The effect of adding an online channel to the strategy of

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The effect of adding an online channel to the

strategy of

Master Thesis

Nienke van Kekerix

Student number: 1752367

Driemolendrift 28a, 9711 BX Groningen

n.van.kekerix@hotmail.com

+31 (0)6 466 151 69

University of Groningen

Faculty of Economics and Business

MSc Business Administration

Specialization Business Development

1

st

_{university supervisor: dr. K.R.E. Huizingh}

2

nd

_{university supervisor: prof. dr. T.H.A. Bijmolt}

!pet Hoogeveen

Hoofdstraat 122-126, 7900 AB Hoogeveen

Company supervisor: Jan de Klein

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 2 of 71

PREFACE

Studying at the Faculty of Economics and Business of the University of Groningen has been a great experience for me. Before my study at the University of Groningen, I have studied Management, Economics, and Law at Hanze University and I am sure this Business Administration study helped me to step up to a higher level, both personally and academically. I have experienced the culture and atmosphere at the faculty as very open and supportive with great professors and co-students. During my internship at !pet Hoogeveen I have learned how my achieved knowledge can be translated into practice and this resulted in the master thesis lying before you. The case I have worked on during my internship was very interesting with respect to my study and my future.

Firstly I would like to thank my colleagues at !pet Hoogeveen for their openness, assistance, and the great times during my internship. The freedom which was given to me at !pet helped me to learn how to do research individually. Special thanks go out to Jan de Klein, my company supervisor, for his help and feedback during my research. Furthermore, Alex Achterop, Dave Bakker, Jan-Willem Echten, Mette Jansen, Gerrit Lindeboom, Henk Tingen, Harold Veldkamp, Raymond de Witte, and Harold Zeelen provided me of helpful information to write this thesis and gain insight in the organization and its customers. During my time in Hoogeveen I have worked together with a student Human Technology of the Hanze University in Groningen, Patrick Helsloot. Both of us were investigating the possibilities the Internet holds for !pet, but from an whole other point of view. Even though our education and research subjects were very different, working together with another intern was to me a pleasant experience. For this reason my thanks are also going out to Patrick.

Furthermore I would like to thank my University supervisor Eelko Huizingh, especially for his very helpful and quick feedback. During my time in Hoogeveen I have met a few times with my supervisor. After visiting Eelko everything was more clear to me and therefore inspiring and energizing. Also my thanks go out to my second University supervisor Tammo Bijmolt.

Finally my family and friends were always very supportive during my whole time as a student. They have always believed in me and stimulated me during my study and internships, which was necessary sometimes.

Nienke van Kekerix Groningen, January 2010

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EXECUTIVE SUMMARY

In recent years the influence of the Internet on organizations has grown explosively and will only become of greater importance in the near future. Organizations have to look for ways to profile themselves on the Internet in order to stay competitive. !pet is an organization active as a supplier of office supplies in the Northern region of The Netherlands and is planning to invest in e-commerce. In this thesis attention is paid to the way an organization, in this case !pet Hoogeveen, should move towards the Internet and what impact this has on their strategy. This research is based on one specific business unit of the organization, namely office supplies. The research question is:

‘Which strategic choices should !pet make concerning the investment in the Internet as a new business channel so that they can enhance their core competences without

harming their current position and gain optimal competitive advantage?’ To answer this question in total six sub questions are discussed.

The first sub question, ‘What is the current strategy of !pet and what are their strengths, weaknesses, and core

competences?, is aimed at creating a view of the current situation of !pet. The strategy of !pet is

generally aimed at offering customer services and creating long term relationships. Focus of the organization lies on customer satisfaction. Core competencies and strengths of the organization are their broad assortment, business composition, relationship management, and reliability. On the other hand, weaknesses of !pet are generally caused by ineffective collaboration between the business units, the cost intensiveness of account managers, and the low accessibility of the current web shop.

In the second sub question, ‘How do competitors make use of the Internet and how do they integrate their

online and offline businesses?’, attention is paid to the competitors of !pet. Aim of this sub question is

to research the environment of an organization and to reveal strengths and weaknesses of competitors. In total seven organizations are compared to each other based on six criteria which were pointed out to be most important for customers, the key success factors. Most remarkable results are that there are great differences between the competitors in terms of assortments, (delivery) prices, guarantees, and procedures. Furthermore, some websites were inaccessible for new customers. Finally, findability on the Internet is moderate to bad for every competitor.

The third sub question is aimed at designing a framework to answer the sub question of how an organization should embed the Internet into its current strategy. By making use of a framework from Venkatraman, completed with recent academic knowledge, it can be concluded !pet has to take four steps to embed the new channel into their strategy. Firstly, a strategic vision for the online channel has to be defined. Secondly, the government of the online business should be thought out. Thirdly, human and marketing resources need to be spread over the business units. To ease the allocation of resources, ERP systems can be used. Finally, an online infrastructure needs to ensure customer’ wishes need to be fulfilled.

To fulfil these wishes in the fifth sub question the website is perceived through the eyes of customers. The question answered in this section is: ‘How can the Internet add value for the customers of

!pet in their purchasing process and how can this be translated into website functionalities?’. In the first

phase of the purchasing process, presence on the Internet in search engines, advertisements, related websites, etcetera are needed. In the second phase, where customers evaluate alternatives and

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 4 of 71 choose a supplier most important functionalities are an internal search function, product descriptions and illustrations, clear guarantees, and a simple website navigation. In the delivery phase, various payment methods and extensive delivery information are essential functionalities. Finally, in the after sales phase customers find personal pages and mailings and good service recovery activities essential.

In the following sub question the process is perceived from the other point of view, namely through the eyes of the employees. Sub question guiding this section is: ‘How can the Internet add value for the

organization in the selling process and how can this be translated into website functionalities?’ Also this

process is divided into four stages. Firstly, in the pre-sales phase various Internet applications like search engines, online databases, and customer websites can be used to obtain information. On the other hand, advertisements, blogs, networking, and email are essential in attracting customers. Secondly, when !pet approaches the organization the reporting of customer information in the database and personalized pages are highly important. Thirdly, to close the contact with the customer, employees can use automatic stock checkers and e-mails to serve customers. Finally, in the after sales phase it is of major importance that satisfaction is ensured and complaints are managed well. Furthermore, personal pages, personalized promotions, and newsletters and mailings can enhance long-term relationships.

After answering all the sub questions, in the last chapter recommendations for !pet are proposed. The most important recommendations are the following:

▪ Hold on to the current strategy aimed at offering services and creating long-term relationships (Customer intimacy)

▪ Use the Internet to strengthen the current business model and reduce costs

▪ Integrate the online business with the rest of the organization

▪ The ERP system Bridge needs to be linked with the Internet and Quantore

▪ Employees, especially sales forces, need to be trained to use the Internet

▪ Face-to-face contact and contact by telephone remain important for larger customers

▪ New employees need to be recruited to manage the online channel (account manager and webhoster)

▪ Design a marketing division or attract a marketing manager

▪ Employees within the whole organization need to be informed about the online channel

▪ More internal communication is needed to enhance co-operation and cross-selling

▪ A search function, personal pages, clear website navigation, prominent price actions, clear procedures of guarantees, comparison functions, and various payment methods are essential functionalities of the online shop of !pet.

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Preface……… 2

Executive Summary………. 3

Index of figures and tables………. 7

1. Introduction... 8

1.1 Problem formulation... 8 1.2 Methodology... 9 1.3 Limitations<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<. 10 1.4 Thesis outline<<<<<<<<<<<<<<<<<<<<<<<<<<<<< 10

2. Organization………..……….. 11

2.1 Organizational profile<<<<<<<<<<<<<<<<<<<<<<<<<.. 11 2.2 Strategy<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<.. 11 2.2.1 Components<<<<<<<<<<<<<<<<<<<<<<<<<<... 11 2.2.2 Strategic options<<<<<<<<<<<<<<<<<<<<<<<<<. 12 2.3 Strengths and weaknesses<<<<<<<<<<<<<<<<<<<<<<<.. 13

2.4 Core competencies<<<<<<<<<<<<<<<<<<<<<<<<<<< 13 2.5 !pet<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<.. 13

3. Competition……….……… 16

3.1 Identification of competitors<<<<<<<<<<<<<<<<<<<<<<... 16

3.2 Identification of Key Success Factors<<<<<<<<<<<<<<<<<<<. 17 3.3 Benchmarking<<<<<<<<<<<<<<<<<<<<<<<<<<<<.. 17

3.4 Identification of strengths and weaknesses<<<<<<<<<<<<<<<<.. 19

4. Strategy and the Internet..……….……… 20

4.1 Strategic vision<<<<<<<<<<<<<<<<<<<<<<<<<<<<.. 21

4.1.1 Current business models………<<<<<... 21

4.1.2 New business models………. 21

4.2 Govern online business<<<<<<<<<<<<<<<<<<<<<<<<< 22 4.3 Allocation of resources<<<<<<<<<<<<<<<<<<<<<<<<< 23 4.3.1 Human resources……….. 23

4.3.2 Marketing resources………. 23

4.3.3 Enterprise resource planning………... 24

4.4 Operating infrastructure online business<<<<<<<<<<<<<<<<<. 24 4.5 Conclusion<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<. 25

5. Purchasing process………. 26

5.1 The customer purchasing process<<<<<<<<<<<<<<<<<<<<.. 26

5.2 Current purchasing process<<<<<<<<<<<<<<<<<<<<<<< 27 5.2.1 Need recognition………... 27

5.2.2 Search and purchase………..……… 27

5.2.3 Order and delivery……… 28

5.2.4 After sales………. 28

5.3 Website functionalities<<<<<<<<<<<<<<<<<<<<<<<<<. 28 5.3.1 Need recognition………... 28

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5.3.3 Purchase and delivery……….. 30

5.3.4 After sales………. 30

5.4 Future purchasing process<<<<<<<<<<<<<<<<<<<<<<<.. 31

6. Selling process………. 32

6.1 Current selling process<<<<<<<<<<<<<<<<<<<<<<<<< 32 6.1.1 Pre-sales……… 33 6.1.2 Sales……….. 33 6.1.3 Closing……….. 33 6.1.4 After sales………. 34 6.2 Website functionalities<<<<<<<<<<<<<<<<<<<<<<<<<. 34 6.2.1 Pre-sales……… 34 6.2.2 Sales……….. 34 6.2.3 Closing……….. 35 6.2.4 After sales………. 35

6.3 Future selling process<<<<<<<<<<<<<<<<<<<<<<<<<.. 36

7. Conclusions and recommendations…….……….………. 37

7.1 Strategic vision<<<<<<<<<<<<<<<<<<<<<<<<<<<<.. 37

7.1.1 Current business models……….. 37

7.1.2 New business models……… 38

7.2 Govern online business<<<<<<<<<<<<<<<<<<<<<<<<< 38 7.3 Allocation of resources<<<<<<<<<<<<<<<<<<<<<<<<< 39 7.3.1 Human resources……….. 39

7.3.2 Marketing resources……….. 40

7.3.3 Enterprise resource planning……… 41

7.4 Operating infrastructure<<<<<<<<<<<<<<<<<<<<<<<<. 41 7.5 Conclusion<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<. 43 7.6 Academic insights...<<<<<<<<<<<<<<<<<<<<<. 44

References...

45 Appendix... 49

1. Survey www.petdirect.nl... 49

2. Organization chart !pet... 53

3. Description of business units !pet... 54

4. Screenshots competitors... ... 55

5. Identification of Key Success Factors... 56

6. Price comparison competitors... ... 57

7. Google PageRank Checker and results... 62

8. Bricks and Mortar versus Bricks and Clicks... 63

9. Search Engine Optimalization (SEO)... 64

10. Quality system !pet... 65

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INDEX OF FIGURES AND TABLES

Index of figures

1. The components of strategy<<<<<<<<<<<<<<<<<<<<<<<<<<.. 12 2. Two strategic models<<<<<<<<<<<<<<<<<<<<<<<<<<<<<. 13 3. SWOT Matrix<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<... 13 4. The phases of a competitor analysis<<<<<<<<<<<<<<<<<<<<<<< 16 5. The Dot-Com Agenda<<<<<<<..<<<<<<<<<<<<<<<<<<<<<.. 20 6. Framework for embedding Internet in strategy<<<<<<<<<<<<<<<<<<. 25 7. The purchasing process of customers<<<<<<<<<<<<<<<<<<<<<<.. 27 8. Website functionalities per purchasing phase<<<<<<<<<<<<<<<<<<< 31 9. The selling process based on the seven steps of selling<<<<<<<<<<<<<<< 32 10. Website functionalities per phase of the selling process<<<<<<<<<<<<<<... 36 11. Strategy and the Internet: strategic vision... 37 12. Strategy and the Internet: govern online business... 38 13. Strategy and the Internet: resource allocation... 39 14. Current and desired links within ERP-system !pet<<<<<<<<<<<<<<<<.. 41 15. Strategy and the Internet: online infrastructure... 41 16. Example of outline www.petdirect.nl... 43 17. The online channel embedded in the strategy of !pet<<<<<<<<<<<<<<<.. 43 Index of tables

1. Research sources per sub question<<<<<<<<<<<<<<<<<<<<<<<... 9 2. Overview of sources and functions for the internal research <<<<<<<<<<<< 9 3. Overview of responses survey www.petdirect.nl... 10 4. The strategy of !pet<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<. 14 5. Strengths and weaknesses of !pet<<<<<<<<<<<<<<<<<<<<<<<<. 14 6. Core competencies of !pet<<<<<<<<<<<<<<<<<<<<<<<<<<<. 15 7. Identification of competitors<<<<<<<<<<<<<<<<<<<<<<<<<<. 17 8. Key success factors and benchmarking methods<<<<<<<<<<<<<<<<<... 17 9. Benchmarking study based on critical success factors<<<<<<<<<<<<<<<.. 18 10. Strengths and weaknesses of competitors<<<<<<<<<<<<<<<<<<<<.. 19 11. Conditions for separation and integration<<<<<<<<<<<<<<<<<<<<.. 22 12. Three different frameworks of the customer purchasing process<<<<<<<<<<... 26 13. Criteria customers use in their supplier and product search<<<<<<<<<<<<.. 27 14. Customer opinions about website functionalities<<<<<<<<<<<<<<<<<. 28 15. Possible search words for !pet<<<<<<<<<<<<<<<<<<<<<<<<<.. 29 16. !pet: separation versus integration<<<<<<<<<<<<<<<<<<<<<<<... 39

17. Comparison website functionalities competitors... 42 18. Checklist !pet<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<.. 44

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CHAPTER 1: INTRODUCTION

The influence of the Internet for both private consumers and organizations has grown explosively. In their yearly research about the use of the Internet in The Netherlands the Dutch National Institute of Statistics (CBS) states that 86 percent of the households and 99 percent of the organizations has access to the World Wide Web (CBS, 2008). Especially the use of the Internet for e-commerce, ‘the purchasing, selling, and exchanging of goods and services over the Internet through which transactions or terms of sales are performed electronically’ (Chaffey, 2004), can have a great influence on organizations. Research of the CBS (2008) reveals that 67 percent of the Dutch consumers and 47 percent of the organizations purchase online.

The Internet has caused both opportunities and threats for entrepreneurs (Gould, 2008). On the one hand, forces like e-commerce, globalization, and international competition have made marketing much more difficult (Rosenbloom, 2007). On the other hand, businesses have more choices in the channels they use to reach their customers (Rangaswamy & Van Bruggen, 2005). Next to the traditional marketing channels like showrooms, retail stores, catalogues, newspapers and television, the Internet gives much chances to serve customers (Neslin & Shankar, 2007). Various researchers underline this and argue the Internet is a phenomenon which cannot be ignored. A quote from Michael E. Porter (2003) fits this period with overall access to the Internet perfectly.

‘The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it’

This thesis focuses on the impact of the Internet on a particular organization, namely !pet in Hoogeveen, a regional supplier of office supplies. This organization currently uses the Internet mainly as a communication channel where they present their organization on a corporate website. There are possibilities for existing customers to order online, but this functionality is very basic. Since !pet encounters a growing competition from web shops, in the near future !pet wants to invest in e-commerce. The question, however, is how !pet should deploy the Internet to gain optimal advantage.

1.1 Problem formulation

The objective of !pet is: ‘to become and remain the largest and best organization in their field in the Northern region of The Netherlands’. In the future !pet wants to become more professional and invest to grow (!pet intranet, 2009). Caused by two reasons, the management of !pet wants to achieve this objective by investing in e-commerce and creating a website to sell their products. Firstly, !pet encounters customers switching to competitors which offer their products online. Secondly, !pet is currently employing account managers who spent a significant amount of time on contacting, visiting, and attracting customers. Especially for smaller customers, this is a too personnel and time intensive process. By offering customers the opportunity to order online, the pressure on sales forces should decrease. The problem statement of this thesis is:

‘How should !pet make the move to the Internet and invest in e-commerce?’

The research question relates to the fact that investing in e-commerce is not a simple decision, but involves strategic choices. From empirical examples it can be learned that moving online could harm

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 9 of 71 the position of an established organization. The purpose of this thesis is to provide the management of

!pet with a grounded advice about these strategic choices. The research question is:

‘Which choices should !pet make concerning the investment in the Internet as a new business channel so that they can enhance their core competences without

harming their current position and gain optimal competitive advantage?’

To answer the research question, five sub questions have to be discussed. The sub questions are: 1. What is the current strategy of !pet and what are their strengths, weaknesses, and core

competencies?

2. How do competitors use the Internet and how do they integrate their online and offline businesses?

3. How should the Internet be embedded in the strategy of an organization?

4. How can the Internet add value for the customers of !pet in their purchasing process and how can this be translated into website functionalities?

5. How can the Internet add value for the organization in the selling process and how can this be translated into website functionalities?

1.2 Methodology

To increase the reliability of this research, various sources are used. In table 1 an overview is given of the sub questions and sources, followed by a description of these four sources.

Table 1: Research sources per sub question

Q Topic Sources

1 Current strategy Academic literature, internal interviews and data

2 Competition Academic literature, internal interviews, competitors’ websites 3 Organizational strategy Academic literature

4 Purchasing process Academic literature, internal interviews, customer research 5 Selling process Academic literature, internal interviews

▪ Academic literature: see the reference list for an overview of used academic articles and books. ▪ Competitor research: A competitor research is conducted to analyze the environment. After

identifying competitors, they will be compared and strengths and weaknesses per competitor are investigated. In chapter 3 an extensive description of the competitor research could be found. ▪ Internal research: To gain insight in the internal organization, interviews and conversations with

employees were held in the period from March 2009 to August 2009. In total ten staff workers did offer input for this thesis (see table 2). Finally, observation was used to analyze processes. Table 2: Overview of sources and functions for the internal research

Name Function Name Function

A. Achterop Account man. design M. Jansen Management assistent D. Bakker Project leader G. Lindeboom Account man. design J.W. Echten Account man. supplies H. Tingen Human Resource Manager P. Helsloot Intern e-commerce R. de Witte Account manager automation J. de Klein Director automation H. Zeelen Account man. design

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 10 of 71 ▪ Customer research: Purpose is to gain insight in the opinions of customers about the future Internet shop and the role this could play in their purchasing process. Target group are current customers of !pet. This target group is specifically chosen since the webshop of !pet will mainly aim at current customers, especially in the beginning. The management of !pet put together a list of 102 customers which have ordered office supplies at !pet during the last month. Together with another intern all the organizations on the list were called with the objective to clarify the subject and ask permission to send a survey by e-mail. Hereby it is tried to collect as much e-mail addresses as possible from purchasers within the organization. To make it possible for respondents to co-operate easy and quick, a survey has been put together making use of SurveyMonkey, an online survey creator (www.surveymonkey.com). The survey is attached in appendix 1. Two weeks after sending the questionnaire, a reminder was send to the customer which had not reacted. Ultimately, 49 questionnaires have been returned which means a response of 48% of the starting amount and 71% of the surveys sent (see table 3). The results of the surveys are later further described.

Table 3: Overview of responses survey www.petdirect.nl

Number Percentage Lists provided by management 102 100 % Not reached (not answered, holiday, etcetera) 27 26.5 % Not willing to co-operate 6 5.9 % E-mail addresses collected / surveys sent 69 67.6 %

Surveys returned 49 48 % ( 71 % of surveys sent)

1.3 Limitations

This thesis and the results are restricted by the following limitations:

▪ The research period was in total seven months, namely from March 2009 to December 2009.

▪ Only current customers of !pet were involved in the customer research. Since the target group of the webshop are current customers, this research is sufficient. When, in the future, !pet wants to enlarge its target group, a larger customer research is advisable.

▪ This research is only targeted at the division of office supplies of !pet in Hoogeveen and could therefore not be generalized for other divisions or organizations.

1.4 Thesis outline

In the following chapters each of the sub questions will be addressed. The second chapter includes a description of the organization and its strategy, followed by an overview of the competition in chapter 3. Chapter 4 is a theoretical chapter providing information about how an organization should integrate the Internet in its strategy. In chapters 5 and 6 web functionalities to strengthen the purchasing process of customers and selling process of employees will be discussed. Chapter 7 combines the information collected in the first chapters and defines how !pet could add an e-commerce channel to their strategy and what this means for the internal organization. In this chapter also recommendation for further research are proposed.

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CHAPTER 2: ORGANIZATION

In this chapter the first sub question ‘what is the current strategy of !pet and what are the strengths,

weaknesses, and core competences?’ will be answered. In order to answer this question correctly strategy,

strength and weaknesses, and core competencies are further described before they are applied to !pet.

2.1 Organizational profile

!pet was founded in 1857 by Claas Pet in Hoogeveen and is currently one of the most important

suppliers of office supplies in the North-East of The Netherlands. The organization focuses mainly on small to medium sized organizations in the Northern region of The Netherlands, but has also some private customers. !pet employs approximately 150 staff members, distributed over four business establishments in Hoogeveen. The organization has a broad assortment, which makes them a ‘total supplier of everything an office needs’. The assortment can be divided into six categories, namely office supplies, automation, office design, books, publishing, and designing and printing. The first three product groups gain approximately 90 percent of their turnover from business customers. Turnover from the bookstore comes for 90 percent from private customers (De Klein, 2009). In appendix 2 and 3 an organization chart and a further description of the business units are included. This thesis focuses solely on the division office supplies since this is the first division which will make the move towards the Internet. The office supplies division is mainly aimed at business-to-business customers. Products offered by this division can be divided into three categories, namely office supplies (pens, staplers, markers, etcetera), computer supplies (like toners, keyboards, and mice), and paper. In 2006, !pet belonged to the three biggest customers of Quantore, the largest buying association of office supplies in the Benelux with over 500 members (Quantore, 2009).

2.2 Strategy

The concept of strategy is an often argued concept and a clear definition of the term is hard to find, which causes that most organizations use the term without exactly knowing what it holds. Various notified authors wrote books on strategies of organization (for example Steiner, 1979 and Mintzberg, 1994) and several similarities in their views could be discovered. In this theses the following definition of strategy will be used: ‘strategy is a combination of the ends (goals) for which an organization is striving and the means by which it is seeking to get there’ (Porter, 1980).

2.2.1 Components

Despite the abundance of visions on strategy, it is possible to see some similarities in the components of strategy. Strategy holds, in any case, the goals or ends the organization is seeking for. These goals can be divided into two parts, namely the mission and vision of an organization. A mission, or a mission statement, describes the organization’s fundamental, unique purpose (Ireland & Hitt, 1992; Wikipedia, 2009). The goal of a mission is threefold, namely to (1) provide a market definition, (2) to motivate employees, and (3) to build an image (Alsem, 2007). A vision is aimed at the future and answers the question what the organization wants to become in the long term (Wikipedia, 2009). When looking back at the definition of strategy, it can be seen that strategy is more than a mission and a vision. Apart from the goals of an organization, the means to get there are also important components of a strategy. According to Robert (1993) a strategy results in a decision about four components, namely products and services offered, customers, market segments, and geographical areas in which the organization is active. In figure 1 the components of strategy are illustrated.

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 12 of 71 Figure 1: The components of strategy

2.2.2 Strategic options

In this paragraph two models for defining the strategic options of an organization are introduced. After a short description, the frameworks are illustrated in figure 2.

Firstly, the Generic Strategies model from Porter (1980; 1985) suggests there are three possible strategies, based on the source of competitive advantage and the competitive scope.

▪ Cost leadership: The objective is to get the lowest costs and emphasis is lying on efficiency. Usually this means standard products and a large customer base (Lynch, 2003).

▪ Differentiation: This is achieved by satisfying buyer needs uniquely. Differentiation is also aimed at a large market, but involves the creation of unique products or services.

▪ Focus strategies: The firm concentrates in this case on niche markets. Competitive advantage comes from a specific marketing mix for this small group of customers.

Secondly, Treacy and Wiersema (1993) designed a model based on customer values. Underlying argument is that market orientation is the key factor in achieving a superior organizational strategy and competitive advantage (Kolhi & Jaworski, 1990). Organizational strategy must be aimed at achieving value for the customers. Customer value is the customers’ perception of product attributes and their benefits and the goals they hope to obtain by using the product (Woordruff, 1997). According to Treacy and Wiersema (1993) there are three customer value strategies:

▪ Customer intimacy: Tailoring and individualizing products and services is most important, so that customers can be served better. The objective is long-term customer loyalty and profitability. ▪ Product leadership: The strategy is to produce continually a stream of state-of-the art and

innovative products and services. The objective is to stay ahead of competitors.

▪ Operational excellence: The objective is to lead the industry in terms of price and convenience. The production and delivery of products and services is most important.

Although these frameworks are often used, they are criticized because both models argue it is impossible to not choose for one strategy. Both Porter and Treacy and Wiersema argue that a company that is in this ‘stuck in the middle’ position would not be able to create a competitive advantage and perform financially well (Porter, 1980; Treacy and Wiersema, 1993). However, empirical examples like Toyota and Benetton prove this to be wrong, because in these cases several generic strategies have been adopted successfully (Kay, 1993; Miller, 1992). Nevertheless, in this thesis the models will be used to describe strategy.

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 13 of 71 Figure 2: Two strategic models: Porter’s generic forces (left) and Treacy and Wiersema’s value-disciplines (right)

2.3 Strengths and weaknesses

Determining a company’s strengths and weaknesses is an important phase of the internal analysis of on organization (Alsem, 2007). Together with an external analysis, the determination of opportunities and threats, this forms a SWOT analysis. A SWOT

analysis is a method of strategic planning, developed by Albert Humprey (1960 - 1970). In figure 3 the components of a SWOT analysis are illustrated. Although through the years some researchers have placed negative criticism on the usefulness of a SWOT-analysis (Armstrong, 1982; Hill & Westbrook, 1997; Menon et al, 1999), a SWOT analysis is a proven effective form of analyzing an organization, and will therefore be used in this thesis. A SWOT of the current situation represents the basis for an organization to base

future choices on (Houben & Lenie, 1999). Figure 3: SWOT Matrix

2.4 Core competencies

The concept of core competencies is introduced by Prahalad and Hamel (1990), and is defined as following: ‘a core competency is a specific factor that a business sees central to the way it, or its employees work’. Since this is the most common and all-embracing definition, it will be used in this thesis. Not every strength is intrinsically a core competency. According to Prahalad and Hamel (1990), a core competency has to meet the following three criteria: (1) it provides access to many products and markets, (2) it is difficult for competitors to imitate, and (3) it provides the customer with significant benefits (Prahalad and Hamel, 1990).

2.5 !pet

In this paragraph the collected information will be applied to !pet to describe the strategy, strengths, weaknesses, and core competencies. In table 4 the six components of strategy and strategic options are filled in for !pet. The information in this table is based on interviews and company documents.

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 14 of 71 Table 4: The strategy of !pet

Mission On Intranet the management of !pet provides information for staff members. Remarkable is that on this Intranet a mission statement is mentioned, which is actually about the future, thus a vision statement. A clear mission statement is thus not explicitly available and must therefore be distracted. The mission of !pet is: ’To be a reliable, professional, and creative partner and total supplier for organizations in the Northern region of the Netherlands with a broad assortment of ‘everything an office needs’ (!pet Intranet, 2009).

Vision The vision statement or goals for the future are: ‘!Pet wants keep such a scale that the company’s independent function can be sustained. Our ambition is to become and remain the largest and best organization in our field in Northern of Netherlands. We want to keep pace with developments in the market’ (!pet Intranet, 2009).

Products and services

!pet offers a broad range of products and services. One of the main goals of the organization is to act as a total supplier and to be a creative and reliable partner. Currently the service of !pet come mostly from the personal relationship between customers and account managers of !pet. Customers The target group of !pet are B2B customers, but !pet has also has some private customers. The

relative percentages differ per unit, but for the office supplies 90 percent are B2B customers. Market

segments

Among the target group of !pet various market segments are present, especially education and health organizations. However, the organization does not aim at a specific market segment. Geographical

areas

!pet is an organization which is situated in one of the Northern provinces of the Netherlands, Drenthe. The target group of the organization are generally situated in the North of the Netherlands, especially the provinces Groningen, Friesland, Drenthe, and Overijssel. Strategic

options

In the Generic Forces model of Porter, the strategy of !pet can be considered as a differentiation strategy. Although the target group of the organization are generally business customers in the Northern provinces of the Netherlands, the scope is quite broad. Thereby lies the focus not that on costs, but more on differentiation and individual customer satisfaction. In terms of Treacy and Wiersema this strategy is defined as ‘customer intimacy’.

Although it can be very helpful, conducting a full SWOT analysis is a time and costs intensive activity and for the understanding of this thesis it is not needed. For these reasons in this chapter only the strengths and weaknesses will be further analyzed. To create a substantial picture of the strengths and weaknesses, various employees of !pet were interviewed. After inspecting the differences and similarities between the answers of the staff members, the following list of strengths and weaknesses. Table 5: Strengths and weaknesses of !pet

Strenghts (helpful to achieve objective) Weaknesses (harmful to achieve objective) Total supplier BU’s work independent of each other, more

cooperation and communication is needed Experienced in the office supplies industry Organization often falls back on old reflexes Broad assortment (with A and B-brands) No clear overall picture of organization Individual approach Fairly high price/quality ratio

Service oriented organization Office supplies are low-interest product and therefore market focuses more on price

Good relationship with existing customers Account managers work rather time and costs intensive Presence of account managers to sustain

relationship and offer service

Absence of a marketing manager or unambiguous marketing policy

Good brand awareness in Hoogeveen itself Too much focus on Drenthe

Showroom with own look and feel Too little use of branding and image building Internal architects and designers Not fully aware of the market and competition Internal technical support No fully accurate stock management program Flat organization Accessibility to the current webshop very low Use of permanent partners for outsourcing Current webshop is not user friendly

Lower costs because of outsourcing Website and organization is hard to find on the Internet Organization is royally honoured

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 15 of 71 Core competencies of !pet are, so they argue, the following five characteristics:

▪ Assortment: !pet can act as a total supplier because of their broad business units and assortment. ▪ Business composition: because of the flat organization and different business units the

organization can work flexible and as a total supplier.

▪ Relationship management: !pet makes use of account managers to sustain their relationships. ▪ Corporate social responsibility: the organization plays an important role in maintaining a healthy

and well functioning environment by setting up and sponsoring projects for the community. ▪ Reliability: the organization and staff members accomplish their promises.

In table 6 the core competencies are tested on the criteria presented on page 13. It can be concluded that all characteristics, except corporate social responsibility, are core competencies.

Table 6: Core competences of !pet

Assortment/ total supplier Business composition Relationship management CSR Reliability Wide access Yes Yes Yes No Yes Difficult to imitate Yes Yes Yes Yes Yes Significant benefits Yes Yes Yes No Yes

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CHAPTER 3: COMPETITION

In this chapter focus lies externally. By answering the second sub question of this thesis, ‘how do

competitors use the Internet and how do they integrate their online and offline businesses?’, insight will be

gained into a major part of the external organization, namely the competition of !pet.

A competitor analysis is an assessment of the behaviour of individual competitors, with the goal to discover their strengths and weaknesses and predict their future actions and reaction (Fleisher & Bensoussan, 2003; 2007). Although the analysis of competition is of great importance for any organization, it is a tool that in practice is often not conducted systematically (Fleisher & Bensoussan, 2007). However, the weaknesses of a competitor could form starting points for competitive advantages of the organization (Alsem, 2007). A great amount of possibilities to conduct a competitor analysis are described in literature. In this thesis a method consisting of four steps will be used to analyse competitors. This method is adapted from the model proposed by Alsem (2007), which originally includes five stages. Due to the short time period for the external research the model is shortened into four phases. In figure 4 the model is illustrated and in the next paragraphs the four phases will be further described and applied to !pet.

Figure 4: The phases of a competitor analysis (adapted from Alsem, 2007)

3.1 Identification of competitors

Alsem (2007) makes a distinction between two methods for the identification of competitors, namely competition-based and customer-based methods. In this first method the opinion of the management or the dividing of the market into groups of organizations with the same strategy can be used to choose competitors. The second method includes customer research, brand switching statistics, and positioning research.

For identifying competitors of !pet a combination between the methods is used. Firstly, the management of !pet is asked to list prominent competitors. Since account managers of !pet have direct contact with their customers, this is an easy and cost saving method. In total three regional parties and five (inter)national organizations have been pointed out as most important competitors. All the identified competitors are active on the Internet and own an e-commerce website. Secondly, as described in paragraph 1.2 research was conducted among 49 customers and they were been asked if they also purchase their products at other organizations.

In table 7 the competitors identified by the management and customers are compared. The second column represents the opinion of the management, while the third column represents the number of customers who noted the specific competitor as a supplier. It should be noted that over 70 percent of the customer answered that !pet is their only supplier, while the fourteen remaining customers have one or more other suppliers. From these fourteen customers, ten answered the question which other suppliers they use. After examining table 7 in consultation with the management, it has been decided that the three regional players (company A, B, and C) will be further investigated, together with the national players D, E, F, and H (see last column of table 7). Appendix 4 includes screen-shots of the websites of the competitors.

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 17 of 71 Table 7: Identification of competitors

Competitor Management # Customers Research

Company A Yes 0 Yes

Company B Yes 2 Yes

Company C Yes 0 Yes

Company D Yes 2 Yes

Company E Yes 0 Yes

Company F Yes 0 Yes

Company G Yes 0 No

Company H No 4 Yes

Company I No 1 No

3.2 Identification of Key Success Factors

Benchmarking is a comparison of the own organization with one or more competitors (Alsem, 2007). Although organizations can be compared at various skills, resources, and processes, for now it is needed to compare the organization on the key success factors. Key success factors include the determinants of success, or in other words the skills and resources that influence the results of an organization (Day and Wensley, 1988). To identify the key success factors in the business of office supplies, the factors that drive customers to choose for a particular supplier are investigated. In the survey customers have been asked to rate seventeen factors which could determine the choice of a supplier on a five-point Likert scale. These seventeen factors were put together by making use of a brainstorming session with two groups of three employees. In appendix 5 the seventeen factors and their sources are presented, together with the results of the question. Six factors scored more than four points and are identified as key success factors, namely assortment (4.50), price setting (4.44), retour procedure (4.33), findability on the Internet (4.23), guarantees (4.19), and delivery charges (4.13).

3.3 Benchmarking

For comparing the competitors various methods are used. Table 8 presents the key success factors and reveals how they will be compared in the benchmark study. Table 9 shows the outcomes of the study. For two competitors, it was not possible to compare them on the basis of prices and delivery charges since after registering at their website, no login information was offered.

Table 8: Key success factors and benchmarking methods

Criteria Benchmarking method

Assortment Comparison of the presence of several product and service groups

Price setting Based on a shopping list of nineteen office supply products competitors are compared on the unit prices, minimum order quantity, and total prices. The extensive results of this price comparison are included in appendix 6.

Retour procedure Comparison of trial periods used by various competitors. Findability on the

Internet

Two methods are used to compare the competitors on their findability. Firstly, based on a list of 10 key words their ranking in the Google list will be compared. Secondly, by making use of the Google PageRank CheckerTM_{the importance of the website for}

Google are compared. See appendix 7 for a further explanation and results. Guarantees Comparison of competitors based on general guarantees and trial periods. Delivery charges Comparison of delivery charges for website purchases.

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 18 of 71 Ta ble 9 : Ben ch m ark in g stud y ba se d on c riti ca l suc ces s fac to rs

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3.4 Identification of the strengths and weaknesses

In this section the strengths and weaknesses of !pet are addressed, derived from the information in table 9. To highlight the strengths and weaknesses in table 9 green and red colours are used. In table 10 the strong and weak points of each competitor are further described.

Table 10: Strengths and weaknesses of competitors

Competitor Strengths Weaknesses Company A (1) Unit prices are very low

(2) Total prices are low

(1) Assortment not very broad (2) Findability on the Internet very bad (3) Guarantees not visible on the website Company B (1) Total prices are very low,

(2) Unit prices and order quantities are low (3) Low delivery charges

(1) Assortment not very broad

(2) Findability on the Internet is very bad (3) Guarantees not visible on the website. Company C (1) Very broad assortment (1) Not all information is accessible (prices)

(2) Findability on the Internet is very bad (3) Guarantees not visible on the website Company D (1) Very broad assortment,

(2) Findability on the Internet is good (3) Good guarantees

(4) Low minimum order quantities

(1) High unit and total prices.

Company E (1) Findability on the Internet is very good (2) Good guarantees

(1) High unit and total prices (2) High minimum order quantities (3) High delivery charges

Company F (1) Delivery charges are low (1) Not all information is accessible (prices) (2) Findability on the Internet very bad (3) Guarantees not visible on the website Company H (1) Clear guarantees

(2) Presence of a clear trail period

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CHAPTER 4: STRATEGY AND INTERNET

As a consequence of the great and growing importance of the Internet, organizations need to think of online solutions to offer their products in order to remain competitive and attract customers. A phenomenon driven by the need of organizations to invest in the Internet is the move from ‘bricks and mortar’ organizations, which have only physical (rather than virtual or online) presence, towards ‘clicks and mortar’ businesses; organizations which are online present next to their traditional operations (Stuart, 2000). A significant amount of research is conducted to reveal the differences between traditional and online organizations. Appendix 8 provides an overview of the advantages and disadvantages of both business channels. After investigating this overview two conclusions can be drawn. Firstly, great difference between physical and non-physical stores lies in the presence or absence of direct contact with employees (Sharma and Krishnan, 2002). Secondly, the benefits of the Internet, e.g. the wide availability of information, the ease of purchasing, marketing, and distribution, etcetera, also provide problems and challenges for Internet-enabled organizations to capture the benefits. In literature this phenomenon is familiar as the ‘great paradox of the Internet’ (Porter, 2003). Although various organization have made the move towards the Internet in the previous years, only a part of them succeed. One of the main reasons organizations do not succeed in attempts to be profitable on the Internet is that they fail to integrate the Internet into their business strategy (Sharma & Gupta, 2004). Sultan and Rohm (2004) concluded in their study, where they investigated the evolution of Internet marketing in various organization, that managers often start with too high expectation about the benefits of adopting the Internet, followed by a period in which they realize Internet strategies need to be accurately developed and harmonized with the existing organization. Venkatraman (2000) developed a framework for organizations which want to deploy an Internet strategy. The aim of the model is to provide insight in the obstacles an organization needs to conquer and to create a roadmap how to overcome these obstacles. This framework, which he refers to as ‘The Dot-Com Agenda’, is designed after an extensive study of organizations which made the move towards the Internet. His main lesson learned is that managers often focus too much on one issue concerning their online strategy, which results in conflicts and unsuccessful Internet businesses. He argues in total four issues or stages should be thought out extensively before an organization can move towards the Internet (see figure 5)

Figure 5: The Dot-Com Agenda (Venkatraman, 2000)

This chapter is based on the sub question ‘how should the Internet be embedded in the strategy of an

organization?’ and tries to provide a framework which guides the process of an organization deploying

an online strategy. Although the framework of Venkatraman is used and referred to by many authors, The model is almost ten years old and during these years a great number of new insights are collected. In the following section the stages of Venkatraman’s model are analyzed by making use of new insights. Finally, paragraph 4.5 provides a new extended framework which will later be used in the situation of !pet.

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4.1 Strategic vision

The first issue to be encountered is the strategic vision for the online business, or the question how the Internet could become an integral part of the business strategy instead of a standalone project. Venkatraman (2000) proposes various examples of organizations on the Internet and he concludes the Internet can be used to strengthen current business models and to create new business models. Ultimately, by experimenting with mixes between current and new business models, the future online strategy is established. In the following sections knowledge about strategic options of the Internet for both business models are further described to complement the theory of Venkatraman.

4.1.1 Current business models

Although various authors state that the Internet is a medium which is cannibalizing other channels (e.g. Tapscott, 2001), the Internet should be used as a complement to an existing strategy. Building up on current business models holds that the Internet is applied to support the current strategy of an organization, which can be done in two ways (Venkatraman, 2000).

Firstly, the Internet could be used to reduce costs and increase operational effectiveness of the current business. Operational effectiveness refers to ‘any number of practices that allow a company to better utilize its inputs’ (Porter, 1996). In other words this means that the organization is performing similar activities on lower costs than competitors. For improving operational effectiveness, staff members and their knowledge are of major importance (Van Ewyk, 2003). Van Ewyk argues that the more embedded knowledge is in an organization, the more this contributes to operational effectiveness. The Internet could play a significant role in speeding up the exchange of information and increase operational effectiveness (Serenko & Bontis, 2004). However, despite the fact that organizations can benefit from lower costs, it is difficult to capture those benefits. Since the Internet is an open and accessible medium, rivals tend to copy Internet strategies from competitors very quickly (Van Ewyk, 2003).

Secondly, the Internet could complement the current strategy by enhancing customer services. Although operational effectiveness is important in keeping ahead of your competitors, it is not sufficient to establish a competitive advantage. In this era, where the Internet is introduced more and more into the business environment, the need of organization to differ on the basis of strategy becomes of growing importance. The Internet has influence on the ways an organization could distinguish itself by enhancing services through the website, for example by personalized interactions, rapid problem solutions, timely updates, and product enhancements (Venkatraman, 2000).

4.1.2 New business models

Venkatraman (2000) states that ‘the power of the web lies in establishing new business models’. Question that remains, however, is how the Internet could help in achieving new strategies an which strategic options the Internet holds. Huizingh (2002) designed a model which explains four possibilities the Internet offers for new strategic direction. He argues that a mix of these four options leads to a new business model. The four options of this model, named the Strategic Internet Applications Model (SIAM) are the following:

▪ Current customers: Since continuous improvement of organizations is needed to create competitive advantage and to prevent customers from switching to other suppliers, the Internet can offer added value for current customers.

▪ New customers: The low costs per contact and the global accessibility of the Internet makes it possible for an established organization to reach new customers. Furthermore, specific market segments could easily be reached by using Internet enabled methods, for example affiliate

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Master thesis: The effect of adding an online channel to the strategy of !pet Page 22 of 71 marketing (Turban, 2006). However, while reaching new customers, also new competitors enter the organizations’ direct environment and distribution activities become increasingly difficult.

▪ Customized products: Customization is the identification of individual wishes which will be fulfilled through product modifications (Hedge et al., 2005). This could include various options, for example digitalized and tailor-made products which can individually be adapted. The Internet is a useful tool in customizing products, because it is a low cost solution and an opportunity to reach a high amount of customers (Wind and Rangaswamy, 2001).

▪ Network repositioning: This last strategic option holds that an organization can strengthen or change their relationships within the business network or reconsider their role within the business network by changing their distribution function or redefine their position.

4.2 Govern online business

Decisions about how the govern the new online business involves a trade-off between financial and operational decisions which could result in either decoupling or integrating online and offline activities with one another (Venkatraman, 2000). Recently various researchers have examined the effects of either separating or integrating both businesses and gained new insights for organizations. Gulati and Garino (2000) claim that online success is dependent on the degree of integration between traditional bricks and mortar channels and e-commerce activities and researched the advantages and disadvantages of both strategies. Advantages of separation are concluded to be that the separate organization (1) can focus better, (2) can work more flexible, and (3) has access to funding programs from the venture. Integration has the advantages that they can rely on an (1) establish brand, (2) shared information, (3) purchasing leverages, and (4) distribution efficiencies. Inbetween these two opposite strategies, two alternative strategies are purposed, namely a strategic partnership and a joint venture (Gulati and Garino, 2000).

Bahn and Fisher (2003) build further on the theory of Gulati and Garino and set some conditions for full integration between their on- and off-line activities. They argue it is only possible to integrate e-commerce activities directly with the traditional physical shop when (1) the brand identity can be naturally extended to the Internet, (2) managers have the skills to manage e-commerce operations, (3) the information and distribution channels can be linked to the e-commerce operation, and (4) the cultures of the electronic and traditional businesses can be synthesized. Christensen & Overdorp (2000) agree with this by arguing complete integration is sometimes undesirable, especially for established organizations. Furthermore, they propose conditions under which it makes more sense to either separate or integrate the online and offline businesses. In table 11 these conditions are mentioned.

Table 11: Conditions for separation and integration online and offline businesses

Separate / decouple businesses when: Integrate businesses when: The organization wants to invest in new business

models instead of current business models

Senior management is committed to embrace the opportunities and challenges of the Internet

The offline activities can be separated without constraints through technology or legislation

The whole organization can be mobilized to move towards the Internet.

The separated online organization wants to hold the freedom to form alliances, raise capital, or attract new personnel.

There is no meaningful way to separate businesses and when an integration does not lead to confusion among customers.

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4.3 Allocation of resources

According to Venkatraman (2000) the allocation of resources is an ongoing challenge for organizations and is even more important when an new channel is added to a strategy of an organization. Although Venkatraman especially names human resource in his article, he not explain how these resources should be managed. However, in recent literature much is written about the allocation of these human resources. Furthermore, various authors refer to another essential resource which can highly influence the success of the e-commerce strategy, namely marketing resources. Finally, growing attention is paid to an electronic tool for resource planning, namely Enterprise Resource Planning (ERP) systems. Since the theory of Venkatraman is not found sufficient in allocating resources properly, in the following sections the above described elements of resource allocations are further addressed.

4.3.1 Human resources

Human resources are all the people within an organization, and are often seen as the most important resource of a company (Wikipedia, 2009). When a traditional business is engaging in e-commerce activities, this brings consequences for the people within the organization since people are generally resistant to change. Aim of allocating the human resources in a time where the organization creates new business units is to support all the employees in this change (Aherne et al., 2009) and to ensure the right people are attached to the new business units (Venkatraman, 2000). Pitfalls in which many organizations fall when a new distribution channel is added is a lack of perceived management support and training (Buehrer et al., 2005). This means employees in the organization should be informed about the new channel, its consequences, and how they can manage it. Sales people or representatives are more likely to adopt new ways of doing business, in this case the Internet, if the values of the new tools are clearly communicated (Long et al., 2006).

When an organization deploys an Internet strategy, it needs to think of how this new channel should be managed (Venkatraman, 2000; Long et al., 2006). Firstly, organizations can attract personnel from within the organization to manage the online business. In this case extra pressure remains on the other units since they are dealing with less personnel. Furthermore, in practice often the young and highly educated staff members are allocated at the online operations, which might be a thread for the other business units (Venkatraman, 2000). Secondly, organizations can attract new personnel to manage the online business or outsource the online activities. Outsourcing is ‘the produrement of products and services from sources that are external to the organization’ (Lankford & Parsa, 1999). Pitfall in these approaches, however, is that the online operations are placed ‘outside’ the established organizations and integration is achieved less easy.

4.3.2 Marketing resources

In this section two fields of research are described to gain more insight in marketing resource allocation. Firstly, differences are found in the value of customers depending on their acquisition channel (Neslin & Shankar, 2007; Verhoef & Donkers, 2005; Villanueva et al., 2003). Generally it can be concluded that customers which are acquired by telephone or advertisements in magazines are satisfied mostly and are most likely to become a long-term customer. On the other hand, customers which are acquired by direct mailings tempt to be the less satisfied. The Internet as an acquisition channel delivers mixed results. What can be learned from this is that, even though the Internet is a new medium to acquire customers, in most cases acquisition by traditional media are more effective and marketing resources should thus not only aim at the Internet channel.

The effect of adding an online channel to the strategy of