Webvan Firm Analysis

Webvan Firm Analysis Introduction Webvan is an online firm that deals with packaging, selling, and delivery of grocery products. The firm was established in 1996 under the leadership of Louis Borders. Borders’ vision was to establish a customer-focused grocery firm. The firm’s objective was to increase its customer base by nurturing a high level of customer satisfaction (McAfee and Ashiya 1).Advertising We will write a custom report sample on Webvan Firm Analysis specifically for you for only $16.05 $11/page Learn More One of the ways through which the firm intended to achieve this goal entailed simplifying the consumers’ purchasing process. The firm intended to achieve a high level of effectiveness and efficiency in its operations. For example, Webvan ensured that orders were delivered within thirty minutes. Its efficiency regarding product delivery was facilitated by the fact that the firm established a number of distribution centres. Problem identificatio n In a bid to achieve its vision, Webvan adopted the concept of online marketing. Webvan intended to exploit the niche market that is arising from the growth in the Internet and the high rate at which consumers are purchasing products online. The firm invested heavily in infrastructure, but it did not focus on marketing, which led to low sales. Consequently, the firm’s online model was adversely affected. This paper evaluates the problems faced by Webvan coupled with how they can be resolved in order to reposition the firm as a strong online company. Inherent complexities in Webvan’s business model Despite Webvan’s goals to attain an optimal market position in the e-groceries market, the firm faced a number of fundamental challenges. One of the major complexities faced by the firm relates to the fact that it did not understand how the groceries value chain operates. Therefore, the firm invested in a system that it had not tested (McAfee and Ashiya 3). Secondly, the firm also faced a major challenge in motivating consumers to adopt online shopping in their purchasing processes. During its inception, most consumers were only acquainted with purchasing groceries from convenient stores. By visiting the stores, consumers were in a position to access price discount in addition to gaining a unique experience during the purchasing process. Moreover, most consumers attached little economic value to the amount of time spent when shopping in the supermarket, which means that a significant proportion of consumers did not value convenience. Consequently, online shopping was a rather new concept to most consumers. Therefore, changing the consumers’ behaviour is one of the uphill battles faced by the firm.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Webvan intended to deliver a wide range of perishable and non-perishable products to custome rs through its online model. However, the 30 minutes duration within which the firm intended to achieve this objective was relatively short. Moreover, this model was untested with regard to delivery of perishable products. Therefore, the likelihood of the model failing was relatively high. Dealing with grocery products was another major challenge that the firm faced, as such products were characterised by low profit margins of 1% to 5%. The firm also faced a major challenge with regard to sustaining its wide product range and meeting the temperature requirements in to preserve the products (McAfee and Ashiya 7). Technological discontinuities and behaviour changes necessary to implement Webvan’s business model Webvan’s failure arose from its inability to understand how it would successfully integrate online shopping technology to groceries. Despite its failure, Webvan can attain an optimal market position by improving its online shopping model. In order to achieve this goal, the firm should focus on a number of technological discontinuities. Technological discontinuities refer to the changes that the firm will be required to implement in order to maximise its sales revenue. Considering the volatile nature of the IT industry, it is imperative for Webvan to develop a well-structured framework to implement the technological changes. First, the firm should align its operations with market changes by identifying the possible technological discontinuities and market needs that might affect its ability to maximise online sales. In a bid to identify the technological discontinuities successfully, Webvan should take into account the customers’ future needs and the prevailing technological trends. This move will minimise the likelihood of the implemented ICT technology from becoming obsolete. The firm should also assess potential substitute technologies that can be incorporated and compare with the technology that has already been integrated (McAfee and Ashiya 9). It is also imperative for Webvan to engage in a comprehensive marketing campaign. The campaign should focus at creating awareness on the benefits associated with online shopping. The firm should conduct its market awareness campaign on both traditional and emerging mediums, which will play a critical role in the firm’s effort to attract its customer base and hence its sales revenue.Advertising We will write a custom report sample on Webvan Firm Analysis specifically for you for only $16.05 $11/page Learn More Some of the aspects that the firm should focus on relates to the economic benefits of online shopping. For example, online shopping saves on cost, as the consumer does not incur additional cost in their purchasing process due to transport. Moreover, online shopping is more convenient with regard to time, as it eliminates the amount of time that the customer may be required to queue. Target market Webvan targeted three main custome r groups, which include the new technologists, price insensitive consumers, and time conscious consumers. Before adopting the online shopping model, Webvan conducted a comprehensive market research. From the market research, the firm identified a customer group that values their time. These customers include senior citizens, mothers with young children, upscale employees, students, and physically challenged customers. Some of these customers such as students, senior citizens, and upscale employees attach high value to the convenience associated with online shopping. Consequently, they prefer shopping perishable and non-perishable products online rather than visiting supermarkets. Challenges associated with Webvan physical plant infrastructure In an effort to exploit the online market, Webvan invested in a high capital and technology intensive project. The project entailed constructing a number of distribution centres in different parts of the US. The distribution centres were fitted with optimal warehousing and order management technologies (McAfee and Ashiya 11). Despite its commitment in implementing the online shopping technology, Webvan experienced a major challenge with regard to meeting the cost of the high-tech warehouse. For example, the firm incurred $40 million in constructing the distribution centres in Atlanta. The firm experienced a major challenge in sustaining the operations of the high-tech warehouses considering the fact that its grocery sales were relatively low. The high cost of operation forced the firm to implement the downsizing strategy. For example, in 2001, the firm retrenched 2000 employees. Most investors in Webvan lost the amount they had invested. Moreover, the firm was forced to apply for bankruptcy protection. Conclusion The case study shows that Webvan faced numerous challenges that hindered its success in the online shopping market segment. First, the firm did not conduct a comprehensive consumer market research in order to det ermine the consumers purchasing patterns. Consequently, its online shopping model relied on assumption rather than market facts.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More For example, the firm assumed that the prevailing market size in the US would translate into sales, which motivated the firm to engage in an aggressive market expansion. The firm also incurred high cost in maintaining the distribution centres it had established in the US market. Moreover, Webvan’s management team assumed that the frequency of online purchases would enable the firm to maximise its sales. However, most consumers who purchased through the firm’s online shopping system did not engage in repeat purchase behaviour. Therefore, the firm was not in a position to develop and maintain a strong customer base. The firm also experienced a challenge due to technological discontinuities. Recommendation Despite the above failures, Webvan can improve its online business model and hence its performance. In order to achieve this goal, the firm should consider the following. Webvan should conduct a comprehensive consumer market research. The research will give the firmâ⠂¬â„¢s management insight with regard to the consumers’ purchasing behaviour. For example, the firm will be in a position to identify the products that consumers purchase online rather than selling all its products through the online business model. The firm should continually invest in research and development with regard to ICT, which will improve the firm’s competitiveness within the online market segment. The firm should also evaluate its target market in order to identify changes in consumers’ purchasing patterns, and thus the firm will improve its online shopping technologies to be aligned with the prevailing market trend. McAfee, Andrew, and Mona Ashiya. â€Å"Webvan.† Harvard Business Review, 25 Sept. 2001: 1-28. Print.