Supervisors:
Mr. Drs. H.A. Ritsema (Rijksuniversiteit Groningen) Prof. Dr. G.J.E.M Sanders (Rijksuniversiteit Groningen) T. Pearce (Dunlop Slazenger International Ltd., Wakefield)
Executed by:
Cedric R. Katsman 41A, Onslow Road TW10 6QH Richmond, Surrey United Kingdom Tel: +44 20 8948 3750 Fax: +44 1276 679680 Mobile: +44 788 0 888 020 E-mail: CEDRIC.KATSMAN@DSIL.CO.UK
Period: July ‘99-January ‘00
Executive Summary
The Dunlop Slazenger Group (DSG) is a world-wide operating company. It operates a complex mix of brands and products in a highly competitive market.
This report focuses on the aspects of E-commerce that are important for and have impact on the Dunlop Slazenger Group.
The objective of this report is to provide DSG with a set of opportunities, enabling them to conduct E-commerce and maximise the advantages of selling online. The research question used to study this topic is: “Which policy should DSG adopt to be successful in E-commerce”
Developing an E-commerce strategy will have many implications on the current company structure and without a doubt lead to tensions with and within the retail channel. To avoid many of these implications, a strategy must be developed where a perceived multi-channel strategy leads to win-win situations en reinforces the retailers’ presence.
The implications on the research lead to a study, where the environment plays an important role. Therefore, the theories of ‘Porter’ and ‘Prahalad and Hamel’ have been chosen to further investigate and answer the problem definition.
Porter’s theory reveals that the buyers seem to gain the largest advantage. Their position changes dramatically if DSG would decide to enter the E-commerce arena.
Prahalad and Hamel’s theory helps to explore a possible future situation where DSG should decide to approach strategy as stretch, rather than strategy as fit. DSG’s skills to produce high quality products should enable them to establish a strong place in the market; providing that some internal complications are solved as well.
The newly found strategy should not undermine the retailer’s position, but aim at enforcing it by facilitating sales across all channels; concurrently, it actively contributes to an increase of DSG’s competitiveness, securing an increase in its future profitability.
EXECUTIVE SUMMARY ... 3
INTRODUCTION... 6
CHAPTER 1: THE ORGANISATION ... 8
1.1 INTRODUCTION... 8
1.2 DUNLOP SLAZENGER INTERNATIONAL LTD... 8
1.3 PROFILE AND PRODUCTS OF DUNLOP SLAZENGER INTERNATIONAL LTD. WAKEFIELD... 9
CHAPTER 2: THE NEW MARKET ... 10
2.1 INTRODUCTION... 10
2.2 WHAT IS E-COMMERCE?... 10
2.3 SCOPE OF E-COMMERCE... 11
2.3.1 Breaking down E-business... 11
2.4 SCOPE OF INTERNET... 12
2.4.1 The Intranet ... 13
2.4.2 The Extranet ... 14
2.4.3 The Internet ... 14
2.5 LIMITATIONS OF THIS SURVEY... 16
2.6 CONCLUSION OF THE NEW MARKET... 16
CHAPTER 3: PROBLEM STATEMENT & METHODOLOGY ... 17
3.1 INTRODUCTION... 17
3.2 PROBLEM DEFINITION... 17
3.3 THE OBJECTIVE... 17
3.4 THE REASON AND BACKGROUND FOR THIS RESEARCH... 17
3.5 RESEARCH QUESTIONS... 19
3.6 LIMITING CONDITIONS... 20
3.7 TYPOLOGY OF RESEARCH... 21
3.8 METHODS OF COLLECTING DATA... 21
3.9 CONCLUSION PROBLEM STATEMENT AND METHODOLOGY... 22
CHAPTER 4 INTERNET STRATEGY ... 23
4.1 EXPLORING STRATEGY... 23
4.2 VISION & MISSION... 23
4.2.1 Implications of Multi-channel Distribution ... 24
4.3 STRATEGY OF THE BUSINESS UNITS... 25
4.4 NEED FOR A GLOBAL STRATEGY... 25
4.5 IMPLICATIONS ON RESEARCH... 26
4.5.1 Porter’s Five Forces Model... 27
4.5.2 Prahalad and Hamel’s Resource Based Thinking Model ... 27
4.5.3 Comparing the different Views... 27
4.6 GENERAL CONCLUSION INTERNET STRATEGY... 27
CHAPTER 5: THE FIVE FORCES MODEL OF MICHAEL PORTER ... 28
5.1 INTRODUCTION... 28
5.2 THE FIVE FORCES MODEL... 28
5.3 DRIVING FORCES... 29
5.3.1 The Competitive Force of New Entrants... 29
5.3.2 The Pressure of Substitute Products... 31
5.3.3 The Power of Suppliers to DSG ... 31
5.3.4 The Power of Buyers (end-users) ... 32
5.3.5 Rivalry among Existing Competitors... 32
5.4 STRATEGIC IMPLICATIONS OF THE FIVE FORCES MODEL... 33
5.5 OVERVIEW OF THE IMPACT OF THE FIVE FORCES MODEL... 34
CHAPTER 6 COMPETENCIES... 36
6.1 INTRODUCTION... 36
6.2 CORE COMPETENCIES DEFINED... 36
6.2.1 Signs of competitive strength ... 37
6.2.2 Signs of competitive weaknesses ... 38
6.2.3 Competitive strength assessment... 39
6.3 DUNLOP SLAZENGER GROUP’S COMPETENCIES... 40
6.4 CONCLUSION OF DSG’S COMPETENCIES... 40
CHAPTER 7 CONCLUSION AND RECOMMENDATION ... 42
7.1 INTRODUCTION... 42
7.2 TARGET OF THE REPORT... 42
7.3 THE QUESTION STATEMENT... 42
7.4 OVERVIEW AND ANALYSIS OF THE QUESTIONS IN THIS REPORT... 43
7.5 RECOMMENDATIONS... 45
7.6 THE EMOTIONAL FACTOR... 48
Introduction
This report contains the final results of the six-month survey I undertook in Dunlop Slazenger International Ltd.
I studied various options of setting the company up for electronic commerce. To which extent this new dimension could be fully utilised and how it could help to develop and maximise the total turnover and profits of the Dunlop Slazenger Group.
E-commerce will have large consequences for today’s businesses. It will change markets fundamentally. Existing barriers are vanishing already. New products and services are originating there, where they didn’t exist in the physical world.
These days, long established companies seem to live in uncertainty. Relatively young companies, without profits and very high debts, dominate the Internet world. Euphoria and enthusiast ideas seem to be more interesting than proven success and an established name.
The only important questions in future development of a ‘classic’ business appear to be the potential actions a company will take to establish a position on the Internet.
This essay is written for the Directors and Managers of Dunlop Slazenger International Ltd.
and should help them to provide a better insight in the different parts of the Internet and E- commerce.
The main question that will be answered in this report is: “Which policy should DSG adopt to be successful in E-commerce?” Additionally, it will answer questions as: How important is Internet and E-commerce for DSIL? How can we use Internet and E-commerce to develop a better relationship with our customers? How can I use my assets from the ‘old-economy’
electronically? This report will discuss the answer to these questions and more.
The results of this report should assist to integrate the advantages of E-commerce and consecutively facilitate to sell sporting goods directly to the consumer and make this visible in the company’s strategy.
The first chapter shows an overview and introduction of the company. The second chapter gives an explanation about the Internet and its possibilities. It presents consecutively the definitions and limitations of this report. Chapter 3 provides the problem statement. These are the most important questions to be analysed and they will be answered throughout the remainder of the report. Chapter 4 analyses the current strategy of DSG and reveals why it should pursue a global Internet and E-commerce strategy. Chapter 5 and 6 investigate the interaction between DSG and its environment and how the lessons learned could be used to its advantage. In the final chapter, recommendations are given on how DSG can be competitive in the E-commerce market. It provides the general conclusions and answers to the problem statement, as well as to the related questions.
The finalisation of this report has taken considerably longer than I initially expected. I have discovered that living abroad, working in a professional organisation and studying at the same time, is a more difficult combination that I anticipated.
Luckily, many people have supported me to conclude this final barrier. First, I would like to show gratitude to my parents, whose tireless support, I dearly appreciated. Secondly, I would like to show appreciation to Bas Vorsteveld, who helped me to a great extent by providing feedback on the draft versions of this report. I also like to thank Mr. Drs. Henk Ritsema and Prof. Dr. Geert Sanders from the Faculty of Management & Organisation of the University of Groningen for their guidance and feedback. Last but not least, I would like to thank the marketing department of the Dunlop Slazenger Group, and all others for their efforts, help and support.
Finally, I would like to express gratitude to Vanessa, my girlfriend. She was always there to support me.
Chapter 1: The Organisation
‘Awareness of the environment is not a special project to be undertaken only when warning of change become deafening…’
Kenneth R. Andrews
1.1 Introduction
This report contains the final results of my six-month survey I undertook at Dunlop Slazenger International Ltd.(DSIL) in Wakefield in the United Kingdom. I studied various options of setting up the company for electronic commerce and to which extent this new dimension could be fully utilised en help to further capitalise on the cost of doing business over the Internet.
1.2 Dunlop Slazenger International Ltd.
The Dunlop Slazenger Group (DSG) is a world-wide operating company. It operates a complex mix of brands and products in a highly competitive market. The head office is located in Camberley, Surrey (just outside London) in the United Kingdom. Total turnover is approximately £200 million, which puts Dunlop Slazenger at the top of the ‘second division’
in size.
The group has tennis ball manufacturing plants in the Philippines, Germany and the UK. Golf ball manufacturing facilities in the UK and the USA. Additionally, a major golf research and development facility is located in the USA.
In aggregate, Dunlop Slazenger International Ltd. is the most dominant tennis-ball supplier in Europe and the Far East; the second largest golf ball supplier in Europe and the fourth largest
Percentage sales by brand
Slazenger 29%
Dunlop 44%
Other 4%
Carlton 3%
Maxfli 20%
in the USA; the largest supplier in the in the rackets market in the UK, the third largest in the Far East and fourth ranked in continental Europe and the USA.
The group’s main brands have been established and respected for many years, as representing high quality sporting products. Dunlop and Slazenger have been world famous brands since the beginning of the last century with particular strength in tennis and golf. Maxfli has become one of the four premium golf brands world-wide and Carlton is still recognised as the longest established specialist brand in the badminton market.
In broad terms, the group ranks in the world’s top four for both tennis and golf balls; is in the top five racket manufacturers; is number one in the squash market and number two in badminton.
1.3 Profile and products of Dunlop Slazenger International Ltd.
Wakefield
Dunlop Slazenger International Ltd. primarily focuses on selling the brands: Dunlop, Slazenger, Maxfli and Carlton.
Tennis, golf, hockey, badminton and squash are the main sports in which these brands are active. Dunlop Slazenger International Ltd. sell their products in the UK and in several other strategic important export countries.
Chapter 2: The New Market
‘Cheshire Puss,’ she [Alice] began… ‘would you please tell me which way I ought to go from here?’
‘That depends on where you want to get to,’ said the cat
Lewis Carroll
2.1 Introduction
This chapter provides an overview of the Internet and the different kinds of E-business. I will discuss these in a broader way and give some examples of its usage on the Internet. This will narrow down the scope of this report and provides more focus on the research.
The chapter will be concluded with a brief discussion of the limitations of the survey.
2.2 What is E-commerce?
An observation of the Internet industry gives five kinds of business models1:
Model Description
1. Access Companies that sell Internet connectivity (e.g. AOL, Freeserve, Wanadoo)
2. Content Companies providing the content of the web-sites on the Internet (e.g.
Yahoo, Lycos)
3. Commerce Companies that sell merchandise, or facilitate matching of buyers and sellers. They operate in three arenas; Consumer-to-consumer, Business- to-consumer, Business-to-Business (e.g. Amazon, Fogdog, Ebay, Lastminute.com, Gear.com)
4. Software Software that facilitates communication and commerce (e.g. Microsoft, Intershop)
5. Services Facilitating programs that help to maintain the online Eco-system of hosting, processing and databasing.
E-commerce is not an entirely new type of commerce. It first emerged in the 1960s on private networks of large corporations (EDI – Electronic Data Interchange) and banks (EFT – Electronic Funds Transfer). However, today everybody is able to use the Internet for commercial potential and E-commerce. Only over the last decade it has transformed from an exclusive domain to a world-wide communication system that is accessible to everybody.
1 Merrill Lynch, Internet/E-commerce p.7, September 1999
E-commerce can be characterised as a collection of marketplaces that connect buyers and sellers of many product categories. They create value by making trading more efficient.
In broader terms, any commercial activity conducted via the Internet.
The rewards are split three ways.
Sellers can reach more customers, gather better information about them, target them more effectively, and serve them better.
The marketplaces also create value for the third-party intermediaries that organise some of them. Intermediaries can earn transaction commissions and fees for value-added services such as information capture and analysis, order and payment processing.
Buyers are able to compare products and prices easily; they will compel suppliers to compete more fiercely than ever.
A battle between buyers, sellers, and intermediaries to capture this value seems inevitable. It is therefore time for businesses to consider how they participate in electronic marketplaces to create value for themselves and prevent it from shifting to their competitors.
2.3 Scope of E-commerce
The most common form of E-commerce generally takes place on the Internet; more particular the World Wide Web (WWW). However, there are various forms of computer networks and various forms of E-commerce. Whether it's by streamlining the fulfilment process, facilitating communication among employees, cutting out the middleman, or reaching new markets, electronic commerce is about improving the way people do business.
2.3.1 Breaking down E-business
This report will solely focus on E-commerce and disregard the further aspects of E-business and E-procurement. E-business can be seen as the collection of all E-transactions in the process of the interaction between buyers and sellers. Figure 1 on next page clearly
demonstrates how E-commerce should be perceived. It’s a process that focuses on the buyer side.
Figure 1, VODW Marketing 2001
E-business and E-commerce are often and incorrectly used as substitutes. It’s important to clearly separate these terms as it will ease the understanding of this subject.
2.4 Scope of Internet
Another important issue is to distinguish the following terms: The Intranet, the Extranet and the Internet.
Intranet is used within a company, Extranet consists of several Intranets linked together and Internet is a collection of all these networks.
Figure 2, Internet Strategie, B. Tiggelaar S
u p p l i e r s
Purchasing Internal Operations
Customer added
Value
B u y e r s Supply chain
E-procurement E-business E-commerce
Organisation Transactional environment Contextual environment
Organisational knowledge deals with the daily activities of a company. It consists of targets, information about employees, company resources and company processes.
The transactional environment consists of customers, suppliers, competitors and partners. It’s important to have sufficient information to react to the changing circumstances of the
environment.
Strategy and long term vision can’t be developed without knowledge from the contextual environment. This area does not only consist of political variables and economic
developments, but also of social structures, technological changes and the way these influence the company.
The Intranet comprises the inner part of Figure 1. Extranet uses only part of the transactional environment and Internet is accessible to all persons and organisations of all three areas.
In the next three paragraphs, an explanation is given of the terms: Intranet, Extranet and Internet. This will clarify the scope and when it is used.
2.4.1 The Intranet
Intranet can be defined as the companies’ internal Internet. It is used to share information among the employees, contact and transactional services.
Information services
Many information-services can be added to an Intranet that can be useful to an organisation, such as
handbooks about procedures and company rules, telephone book,
standard documents, product pricing overview, product ranges,
overview of the knowledge and expertise people have in certain areas, bnowledge bank or Frequently Asked Questions (FAQ’s),
menu of company restaurant,
lease car overview, including calculations, fiscal aspects (i.e. company pension scheme, etc.), database of customers in order to raise the service level.
Contact services
E-mail used for less urgent matters as an alternative for using the telephone.
Discussion groups with the intention of getting more information from the field- managers, marketing tool decisions, market-developments awareness, most common complaints and direct threats from competitors.
Helpdesks.
Idea forums.
Project support and assistance in order to reduce meeting times and duration.
Transaction Services
Internal job-application, discussions with the HR manager Travel declarations and reservations
Order list for staples, pens, envelopes etc.
Application for holidays and an overview of the available days
Additional services can be added and used by the Intranet, which is interchangeable with the structure of the organisation and its needs.
The use of an Intranet will often give the organisation more flexibility: Information is present, 24 hours a day, seven days a week. And people can search for this themselves, in stead of assigning others to this task. It is also easier to structure the information more effective and efficient. It will most certainly give a higher productivity to all employees, as a result of the easiness of gathering information.
2.4.2 The Extranet
An Extranet gives two or more organisations the possibility to share information and utilities.
It usually consists of two or more linked Intranets and it gives the user the same possibilities.
A large advantage is that companies can share knowledge and work simultaneously on a shared problem.
Contact and Transactional Services
Calendar and meeting-agenda with an overview of minutes of the past meetings and the discussion points for future meetings.
Development-system used to inform about booked progress.
A service to suppliers or buyers linked to a stock database.
Sharing capacity of production facilities.
Advantages of an Extranet are obvious; communication will improve between the participants and it improves the sharing of knowledge. However, co-ordination-problems and security- issues will be important to ensure a successful relationship.
2.4.3 The Internet
Internet is the global layered information system, which is
1. an infrastructure of information and communication technology,
2. where by means of universal agreements in the area of network-communications, 3. various types of applications can be brought into action,
4. that enables people and organisations to offer services like information, connections and transactions,
5. which can be used in order to serve economic, social, cultural and scientific goals.
The history of Internet2 starts in the 60s when ARPANET was established. This was the Internet predecessor and was used for communication between computers of various research- centres and military institutions and capable to survive in the event of a war.
Over the last decades, it has developed to a widely used communication medium and it connects millions of people and companies world-wide.
Figure 3 gives an overview of the development of Internet over the last few decades. It has grown from a simple network between Universities and Government agencies, to a world- wide span of networks that virtually connects everybody with one another.
Figure 3, Leiner et al (1997)
Internet consists of many different communication utilities. The most important ones are: E- mail, world-wide the most popular service. The World Wide Web is at present undoubtedly the most interesting utility, it gives the possibility to read and publicise documents and applications on a world-wide basis. Newsgroups are widely used to connect people with a shared interest and offer the possibility to discuss matters with other Newsgroup users.
Internet Relay Chat, FTP, Telnet, Gopher and Netcasting are less well-known services on the Internet as they are less interesting for inexperienced users.
2 Leiner et. al., 1997
2.5 Limitations of this Survey
The scope of this report will not focus on all the issues mentioned above. However it’s necessary to have a better understanding of the possibilities of Internet, in order to comprehend its virtues and limitation; if there are any.
The focus of this report will be on E-commerce, as it can be used on the World Wide Web, concurrently, I will discuss some possibilities of the Extranet and Intranet. However, a thorough survey on Intranet & Extranet would be too laborious at present, but it will play a significant role in the future consolidation of all E-commerce activities.
2.6 Conclusion of the New Market
The Internet embodies all communication between users and computer networks. An Intranet can play a large role for the internal communication in companies. If this Intranet is
connected to other companies to improve communication, it is defined as an Extranet.
The Internet has had a major impact on the world and the way people communicate with one another. This influence grew from advanced ways of communication within Universities and Government agencies, to new ways of doing business and finally to a complete
transformation and integration of all world-wide communication.
This report focuses on the aspects of E-commerce that are important for and have impact on the Dunlop Slazenger Group. Other forms of E-business are disregarded to improve overall readability and to intensify the scope of this report.
Chapter 3: Problem Statement & Methodology
‘You’ve got to come up with a plan. You can’t wish things will get better.’
John F. Welch,former CEO, General Electric
3.1 Introduction
This chapter contains the structure3 of this report and explains why the research was conducted. I will elaborate the problem definition and the research questions to solve this problem. Accordingly, I will clarify the objective and goals of this research topic.
Subsequently, sub-questions have been used to explain certain important issues involved with the survey, in order to make this study more comprehensible. The chapter will be concluded with a brief summary.
3.2 Problem Definition
Provide a deeper understanding of the E-commerce business and develop an E-commerce strategy for DSIL; based on the assumption that it will create a basis for future competitive advantage.
3.3 The Objective
E-commerce offers unprecedented possibilities to sell products and services. It is essential to make this knowledge part of the strategy of the organisation in order to maximise the
advantages. The results of this report should assist to integrate the advantages of E-commerce and consecutively facilitate to sell sporting goods directly to the consumer and make this visible in the company’s strategy.
3.4 The Reason and background for this Research
Mid July 1999, my internship started at the Dunlop Slazenger Group’s subsidiary Dunlop Slazenger International Ltd. in Wakefield (UK). I was appointed to evaluate the Marketing Strategy at that time and to assist the Marketing Manager, Mr M. Penrose and Product Manager of Tennis, Mr J. Dee. My job description was Assistant Marketing Manager.
Several months later, during my internship, managers, directors and Members of the Board also became aware of the importance of Internet and E-commerce. Some realised that some
3 de Zwaan, 1992
action had to be taken before others (competitors) would do this for them. After numerous meetings, they kindly asked me to change the topic of my survey.
That was in the time of the exponential growth of the Internet boom and my enthusiasm aroused immediately. Needless to mention, that I was very interested at commencing with this task, as I would be one of the first persons with the interesting opportunity to study and make a serious contribution to the potential of the E-commerce era for Dunlop Slazenger.
The task was to conduct a study after the possibilities of doing business, using the World Wide Web; focussing on the end-users, i.e. the prospect of direct selling to the actual consumer.
The first incentive was to study an Internet and E-commerce strategy that served just the UK and to look at the possibilities of serving potential other strategic regions. A couple of other DSG subsidiaries throughout the world were also learning about E-commerce possibilities, and there was not a shared view of solving the E-commerce issue.
In general, the DSG Head Quarters had already taken ‘some’ action in the preceding years.
Due to lack of time and resources, both financial and human, the presence of several brands of DSG on the Internet were limited to a few basic web-sites with a mainly informative character. These sites aimed at informing the public - potential customers and consumers - about the company and a selection of its products.
Although most people were well aware of this situation - as is and was the case with many companies - uncertainty about the potential importance of the Internet and its future developments, stalled the process of professional web-management and additional E- commerce activities.
In a world-wide operating company Internet, websites and E-commerce do need a global approach. All key necessary employees in and outside the company should be aware and involved where and whenever implementation is concerned.
The Internet is a global medium and it is of high importance that it is properly used, to stretch its possibilities to the maximum achievable.
As the total sales of online sporting goods are forecasted to grow significantly over the following years, action of some kind is required. It is estimated that these sales will exceed $4 billion by 2004 as overall E-commerce spending is expected to reach $184 billion in the very same year.4
Needless to say that DSIL is very much occupied with the following question: Should we improve our sales with E-commerce activities and if yes, how and when?
Although Dunlop Slazenger has already made some initial efforts in the area of E-commerce, it is clear that some goals must be set to further capitalise on cost-effective ways of doing business. Identification of the potential of E-commerce started this research project, but it will primarily focus on the end of the supply chain: Where and how will the consumer be able to buy the products directly from DSG?
4 Forrester, 1999
3.5 Research Questions
The topic of my report will be concerned with a research effort on the possibility of E- commerce for Dunlop Slazenger.
Accordingly, this report has a research question, which has to be answered in order to realise a thorough analysis of the above-mentioned topic. The research question is:
“Which policy should DSG adopt to be successful in E-commerce?”
E-commerce for DSG could come in many varieties. In this report the focal point is how E- commerce can actively contribute to an increase of DSG’s competitiveness and help to increase its future profitability.
In the next paragraph, all aspects of the sports-industry market, relevant for answering the research question, will be defined more specifically by means of sub-questions.
3.5.1 Sub Questions
With the intention of finding a correct answer to the research question, a number of sub- questions need to be defined and answered.
To gain some more insight in the company and its strategy it’s important to start with some question about the internal organisation, answering these will give the relevance of the other sub questions which are all classified according to the Five Forces model of Porter.
Dunlop Slazenger International Ltd.
What is the current strategy of Dunlop Slazenger for E-commerce?
What are the strengths and weaknesses of DSIL in relation to E-commerce?
Customers
What are the current developments in the sports trade and what are the outlooks for this market?
Which kind of customer is important for the sale of sporting goods and -equipment?
Competitors
Who are DSIL’s competitors?
What are the positions of the competitors?
Which strategies do the competitors use on the Internet?
Substitutes
What are the substitutes?
Which substitutes are threats for which segments?
New Entrants
Who are the new entrants on the E-commerce market for sporting goods?
How are they threatening DSIL’s position?
Logistics
How will the E-commerce business change the current logistics, both from a service point of view as from a cost point of view in order to be competitive?
Who should handle the distribution in E-commerce?
Is E-commerce an additional selling- and or service channel or should it completely replace existing channels?
3.6 Limiting Conditions
Due to the focus of the research and to meet the requirements of ‘researchability’ for my report, it is necessary to limit the boundaries of the research topic. The boundaries are defined as follows:
The different brands and products will not be split in separate groups, but regarded as one product to be able to build a holistic marketing strategy.
Porter’s ‘Five Forces Model’ is used to give a description of DSIL’s current situation and this report refrains from using any generic strategy. Instead, a business plan-like report is presented. It will give recommendations on specific actions that have to be taken, in order to be successful in E-commerce.
E-commerce as discussed in this report primarily looks at the process of selling the end- products to the end-consumer. Other applications of E-commerce, such as in the areas of procurement (E-business) and in the relationships with (for example) suppliers, retailers and personnel won’t be surveyed. It will be discussed where this improves the comprehensibility of the subject.
3.7 Typology of Research
There are various ways of conducting research and, in order to do research on this specific topic, it is important to choose the right form of research. The type of research determines the backbone or framework for a report and clarifies how a certain set of alternatives will be compared.
1. Exploring research: Usually used when one has no or little information about the subject.
2. Describing research: One has comparable theories, which enables the user to analyse and research similar subjects.
3. Explaining research: An existing theory is tested on similar problems and related subjects.
4. Testing research: A hypothesis is tested on reality.
The methodology used for this report is based on describing research. I will therefore use theories that are applicable on problems in common business environments as on problems in the new E-commerce area.
3.8 Theoretical Perspectives
Analysing the market for e-sports will require the use of a model that is applicable for this situation. Porter’s ‘Five Forces Model’ is adequate to clarify the pressures of the environment in this market.
To take the next step it is necessary to compare this information with Dunlop Slazenger’s strategy and determine if they have a fitting strategy.
However, a strategy should not be chosen only in terms of what the environment wants, but especially in terms of what the company is able of and likes to do. It is this, what Prahalad &
Hamel5 plea; don’t take the ‘strategy as fit’ for granted, but try to work this around in terms of a ‘strategy as stretch’, a strategy that forces the organisation to change in the direction of a self determined future.
3.8 Methods of collecting Data
I have been able to collect most of my primary information during the time of my internship at Dunlop Slazenger International Ltd. in Wakefield. Internally, all for my research relevant people assisted me with ample of information and co-operation. However, the most valuable data that I amassed came mainly from the Internet, newspapers and magazines, as there wasn’t much relevant internal documentation, since I was the first to study the possibilities of E-commerce full-time.
I interviewed numerous people within the company and was able to meet many key-people of E-Business and E-commerce Solution companies.
In a later stage during my internship, a task force was create; together with Mr. Astall (Manager of Logistics at DSIL) and Mr. Currie (Sales Manager at DSIL). We were asked to study and develop several Internet strategies and search for other business opportunities on the Internet. Unfortunately, this process was only initiated just before my six-month internship was contractually terminated. Shortly after this, the Head-Office decided that a global Internet strategy was preferred over locally pursued strategies and that all activities on local basis should be stalled whilst waiting on the results of this initiative.
3.9 Conclusion Problem Statement and Methodology
Providing a deeper understanding of the E-commerce business and its prospects for DSG, started this report. The objective is to provide DSG with a set of opportunities, enabling them to conduct E-commerce and maximise the advantages of selling online. The research question used to study this topic is: “Which policy should DSG adopt to be successful in E-
commerce”; the essence in ‘successful’ is how E-commerce can actively contribute to an increase of DSG’s competitiveness, providing that it will lead to an increase in its future profitability.
It is appropriate to use ‘describing research’ to study this problem as it is one of the most suitable and clarifying ways to describe and compare the business environment.
5 Prahalad & Hamel, 1994
Chapter 4 Internet Strategy
‘No company can afford everything it would like to do. Resources have to be allocated.
The essence of strategic planning is to allocate resources to those areas that have the greatest future potential.’
Reginald Jones
4.1 Exploring Strategy
DSG operates a matrix structure for the marketing function. This ensures the company benefits from a global approach to key issues and hence economics of scale, whilst retaining local flexibility to exploit regional opportunities.
The Group Marketing function is responsible for:
• Determining the brand strategy,
• Developing all new products,
• Producing,
• Advertising and
• Managing the player profiles.
All these activities work most effectively when there is one dominant direction to guarantee that economics of scale can be generated.
Through a series of defined processes, local markets provide input into each area. This is then refined and developed into a single strategy for the entire group.
4.2 Vision & Mission
For DSG, up till now, the Internet has been just another communication tool. Its merits were solely used to inform potential consumers and customers about the products it sells to retailers.
Selling products online is a different ball-game. The largest risk for DSG is to potentially harm its customers (the retailer) by deciding to sell directly to the consumer (end-user). There have been numerous examples of miscalculations in customer loyalty amongst other brick- and-mortar industries and DSG’s Internet strategy should not only aim at expanding the pie, but also at sharing a larger part of it: This means that DSG will have to create win-win situations, ensuring that this multi-channel strategy will satisfy all the parties involved.
Customer loyalty as mentioned above plays a vital factor, as well as the retailers fulfil a very important chain in the communication with the end-user. At present they have a great
influence at the buyer’s decision and also take care of most of the after sales, maintenance and repairs of the products that are sold. They can also offer a complete package of brands to complement the additional necessities of the consumer, i.e. products that are not sold by DSG.
Concentrating on the consumer perspective, DSG has positioned itself solely in a small area of the sales cycle as drawn below. It only covers the first three steps and leaves the rest of the cycle in the capable hands of the retailers. It would be ideal if DSG was able to control as many steps as possible to understand more about the consumer and its needs. Although they do have some influence and limited control in the other sectors, the fourth sector is where E- commerce could play a crucial role. This is where future challenges for DSG can be gained.
Figure 1, VODW Marketing 2001(edited)
Unavoidably, controlling the fourth step will lead to higher costs and the probability of a channel conflict. The next paragraphs will give an explanation of the most likely implications.
4.2.1 Implications of Multi-channel Distribution
Companies constantly have to weigh up their grip on the consumer on the one hand and their market reach on the other. Grip on the consumer is possible if there is direct distribution and direct contact with the customer. However, the disadvantage of direct distribution is the high costs of building a company distribution channel. Where this is not considered a core- competence, it could be supported by outsourcing to fulfilment companies.
Communication
Information
Advice
Transaction
Use After sales
Feedback End of use/
Replacement product
Market reach is much easier to construct by using the existing intermediary. The disadvantage of indirect distribution, of course, is that DSG leave customer-relations up to the
intermediary. Thereby reducing their grip on the final customer/end consumer. In other words, DSG should be seeking a balance between grip and reach.
Multi-channel distribution seems to be the answer.
A complicating factor is that multi-channel distribution is not static. Regularly the emergence of ‘new’ media enables direct distribution at much lower costs. The greatest disadvantage of direct distribution – high costs – is significantly reduced by these new channels. Meaning that DSG can reconsider deployment of their channels, particularly of a direct distribution
channel.
Internet has made the trade-off between this grip and reach almost obsolete. It offers the advantage of building a large market reach very rapidly; and at very low costs.
Conflicts often arise when a specific distribution channel feels that another channel is fighting for the same transaction. Particularly, when this new channel passes the cost benefits on to the consumer, thereby asking a lower price for the same product or service. Often, the
intermediary’s first reaction is to protect its own position. The best weapon is the threat of a conflict. The intermediary’s ultimate weapon is to remove the products or services of the seller in question from its program. Existing channels provide a substantial percentage of the sales.
This is why companies often abandon setting up a direct distribution channel.
4.3 Strategy of the Business Units
The various business units are responsible for the implementation of the global strategy, plus customer negotiations and servicing. In addition they will set prices (within guidelines) and buy local media/PR.
DSG uses distributors and/or agents in countries where they are not directly represented by subsidiaries.
The subsidiaries and agents are obliged to sell certain items from the core ranges. Next to these core ranges, which ensure the brand-strategy and global recognise-ability, they are allowed to make regional variances to items outside of this core range. These regional variances ensure that the differentiated products will suit the various marketplaces. The invariance in the core ranges build the brand consistent and globally.
4.4 Need for a Global Strategy
The global strategy differs in many aspects from the business-unit strategies. However, in this strategy, the regional wishes and demands should be implemented as good as possible to facilitate a global brand recognise-ability.
The Internet is a global medium. To maximise the recognise-ability, it seems crucial that all the websites pursue this consistency. It’s also important to strive for the most cost-effective and coherent strategy to pursue a maximum amount of synergy.
The subsidiaries are ‘normally’ limited by their boundaries and can therefore not interfere in other marketplaces, which are often covered by agents or other subsidiaries. The integration of E-commerce will naturally complicate this, as it’s often used as a global medium.
Nevertheless, especially in countries where DSG is not represented by agencies or subsidiaries, E-commerce could make a large difference and open up markets that were previously unsuitable for penetration.
On a global basis this should lead to:
1. a positive change in the consumer perception of the brands and
2. renewing the communication with lost, current and potential customers and consumers.
Eventually, this should lead to an increase in customer/consumer awareness, knowledge, understanding and involvement with the brands and products, leading to increased sales with the help and possibilities of an E-commerce channel.
Up to now, only a limited amount of Internet presence has been reached and most steps that have been taken are tactical and responsive as opposed to strategic and pro-active.
4.5 Implications on Research
The above drafted situation can be researched in various ways. To make a theoretical framework, the problem definition is used as direction:
Provide a deeper understanding of the E-commerce business and develop an E-commerce strategy for DSIL based on the assumption that it will create a basis for future competitive
advantage.
To answer this question, this report focuses on two theories: Porter’s Five Forces Model and Prahalad and Hamel’s Resource based thinking.
The interesting difference is that both methods study the environment. However, Porter’s view is to look at the existing environmental situation and study how the company should change to find its position within this marketplace.
The Resource based thinking approach claims that a company should look at its aspirations and integrate these thoughts in a vision, that changes the environment to suit the company’s needs.
4.5.1 Porter’s Five Forces Model
Porter’s model is perfectly suitable to analyse the environment and its dynamics of the company. The model determines five forces that influence this arena. Using this model will result in a thorough analysis of the environment and will also determine the strategic consequences of Internet and E-commerce. The result is an outside-in vision of the environment of the organisation.
4.5.2 Prahalad and Hamel’s Resource Based Thinking Model
For and outside-in vision of the company, Prahalad and Hamel’s model is used. This model looks at ways of creating the future for the company. They claim that the environment will change to the needs of the organisation, as a result of combining the company’s vision with the proper company resources. The essence is that the company should look at its core competencies and signal which ones could lead to a significant advantage over other companies.
4.5.3 Comparing the different Views
Combining the two various ways of studying the company’s environment will result in an interesting analysis. It will then be possible to draft the final strategy that DSG could pursue in an effort to be successful in this E-commerce era.
4.6 General Conclusion Internet Strategy
DSG Headquarters is responsible for developing strategy, product development, production, advertising and managing player profiles. The Internet is a part of this function and has been neglected in the past and was solely used as an other communication tool. Developing an E- commerce strategy will have many implications on the current company structure and without a doubt lead to tensions with and within the retail channel. To come around these
implications, a strategy must be developed where a multi-channel strategy leads to win-win situations en reinforces the retailers’ presence. E-commerce also seems an appropriate tool to explore previously unexplored countries.
The implications on the research lead to a study, where the environment plays an important role. Therefore, the theories of ‘Porter’ and ‘Prahalad and Hamel’ are used to further investigate and answer the problem definition.
Chapter 5: The Five Forces Model of Michael Porter
‘Analysis is the critical starting point of strategic thinking.’
Kenichi Ohmae
5.1 Introduction
According to the positioning school, drafting strategy is an exercise where one has to make judgements about the external environment and internal situation. Without first analysing the company’s present situation, i.e. the internal and external conditions it faces and the
company’s capabilities, managers would be ill-prepared for choosing the direction of the strategy. This chapter examines the industry and competitive analysis in terms of Porter’s Five Forces Model.
The implementation of this model will give a deeper understanding of the market and defines the largest threats. Eventually, it will clarify how Dunlop Slazenger should have to link the strategy to its environment.
5.2 The Five Forces Model
Porter’s Five Forces model is a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is.
According to Porter, the structure determines the intensity of competition in that industry. The state of competition is determined by the following five competitive forces.
1. The rivalry among competing sellers in the industry
2. The market attempts of companies in other industries to win customers over to their own substitute products
3. The potential entry of new competitors
4. The bargaining power and leverage exercisable by suppliers of inputs 5. The bargaining power and leverage exercisable by buyers of the product
(see Figure 1)
The value of the Five Forces model is based on the assistance it provides to determine the competitive forces. The impact of these forces determines what the competition is like in a given market. The stronger the various competitive forces are, the lower the collective profitability of participant firms. However, even when some of the forces are strong, a market can be competitively attractive to those firms whose market position and strategy provide a good enough defence against competitive pressures to preserve their ability to earn above- average profits.
In order to answer the research question, Porters Five Forces Model of Competition will be analysed and described to provide us with a deeper understanding of the implications for
DSIL and using the Internet for selling her products. Concluding with a new strategy, which will give DSIL a better understanding of their Internet strategy.
Figure 1, Five Forces Model, Porter, M.6
The succeeding paragraphs will give a description of the relevant aspects of Porter’s five forces, which will help to give more insight in his theory. The next chapter will be based on the outcomes of my research, after studying the effects of the new economy on DSIL.
5.3 Driving Forces
Industries and competitive forces change because forces that are in motion create pressures and incentives for change.
5.3.1 The Competitive Force of New Entrants
6 Porter, 1985
NEW ENTRANTS
COMPETITORS
BUYERS
SUPPLIERS
SUBSTITUTES Negotiating
power of
suppliers Threats of new
companies
Threats of substitutes
Negotiating power of buyers
$56 $165 $586
$1,162
$1,949
$3,068
$4,220
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
1998 1999 2000 2001 2002 2003 2004
Sporting Goods Moving Online
($ in Millions)
The market for sporting goods is a rather stable market. Brand value, brand image, marketing and quality determine market shares. These conditions are hard to beat for new entrants, as they need vast amounts of money to create brand awareness and at the same time sell their products at competitive prices, in order to gain market share.
Interestingly, the sales of sporting goods on the Internet face different projections. New entrants can be a real threat, because of the relative low costs of entry to the Internet. New entrants do not necessarily face high other costs because of the easiness to enter the Internet market. Once this step is taken, the whole world is the marketplace and in theory it is possible to sell and send products to any place in the world. Although it has some drawbacks. Just being on the Internet is not enough; it is expensive in terms of marketing, advertising, web- site-management, service and order handling. The most complex task for the majority of these companies are their logistics, as this means that they will, very significantly, have to adapt their current logistic system.
At present, this new market is immature but rapidly growing to very significant size. New strategies are developed every day and customer-loyalty must be earned quickly.
Starting up an Internet shop is far from difficult and therefore new entrants can be a large threat. However, it will be critically important to be early-to-market and to invest heavily in brand awareness. Facing that, the market is moving very rapidly. Coherently, businesses like these will face large operating losses at the start, which is an acceptable strategy at this time.
But, only new entrants with deep pockets will be a large threat; though the sheer quantity of newcomers shouldn’t be underestimated.
The market
The sales of online sporting goods are forecasted to grow significantly over the following years. It is estimated that it will exceed $4 billion by 2004 (Figure 1), as overall E-commerce spending is expected to reach $184 billion in the same year, representing 7% of total retail sales.7
Figure 2, Source: Forrester Research
