5%
and the standard conversion rate 2% which means that there would
be enough inventories for 3%
more visitors in the tracked period.
92
invoice maturity as the first day of the new month after the full calendar month that passed
after the invoice was received54 and defines this day as a transaction day when the efulfilment provider is obliged to even up the liability.
8.2.11 Financial indicators and hypothesis
Since the designed strategy confines only to the first 12 months of the operation, thus
only the objectives for 2012 are applicable, the only financial indicator that has to be
reviewed is the revenue index. The strategy 2015 gauges for 2012 an objective to reach a
revenue of 18 mil out of which 25% have be generated from the internally (from the insourcing of the e-fulfilment).
Objectives Achievement
50%
75%
100%
125%
Total Revenue
9000000
13500000
18000000
22500000
Internal Revenue
2250000
3375000
4500000
5625000
Total Orders
6750
9000
12000
15000
Internal Orders
1688
2250
3000
3750
Business Strategy
Operational Strategy
Table 8: Revenue objective achievement
Taking into account the values from the previous years 2007, 2008, and 2009 the 100%
objective in terms of revenue is only achievable when the average value of the order will
increase or the actual number of internally processed orders will go up since:

Average number of orders per year: 1.687

Average revenue from orders per year: 2.459.427 CZK

Average value of an average order: 1.458 CZK.
H1:
Introduction of the new e-fulfilment business unit will decrease the relative delivery
costs55 of the online sales per order by 10% in 2012 compared to 201056.
The analyzed sample of 74 parcels (Appendix 8) has a relatively good distribution since the
analysis identified that only around 10% of the orders are paid using any digital mean. In the
54
i.e. the invoice received in the middle of January will be part of the transactions only on 1 st March.
This would enable the company to optimize the cash-flow and also rely on lower credit.
55
By delivery costs is meant an average negative profit on parcel.
56
The full set of data was not available for 2011.
93
case of our sample 8.11% of orders were paid using digital mean. Taking into consideration
that the company does not offer credit card payments or any kind of a micropayments
technology on the website, the percentage values is still relatively high.
Total delivery
charges
Current situation
Strategy 201557
7190
5970
Delivery
charges paid
by customer
5677
4533
Profit (+ / -)
Profit (+ / -)
per order
-1513
-1437
-20.45
-19.42
% Profit (+ / -)
/ Delivery
charges
21.04 %
24.07%
Table 9: Profitability analysis of delivery services
Even though that the online retailers will have to increase the relative subsidy per delivery by
3% the negative profit per order will decrease. The application of the strategy 2015 by lower
fixed rates and lower limit for free delivery improves the negative profit per delivery but the
improvement amounts only to 5%. Thus, the assumption in the hypothesis H1 proved to be
wrong.
H2:
There is a market niche to be explored in the e-commerce supply chain
outsourcing
on the Czech online retail market with the first mover advantage.
There were two known supply chain approaches that were in scope of this hypothesis dropshipping and e-fulfilment. The analysis of the internal environment showed that the company
already made use on an ad-hoc basis of the drop-shipping service. Nevertheless, the dropshipping approach is not the market niche that could be explored by our company since it is
defined for its very nature for the suppliers or official distributors only. The focus is on the
intermediation of the e-commerce supply chain that occurs through the e-fulfilment business
model. The e-fulfilment business models are already operating on the European markets such
as Germany and UK and both of these markets have significantly high percentages of
population shopping online which are substantially larger than in the Czech Republic. If it is
assumed that the development of the market in the Czech Republic will have the similar
pattern, then there is a forming market niche for the e-fulfilment operations. However, the
analysis also revealed that this market niche is already being explored by a first mover
ComGate Logistics. This very fact negates the hypothesis H2. Therefore, the hypothesis
proved to be wrong.
57
For the application of strategy 2015 please see the appendix 12.
94
Conclusion
The online economy is becoming a crucial part of the overall economy and its
contribution to the GDP is rising annually. The increase is given by the higher number of
population with the internet connection and also by increased trust in the online shopping and
other online transactions. The investigation to the western European markets identified
significant gap in the shopping behaviour among different countries. In terms of the
percentage of the population shopping online and the penetration of the internet access, the
Czech online retail market could be judged as a very strong and a developing 58 one.
The strategy for the business unit was designed according to the capabilities of the
company which to the larger extent need upgrading in order for the strategy to be more
competitive. The strategy is build around the most important factors indentified of the
external and internal analysis that were summarized in SWOT table. In terms of strength,
there is no easily non-imitable capability of the company that would significantly position the
business in the forefront of the market since all the mentioned strengths are rather general
characteristics of the e-fulfilment business model. The main limitation of the strategy is the
allocation of the warehousing premises in the current seat of the business that is in terms of
the logistics not very well situated. The proposed solution to this disadvantage is the move the
warehousing to one of the three larger agglomerations that are in the surroundings and where
the distribution centres of the main logistics partner PPL are situated. However, the
distribution centre in Hradec Kralove is out of scope since the early and sole entrant ComGate
Logistics on the Czech market in the area of e-fulfilment makes use of the efficient
warehousing and collection point by leasing part of the premises of the PPL distribution
centre which enables ComGate Logistics to make the fulfilment more efficient. This way of
collaborating is the approach the company should choose and seek similar opportunity within
the PPL distribution hub in Brno for three reasons. First, Brno has the second largest
agglomeration in the Czech Republic and the density of the population would enable the efulfilment provider and the logistics partner to test the newly developed e-commerce delivery
services. Second, the location of the hub is very convenient in terms of speedway connection
between Brno and Prague. Third, the company is aiming to position itself as an innovative ecommerce leader in all the possible aspects and Brno is able to provide human capabilities in
the IT as well as technological centres that are focused on innovations. The limited size of the
58
Let us assume that the 24% of the internet population is not yet enough to define the market as
developed in the area of online business.
95
premises also forces the company to optimalize the inventory turnover and keep it
significantly high which may prove very difficult by having only limited number of customers
that are provided with large inventory credits. The concept of the inventory credits may earn
an initial competitive advantage. On the other hand, the cash-flow has to be optimized and the
company has to also look for other solutions how to present the benefits of the e-fulfilment
than just offering the inventory credit as a sole concept of inventory keeping. Since the
increasing number of customers will in turn increase the demand for an inventory credit, the
company will be pushed to the spiral of requiring higher levels of short credit lines which may
be an unsustainable situation. The scope of the e-fulfilment could be much larger than is
defined in the strategy but the short term focus and limited investment funds reduce the
element of collaboration.
The lacking investments and management‟s higher aversion to the risk will not enable
the company to jumpstart to the market but the company will only slice piece by piece the
market share which will give enough time and space for the market followers to establish
their positions. The missing investments will also have significant impact on the quality of the
overall e-fulfilment service since in its heart lies a powerful platform through which all the
transactions are carried out. Not having allocated sufficient investment funds to the IT
development, the ambitious goal of integrating the shopping carts of the online retailers with
the e-fulfilment system, inventory evidence and forecasting, provision of real time delivery
rates and procurement will become features that will not be implemented. The strategy is also
setting very ambitious target of fixing the delivery rates on a very low amounts. Even though,
the low level may be desirable, the fact that the online shopping malls admit earning a profit
of up to few tens of crowns on the delivery fees. The company may rethink the move and
position itself in terms of the delivery price little bit higher and generate more profit. The
eminent focus on the price of the service will require cost controlling and proper definition of
the revenue model.
The idea of including the e-commerce consultancy services partially for free into the
product can bring the company a momentum and attract more customers but mostly of a
smaller size since these customers may dispose of lower level of IT infrastructure. Compared
to the customers of a larger size, they would you usually require much more functionalities
and higher customization which may become together with the free of charge warehouse onboarding very costly. Offering the customized e-commerce platform free of charge may be a
contradictory approach to the horizontal strategy. Due to the fact that the offer of customized
96
e-commerce platform may become very appealing, the strategy of the e-fulfilment business
unit may contribute to the creation of competitors and cause potential decline in the sales. The
way out of this bottleneck could be only the exit strategy from the online retailing business
otherwise pursuing the e-fulfilment business strategy and looking on the corporate goals and
taking into account horizontal strategy may prove contradictory and reduce the performance
of the company.
The focus on the strategy in the year 2012 did not allow elaborating further on the
conception of collaboration and enhancement of the overall value in the value network. The
management should take into consideration except development of a network of partnering
warehouses also development and introduction of collection points that would offset the
disadvantages of unattended delivery service. Even though that the logistics providers such as
PPL or DPD offer 1 or respectively 2 re-deliveries the probability of not reaching the
customer exists. The further topic where the e-fulfilment provider and logistics provider may
consider collaboration one is an efficient return process for used boxes which could increase
the greener perception of both companies and also lower the expenses on the packaging.
To conclude, the short term strategy for the year 2012 may enable the company to
introduce the product to the market. On the other, in order to be more competitive and to be
also able to sustain the competitive advantage, the company has create and investment plan
and as one the first steps improve the infrastructure and focus more on the bottom-line
requirements of supply chain.
97
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Tables
Table 1: Online sales throughout the decade ........................................................................ 41
Table 2: Delivery options and times of the company ............................................................. 63
Table 3: Value drivers in e-fulfilment ................................................................................... 71
Table 4: SWOT of online retailing business unit ................................................................... 72
Table 5: SWOT of e-fulfilment business unit ......................................................................... 73
Table 6: An e-fulfilment business strategy objectives ............................................................ 77
Table 7: An overview of the nearest depots of business partners ........................................... 84
Table 8: Revenue objective achievement ............................................................................... 93
Table 9: Profitability analysis of delivery services ................................................................ 94
Table of figures
Figure 1: Strategic Management framework........................................................................... 9
Figure 2: Competitive Forces ............................................................................................... 13
Figure 3: BCG Matrix .......................................................................................................... 15
Figure 4: Sector attractivity and company positioning matrix............................................... 16
Figure 5: Porter’s 5 forces in the online environment ........................................................... 22
Figure 6: Virtual value chain ............................................................................................... 24
Figure 7: New value chain ................................................................................................... 24
Figure 8: Value Drivers ....................................................................................................... 25
Figure 9: Value network ....................................................................................................... 26
Figure 10: Simplified order fulfilment process in drop-shipping model with two suppliers ... 28
Figure 11: Simplified order fulfilment process in e-fulfilment model with two suppliers....... 29
Figure 12: A value network of the online retailing business unit ........................................... 60
Figure 13: A value network of the e-fulfilment business unit ................................................. 65
Figure 14: A value network of an online retailer with an outsourced supply chain ............... 69
105
List of Appendices
Appendix 1: Selected financial indicators ...........................................................................107
Appendix 2: Porter’s 5 forces in e-business ........................................................................107
Appendix 3: Delivery options of shopping malls .................................................................108
Appendix 4: Online revenues from orders ...........................................................................108
Appendix 5: Revenues from delivery charges ......................................................................109
Appendix 6: Sales analysis per channel ..............................................................................110
Appendix 7: E-fulfilment inventory turnover .......................................................................111
Appendix 8: Competitors analysis .......................................................................................112
Appendix 9: Analysis of competitors’ delivery options ........................................................119
Appendix 10: Analysis of delivery charges ..........................................................................120
Appendix 11: Product pricing strategy overview .................................................................123
Appendix 12: Strategy addressing weaknesses and threats ..................................................124
106
Appendix 1: Selected financial indicators
Financial indicators
Liquidity
ratios
(indicate the ability of
the business to fulfil its
commitments)
Activity ratios
(efficient utilisation of
resources)
Profitability ratios
Alternatively
Appendix 2: Porter’s 5 forces in e-business
Porter’s competitive forces in e-business according to Chaffey (2009)
Bargaining power of  Wider choice
buyers
 Information transparency
 Lower prices
 Lower switching costs
 Increased switching costs of e-business links – “soft lock-in”
Bargaining power of  Wider choice of suppliers
suppliers
 E-procurement and e-marketplaces
 Wider choice of buyers
 Lower differentiation of suppliers (through commodization of produce)
 E-procurement – lower switching costs / higher lock-in
Threat of substitute  Information transparency
products and services
 Fast introduction of new products and services
 New disruptive business models
Barriers to entry
 Lower fixed costs
 Minimal costs of entry
 Easy imitation of the services
 Established online brands – increased lock-in / higher switching costs
Rivalry among existing  Commodization – very difficult to differentiate the product
competitors
 Shorter product lifecycles
 Shorter lead times for new product development
 Increased number of potential competitors
107
108
Average No. of items per order
Total No. of items sold
Total No. of orders
2011 - No. of orders (until the end of May)
2010 - No. of orders
2009 - No. of orders
2008 - No. of orders
PPL - cash on delivery
PPL - Pre payment
(+) PPL - next package
(+) PPL - Evening delivery
DPD
Czech Post - Cash on delivery
Czech Post - pre-payment
(+) Czech Post - next package
Courier Praha (90min) - Cash on delivery
Courier Praha (90min) - pre-payment
Courier Praha (240min)
Courier Praha (300min) - Cash on delivery
Courier Praha (300min) - pre-payment
Appendix 3: Delivery options of shopping malls
Small parcels (CZK)
Kasa.cz
Obchodni-dum.cz
Mall.cz
Alza.cz
Vltava.cz
Nakupnicentrum.cz
x
x
129
150
x
120
x
x
99
90
x
120
x
x
69
x
x
x
x
x
0
x
x
x
129
129
x
x
99
x
129
129
129
143
99
80
129
129
99
83
99
80
x
x
69
x
x
x
249
x
x
359
x
x
x
x
x
299
x
x
139
x
x
x
x
x
x
x
x
227
x
x
x
x
x
167
x
x
Korunka.cz
149
119
79
x
x
149
119
79
x
x
x
x
x
Gap (Max - Min)
30
30
10
0
30
69
49
10
110
0
0
0
0
Appendix 4: Online revenues from orders
website 01
1,264
203
358
76
1,901
2,797
1
website 02
319
982
1,001
445
2,745
10,149
4
website 03
167
432
334
104
1,037
2,789
3
Total
1,750
1,617
1,693
625
5,683
15,735
2.62
Total Revenue (*)
2011 - Revenue (until the ned of May*)
2010 - Revenue (*)
2009 - Revenue (*)
2008 - Revenue (*)
website 01
1,734,628
255,336
622,203
100,234
2,712,401
website 02
389,469
1,340,995
1,619,339
858,027
4,207,830
website 03
246,070
637,192
533,050
147,723
1,564,035
Total
2,370,167
2,233,523
2,774,592
1,105,984
8,484,266
(*) Does not include delivery charges
Appendix 5: Revenues from delivery charges
www03
246,070
4,468
Total
100,942
2.50%
1,340,995
80,092
1.82%
637,192
20,840
113,699
622,203
31,110
5.97%
1,619,339
109,987
6.79%
3.27%
533,050
31,314
5.87%
5%*
% of the revenue
9,743
Delivery charges (paid by the
customer)
389,469
12,767
Revenue (*)
www02
255,336
5%*
2010
% of the revenue
86,731
Delivery charges (paid by the
customer)
1,734,628
Revenue (*)
Delivery charges (paid by the
customer)
www01
2009
% of the revenue
Revenue (*)
2008
5%*
172,411
109
Delivery charges (paid by the
customer)
www01
100,234
5,012
www02
858,027
47,807
5.57%
5.21%
www03
147,723
12,151
8.23%
4.80%
Total
Average %
% of the revenue
Revenue (until the ned of May*)
2011
5%*
5.00%
64,970
5.00%
* - the data were not available, thus the values were calculated using the average delivery charge as a percentage of the
revenue from the website 02 and website 03
Costs of total sales (in ths CZK)
Online Channel (in ths CZK)
% Share of online channel
Cost of online channel sales (in ths CZK)
Direct Channel (in ths CZK)
% Share of direct channel
Cost of direct channel sales (in ths CZK)
Inventory end (in ths CZK)
Online channel inventory turnover
Estimated maximum products storage value
2008
4,642
3,236
2,471
53.23%
1,723
2,171
46.77%
1,513
1
166
20.63
209
2009
4,632
3,411
2,348
50.69%
1,729
2,284
49.31%
1,682
166
135
11.49
376
2010
4,022
3,034
2,947
73.27%
2,223
1,075
26.73%
811
135
179
14.16
393
Inventory start (in ths CZK)
Total Sales (in ths CZK)
Appendix 6: Sales analysis per channel
Estimated maximum products storage value = average inventory * inventory holdings index
Inventory holdings index = (agreed conversion rate) / (standard average conversion rate)
110
Appendix 7: E-fulfilment inventory turnover
The inventory turnover index is calculated at for the previous month at the beginning of each
new month. The index has to be cleaned of the influences coming from the changes in the
customer base of the online retailer and the conversion rate. In addition to that, the average
inventory has to be always considered in terms of the utilization of the full capacity of the
inventory credit so that the consequent monthly values are comparable.
Fullness index is defined as ratio between the value of the inventory at the beginning of the
month and the maximal possible value in terms of inventory credit.
Inventory – month beginning
Inventory – month end
Average inventory
Fullness index
Average inventory + fullness index
Inventory turnover
Inventory turnover + fullness index
Unique visitors
Conversion rate
Clean Inventory turnover
Jan
15
150
130
140
1
140
0.11
0.11
4500 90
2.00%
0.11
Feb
45
130
80
105
0.87
121
0.43
0.37
5000 160
3.20%
0.23
Mar
25
140
110
125
0.93
134
0.20
0.19
4200 95
2.26%
0.17
Apr
35
150
110
130
1
130
0.27
0.27
4500 100
2.22%
0.24
May 35
150
110
130
1
130
0.27
0.27
5000 100
2.00%
0.27
Jun
110
50
80
0.73
109
0.69
0.50
6000 120
2.00% 0.50
55
No. of orders
Inventory costs
Example calculation to be found below:
If the clean inventory turnover is within the interval 0.1 – 0.3 there is no need for the change
but due to the increase in the visitors but same conversion rate the turnover of the inventory is
much higher and the limits for the online retailer have to be reviewed.
111
Appendix 8: Competitors analysis
Number of competitors per certain strategic group and strategic subgroup
Competitive threat level
Strategic group
1
2
3
Sporting goods
58
37
45
Specialization
football
19
6
16
3
30
6
floorball
6
4
3
in-line
5
3
2
tennis
4
6
racquest sports
2
4
thermoclothing
basketball
3
2
shoes
2
protection
1
handball
1
ping-pong
1
aerobik
1
One-brand only
Adidas
12
5
5
Reebok
1
2
Legea
2
Jako
2
Nike
1
Hummel
1
11
1
Joma
1
Kempa
1
Saller
1
1
1
Molten
1
Moira
1
New Alpine
1
Uhlsport
1
Barnett
1
Hi-Tec
1
Warehousing
Competitor
Warehouse size
Botas
Location
Competitive
threat level
Celeano
Assortment
Segment
Sportobchod.cz
Y
L
Praha, Brno
1
sporting goods
Altisport.cz
Y
S
Most
1
sporting goods
nejlevnejsisport.cz
Y
M
Ostrava, Brno
1
sporting goods
centrumsportu.cz
Y
S
Praha 2x
1
sporting goods
adidasmania.cz
Y
S
Trebic
1
one-brand only
Adidas
adidas-e-shop.cz
Y
S
Trebic
1
one-brand only
Adidas
reebok-store.cz
Y
S
Trebic
2
one-brand only
Reebok
total-sport.cz
Y
S
Trebic
2
one-brand only
Nike
112
nejlepsi-sport.cz
Y
S
1
sporting goods
sport-lyze-kola.cz
Y
S
Trutnov
2
sporting goods
online-sport.cz
Y
S
Zlin
1
sporting goods
e-sportshop.cz
Y
S
Ceske Budejovice
1
sporting goods
e-umbro.cz
Y
S
Praha
3
one-brand only
sportovni-termopradlo.cz
Y
S
Hradec Kralove
3
specialization
thermoclothing
florbalcz.cz
Y
S
Hradec Kralove
3
specialization
floorball
dreamsport.cz
Y
S
Brno
1
sporting goods
adidasobchod.cz
Y
S
Praha
1
one-brand only
sportovni-potreby.cz
Y
M
Jihlava
1
sporting goods
klimatex.cz
Y
L
Brno
3
one-brand only
zijemesportem.cz
Y
S
Ostrava
1
sporting goods
2z-sport.cz
N
2
sporting goods
prosporty.cz
Y
S
Teplice
1
sporting goods
hoby-sport.com
Y
S
Vlasim
3
sporting goods
trenink-shop.cz
Y
S
Praha
2
sporting goods
gamisport.cz
Y
M
Trinec
1
sporting goods
nsport.cz
Y
M
Trinec
1
one-brand only
Nike
adidascz.cz
Y
M
Trinec
1
one-brand only
Adidas
sport-live.cz
Y
S
Ceske Budejovice
1
sporting goods
sportovniobchod.cz
Y
S
Jihlava
1
sporting goods
termopradlo-devold.cz
Y
S
3
specialization
sport-core.cz
Y
S
Hlinsko
bohumin, orlova,
praha
1
sporting goods
uni-sport.cz
Y
S
Praha
1
sporting goods
shopkredit.cz
N
3
sporting goods
sport-a-hry.cz
Y
S
Semily
2
sporting goods
abcsport.cz
Y
M
Praha
1
sporting goods
sport15.cz
Y
S
Ceske Budejovice
2
sporting goods
florbalobchod.cz
Y
S
Ceske Budejovice
2
specialization
floorball
inlineobchod.cz
Y
S
2
specialization
in-line
eshop.jipast.cz
Y
M
Ceske Budejovice
dual channel,
producer direct sales
2
sporting goods
kola-sport.stratilek.cz
Y
M
Litomysl
2
sporting goods
activitystore.cz
Y
Praha
2
sporting goods
sportovni-pomucky.cz
Y
S
Chribska
1
sporting goods
joma-fotbal.cz
Y
S
Chribska
2
one-brand only
Joma
jako-sport.cz
Y
S
Chribska
1
one-brand only
Jako
azkeep.cz
Y
S
Chribska
2
specialization
football
legea-fotbal.cz
Y
S
Chribska
1
one-brand only
Legea
sportfantasy.cz
Y
S
Rudna u Prahy
3
sporting goods
ekredit-shop.cz
N
2
sporting goods
1
sporting goods
sportbart.cz
Y
M
Usti nad Orlici,
Letohrad, Zamberk,
Ceska Trebova
devilsport.cz
Y
S
Prerov
2
sporting goods
jp-sport.cz
Y
S
Prelouc
1
sporting goods
adsport.cz
N
1
sporting goods
Adidas
thermoclothing
thermoclothing
113
asczlin.cz/eshop
N
3
specialization
aerobik
molten.cz
Y
M
Praha
3
one-brand only
Molten
uhlsport-fotbal.cz
Y
M
Ceske Budejovice
3
one-brand only
Uhlsport
kempa-hazena.cz
Y
M
Ceske Budejovice
3
one-brand only
Kempa
jumpsport.cz
Y
S
Frydek Mistek
2
sporting goods
kantorsport.cz
N
3
sporting goods
kocksport.cz
Y
M
Brno
3
sporting goods
schoolsport.cz
Y
S
Praha
3
sporting goods
allinsport.cz
N
2
sporting goods
atmsport.cz
Y
S
Hlucin
2
sporting goods
dum-sportu.cz
Y
S
Praha
3
sporting goods
albsport.cz
N
3
sporting goods
holidaysport.cz
Y
S
1
sporting goods
barnettsports.com/cz
Y
L
3
one-brand only
Barnett
nordyr.cz
N
3
specialization
thermoclothing
trimona-shop.cz
N
3
specialization
handball
famos-sport.cz
Y
S
3
sporting goods
blizzard.cz
Y
L
Nachod
Hradec Kralove,
Praha
2
sporting goods
sport-thieme.cz
Y
L
Horni Jeleni
2
sporting goods
eshop-ccbsport.cz
N
3
sporting goods
celeano.cz
Y
2
one-brand only
obchod-sport.cz
N
3
sporting goods
sport-midas.cz
N
3
sporting goods
sportfotbal.cz
Y
S
Praha
1
specialization
football
eshop.petr-cech.cz
Y
S
Praha
1
specialization
football
reebok-eshop.cz
Y
S
Praha
2
one-brand only
Reebok
sport2you.cz
Y
S
Praha
2
sporting goods
go4sport.cz
N
2
sporting goods
domishsport.cz
N
2
sporting goods
dorshop.cz
N
1
sporting goods
emporio-sports.cz
N
3
sporting goods
sportmarket.cz
N
2
sporting goods
kouzlosportu.cz
N
3
sporting goods
sportsmarket.cz
N
2
sporting goods
peaksport.eu
N
3
sporting goods
gekonsport.cz
Y
S
Jablonec nad Nisou
1
sporting goods
360s.cz
Y
S
Usti nad Labem
2
sporting goods
prima-sport.cz
N
2
sporting goods
sporthabacek.cz
N
3
sporting goods
1
sporting goods
3
sporting goods
3
sporting goods
3
outlet
L
Zlin
Netvorice
tripsport.cz
Y
S
ski-sport.cz
Y
L
Zdar nad Sazavou,
Havlickuv Brod
Kunovice, Uhersky
Brod, Zlin, Veseli
nad Moravou,
Kromeriz, Ostrava
xline.mimishop.cz
Y
S
Varnsdorf
sportmagic.cz
N
114
Celeano
igysport.cz
N
1
sporting goods
12pm.cz
N
1
sporting goods
domisport.cz
N
3
sporting goods
pimpmystyle.cz/e-shop
N
3
sporting goods
shop.mates-skisport.cz
Y
S
Hodonin, Kyjov
3
sporting goods
jmsport.cz
Y
S
2
sporting goods
dassar.cz
Y
L
Praha 2x
supplier's dual
channel
3
sporting goods
marathonsport.cz
N
2
sporting goods
net-market.cz
N
2
sporting goods
sportactive.cz
N
3
sporting goods
sportx.cz
N
3
sporting goods
obchod.engross.cz
Y
3
sporting goods
sport4you.cz
N
2
sporting goods
3
sporting goods
S
Velke Popovice
sportsystem.cz
levnysportshop.cz
N
3
sporting goods
1
sporting goods
worker.cz
Y
L
supplier's dual
channel
sportovni-obleceni.cz
Y
S
Boskovice
2
sporting goods
new-alpine.cz
Y
S
Boskovice
3
one-brand only
New Alpine
sport-obuv.cz
Y
S
Boskovice
3
specialization
shoes
fotbalove-vybaveni.cz
Y
S
Boskovice
3
specialization
football
obleceni-sportovni.cz
N
3
outlet
sportmen.cz
N
1
sporting goods
e-sportovni-potreby.cz
N
2
sporting goods
sportprotebe.cz
Y
S
Brno
1
sporting goods
sportex.cz
Y
S
Praha
1
sporting goods
globesport.cz
Y
S
Sumperk, Havirov
1
sporting goods
sportovnivybaveni.cz
Y
S
Pardubice
3
sporting goods
tvujsport.cz
Y
L
Sportisimo
1
sporting goods
kopacky.cz
Y
L
Sportisimo
1
specialization
football
in-line.cz
Y
L
Sportisimo
1
specialization
in-line
sport365.cz
Y
S
Zlin
1
sporting goods
e-inline.cz
Y
S
Zlin
1
specialization
sportexo.cz
N
1
sporting goods
aasport.cz
N
3
sporting goods
beskyd-sport.cz
N
1
sporting goods
sportnawebu.cz
Y
S
Brno, Praha, Zlin
3
sporting goods
dvsport.cz
Y
S
3
sporting goods
sport-vyhodne.cz
Y
S
Praha
Ivancice, Velke
Mezirici
2
sporting goods
jankusport.cz
Y
S
Prerov
3
sporting goods
bigfotbal.cz
Y
S
Praha
1
specialization
bigsport.eu
Y
S
Praha
1
sporting goods
retro-fotbal.cz
Y
S
Praha
3
specialization
football
fotbalovy-obchod.cz
N
1
specialization
football
hummelsport.cz
N
1
one-brand only
Hummel
in-line
football
115
nasport.cz
Y
S
Brno
1
sporting goods
kopacky.eu
Y
S
Slavicin
2
specialization
football
eflorbal.cz
Y
S
Slavicin
2
specialization
floorball
salova-obuv.cz
Y
S
Slavicin
3
specialization
shoes
koleckove-brusle.com
Y
S
Slavicin
2
specialization
in-line
sportobchod.com
Y
S
Slavicin
2
sporting goods
fotbal-love.cz
N
2
specialization
sportlove.cz
N
3
outlet
menapo-sport.cz
N
3
specialization
football
profotbalek.cz
N
3
specialization
football
basketbalshop.cz
Y
S
Brno
1
specialization
basketball
sportservisoaza.cz
Y
S
Praha 2x
1
sporting goods
jascentrum.cz
Y
S
Caslav
1
sporting goods
sport-hity.cz
N
1
sporting goods
levasport.eu
N
3
sporting goods
efitness.cz
Y
S
Praha, Plzen
1
sporting goods
jksport.cz
Y
S
Koprivnice
1
sporting goods
qtenis.cz
Y
S
Praha 2x
2
specialization
tennis
allforsport.cz
Y
S
Uvaly
2
specialization
racquest sports
sportcz.cz
Y
L
Teplice
1
sporting goods
vseprosporty.cz
N
1
sporting goods
bezvasport.cz
Y
S
Pacove
3
outlet
justoutlet.cz
Y
S
Praha
3
outlet
youandsport.com
Y
S
3
outlet
eprosport.cz
Y
S
Praha 2x
Bystrice nad
Pernstejnem
3
sporting goods
fotbalovametodika.cz
N
1
sporting goods
sportnanetu.cz
Y
3
sporting goods
sporttrade.cz
N
1
sporting goods
behshop.cz
Y
S
Praha, Cesky Tesin
2
sporting goods
sanasport.cz
Y
S
Brno, Praha, Zlin
2
sporting goods
valasport.cz
Y
S
Hranice
1
sporting goods
outlet-sport.cz
N
import from UK
3
outlet
janzusport.cz
N
3
sporting goods
aleasport.cz
N
1
sporting goods
a3sport.cz
Y
L
Plzen
1
sporting goods
insport.cz
Y
S
Hodonin
1
sporting goods
royaloutlet.cz
Y
S
Praha
3
outlet
danyshop.cz
N
2
specialization
sporthome.cz
Y
S
Praha
1
sporting goods
zdravi-sport.cz
Y
S
Jablonec nad Nisou
1
sporting goods
bucla.cz
N
1
sporting goods
sport-sky.cz
Y
S
Praha
3
sporting goods
pingpongshop.cz
Y
S
Kladno
3
specialization
ping-pong
eshop-tennis.cz
N
2
specialization
tennis
basket-shop.cz
Y
2
specialization
basketball
116
S
S
Jablonec nad Nisou
Praha
football
racquest sports
fotbalovemice.cz
N
3
specialization
football
tenisinet.cz
N
3
specialization
tennis
tenisovyobchod.cz
N
3
specialization
tennis
shop.kerdasport.cz
Y
S
Liberec
2
sporting goods
eshop-tenis.cz
Y
S
Trebic
3
specialization
tennis
megatenis.cz
Y
S
Pardubice
3
specialization
tennis
tenisove-zbozi.cz
Y
S
Brezno
3
specialization
tennis
shop-sport.cz
N
2
sporting goods
babolatstore.cz
Y
S
2
specialization
apollosport.cz
Y
L
Brno, Uhersky Brod
Liberec, Decin,
Zatec, Litvinov,
Chomutov, Usti nad
Labem, Most 2x
2
sporting goods
sportmall.cz
Y
S
Vichova nad Jizerou
1
sporting goods
cesky-sport.cz
Y
S
Ostrava
3
sporting goods
florbalovaprodejna.cz
Y
S
Brno
1
specialization
floorball
florbal.com
Y
S
Brno
1
specialization
floorball
florbal-shop.cz
Y
S
Brno
1
specialization
floorball
florbalpro.cz
Y
S
Praha 2x, Liberec
1
specialization
floorball
fotbalpro.cz
Y
S
Brno
1
specialization
football
tenispro.cz
Y
S
Praha 2x
2
specialization
tennis
inlinepro.cz
Y
S
Praha
1
specialization
in-line
sportyshop.cz
N
2
sporting goods
florbalsport.cz
Y
2
specialization
floorball
florbalek.net
N
3
specialization
floorball
florbalky-florbalove-hole.cz
Y
S
Litvinov
2
specialization
floorball
loap-shop.cz
Y
S
Trebic
3
sporting goods
inline-shop.cz
Y
S
Zlin
1
specialization
in-line
brusle-koleckove.eu
Y
L
Hradec Kralove
2
specialization
in-line
x-style.cz
Y
S
Brno, Krnov
3
specialization
in-line
budfitshop.cz
N
3
sporting goods
brusle-shop.cz
Y
M
3
specialization
eshop.heliasport.cz
Y
L
1
sporting goods
outletasport.cz
N
3
outlet
botas-sport.cz
N
3
one-brand only
Botas
inline-expert.cz
Y
S
Praha
1
specialization
in-line
sporto.cz
Y
S
Praha
1
sporting goods
maxsport.cz
Y
S
Benesov
1
sporting goods
fdsport.cz
Y
S
Panensky Tynec
1
one-brand only
adidas & reebok
hitec-eshop.cz
N
3
one-brand only
Hi-Tec
mcdavid-ortezy-bandaze.cz
N
3
specialization
protection
cvrceksport.cz
Y
2
sporting goods
sallersport.cz
N
3
one-brand only
Saller
racketsport.cz
Y
3
specialization
racquest sports
S
S
S
Litvinov
Brno
Olomouc, Praha,
Brno, Ostrava,
Prerov, Prostejov,
Bruntal,
Dluhonovice,
Hradec Kralove
Praha
tennis
in-line
117
obchod.sport-team.cz
Y
S
Plzen
3
sporting goods
moirashop.cz
Y
S
Praha
3
one-brand only
sportshopping.cz
Y
S
3
sporting goods
supersportshop.cz
N
3
outlet
kubistasport.com
N
3
sporting goods
fotbalove-vybaveni.cz
N
3
specialization
football
florbalstore.cz
Y
S
Havirov
3
specialization
floorball
jednadvacitka.cz
Y
M
Praha
1
specialization
floorball
florbalshopik.cz
N
1
specialization
floorball
easy-sport.cz
N
3
sporting goods
toptenis.cz
N
3
specialization
tennis
sportsone.cz
N
3
specialization
racquest sports
e-tenis.cz
Y
3
specialization
racquest sports
sportesence.cz
N
3
sporting goods
mtenis.cz
N
3
specialization
racquest sports
eshop-jako.cz
Y
1
one-brand only
Jako
118
S
M
Trinec
Moira
DPD
General Parcel
TopTrans
In Time
Not Defined
Payment type Cash on delivery (COD) / Digital Payment
(DP)
99
119
120.16 250
DP
30
99
99
101.63 250
COD
30
120
120
118.66 200
DP
30
79
99
98.53
COD
99
129
129
123.25 146
DP
85
100
100
103.38 129
COD
99
110
110
119.29 170
DP
59
80
80
97.00
COD
126
126
126
250.33 499
DP
126
126
126
217.00 399
COD
75
NA
75
75.00
75
DP
55
NA
55
55.00
55
COD
60
99
108
109.17 163
DP
60
99
99
100.71 163
Max - maximal delivery price
30
Ave - Average delivery price
COD
Min - minimal delivery price
% representation
Med - the middle value of the delivery
prices
Czech Post
Mod - the most often occuring delivery
price
PPL
No. Of retailers offering this delivery
Logistics provider
Appendix 9: Analysis of competitors’ delivery options
115 47.72%
144 59.75%
9
19
6
1
42
159
3.73%
7.88%
145
2.49%
0.41%
17.43%
119
Appendix 10: Analysis of delivery charges
Analysis of delivery charges of the company – a sample of 74 parcels delivered through PPL.
Current situation
Parcel No.
Weight
Collected
on
80913711775
80913711779
80913711781
80913711782
80913711783
40910797857
40910797858
40910797859
40910797860
40910797861
40910797862
40910797863
80981541467
40981009345
40981009346
40981009347
40981009348
40981009349
40981009350
40981009351
40981009352
40981009353
40981009354
40981009355
40981009356
40981009357
40981009358
40981009359
40981009360
40981009361
40981009362
40981009363
40981009364
40981009365
40981009366
40981009367
40981009368
40981009369
40981009370
40981009371
40981009372
40981009373
40981009374
40981009375
40981009376
40981009377
40981009378
40981009379
40981009382
40981009383
40981009384
40981009385
1,55
2,25
10,00
0,94
1,60
0,85
0,50
2,20
5,25
1,00
2,20
1,40
11,80
5,75
3,80
0,90
0,40
0,40
0,95
1,50
16,70
4,65
8,78
0,40
3,54
3,22
0,40
10,20
4,55
4,70
11,68
2,30
0,55
0,65
0,44
3,60
0,54
10,60
0,00
0,38
8,08
1,30
3,50
0,50
2,00
1,70
3,35
0,75
5,46
6,34
5,82
0,55
03.06.10
28.06.10
08.06.10
17.06.10
17.06.10
22.06.10
15.06.10
10.06.10
10.06.10
03.06.10
02.06.10
01.06.10
23.06.10
28.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
23.06.10
23.06.10
23.06.10
23.06.10
22.06.10
22.06.10
22.06.10
22.06.10
22.06.10
24.06.10
22.06.10
17.06.10
17.06.10
17.06.10
21.06.10
17.06.10
17.06.10
17.06.10
17.06.10
17.06.10
17.06.10
16.06.10
16.06.10
15.06.10
15.06.10
11.06.10
11.06.10
11.06.10
10.06.10
120
Delivered
on
04.06.10
29.06.10
09.06.10
18.06.10
18.06.10
23.06.10
16.06.10
11.06.10
11.06.10
04.06.10
03.06.10
02.06.10
24.06.10
29.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
24.06.10
24.06.10
24.06.10
24.06.10
23.06.10
23.06.10
23.06.10
23.06.10
23.06.10
25.06.10
24.06.10
18.06.10
18.06.10
18.06.10
22.06.10
18.06.10
18.06.10
18.06.10
22.06.10
18.06.10
18.06.10
17.06.10
17.06.10
16.06.10
16.06.10
14.06.10
14.06.10
14.06.10
11.06.10
COD
19715
5698
5020
1512
685
775
1224
1690
3045
1714
2929
954
1797
1307
794
13450
1627
1627
2534
744
1267
1178
592
4028
1048
10226
25174
667
8610
1789
7075
565
1061
602
6196
605
1484
2626
2596
465
Current Situation
COD
Transp.
fee
Fee
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
80
30
30
30
30
30
30
30
30
30
30
30
30
30
65
65
70
55
65
75
75
75
80
75
75
75
75
80
75
75
75
75
75
75
90
75
80
75
75
75
75
90
75
75
90
75
75
75
75
75
75
90
75
75
80
75
75
75
75
75
75
75
80
80
80
75
Delivery
fee
Profit (+ /
-)
NA
NA
70
NA
NA
NA
85
0
NA
0
0
0
0
0
0
116
115
115
115
116
115
115
115
115
115
115
115
0
115
115
115
115
115
115
115
0
115
0
0
115
0
115
0
115
115
115
0
115
115
115
115
115
NA
NA
0
NA
NA
NA
10
-75
NA
-75
-75
-75
-105
-110
-105
11
10
10
10
11
-5
10
5
10
10
10
10
-120
10
10
-5
10
10
10
10
-105
10
-120
-155
10
-110
10
-105
10
10
10
-105
10
5
5
5
10
40981009386
40981009387
40981009388
40981009389
40981009390
40981009391
40981009393
40981009394
40981009395
40981009396
40981009397
40981009399
40981009400
40981009401
40981009402
40981009403
40981009404
40981009405
40981009406
40981009407
40981009408
1,10
1,95
0,75
31,40
0,80
17,05
0,35
0,35
2,95
16,70
0,95
0,35
9,60
2,40
0,95
0,85
2,10
0,10
8,35
0,25
0,40
10.06.10
10.06.10
10.06.10
09.06.10
08.06.10
08.06.10
07.06.10
07.06.10
07.06.10
07.06.10
07.06.10
03.06.10
03.06.10
03.06.10
03.06.10
03.06.10
02.06.10
01.06.10
01.06.10
01.06.10
01.06.10
11.06.10
11.06.10
11.06.10
10.06.10
09.06.10
09.06.10
08.06.10
09.06.10
08.06.10
08.06.10
08.06.10
04.06.10
04.06.10
04.06.10
04.06.10
04.06.10
03.06.10
02.06.10
02.06.10
03.06.10
02.06.10
1994
584
1136
8360
720
3064
514
524
1857
2805
1044
982
9547
2453
750
1745
1112
310
7450
740
974
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
75
75
75
130
75
90
75
75
75
90
75
75
80
75
75
75
75
75
80
75
75
115
115
115
0
115
0
115
115
115
115
115
115
0
115
115
115
115
115
0
115
115
10
10
10
-160
10
-120
10
10
10
-5
10
10
-110
10
10
10
10
10
-110
10
10
40981009421
0,55
26.05.10
01.06.10
1374
30
75
115
10
Totals
1910
5280
5677
-1513
Delivery
fee
Profit (+ /
-)
NA
NA
79
NA
NA
NA
79
79
NA
79
79
79
0
0
0
99
99
99
99
99
0
99
0
99
99
99
99
0
99
99
NA
NA
14
NA
NA
NA
14
14
NA
14
14
14
-90
-90
-90
9
9
9
9
9
-90
9
-90
9
9
9
9
-90
9
9
Optimized situation – after implementation of the strategy
Parcel No.
Weight
Collected
on
80913711775
80913711779
80913711781
80913711782
80913711783
40910797857
40910797858
40910797859
40910797860
40910797861
40910797862
40910797863
80981541467
40981009345
40981009346
40981009347
40981009348
40981009349
40981009350
40981009351
40981009352
40981009353
40981009354
40981009355
40981009356
40981009357
40981009358
40981009359
40981009360
40981009361
1,55
2,25
10,00
0,94
1,60
0,85
0,50
2,20
5,25
1,00
2,20
1,40
11,80
5,75
3,80
0,90
0,40
0,40
0,95
1,50
16,70
4,65
8,78
0,40
3,54
3,22
0,40
10,20
4,55
4,70
03.06.10
28.06.10
08.06.10
17.06.10
17.06.10
22.06.10
15.06.10
10.06.10
10.06.10
03.06.10
02.06.10
01.06.10
23.06.10
28.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
24.06.10
23.06.10
23.06.10
23.06.10
23.06.10
22.06.10
22.06.10
22.06.10
Delivered on
04.06.10
29.06.10
09.06.10
18.06.10
18.06.10
23.06.10
16.06.10
11.06.10
11.06.10
04.06.10
03.06.10
02.06.10
24.06.10
29.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
25.06.10
24.06.10
24.06.10
24.06.10
24.06.10
23.06.10
23.06.10
23.06.10
COD
Optimalized situation
COD
Transp.
fee
Fee
65
65
65
19715
5698
5020
1512
685
775
1224
1690
3045
1714
2929
954
1797
1307
794
13450
1627
1627
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
121
40981009362
40981009363
40981009364
40981009365
40981009366
40981009367
40981009368
40981009369
40981009370
40981009371
40981009372
40981009373
40981009374
40981009375
40981009376
40981009377
40981009378
40981009379
40981009382
40981009383
40981009384
40981009385
40981009386
40981009387
40981009388
40981009389
40981009390
40981009391
40981009393
40981009394
40981009395
40981009396
40981009397
40981009399
40981009400
40981009401
40981009402
40981009403
40981009404
40981009405
40981009406
40981009407
40981009408
11,68
2,30
0,55
0,65
0,44
3,60
0,54
10,60
0,00
0,38
8,08
1,30
3,50
0,50
2,00
1,70
3,35
0,75
5,46
6,34
5,82
0,55
1,10
1,95
0,75
31,40
0,80
17,05
0,35
0,35
2,95
16,70
0,95
0,35
9,60
2,40
0,95
0,85
2,10
0,10
8,35
0,25
0,40
22.06.10
22.06.10
24.06.10
22.06.10
17.06.10
17.06.10
17.06.10
21.06.10
17.06.10
17.06.10
17.06.10
17.06.10
17.06.10
17.06.10
16.06.10
16.06.10
15.06.10
15.06.10
11.06.10
11.06.10
11.06.10
10.06.10
10.06.10
10.06.10
10.06.10
09.06.10
08.06.10
08.06.10
07.06.10
07.06.10
07.06.10
07.06.10
07.06.10
03.06.10
03.06.10
03.06.10
03.06.10
03.06.10
02.06.10
01.06.10
01.06.10
01.06.10
01.06.10
23.06.10
23.06.10
25.06.10
24.06.10
18.06.10
18.06.10
18.06.10
22.06.10
18.06.10
18.06.10
18.06.10
22.06.10
18.06.10
18.06.10
17.06.10
17.06.10
16.06.10
16.06.10
14.06.10
14.06.10
14.06.10
11.06.10
11.06.10
11.06.10
11.06.10
10.06.10
09.06.10
09.06.10
08.06.10
09.06.10
08.06.10
08.06.10
08.06.10
04.06.10
04.06.10
04.06.10
04.06.10
04.06.10
03.06.10
02.06.10
02.06.10
03.06.10
02.06.10
2534
744
1267
1178
592
4028
1048
10226
25174
667
8610
1789
7075
565
1061
602
6196
605
1484
2626
2596
465
1994
584
1136
8360
720
3064
514
524
1857
2805
1044
982
9547
2453
750
1745
1112
310
7450
740
974
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
25
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
65
0
99
99
99
99
0
99
0
0
99
0
99
0
99
99
99
0
99
99
0
0
99
99
99
99
0
99
0
99
99
99
0
99
99
0
0
99
99
99
99
0
99
99
-90
9
9
9
9
-90
9
-90
-90
9
-90
9
-90
9
9
9
-90
9
9
-90
-90
9
9
9
9
-90
9
-90
9
9
9
-90
9
9
-90
-90
9
9
9
9
-90
9
9
40981009421
0,55
26.05.10
01.06.10
1374
25
65
99
9
Totals
1550
4420
4533
-1437
122
Appendix 11: Product pricing strategy overview
Order fulfilment
management
Internal view – cost
structure
Variable outbound logistics
rates + warehouse handling
fixed fee + variable charges
for packaging and labelling +
fixed rate for the
functionalities of the efulfilment system (including
inventory management)
External view –
customer’s view
% of total value of an
order
Shopping cart integration
Regular
Variable transportation costs
+ fixed warehouse onboarding costs
NA – free of charge
Product procurement
including the inbound
logistics
E-commerce solution
management
1 off invoice
NA – free of charge
Inbound logistics
Returns and refunds
management
Fixed costs for the
inbound logistics
Periodicity of
invoicing
1x in a month with a
standard maturity
period
Initial
Variable transportation costs
+ fixed warehouse onboarding costs
Returns
Fixed warehouse on-boarding
costs
Exchanges
Fixed warehouse on-boarding
costs + order fulfilment costs
Variable transportation costs
+ fixed warehouse onboarding costs
+ product procurement
management fixed costs
+ short receivable for the
procured goods
Implementation
Customization +installation
+filling with products
+regular updates
Run
Maintenance and run +IT
infrastructure
Decreased profit per
particular order
Decreased profit per
particular order
Instalments for the
procured products (the
amounts depend on the
contracted conversion
rate and inventory
turnover)
1x in a month
(included in the
invoice for order
fulfilment
management)
1x in a month
(included in the
invoice for order
fulfilment
management)
NA – free of charge
Fixed commission
1x in a month with a
standard maturity
period
123
Appendix 12: Strategy addressing weaknesses and threats
This appendix describes how the business strategy copes with the weaknesses and threats of
the e-fulfilment business unit.
Weaknesses
High inventory investments – The e-fulfilment provider defines maximal holding time for the
inventory as 3 months from the on-boarding. After the period elapses, the inventory has to be
either sold using a promotion or is offered to other retailers as an excessive inventory. The
company makes sure that the opened line of credit is big enough in order to cover 3/4 of the
inventory holdings.
Reliance on the logistics partners – The company establishes a close relationship with PPL
and aims to fix the delivery rates for each parcel. The logistics provider collaborates with the
e-fulfilment on the development of new e-commerce delivery services. The partnership is
enhanced through the project of future collaboration by sharing the warehousing premises.
The warehousing facility, location and extent – High inventory turnover has to be assured in
order to be within the capacity. This is optimized by the inventory forecasting and scheduled
procuring processes. Plus the company assures morning collection of the parcels in order to
offset the disadvantages of the missing distribution centre in the surroundings.
One shopping cart integration (Magento) – The company offers free of charge e-commerce
solution to all the online retailers including customization, installation, filling with products
and upgrades. The zero costs offer should temporarily offset the missing integrations with
other shopping platforms. The integration with other shopping platforms will be done
throughout the time. The goal for 2015 is a full integration of 20 shopping cart platforms.
Threats
Supplier’s drop-shipping – The benefits of e-fulfilment offset the threat by offering wider
access to the market and, a relief in terms of inventory costs and benefits of outsourcing of
non-core activities.
Expansion of shopping malls and offline stores online – The company will try to develop a
network of shared warehouses with strategic location where the shopping malls can place
some their inventories in order to reach the customer faster. The same strategy will apply to
the offline stores going online. (Will not be addressed in the strategy 2015)
124
International competition – The company aims to capture the market fast and start expansion
eastwards to Slovakia and other countries. (Will not be addressed in the strategy 2015)
Offline stores with warehousing facilities – The company will develop a network of
partnership warehouses that will be within the premises of the offline stores and partially
shared. (Will not be addressed in the strategy 2015)
Logistics providers – Very close collaboration on the development of new products and also
partnering for sharing the premises of the distribution centres by lease.
Value-added services – Have to be internalized and the expertise has to be in-house. (Will not
be addressed in strategy 2015)
Drop-shipping marketplace – E-fulfilment platform is a drop-shipping marketplace in a
transferred denotation. The occurrence of competitors cannot be completely prevented but
limited with innovative approach and value adding services.
Supplier’s dual channel – The online retailers will be supported with the free of charge ecommerce platform to improve their selling abilities and cope with the suppliers that are in
dual channel.
125