Do Business Well

`Place’ (Convenience in the 4- Cs) means the elements of the marketing mix that marketers use to enable customers to access the benefits of a product or service. Traditionally, this has meant ‘channels of distribution‘ through (e.g.) various wholesaler and retailer combinations. Viewing from the ‘convenience for the customer‘ (4-Cs) perspective gives a more customer-orientated focus. This is a vital decision area for the e-Business for three reasons. First, relatively small local companies can widen their market and even export (e.g. Botham (www.Botham.co.uk), to be described further in Chapter 9). Second, many e- Businesses aim to gain competitive advantage by using e-Systems to de-layer the distribution chain. For example, Dell (www.dell.co.uk) supplies customers directly, rather than through distributors, wholesalers or retailers. Third, distribution is an area where some e-Businesses have been severely criticized for failing to deliver customer service (see Chapter 9 for more details).

Place elements of the marketing mix have been changing rapidly over recent decades, and these changes impact in many ways on the marketing operations of the e-Business. First, the growth of retailer power has involved major retailers taking more control of their supply chains. The involvement of wholesalers has been reduced, tending to give way to contract logistics (under retailer control). At the same time, supply chains have become more efficient, with computer network links between suppliers and retailers — many still based on EDI. Predating the Internet, EDI is based on privately owned third-party computer networks. Stock levels have been reduced using techniques such as JIT and Enterprise Resource Planning (ERP). Control of the physical distribution, ordering, invoicing and payment systems, particularly for major retailers, is often still carried out using EDI networks such as Tradanet (www.gegxs.com/gxs/ products/product/traser). Increasingly, though, retailers such as Tesco are allowing Internet access to their suppliers for real-time electronic point-of-sale (EPOS) data. Trusted supplier partners can thus respond more quickly to changes in customer demand.

Mini case study: DISTRIBUTION AT WALMART

Now the world’s largest and most profitable retailer, only two decades ago Walmart was a small retailer in the southern states of the USA. Growth has been founded on a belief in the importance of IT systems in building an efficient operation. Much of Wal-Mart’s success has been ascribed to its stockless warehouse JIT distribution system. Goods delivered to the regional distribution depots are immediately picked for reshipment and sent on to stores. Economies of scale mean that Walmart can purchase full truckloads from suppliers, gaining a critical 3 per cent cost advantage over competitors.

The system is based on a private satellite EDI communications network that sends EPOS data to 4,000 suppliers. Employees, management and suppliers have access to real-time sales, stock and order information plus buying patterns.

In the UK, Walmart is utilizing its US expertise to improve the already efficient systems operated by ASDA prior to merger. Walmart (Asda Walmart in the UK; www.asda.co.uk) uses these slick distribution systems to e-Retail a wide variety of electronics and other non-food products direct to consumers.

Source: Adapted from Chaston (2001b)

EDI networks are expensive for small businesses to install, costing at least hundreds of thousands of pounds. Therefore, there is a growing trend towards the use of the Internet for B2B, particularly for smaller businesses (suppliers and customers) and smaller order quantities.

Mini case study: BOEING SPARE PARTS

Aircraft manufacturer Boeing supplies spare parts by EDI to the top 10 per cent of its customers (representing 60 per cent of parts sales by value). In 1996, Boeing introduced its PART page on the Internet, to open up access to e-Buying to smaller customers. Customers anywhere in the world can check availability and prices, order from a catalogue of around half a million spare parts, and track the order status. The service is used by most of Boeing’s customers, and handles half a million transactions per year.

Access to the Boeing PART page requires a password, but for more information go to the Boeing home page and enter PART in the search box: www. Boeing.com

THINK POINT

Given that Internet commerce is becoming more secure and is much cheaper than EDI, what do you think will be the long-term future trends for private EDI networks?

Improving efficiency has led to what formerly would have been warehouses becoming almost stockless regional distribution depots. Major retailers such as Tesco or Asda Walmart thus control a distribution chain typically consisting of:

Manufacturer –>Regional distribution depot –>-Retail superstore –> Customer

From the customers‘ `convenience‘ point of view, there has been a trend towards `one-stop’ shopping at superstores, hypermarkets and shopping centres. This trend has had the side effect of a reduction in the number of small, independent and perhaps less efficient retail outlets.

High distribution efficiency is largely behind the success of ‘bricks and clicks’ retailers such as Tesco. Conversely, lack of established, efficient distribution channels has been a major factor in the failure of a number of pure-play dotcoms that have concentrated on ‘Promotion‘ at the expense of ‘Place’ and the rest of the marketing mix.

The tendency has been towards a de-layering of channels of distribution – termed `disintermediation’. e-Commerce has, of course, accelerated that trend by enabling mechanisms for businesses to trade directly with end customers rather than through intermediaries. Traditional functions of intermediaries such as breaking bulk and physical distribution still have to be performed, though. This is true even for the pure-play e-Business supplying directly to the consumer. Therefore, cutting out the intermediary does not necessarily save as much cost as might be expected. For example, Amazon has an efficient distribution system and consequently offers low prices. The low prices, though, are not a true reflection of efficiency, as Amazon, like many e-Businesses, has taken a long time to come into profit. Effectively, the low prices have been largely subsidized b) shareholders, rather than reflecting increased efficiency. To emphasize the point, in the UK, Amazon is using its distribution expertise to carry out distribution services on contract for bricks retailers such as W. H. Smith and Toys ‘R’ Us. S contract operations account for a substantial part of Amazon’s profit.

Although recent trends have led to a decline in the numbers and influenc traditional intermediaries such as wholesalers, the Internet has spawned a Ianof new intermediaries, from e-Malls to electronic trading exchanges. The growth of e-Intermediaries has been termed `reintermediation’.

Apart from major ‘bricks and clicks’ retailers, many of the e-Businesses offering the most efficient distribution and customer convenience efficiency are established mail-order businesses. For example, Quill and Screwfix (office supplies and tradesperson supplies respectively) operate established mail businesses via a paper catalogue. Orders can be placed by telephone, post, fax, Internet and email twenty-four hours a day — usually for next-day delivery. Deliveries are reliable, and any unwanted or faulty goods can be returned simply. These organizations base their success on their focus on convenience for the customer.

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