BATTLE AGAINST ONLINE SHOPS DO WHAT AMAZON CANNOT AND MORE Jiale Gu 17300680004 Course: English for Academic Purposes(Business) Date: 21 December 2018
1 BATTLE AGAINST ONLINE SHOPS: DO WHAT AMAZON CANNOT AND MORE Jiale GU 17300680004 Course: English for Academic Purposes (Business) Date: 21 December, 2018
1. Case summary Benjy's is an electronics and appliances retailer, worth of $40 billion and owning more than 2000 brick-and-mortar chain stores. Unfortunately, showrooming the phenomenon that 83% of consumers came to visit Benjy's to learn about products but then bought online to obtain lower prices, dealt a heavy blow to the companys sales The tough issue divided the board of directors. Ben Jenson, founder of Benjys, thought that both offensive and defensive strategies should be taken which included making showrooming as difficult as possible for customers, offering the same price as customers can find online and insisting on Benjy's promise-the biggest range of products at the lowest prices. However, the CEo Stanley Farber thought Benjys should emphasize a curated product mix, knowledgeable employees, fewer and smaller stores and follow-up services, and also charge suppliers fees for promotions and access to prime shelf space. In spite of Bens objection, Farber experimented with his strategy in some stores. Surprisingly, the consumers mistook the better service for higher cost and were scared away. problems still remained 2. Problem: how to win back online shoppers? The ultimate goal of Benjys is to win back online shoppers. To achieve this goal, the following questions should be taken into consideration. a) Why does showrooming happen? b) What is the essence of problem faced by Benjy's? c) Why may Ben's methods not be feasible? d) what strategies should be adopted to battle against online shops? 3. Assessment of case information To illustrate what troubled Benjy's better, it could be favourable to implement game theory to analyse the case. Game theory is a tool to study how players make decisions under competition. Boxed pig game model in game theory which explains Robert S Pindyck and Daniel L Rubinfeld, Microeconomics(New Jersey: Pearson Addison Wesley, 2006). P 487
2 1. Case summary Benjy’s is an electronics and appliances retailer, worth of $40 billion and owning more than 2000 brick-and-mortar chain stores. Unfortunately, showrooming, the phenomenon that 83% of consumers came to visit Benjy’s to learn about products but then bought online to obtain lower prices, dealt a heavy blow to the company’s sales. The tough issue divided the board of directors. Ben Jenson, founder of Benjy’s, thought that both offensive and defensive strategies should be taken which included making showrooming as difficult as possible for customers, offering the same price as customers can find online and insisting on Benjy’s promise——the biggest range of products at the lowest prices. However, the CEO Stanley Farber thought Benjy’s should emphasize a curated product mix, knowledgeable employees, fewer and smaller stores and follow-up services, and also charge suppliers fees for promotions and access to prime shelf space. In spite of Ben’s objection, Farber experimented with his strategy in some stores. Surprisingly, the consumers mistook the better service for higher cost and were scared away. Problems still remained. 2. Problem: how to win back online shoppers? The ultimate goal of Benjy’s is to win back online shoppers. To achieve this goal, the following questions should be taken into consideration. a) Why does showrooming happen? b) What is the essence of problem faced by Benjy’s? c) Why may Ben’s methods not be feasible? d) What strategies should be adopted to battle against online shops? 3. Assessment of case information To illustrate what troubled Benjy’s better, it could be favourable to implement game theory to analyse the case. Game theory is a tool to study how players make decisions under competition. 1 Boxed pig game model in game theory which explains 1 Robert S. Pindyck and Daniel L. Rubinfeld, Microeconomics (New Jersey: Pearson Addison Wesley,2006), P. 487
the phenomenon of free-riding seems to be appropriate to describe Benjy's situation 3. 1 Players in the boxed pig game Table 1-Comparison of both sides in the game Beniy's amazon The role played. The big pig (a thankless role) The small pig(a free rider) Advantage 2000+B&M stores discount prices better consumer service search and purchase benefits first-hand products experience large product range reliable after-purchase support time flexibility established business relationship an established brand Weakness potential out-of-stock situations a pretty poor marketing platform high cost lack of quality assurance delivery time and fee Common pursuit to maximize interest As Table 1 shows, being a brick-and-mortar retail giant, Benjys has great advantages in material capital and human resources. That is to say, the wide distribution of physical stores enables the company to meet customers face to face. Also, with abundant sales experience, Benjys can satisfy customers' requirements for product information and quality. However, maintaining such edges generates great demand for apital and inventory, which inevitably creates two problems: high operating cost and potential out-of-stock situations Another player, Amazon takes the advantage of modern Internet technolo Unlike Benjy's, Amazon can easily provide discount prices for customers thanks to little rent or human cost. With powerful search and payment functions, Amazon also offers a platform where consumers can enjoy the convenience and flexibility to choose and purchase what they want from the large product range. More importantly, Amazon focuses on brand building to cultivate customer loyalty by introducing exclusive products such as its electronic product"Kindle". But in the meantime, lack of direct
3 the phenomenon of “free-riding” seems to be appropriate to describe Benjy’s situation. 3.1 Players in the boxed pig game Table 1- Comparison of both sides in the game As Table 1 shows, being a brick-and-mortar retail giant, Benjy’s has great advantages in material capital and human resources. That is to say, the wide distribution of physical stores enables the company to meet customers face to face. Also, with abundant sales experience, Benjy’s can satisfy customers’ requirements for product information and quality. However, maintaining such edges generates great demand for capital and inventory, which inevitably creates two problems: high operating cost and potential out-of-stock situations. Another player, Amazon takes the advantage of modern Internet technology. Unlike Benjy’s, Amazon can easily provide discount prices for customers thanks to little rent or human cost. With powerful search and payment functions, Amazon also offers a platform where consumers can enjoy the convenience and flexibility to choose and purchase what they want from the large product range. More importantly, Amazon focuses on brand building to cultivate customer loyalty by introducing exclusive products such as its electronic product “Kindle”. But in the meantime, lack of direct Benjy’s Amazon The role played: The big pig (a thankless role) The small pig (a free rider) Advantage 2000+ B&M stores better consumer service first-hand products experience reliable after-purchase support established business relationship discount prices search and purchase benefits large product range time flexibility an established brand Weakness potential out-of-stock situations a pretty poor marketing platform high cost lack of quality assurance delivery time and fee Common pursuit: to maximize interest
communication with customers has resulted in Amazon's poor ability to manipulate tools of marketing. Also, lack of quality assurance is another outstanding problem 3.2 The object of the game Customers, the object of the game, also count in the analysis of the game behaviours. As an external factor, customer is the focus of competition between the two players and the main cause of"showrooming"phenomenon. Comparison shopping is a consistent behaviour of consumers. Under this behaviour. consumers do not show loyalty to a particular brand and tend to take advantage of both companies. If products provided by both parties are similar, the trend that people visit Benjys b&M stores to examine products but then buy online to obtain lower prices is irreversible. As a result information service is exploited in Benjys and low price is exploited in Amazon by customers. Thats the reason why"showrooming happens 3.3 The payoff matrix To further study the decision-making behaviour of both players and the dilemma facing Benjy's, a payoff matrix is of necessity. Table 2-The payoff matrix Benjy Amazon action A action B action A I(huge losses, slight losses) Il(slight profits, slight losses) action B Ill(huge losses, huge profits) IV(slight losses, medium profits) Y action A: trying to hit the opponent directly(snatching consumers away from competitors Y action B: making peace with the opponent(keeping the existing market allocation) As Table 2 shows Area iv describes the current situation of the retail market If any of them takes action a while its opponent takes action B, it will gain more profits than ever and its opponent will suffer a loss. When both of them takes action A, the result will be a lose-lose game. According to the common pursuit of maximizing interest
4 communication with customers has resulted in Amazon’s poor ability to manipulate tools of marketing. Also, lack of quality assurance is another outstanding problem. 3.2 The object of the game Customers, the object of the game, also count in the analysis of the game behaviours. As an external factor, customer is the focus of competition between the two players and the main cause of “showrooming” phenomenon. Comparison shopping is a consistent behaviour of consumers. Under this behaviour, consumers do not show loyalty to a particular brand and tend to take advantage of both companies. If products provided by both parties are similar, the trend that people visit Benjy’s B&M stores to examine products but then buy online to obtain lower prices is irreversible. As a result, information service is exploited in Benjy’s and low price is exploited in Amazon by customers. That’s the reason why “showrooming” happens. 3.3 The payoff matrix To further study the decision-making behaviour of both players and the dilemma facing Benjy’s, a payoff matrix is of necessity. Table 2 – The payoff matrix action A: trying to hit the opponent directly (snatching consumers away from competitors) action B: making peace with the opponent (keeping the existing market allocation) As Table 2 shows, Area Ⅳ describes the current situation of the retail market. If any of them takes action A while its opponent takes action B, it will gain more profits than ever and its opponent will suffer a loss. When both of them takes action A, the result will be a lose-lose game. According to the common pursuit of maximizing interest, Benjy’s action A action B action A Ⅰ (huge losses, slight losses) Ⅱ (slight profits, slight losses) action B Ⅲ (huge losses, huge profits) Ⅳ (slight losses, medium profits) Amazon
a fundamental assumption in game theory, Nash equilibrium is Area IV. In this area, Benjy's inside edges are manipulated by Amazon, just like the big pig in the game heory model. Meanwhile, it pays a fat price for Benjy's to hit the opponent in the short term. However, Benjy's will also suffer long-term slight losses if it sticks to the original pattern. The contradiction between long term and short term is the fundamental problem that affects the development path of Benjys According to the payoff matrix, Ben's method might not be feasible. Ben strategy attempted to directly reduce the"showrooming'"phenomenon as much as possible. Ignoring Amazon's reaction, Ben might think that the ideal state for Benjy was Area Il. But for Amazon, the dominate strategy is action a which could hit the opponent since Amazon suffers the same level of loss. As a result, there is no much chance of success in taking such an act of threatening. The more likely consequence is that the equilibrium will move to l, where both Benjys and Amazons are trapped in the vicious cycle of price competition. Much worse, Benjys tends to lose more due to the huge offline operating expenses 4. Solutions and justifications Based on analysis above, it would be wise to avoid direct conflict with Amazon in the short term and gradually change the operating model to reverse the unfavourable role in the game 4.1 Do what Amazon cannot Classified showroom"strategy and"store-within-a-store''strategy could be favourable in the short term “ Classified showroom” strategy Benjy's could charge manufactures different amounts according to the product placement, promotion intensity and service quality they want. One study shows that if showrooming regularly happens, manufacturers' sales increase and manufacturers may value retailer's service more. Benjy's could view showrooming as an opportunity to Kuksov Dmitri, "When Showrooming Increases Retailer Profit, " Journal of Marketing Research 55 (August 2018:37
5 a fundamental assumption in game theory, Nash equilibrium is Area Ⅳ. In this area, Benjy’s inside edges are manipulated by Amazon, just like the big pig in the game theory model. Meanwhile, it pays a fat price for Benjy’s to hit the opponent in the short term. However, Benjy’s will also suffer long-term slight losses if it sticks to the original pattern. The contradiction between long term and short term is the fundamental problem that affects the development path of Benjy’s. According to the payoff matrix, Ben’s method might not be feasible. Ben’s strategy attempted to directly reduce the “showrooming” phenomenon as much as possible. Ignoring Amazon’s reaction, Ben might think that the ideal state for Benjy’s was Area Ⅱ. But for Amazon, the dominate strategy is action A which could hit the opponent since Amazon suffers the same level of loss. As a result, there is no much chance of success in taking such an act of threatening. The more likely consequence is that the equilibrium will move to Ⅰ, where both Benjy’s and Amazons are trapped in the vicious cycle of price competition. Much worse, Benjy’s tends to lose more due to the huge offline operating expenses. 4. Solutions and justifications Based on analysis above, it would be wise to avoid direct conflict with Amazon in the short term and gradually change the operating model to reverse the unfavourable role in the game. 4.1 Do what Amazon cannot “Classified showroom” strategy and “store-within-a-store” strategy could be favourable in the short term. “Classified showroom” strategy Benjy’s could charge manufactures different amounts according to the product placement, promotion intensity and service quality they want. One study shows that if showrooming regularly happens, manufacturers’sales increase and manufacturers may value retailer’s service more. 2 Benjy’s could view showrooming as an opportunity to 2 Kuksov Dmitri, “When Showrooming Increases Retailer Profit,” Journal of Marketing Research 55 (August 2018): 37
provide a characteristic value-added service instead of a tremendous burden on operation. Due to the limitations of B&M store space and human resources, manufactures tend to compete for better position and publicity of products to expand profits. In this situation, price targeting could maximize profit from service delivery. As a result, classified showroom " strategy transfers the competitive pressure brought by showrooming to manufacturers and thus Benjy's could transform passivity into Initiative “ Store- within-a- store” strategy Cooperating with established brands and obtaining exclusive distribution right of some products is another option. As mentioned above, consumers'comparison shopping happens when products provided by online and offline are similar. Benjys may avoid confrontation with Amazon by offering exclusive products of big brands. In exchange, Benjy's could set aside some space as a franchise house for exclusive products and provide consumers with professional service through knowledgeable salespeople. For instance, Best Buy cooperates with Samsung, Apple and telecom operator Sprint and brings them to Best Buy. By offering exclusive merchandise and service, Best Buy boosts revenues. 3 4.2 Do more than what Amazon can Now that the problem of maintaining operating is solved, Benjys should change the unfavourable position in the game with Amazon in the long run Expanding shopping platforms Benjys could also take advantage of modern Internet technology to develop online business. Delivery time and fee are Amazon's shortcomings. But for Benjy's abundant offline resources can be exploited. Enjoying two-line advantages, Benjy's could reduce the logistics cost. Large quantities of stores could serve as low-cost distribution centres so that customers may buy products online and receive in the nearest offline store. Also, owning online and offline business, Benjy's could launch marketing campaign easily. For example, Nike has launched an activity combining 专栏:看百思买如何打造“+O"整合之道” September142015. Linkshop New nttp://www.linkshop.com.cn/web/archives/2015/333542.shtml,accessedDecember17,2018
6 provide a characteristic value-added service instead of a tremendous burden on operation. Due to the limitations of B&M store space and human resources, manufactures tend to compete for better position and publicity of products to expand profits. In this situation, price targeting could maximize profit from service delivery. As a result, “classified showroom” strategy transfers the competitive pressure brought by showrooming to manufacturers and thus Benjy’s could transform passivity into initiative. “Store-within-a-store” strategy Cooperating with established brands and obtaining exclusive distribution right of some products is another option. As mentioned above, consumers’ comparison shopping happens when products provided by online and offline are similar. Benjy’s may avoid confrontation with Amazon by offering exclusive products of big brands. In exchange, Benjy’s could set aside some space as a franchise house for exclusive products and provide consumers with professional service through knowledgeable salespeople. For instance, Best Buy cooperates with Samsung, Apple and telecom operator Sprint and brings them to Best Buy. By offering exclusive merchandise and service, Best Buy boosts revenues.3 4.2 Do more than what Amazon can Now that the problem of maintaining operating is solved, Benjy’s should change the unfavourable position in the game with Amazon in the long run. Expanding shopping platforms Benjy’s could also take advantage of modern Internet technology to develop online business. Delivery time and fee are Amazon’s shortcomings. But for Benjy’s, abundant offline resources can be exploited. Enjoying two-line advantages, Benjy’s could reduce the logistics cost. Large quantities of stores could serve as low-cost distribution centres so that customers may buy products online and receive in the nearest offline store. Also, owning online and offline business, Benjy’s could launch marketing campaign easily. For example, Nike has launched an activity combining 3 “专栏:看百思买如何打造“O+O”整合之道” September 14,2015, Linkshop News, http://www.linkshop.com.cn/web/archives/2015/333542.shtml, accessed December 17, 2018
online and offline business in which consumers might receive a chance to run to the nearest Nike store to get Nike shoes after purchasing online. According to the time consumers spent, they could enjoy the corresponding discount. Similar strategy might be implemented by Benjys to coordinate online and offline stores which reaches offline stores full potential “One-stop,” customer services Benjys could develop "one-stop'"customer services, especially in term of improving its after-sales service system and management measures. No matter how Amazon reacts, customers are always the objection of the game. Especially for the lectronic appliance retail industry, customer-oriented service is one of the most important means to gain higher margins and create stronger customer stickiness. The formation of the"purchasing-delivery-maintenance-recycling-repurchasing'"closed loop helps not only eliminate the customers' worries when purchasing, but also make Benjy's more trusted by manufacturers. The reason why Farber's strategy turned out to be failure was that the sales force seemed like marketing managers rather than product consultants. Therefore, Benjys could take independent service team into consideration An example in point is Gome In 2016, the company launched the"Gome Housekeeper online service platform, covering more than 200 major cities in China. Customers can expediently enjoy the professional after-sales services: submitting the individual demand online and just waiting for the"Gome housekeeper"at home at the appointed time. This kind of the"one-stop service enables the company to influence the goods whole life cycle to an extreme and then strengthen the user viscosity 5. Conclusions To win back online shoppers, Benjy's should battle against Amazon and the game between Benjys and Amazon tends to last long. Being subject to the payoff matrix, Benjys might avoid competing with Amazon directly in the short term by paying more attention on doing what Amazon cannot. After the funding problem is solved, Benjy's could exploit the potential of online business in addition and alter its
7 online and offline business in which consumers might receive a chance to run to the nearest Nike store to get Nike shoes after purchasing online. According to the time consumers spent, they could enjoy the corresponding discount. Similar strategy might be implemented by Benjy’s to coordinate online and offline stores which reaches offline stores’ full potential. “One-stop” customer services Benjy’s could develop “one-stop” customer services, especially in term of improving its after-sales service system and management measures. No matter how Amazon reacts, customers are always the objection of the game. Especially for the electronic appliance retail industry, customer-oriented service is one of the most important means to gain higher margins and create stronger customer stickiness. The formation of the “purchasing-delivery-maintenance-recycling-repurchasing” closed loop helps not only eliminate the customers’ worries when purchasing, but also make Benjy’s more trusted by manufacturers. The reason why Farber’s strategy turned out to be failure was that the sales force seemed like marketing managers rather than product consultants. Therefore, Benjy’s could take independent service team into consideration. An example in point is Gome. In 2016, the company launched the "Gome Housekeeper” online service platform, covering more than 200 major cities in China. Customers can expediently enjoy the professional after-sales services: submitting the individual demand online and just waiting for the “Gome housekeeper” at home at the appointed time. This kind of the “one-stop” service enables the company to influence the goods’ whole life cycle to an extreme and then strengthen the user viscosity. 5. Conclusions To win back online shoppers, Benjy’s should battle against Amazon and the game between Benjy’s and Amazon tends to last long. Being subject to the payoff matrix, Benjy’s might avoid competing with Amazon directly in the short term by paying more attention on doing what Amazon cannot. After the funding problem is solved, Benjy’s could exploit the potential of online business in addition and alter its
unfavourable role in the long term by doing more than what Amazon can. Under the above strategies, Benjys could continue its glory in the competitive retail market
8 unfavourable role in the long term by doing more than what Amazon can. Under the above strategies, Benjy’s could continue its glory in the competitive retail market