Multi-Channel Distribution in the Age of the Digital Customer

An Empirical Analysis and Critical Assessment of Strategic Electronic Commerce Adoption in the German Automotive Industry


Bachelor Thesis, 2014

169 Pages, Grade: 2,0


Excerpt

Table of Contents

List of Abbreviations

List of Graphics

Abstract

1. Introduction
1.1 Problem and Purpose
1.2 Approach to the thesis and outline
1.3 Object of investigation

2. Terminology and conceptual delineation
2.1 Conceptual delineation
2.1.1 Definition and concept of Business Strategy
2.1.2 Definition and concept of Multi-Channel Marketing
2.1.3 Definition and concept of Electronic Commerce
2.1.4 Conclusion to conceptual delineation

3. Conceptual Framework
3.1 Business Strategic Perspective
3.1.1 Fundamentals of Business Strategy
3.1.2 Digital Business Strategy
3.1.3 Business Strategic implications of Electronic Commerce
3.1.4 Business Model for Electronic Commerce
3.1.5 Conclusion to German Automotive Industry
3.2 Multi-Channel Marketing Perspective
3.2.1 Fundamentals of Multi-Channel Marketing
3.2.2 The role of Electronic Commerce in Multi-Channel Marketing
3.2.3 7C’s success factors of Cross-Channel Management
3.2.4 The Multi-Channel customer
3.2.5 Conclusion to German Automotive Industry
3.3 Electronic Commerce Perspective
3.3.1 Fundamentals of Electronic Commerce
3.3.2 Best-Practices and factors for success in Electronic Commerce
3.3.3 Managerial impact of Electronic Commerce
3.3.4 Information Technology and Logistics Distribution Models
3.3.5 Conclusion to German Automotive Industry

4. Research Methodology and qualitative empirical analysis
4.1 Central principles and characterization of qualitative empirical research
4.2 Method of data collection and evaluation
4.3 The changing landscape of vehicle distribution
4.3.1 Results to Business Strategic Perspective
4.3.2 Results to Multi-Channel Marketing Perspective
4.3.3 Results to Electronic Commerce Perspective

5. Conclusion and outlook
5.1 Critical reflection and theoretical evaluation of the deliverables
5.2 Critical reflection and implications for practical transfer
5.3 Starting points for further research

Appendices

Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Graphics

Illustration 1: Emerging distribution system in the auto industry

Illustration 2: IT enabled strategy elements

Illustration 3: Embedment of author’s research approach

Illustration 4: DeLone and McLean information system success

Illustration 5: The Cornerstones of Competitive Advantage

Illustration 6: Guidelines for establishing a digital business strategy

Illustration 7: E-Commerce model

Illustration 8: Porter’s five basic forces

Illustration 9: Framework for study of strategy and E-Commerce

Illustration 10: Strategic planning cycle

Illustration 11: Three-layer organisational view

Illustration 12: Robson’s five forces model applied to E-Commerce

Illustration 13: Relating where the organization wants to be to where it is

Illustration 14: Three-layer organization view incorporating E-Commerce

Illustration 15: Business model design

Illustration 16: Reengineering a business model

Illustration 17: E-Business model ontology

Illustration 18: Channel interaction

Illustration 19: Influencing factors for changing marketing channel systems

Illustration 20: Three-step iterative process in multi-channel management

Illustration 21: Schneiders’ five-stage model

Illustration 22: Determining success factors in online-distribution

Illustration 23: Multi-Channel Conflict

Illustration 24: 7C’s success factors of Cross-Channel Management

Illustration 25: Cross-Channel action plan

Illustration 26: Buying and Selling Cycle

Illustration 27: Channel life cycle

Illustration 28: E-Business Value Model

Illustration 29: Fields of research on E-Commerce

Illustration 30: The development of E-Commerce

Illustration 31: Online Distribution Systems

Illustration 32: Pillars of qualitative thinking

Illustration 33: An interactive Model of Research Design

Illustration 34: Contextual factors influencing a Research Design

Illustration 35: Framework for data evaluation

Abstract

In this thesis, the author approaches multi-channel distribution within the age of the digital customer, centralizing a strategic adoption in the German automotive industry. By applying a qualitative empirical research design, he determines key success factors and imperatives for building an effective digital business strategy in the German automotive industry and discloses general factors for success to thrive a multi-channel business. The choice of journals was based on the journal ranking at http://www. http://vhbonline.org/service/jourqual/ (status as of: 21.01.2014), whereas the author’s focus were highly ranked journals from diverse sources within the areas (1) Business Strategy (Strategy and Digital Business Strategy), (2) Marketing (Multi-Channel Marketing), (3) E-Commerce (E-Commerce and E-Commerce Strategy) and (4) Innovation management (Business Model Innovation). The “Journal of Marketing”, “Harvard Business Review”, “International Journal of Electronic and Commerce”, “European Management Journal” and “MIS Quarterly” depict the preferential literature source. Furthermore, guideline interviews with industry and solution experts (n = 4) of International Machines Corporation (IBM) have been executed. Having a clear vision across all functions and effective communication with all employees will be vital for the German car manufacturers to embark on the journey of becoming a multi-channel business attracting the digital customer. Creation of awareness for the shift and adopting additional sales channels besides integrating the car dealership networks within the emerging multi-channel environment, offering unique product presentation in digital showrooms and building strategic partnerships with IT-providers in order to thrive. Additionally, car manufacturers that can offer a seamless customer experience across all physical and digital touch points through integrating and penetrating the additional sales channels within the existing ones besides managing emerging channel-conflict and building a central data base for customer insight and relationship management will outreach their peers. Having a strong integration in-between the customers, suppliers and business processes in combination with personalized and targeted marketing, all driven by a top-down leadership approach with strong change management capabilities, will enable a car manufacturer to transform operations on a digital basis towards a multi-channel business.

1. Introduction

1.1 Problem and Purpose

“Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industries structure and shapes the nature of competitive interaction within an industry.”1 In his work on competitive forces that shape an enterprises strategy, Porter stresses the importance of being aware of the strongest competitive force or forces that determine the profitability of an industry.2 To sustain a long-term profitability, every industry must respond strategically to competition, taking into consideration the five forces that can harm turnover, and respond rapidly to market changes in order to stay ahead of rivals. With the emergence of the tech-savvy, global consumer, industries, regardless of the physics of their product, are forced to act strategic to this persuasive force.

These consumers have amazing options at their fingertip, from information to services and of course the ability to shop from anywhere with different devices. The digital customer wants to shop using a multitude of channels which forces traditional business models to shift their sales channels, change their way in which they track and measure consumer behaviour, market their products, run their store and manage their supply chains.3 Besides Electronic Commerce (E-Commerce), tablets and smartphones blur the lines between browsing and shopping, by allowing consumers to access information, compare prices and make purchases almost instantaneously.

E-Commerce has already transformed numerous industries, including apparel and consumer electronics. Traditional industries, such as the automotive sector, are experiencing “unprecedented changes”4 and currently facing the digital age that will, “[…] ultimately, be placed on the traditional distribution channel and dealer network.”5 As E-Commerce offers a multitude of advantages such as no restraints of region and time, low cost, convenience and speed, German car manufacturers rethink their distribution channels and seek for a multi-channel driven sales mode, although it won’t replace the traditional way of distributing vehicles through car dealership.6 In 2013, Bayerische Motoren Werke (BMW) started to distribute the electric car “i3” via E-Commerce and postulated a strategic future retail concept. The overall trend in the industry moves from traditional point of sales to showrooms in prospering cities that correlate with the concept of “Product Genius”7, as Apple introduced it years ago, in order to provide unique services to the customers and adapt to the changing buying behavior. Without a doubt, the emerging customer, who will change the marketplace due to the digitization and the evolution of tech-savvy, socio-demographic groups, will be the major driver pushing appetence for multi-channel purchasing opportunities. Accenture argues for an overall improvement of “[…] channel economics, potentially reducing new vehicle selling costs by 60 percent through lower inventory holding and advertising costs, improved sales productivity, and minimized marketing expenses“8 in the automotive industry making use of e-Retail.

1.2 Approach to the thesis and outline

The thesis addresses the following research question(s):

The thesis is shaped with a qualitative research design, in which the knowledge claims are primarily based on constructivist perspectives (i.e. multiple meanings of individual experiences, socially and historical constructed, with an intent of forming a theory). The field research was a collection of open-ended, emerging data with a primary intent of developing themes from the data. Qualitative research methods of the thesis encompass interview data (open-ended questions) and text/image analysis.9

In chapter 2.1 the author builds the foundation for the different issues, theories and research fields and sets the conceptual borders in order to build a framework for investigation that seeks at finding deliverables to the research questions. In this chapter the three main drivers “Business strategy”, “Multi-Channel Marketing” and “Electronic Commerce” are defined.

In chapter 3.1 the author deals with the “Business Strategic Perspective” in order to reply to research question 1 and outlines fundamental theoretical contribution by dealing with the development of a digital business strategy and business model for E-Commerce and its strategic implications.

In chapter 3.2 the author focuses on the “Multi-Channel Marketing Perspective” in order to respond to research question 1 by outlining fundamentals of Multi-Channel Marketing, taking into consideration the role of E-Commerce within this environment and identifying success factors of cross-channel management in order to capture value for the multi-channel customer.

In chapter 3.3 the author beholds an “E-Commerce Perspective” in order to reply to research question 1 with strong focus on the adoption of Electronic Commerce. The author conducts fundamental theoretical contribution, such as best practices and factors for success in E-Commerce, and also takes the managerial impact, information technology, logistics and distribution models into account.

In chapter 4.1 the author takes empirical social research into consideration in dependence on the research methodology. The author deals with central principles of qualitative research and the research design and process of a qualitative study. In chapter 4.2 the author describes his research framework and method of data gathering and evaluation. In addition, he deals with quality criteria of qualitative interviews.

In chapter 4.3 the author outlines the inputs of the empirical analysis in order to reply to research question 2 and depicts E-Commerce success factors and strategic imperatives for E-Commerce adoption in the German automotive industry.

In chapter 5 the author critically reflects and evaluates the theoretical deliverables and distinguishes them from the implications for practical transfer. In addition, the author summarizes the main deliverables, takes into consideration the overall research approach and research questions and deals with limitations and further research.

1.3 Object of investigation

Selz and Klein (1998) examine the role and functions of the emerging electronic marketplace and the transforming value chains with regard to their impact on established distribution sales channels in the case of the automotive industry, which is characterized by physical products and infrastructures. They identify two different automotive “cybermediaries”10 categories, the automotive service brokers and automotive information brokers. Selz and Klein emphasize their impact and state that these cyberdmediaries might become serious competitors to the exclusive auto manufacturer’s distribution systems.11

Brokerage effect: IT reduces cost for buyers to request quotes from several vendors and thus enables the bypassing of trade intermediaries, which allows manufacturer’s to get direct access to the end customers.

Cybermediaries: New intermediaries that enter the marketplace, building their business purely in cyberspace with a better understanding of hypermedia computer-mediated environments (Low entry barriers for Electronic Commerce).

In addition to the market saturation within the industrialized countries of Western-Europe, Japan and North America, product differences are reduced to design aspects and thus require new branding concepts.12 At the same time, the customer faces a complex bundle of incorporating services (e.g. finance and insurance), which marks a move from the simple durable good of a car. Selz and Klein introduce a stylized description of the auto distribution channels (1998) that already discloses an accurate picture of emerging trends that seem to affect the automotive industry sixteen years later. In a sense, the chart reflects several aspects:

Affection of established distribution channels by the globally excessive capacity

Emergence of “agile newcomers”13, or the digital immigrant these days, that uses IT to repackage the product much leaner

New channels and offerings (e.g. Virtual showrooms) with the emergence of the Web, such as information, service and auto promotion (cybermediaries)

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Illustration 1: Emerging distribution system in the auto industry14

Selz and Klein emphasize the endangered position of exclusive dealers (channel 1) that are threatened by different forces. Not only the opportunity to establish Web-enabled sales activities, but also new entrants such as insurance companies or large customers that forge new alliances.15 With their concerns, Selz and Klein described exactly what is happening these days with traditional car dealers that fear the emergence of additional channel by the car manufacturers. With regard to the emerging auto cybermediaries, Selz and Klein identified two broad categories of on-line dealerships:

Automotive service brokers: Companies that offer on-line information, pricing and additional services (e.g. finance) with a direct link to a car dealer in your region.

Automotive information brokers: Companies that on-line information, pricing and broker service to bring together buyer and seller.

In addition to these two categories, a third one can be added in terms of this research approach: On-line distribution. In contrast to digital products, vehicles require a physical infrastructure for storage and distribution.16 Nevertheless, the emerging channel makes the sales process more efficient, providing convenience and total care concepts. The author’s describe various mechanisms of the Web:17

Information: Better access to information, such as vehicles reports by independent consumer associations, offering direct product and service comparisons

Market coverage: Web based dealership will be able to realize economies of scale in the interaction with customers (e.g. no expensive phsyical showrooms)

Linkage: Easy cross- and upselling potential with car insurance, finance, maintenance, etc.

Customer: Customer driven buying process, no sales representatives needed

The author’s postulate that the vertically integrated distribution chain has become vulnerable for most of the current industry actors and describe a complex and interdependent bundle of product and service offerings that transforms the distribution infrastructure.

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Illustration 2: IT enabled strategy elements18

According to Selz and Klein, the distribution infrastructure has to mirror the changing product and service strategy through virtual showrooms (comprehensive product information and configuring options in order to attract new customers and build relationships), additional services, establishment of online communities and extranets for the exclusive dealers.19

In addition to the author’s that have sketched the opportunity to establish virtual showrooms on the Web and extend their information service offerings to the customers, the thesis discovered the potential of on-line distribution that has not been researched. The thesis is deposited in the second channel (virtual marketplace) and seeks at perpetuateing Selz and Kleins approach.

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Illustration 3: Embedment of author’s research approach20

2. Terminology and conceptual delineation

2.1 Conceptual delineation

The conceptual delineation is a comprehensive collocation of goals that can be derived from strategies and actions that are fundamental for a translation on a larger intent. According to Joseph A. Maxwell, a model for a qualitative research design comprises five components, each addressing different sets of issues that are essential to the “[…] coherence of a study”.21 The conceptual delineation builds the foundation for the different issues, theories and research fields and sets the border what literature needs to be investigated in order to build a conceptual framework for further research.

The author addresses several research questions, seeking at building a qualitative research design that requires a broader and less restrictive concept than traditional approaches.22 With regard to the research objectives, the author identifies his conceptual framework pillars as follows: Business Strategy, Multi-Channel Marketing and E-Commerce. In order to build a generally accepted understanding of the applied terms, the author gives a terminology of the major fields of research.

2.1.1 Definition and concept of Business Strategy

For the explanation of Business strategy, it is reasonable to define the term separately with a focus on “strategy”. Strategy derives from the Greek word stratēgos which describes a plan of action designed to achieve a long-term or overall aim. In addition, the term “strategy“ is often contrasted with the term “Tactic” according to the Oxford-Dictionary.23 Another definition in the Oxford-Dictionary considers “strategy” as the art of planning and directing overall military operations and movements in a war or battle.

Henry Mintzberg describes the term “strategy” as “[…] deliberate plans conceived in advance of the making of specific decisions.”24 A large body of literature, with focus on the title strategy formulation, addresses the questions of how organizations make and interrelate their significant decisions25. A brief review suggested that the literature and terminology around “strategy” can fall into three groupings or modes: The planning mode, describing it as a highly ordered process with “[…] strategies explicated on schedule by purposeful organization”.26 In sharp contrast, the adaptive mode, dealing with many decision-makers “[…] with conflicting goals bargain among themselves to produce a stream of incremental, disjointed decisions“.27 Only a small part of the literature introduces the entrepreneurial mode, where a powerful leader takes risky decisions toward his own vision of an organizations future business. Generally speaking, the term “strategy” aims at a common theme, that of “[…] a deliberate conscious set of guidelines that determines decisions into the future”.28

With reference to the thesis, the author applies the term in a business-related context, describing an organization’s long-term projection to analyze, define and implement environmental conditions, actions and technologies in order to achieve a sustainable competitive advantage according to Porter.29

Bakos and Treacy (1986) dealt with the study of information technology (IT) as a competitive weapon and the issues that are correlated and determine a particular organization and the coordination of technology and corporate strategy. The literature in the area of the strategic importance of information technology offers a number of frameworks for identifying and categorizing opportunities, but there has been a notable absence of testable models based on relevant theory.

The author’s develop normative models by distinguishing three levels at which IT impacts business strategy30, namely the internal, competitive and business portfolio levels. With regard to IT and corporate strategy, the author’s conclude that internal strategy deals with the development of efficient and effective organizational structures and processes, competitive strategy is concerned with competitive moves within the industries an organization does business and business portfolio deals with the choice of industries to compete in and position themselves.31 All three elements are affected simultaneously through the implementation of information technology. Bakos and Treacy argue that the implementation can improve the efficiency of an organizations operation’s and thus the internal strategy.32 In addition, it can contribute to the competitive strategy through speeding up orders of customers and reducing inventories, which makes it more difficult for other distribution firms to compete. Finally, the order entry system may also be an important asset in other industries and thus help an organization to enter other markets on the strength of its technology, which would impact business portfolio strategy.33

The author’s dive into a detailed explanation of the three elements and present a characterization of information technology which is related to internal strategy, make use of Porter’s model on competitive strategy, relating to the second element, and finally, introduce Williamson’s efficient boundaries model to explain the advantages of spreading a firms portfolio.

With regard to the thesis, Bakos and Treacy have illustrated and bordered the issue of business strategy in correlation with information technology and outlined how three perspectives of the strategic impact of IT systems (internal, competitive and business portfolio) build the basis for research.

2.1.2 Definition and concept of Multi-Channel Marketing

In order to define the term “Multi-Channel Marketing”, it is necessary to split the word into its two components, embracing “(Multi-) Channel” and “Marketing”, defining them separately and building an overall meaning out of the synthesis of both terminologies.

The term “Channel” originates from Latin canalis, describing a pipe or groove.34 The author uses the term “Channel” to describe a method or system for communication or distribution in a business-related context. The term “Multi-“ has its origin in the Latin word multus, which means many or much.35

The term “Marketing” is determined as an action or business of promoting and selling products or services, including market research and advertising.

The author applies the term “Multi-Channel Marketing” with regard to the past decade, where the digital consumer has become familiar with using various interface technologies, such as web sites and mobile devices, to interact with companies.36 It is becoming common for contemporary customers to use a multitude of channels at different stages of their decision and buying-cycles.

According to Gartner’s analysts Beck and Sarner (2013), the digital consumer has taken over the position of power and expects to have the opportunity to get in touch with a brand and purchase goods using a multitude of channels.37 The analyst’s stress that consumers have more power than ever before using technologies to compare prices and asking friends what they like and don’t like about a certain good. These types of consumers have a high demand for entertainment, personalization and outstanding service.38 Companies need to address this emerging group of consumers with individualized campaigns that orchestrate marketing across various channels to deliver service and consistency.

Multichannel marketing in general represents a coordinated approach across digital and traditional media to acquire and retain customers, extend a company’s brand and engage communities with regard to the trends of social business. Marketing managers are prompted to make use of digital techniques and technologies to manage and organize their multichannel marketing approach. Beck and Sarner see those companies raising their profits that are able to motivate their consumers, anticipate future needs, and create a compelling online experience.39 They emphasize four aspects that should be taken into consideration for a company’s multi-channel marketing strategy40:

Identification of a long-term strategy for customer programs

Choice of the right channels that best reach target audiences, engender loyalty and delivering unique experiences

Rethinking the organizational design, business analytics and skills and aligning them to business goals and not just marketing metrics

Execution through latest technological possibilities

According to Gartner, the Chief Marketing Office (CMO) needs to oversee traditional marketing activities and may also lead or influence strategic planning, product development, corporate communication and sales.41 Emerging marketing trends, such as social media, big data, and augmented reality have to be taken into consideration critically. Moreover, the analysts emphasize the development to data-driven marketing which refers to acquiring, analyzing and applying a multitude of information about customers motivations, wants and needs.42 Mobile- and Social Marketing will both be an essential focal point in order to listen to and engage customers and cultivate “brand advocates”.43 E-Commerce infrastructures to execute transactions with customers or businesses and to support marketing will be an essential competitive advantage, if companies make use of it rapidly as the author’s conclude.44

2.1.3 Definition and concept of Electronic Commerce

“E-Commerce” can be described as the commercial transactions conducted electronically on the Internet according to the Oxford-Dictionary.45 The English term means “electronic commerce” and has distinct attributes: Every form of business transaction (e.g. Purchase or distribution of goods and services), whereupon the participants interact electronically, and are not in a physical intercommunion.46

The author executes the term “E-Commerce” with respect to describe a strategic analysis and implementation in a “Business-to-Consumer” environment, taking into consideration the integration and digitization of diverse value chains, and processes in order to drive business value via a “Multi-Channel”- driven approach with the extent use of “E-Commerce” as a “Business strategy”.

DeLone and McLean (2004) stress the importance of Information technology and the Internet as a dramatic driver that has huge effects on business operations.47 They have published an Information Systems Success Model in the “International Journal of E-Commerce”, which can be adapted to the measurement challenges of the new E-commerce world. They argue that companies already make large investments in E-commerce applications but are hard pressed to evaluate the success of their E-commerce systems. DeLone and McLean introduce six dimensions that build a framework for organizing the E-commerce success metrics identified in the literature.48

With the rise of the Internet, businesses, industries and markets are being transformed dramatically and the new economy demands the exploitation of new models and paradigms. The author’s argue that the Internet has become a powerful communication mechanism to facilitate the purchasing processes of business transactions. Nevertheless, DeLone and McLean argue that the fundamental role of IT has not changed and still focuses on facilitating business transactions and communicating relevant information to decision-makers.49

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Illustration 4: DeLone and McLean information system success50

DeLone and McLeans’ model consists of six interrelated dimensions of information system success that have been tested and discussed in multiple empirical and theoretical studies and cases. The system quality measures the desired characteristics of an E-commerce system, such as usability, reliability or adaptability. Information quality captures the E-commerce content issue, which should be personalized, complete and relevant. Service quality describes the overall support delivered by the provider, according to the author’s. Usage measures everything from a visit to a Web site and navigation within the site. The user satisfaction is important when measuring customer’s opinions of an E-commerce system. Finally, net benefits are the most significant success measures, capturing the balance of the positive and negative impacts of e-commerce on customers, suppliers, employees, industries and organizations.

2.1.4 Conclusion to conceptual delineation

With regard to the conceptual delineation and foundation, the author has identified three areas of interest that are essential for the design of this qualitative research approach. Before the author is going to structure the conceptual framework and deals with the identified subjects into detail, he confined and specified the essential topics in order to pre-structure the study field and establish a definition of the terms used in this thesis (“Business strategy”, “Multi-Channel Marketing” and “E-Commerce”).

Moreover, the author has outlined current developments and foundational artifacts, in order to draw a first perimeter, which is going to be treated into detail in the following chapter. Therefore, the author dealt with William H. DeLone’ and Ephraim R. McLeans’ Information Systems Success Model published in the International Journal of Electronic Commerce (2004), in order to narrow down and embed the broad field of “E-Commerce” into the context of this thesis.51 Furthermore, the author summarized the current overview for Multichannel Marketing, published of Gartner’s analysts Jennifer S. Beck and Adam Sarner (2013), with the intent to bridge the technological background of the thesis with current trends in Marketing, which can be seen as a rather practical approach with respect to Lamnek (2009) and the reflexivity52 that can be seen in qualitative research designs.53 In addition, the thematic field of “Business strategy” was arranged by the author with regard to Yannis Bakos’ and Michael E. Traeacys’ research on Information Technology and Corporate Strategy, published from the Massachussetts Institute of Technology (1986).54 The author summarized three levels at which Information Technology affects business strategy, as the researchers have found, and therewith integrates the field of “Business strategy” into the context and conceptual framework of the study.

3. Conceptual Framework

This chapter seeks at creating the fundamental theoretical construct on the three perspectives “Business Strategy”, “Multi-Channel Marketing” and “E-Commerce” through outlining theoretical frameworks and research findings in order to reply to research question 1.

3.1 Business Strategic Perspective

Market-driven factor considerations mainly represent the opposite to the resource-based view of an organization. The industry structure plays a significant role in creating opportunities for business leadership according to Porter. 55 The “Resource-Based View” (Prahalad and Hamel, 1990) argues that competitive advantage is factor-driven, which depends on an organizations resources and capabilities56. The author states four key components that illustrate the essence of the Ressource-Based View57:

Competitive advantage is created when resources and capabilities owned exclusively by the firm can generate unique core competencies

A resulting advantage can be sustained due to the lack of imitation capacities Benefits are retained inside the organization and can not be appropriated The timing of the acquisition of resources and capabilities is so opportune that their cost will not offset resulting benefits

If all four components (Competencies, Sustainability, Appropriability and Timing) are met, the competitive advantage will generate economic value.

3.1.1 Fundamentals of Business Strategy

If you profile the literature based on business strategy, two fundamental paradigms have emerged as the most influential in the last two decades. First, Competitive Positioning, as proposed by Michael Porter (1980), and, second, the Resource-Based View of the Firm (1990).58 Porter’s arguments are mainly driven from the work of organizational economists and their behavior of placing an industry as central focus.59

Porter emphasizes structural characteristics of an organizations industry as the main driver for firm performance. He differentiates two strategies to remain competitive: Low Cost or Differentiation.60 Cost leadership can be achieved through the extensive use of economies of scale, product and process simplification as well as a significant market share.61 Differentiation aims at creating a product that is perceived as highly valuable and unique which can be executed through customer service, technology or brand image.62 The basic framework for explaining the profitability of a business consists of competitive positioning (achieving sustainable advantage), industry structure (factors affecting industry profitability) and strategy formulation and implementation (defining and executing the managerial task).63

The Resource-Based View of an organization puts value derived from resources, capabilities, and competencies into focus and differentiates from the Competitive Positioning in a way that it looks at the firm’s conditions rather than the industries composition.64 The author mentions David Ricardo (1800) as one of the creators of this perspective, who explained variations in farms profitability by outlining differences in the supply of the fertile land.65

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Illustration 5: The Cornerstones of Competitive Advantage66

Porter’s framework as well as the Resource-Based View of the Firm, “basically perceived the primary role of strategy as achieving a unique competitive advantage”.67 The objective of a business strategy becomes beating a competitor either by “excelling in the activities of your value chain that allows you to establish a dominant position in your industry, or through the mobilization of unique resources and capabilities”.68

Kim, Nam and Stimpert (2004) tested the applicability of Porter’s generic strategies in the digital age and explored performance differences across business-to-consumer (B2C) enterprises.69 According to Kim et al., Porter’s generic strategies are applicable to E-business and indeed explain performance differences across enterprises.70 In consistence with the logic of business in the digital era, cost-leadership strategy exhibited the lowest performance and firms pursuing a hybrid cost leadership/differentiation strategy exhibited the highest performance.71 The author’s suggest combining cost leadership and differentiation in order to succeed in E-business.

McLean and Turban (2005) argue that IT needs to be regarded as an information system that the organization will require to use for delivering value to all stakeholders. Smith (2006) states the importance of information that should be convergent with each tactical or department goal. Nolan (2006) emphasizes the use of a holistic IT concept that will result in coherent decision-making processes. Mohapatra concludes that IT will help maintaining competitive advantage by changing organizational structure so that it will help automating key business processes that will improve consistency and predictability in deliverables on strategic level.72 IT enables managers to develop strategy to tackle different forces such as competitors, entry and exit barrier, for managing suppliers and customers and still be compliant with environmental policies. The technological features not only support and enable Porter’s theory, but also help in managing change.

As Information Technology affects every aspect of organization, it is clear that successful organizations integrate the IT with their business strategies according to Sanjay Mohapatra (2012): “The technology adaption lead to a reduction of operative cost and increase in productivity”.73 Organizations seem to have understood the impact of IT on their business and involve IT investments directly in an integrative way with business processes and strategy. Sanjay Mohapatra addresses Porter’s model and describes how the five forces (entry barrier, bargaining power of buyers and suppliers, availability of substitute products and competitor’s adoption of new products) are impacted by technology. According to Mohapatra, technology-enabled systems allow automation of purchase orders and inventory management and increase in speed of vendor selection.74 A reduction in lead-time for procurement and improvement in vendor relationships increases the buyers’ power tremendously. With the rise of the Internet, all customers are able to know details about the firm’s strategies and quality of products and services. With the implementation of Enterprise Resource Planning (ERP), buyers and sellers are able to make the entire business process and supply chain transparent, and thus helps to plan accordingly and increase service and customer satisfaction. Mohapatra concludes that managers who can anticipate impacts of IT on business models will emerge as winners and firms need to plan and adapt to the changing characteristics.75

Xiquan and Haiwei (2009) explored the strategic Management Innovation based on E-Commerce Environment and thus the impact of IT and strategy on the business model. They describe innovation as the key factor for competitiveness and sustainable development and stress the application of innovative strategies in the era of e-commerce businesses.76

3.1.2 Digital Business Strategy

Pagani (2013) states the movement of companies in the last few decades, from traditional integrated supply chains to networks of strategic partnership with external entities, which is visible in many industries, such as automotive and textiles.77 Digitally enabled networks repeat this pattern and fundamentally reshape traditional business processes as distribution to be carried out across boundaries. The evolution of digital technologies such as cloud computing and virtualization coupled with multichannel revolution is disrupting many industries and business models.78 Pagani sees the emergence of much more complex and dynamic ecosystems for growth and innovation as a result of this development.

Bharadhwaj et al. (2013) argue that value architectures rather than business models will fundamentally drive digital business strategies.79 The authors identify four key themes that guide digital business strategy (Appendix 23).80 In addition, Bharadhwaj et al. illustrate that there is a leadership challenge that will require new capabilities of senior executives, a market challenge that will require a deeper understanding of market disclosure and its strategic implications, an ecosystem challenge that will require new forms of digital collaboration and infrastructures and a value challenge that will shifts targets in the context of digital business strategy. The four themes capture the key attributes of digital business strategy and serve as a starting point for developing a rich set of research questions (Appendix 23) amongst the academic community81:

Scope of Digital Business Strategy: Relationships between firms, industries, IT infrastructures and external environment.

Scale of Digital Business Strategy: Scale confers benefits of lower unit cost of products and helps enhancing profitability. When infrastructure becomes increasingly digital, scale needs to regard both, physical and digital.

Speed of Digital Business Strategy: Speed should be thought of through the four dimensions of speed of product launches, speed of decision making, speed of supply chain orchestration and speed of network formation and adaption.

Sources of Value Creation and Capture: Digital business strategy brings in additional dimensions to capture and create value. Increased value from information, value creation from multisided business models, value capture through coordinated business models in networks and value through control of digital industry architecture.

Arising from the resource-based view of an organization, the author’s have adopted a general view of digital business strategy and the dynamic capabilities perspective.82 They believe that advances would occur in digital business strategy through the shifts in sources of value creation through digital resources and the location of value capture in digital networks and ecosystems.83

Mithas, Tafti and Mitchell (2013) examine how the competitive industry environment shapes and influences a firms realized digital business strategy. The authors state that digital business strategy is not solely a matter of optimizing organizations operations internally or of responding to competitors, but also arises strikingly from awareness and responsiveness to the digital business competitive environment.84 Digital strategies are major elements of the overall business strategy, allowing firms to differentiate from competitors. The degree of to which an enterprise chooses to diverge from industry norms in their digital business strategy is influenced by the interaction of current digital strategic posture with three key elements of the competitive environment: turbulence, concentration and growth.85

The authors define digital business strategy as “the extent to which a firm engages in any category of IT activity”86, using the example of American Airlines that invested in the early 2000s in software that enhanced fuel efficiency by tailoring routes and baggage loading. The Schumpeterian framework suggest an approach to assess digital business strategy by examining the extent to which firms respond to competitive moves and industry norms in their external environments which answers the question to which extent digital business activities are strategic.87 In this context, organizations attain a favorable market position by competitive actions such as a new product or pricing innovation that are often externally observable which destroys the advantage of the first-movers.88 The authors emphasize that organizations should consider IT as essential for the framework of the overall business strategy to gain competitive advantage. El Sawy and Pavlou (2008) 89 argue that investments in IT are necessary for firms to develop operational, dynamic and improvisational capabilities and for improved firm performance according to Mithas et al. (2011).90

Research in industrial economics, strategic management and information systems has shown that the industry’s environment has significant impact on a firm’s strategic direction according to Dess and Beard (1984).91

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Illustration 6: Guidelines for establishing a digital business strategy92

3.1.3 Business Strategic implications of Electronic Commerce

Johnson et al. (2002) describes E-Commerce as the buying and selling of goods and services over the Internet, likewise with catalogue shopping.93 In contrast to this general appreciation, the author’s view E-Commerce not limited to this definition, rather than an application of information technology solution to help define and develop new strategies for addressing business problems and consumers.94 E-Commerce solutions require a narrow integration of business solutions with an understanding of the functions and features that information and communication technologies can provide.

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Illustration 7: E-Commerce model95

Past research found that the application of information technology in a strategic sense varies considerably depending upon the context of an organization such as the size and scope. Johnson et al. name factors such as the culture of an organization, policies and procedures and the leadership and vision as significant factors that affect the strategic abilities of an organization to adapt information technology in a business related context.96

With respect to Porter (1996), the essence of strategy is choosing to perform activities differently than competitors, as mentioned earlier.

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Illustration 8: Porter’s five basic forces97

The five forces (Appendix 21) of competition, the value chain and approaches for creating distinctive products and services, build the competitive analysis framework defined by Porter, whereas the bargaining power of buyers is a major trigger with regard to this research approach. The five forces define the level of rivalry among existing competitors, the value chain, the value chain is the sequence of distinct activities that must be performed in order to deliver value and approaches for creating distinctive products and services deals with the avoidance of direct competition by providing customers a unique service or good.

In connection with the research question and the strategic E-Commerce implementation, Johnson et al. provide a framework that integrates Porter’s model into this context. It illustrates how information technology solutions may interact with the three generic business strategies of differentiation, low cost and scope98:

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Illustration 9: Framework for study of strategy and E-Commerce99

Kogan (1998) views the strategic use of technology as a key differentiator among firmsand therewith underlines the importance of integrating business goals with information technology solutions in order to drive strategic E-Commerce deployment.100

Labuschagne and Eloff (2001) stress the difficulties in developing an E-Commerce strategy and point out the changes that must be carefully planned and coordinated. They postulate a three-step approach101: Determining where the organization ist, where it wants to go and the best way of moving from the one to the other and therewith take the classical view of strategy formulation and implementation.

Labuschagne and Eloff see the main problem with many failed E-Commerce initiatives as a lack of senior management support as well as a general lack of understanding of the fundamental issues that constitute a successful E-Commerce environment.102 For this reason, they suggest a practical, top-down approach for transforming traditional organizations into one that is E-Commerce enabled.

In a first step, the author’s take a look at the business environment. They state that large corporations and multi-nationals experience difficulty in realizing E-Commerce strategies rather than small start-up organizations. As a reason, they state that for a large corporation it is “not just a matter of selling products over the Internet, but rather changing its business philosophy as well as the industry in which it operates”.103 The author’s outline seven factors that govern an E-Commerce enabled organization that is required in order to build any E-Commerce initiative104:

Convergence: Convergence of business and technology drives the organization and the traditional roles of Chief Executive Officer (CEO) and Chief Information Officer (CIO) become integrated.

Streamlining: Internal and external business processes must constantly be analyzed to seek ways to make improvements (Creation of new business processes).

Technology awareness: CEO’s need both, and understanding for business and technological aspects affecting their organization and industry.

Flat-and-flexible organizational structure: Adaption of organizational structure in order to become mobile and flexible in response to change and employees must be empowered to make decisions and utilize opportunities.

Information centricity: Information, rather than a physical product, is the primary asset. An aggressive approach to information gathering, storing and retrieval is recommended.

Customer-centricity: The focus of E-Commerce is on individual customers, rather than masses, which means that organizations must get to know their customers.

Web assurance: E-Commerce creates a lack of trust due to its face-less and place-less nature. Establishing initial trust could be achieved through third party verification.

Secondly, Labuschagne and Eloff emphasize the formulation of an excellent strategy in order to transform an organization into an E-Commerce enabled entity. The illustrate the strategic planning cycle, which consists of four phases105:

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Illustration 10: Strategic planning cycle106

A strengths-weaknesses-opportunities-threats (SWOT) analysis can be used to determine where the organization is, Porter’s five forces model (Appendix 21) can be used to determine where the organization wants to be and with the information gathered, a strategy can be developed to move from one to the other.107

The SWOT-analysis helps to analyze and determine both internal and external organization factors. In order to analyze internal factors, the Rossudowska (2001) postulates a three-layer model with its components “Business direction”, “Business architecture” and “Business infrastructure”.108

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Illustration 11: Three-layer organisational view109

In order to figure out, where the organization wants to be, Labuschagne and Eloff use Wendy Robson’s model of Porter’s five forces (Robson’s five forces model for information systems opportunities) in order to build an external analysis model with the background of E-Commerce.110

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Illustration 12: Robson’s five forces model applied to E-Commerce111

As a third step, with regard to the strategic parameter of how to match both earlier mentioned steps, the author’s map both models in order to identify areas that must be adapted or created to enable E-Commerce.112

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Illustration 13: Relating where the organization wants to be to where it is113

During this process, a corporation may realize that there are new areas that have to be established within the organization. The E-Commerce enabled corporation, based on its E-Commerce strategy, might therefore resemble the following illustration according to the author’s.

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Illustration 14: Three-layer organization view incorporating E-Commerce114

The E-business direction deals with the top-management, being responsible for setting and executing the E-Commerce strategy. The E-business architecture deals with the core functions of a business that is the exchange of goods and services for money using Internet technology. The E-business infrastructure deals with capabilities and information technology infrastructure that needs to be established in order to drive E-Commerce business.

The author’s conclude that large corporations turn slowly and will not change overnight to become E-commerce enabled but with any other major organizational change, it is important to have a strategy that is top-down driven and taken as a holistic approach to combine technology and business in a sense.115

3.1.4 Business Model for Electronic Commerce

Teece (2010) defines the business model as something that every organization establishes either explicitly or implicitly and describes the design of the value creation and delivery.116 He emphasizes the importance of delivering value to customers and converting the payments to profit. New computing technology and the developments of the global economy have changed the interaction between customer and supplier according to Teece.117 Every business needs to adapt to the changing environmental drifts and be more customer-centric, especially with regard to technology. On the other hand, products and services need to be re-evaluated in order to capture their value. Teece provides a figure, which illustrates different elements that need to be determined in business model design.118

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Illustration 15: Business model design119

The author states that all elements as shown in the figure need to be interrelated in order to build a sustainable competitive advantage.120 With regard to technology, it is important to understand the business design as well as customer needs to differentiate sufficiently and make it difficult for new entrants and competitors to be replicated. Teece argues that business models make implicit assumptions about the customers and the changing nature of needs, which has been fundamentally driven with the emergence of the Internet and E-Commerce.121 In addition, the author outlines the concourse of different channels such as physical product sales and the distribution via Internet, which causes many “bricks and mortar”122 companies to rethink their distribution strategies.

The author summarizes that there is an existing lack of theoretical grounding in economics and business studies with regard to business models in organizational, strategic and marketing studies.123 Despite the overall importance, it lacks an intellectual home in the social sciences and business studies. Nevertheless, Teece draws a clear framework of what a business model hast to look like. As a feature of market economies, where is consumer choice, transaction costs, and heterogeneity amongst consumers and producers, business models are necessary to meet a variety of consumer demand through the presentation of new value propositions.124

With regard to the research approach, Teece makes some important statements about the Internet industry and the building of an efficient business model. Fred Wilson, CEO of Flickr characterized a Web 2.0 business model in an excellent way: “Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base”.125 The low cost on-line distribution and marketing opportunities reflect a major strength of this kind of business model. Technology, as the major transformative driver, can have huge impact on the cost side of the business model, also with regard to cloud-based computing models which moves previous fixed cost models into entirely variable cost models that improve the efficiency and early-stage capital requirements.

Teece delineates a business model from a business strategy in stating that competitive advantage needs to be protected through both, strategy and business model analysis.126 Strategy is thus a step in designing a sustainable business model. The author concludes that business model innovations will not build a competitive advantage by themselves, although they often result in lower cost or increased value to consumers and, if not replicated, can provide huge opportunities to generate higher returns.127

When establishing a new business model, a fundamental analysis has to be accomplished. The author provides a great set of questions that every industry should take into account when reengineering their business model.128

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Illustration 16: Reengineering a business model129

Teece describes the design of a good business model as an “art”130, where chances are greater if organizations have a deep understanding of user needs and are fast learners. As a key conclusion, the author mentions that a great business model must be something more than just a logical way of doing business. It has to put the customer into the center of all operations.131

Zhang, Gang and Jianwen (2010) process the idea of Teece and put the customer value perspective into focus. As Schumpeter (1939) has pointed out that competition of price and output are not as important as new technologies, new sources of supply and new business models.132 Schumpeter put forward innovation theory from an economic point of view and stressed those new combinations of product factors, such as new technologies or new organizational structures with regard to the research questions can open up new markets. The author’s describe the replacement of old business models with the advance in technology as “creative destruction”133 that has mainly been driven with the emergence of E-Commerce (1996) and the pioneer Amazon.com. The new economic form that is triggered by the rapid information technology development is described as “Network economy”134, which organizations can take as an advantage to create new business models and break existing competition rules in their industry.

The author’s emphasize that the essence of every business model is the creation, proposition and maintenance of value to consumers and defines which target groups to market and what kind of products and services to offer.135 Integrating internal and external resources, so to say a combination of a competitor’s-based view and a resource-based view, and combining it with the value-creating process and the customer value chain will differentiate business leaders from their fellows.

E-Commerce will enable companies to have the capabilities to use the Internet expanding their business processing and economic rent. Zhang et al. found out that business model innovation not only includes innovating business methods, but also being aware of the different elements such as technology and their holistic importance.136 The author’s outline a procedure for creating a virtual value chain137:

Realizing visual management

Enhancing the capacity of the company

New type of Customer Relationship Management

Establishing a virtual enterprise

They conclude that the E-Commerce implementation, in terms of business model innovation, enables organizations to rapidly respond to the customer complicated demand and obtaining customer orders will be at the core position of providing value through allocating resources and integrating suppliers, distributors and customers.138

Osterwalder and Pigneur (2002) outline a generic e-Business model ontology, which sets a foundation for the development of various useful tools for e-Business management. The author’s postulate a business system for creating value in the Internet era and introduce four main pillar139: Product Innovation, Infrastructure Management, Customer Relationship and Financial Aspects. In addition, they illustrate a rigorous framework for e-business models that is essential because of dynamic and uncertain business environments.

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Illustration 17: E-Business model ontology140

The e-business model ontology is founded on four main pillars. The products and services reflect a substantial value to the customer. The infrastructure that is necessary to create value and maintain a good customer relationship. The relationship capital that is inevitable to generate sustainable revenues and the financial aspects, which can be found in each of the three pillars, such as cost and revenue structures.141

Product Innovation covers all product-related aspects such as the value proposition a firm wants to offer to specific target customer segments. The element of value proposition refers to the value an organization offers to a specific target customer segment. To deliver the value proposition to different target customers, an organization must ensure that it possesses a range of capabilities that underpin the proposed value142. Several authors (Bagchi et al., 2000) describe an interconnectivity of capabilities and value.

Infrastructure Management describes the value system configuration according to Gordijn et al. (2000) that is necessary to deliver a value proposition to consumers. 143 This comprises the activities to create and deliver value and the resources and assets as well as the firm’s partner network.144 Value that is delivered to consumers is outcome of a configuration of inside and outside activities and processes (activity configuration) and can be put in correlation with Porter’s value chain framework described in 3.2. The partner network outlines which elements of the activity configuration are distributed among partners of the firm. Management literature defines these strategic networks as inter-organizational ties, which are strategically important to form strategic alliances, joint ventures or buyer-supplier partnerships.145 In order to create value, an organization needs resources such as tangible, intangible and human assets.146

Customer Relationship can be outlined through an information strategy and firms can exploit new ways to deliver value and expand multiple channels.147 In addition, Osterwalder and Pigneur stress that trust and loyalty have become one of the most important elements in business that is increasingly virtual and lacks face-to-face contact148. Information strategy is the gathering of customer information excelling customer relationships through outlining the data. The element of feel & serve refers to the way a firm goes to market and reaches its customers.149 A company has to define a clear channel strategy and make the right quantities of the right products available at the right place at the right time. According to Porter, particularly the Internet has great potential to complement rather than to cannibalize a business’s channels. The author’s illustrate a channel grid that is highly important in order to understand channel interaction using the example of the bookseller Barnes and Nobles150

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Illustration 18: Channel interaction151

Trust and loyalty between the partner networks are essential in the increasingly virtual business world. Hagel et al. (1997), Friedman (2000) or Dimitrakos (2001) show a certain number of mechanisms to build trust in e-business environments, such as virtual communities152, or clear and explicit privacy policy.153

Financial aspects are transversal and influenced by the other three pillars. It composes the firm’s revenue model and its cost structure and therefore its ability to stay competitive. The element of the revenue model is the ability of an organization to translate the value proposition it offers into money and generates income streams.154 A firm’s revenue model can be composed of different revenue streams that all have different pricing models. The element of cost structure measures all the costs a firm incurs in order to generate, market and deliver value to customers. If a firm focuses on its core competencies and relies on partner networks for non-core competencies there is a potential for cost savings.155 The profit model is the difference between revenue model and cost structure and can bee seen as the culminating point of the entire e-business model ontology.156

3.1.5 Conclusion to German Automotive Industry

In chapter 3.1, the author dealt with the business strategic perspective and identified major themes that have an impact regarding the research approach. The author outlined key business strategic findings, such as competitive positioning, low-cost and differentiation strategies and lead over to the development of a digital business strategy and its implications for E-Commerce. He concludes with the design of a generic business model for E-Commerce as a strategic priority in order to find deliverables for the research questions. German car manufacturer’s can drive a differentiation strategy through technological leadership and strengthen competitive positioning through unique customer value. A massive cost-reduction and lead-time reduction could be achieved through the transformation in sales channels. Networks of strategic partnerships will become essential in terms of supply chain and IT integration. As the Schumpeterian framework postulates, an adaption to the digital environment is required with a clear alignment of business and IT strategy. Excellent marketing opportunities are provided and new value propositions through additional sales channels meet the demand of the upcoming digital customer. The low-cost on-line distribution may lead to immense cost-reduction, whereas IT integration needs to be figured out with strategic partnerships in terms of core competencies. The main imperatives are tabulated in Appendix 27.

3.2 Multi-Channel Marketing Perspective

King et al. (2004) studied the impact of E-Commerce on retailer’s choice of distribution channel strategies with a game-theoretic approach, due to the industries’ trend of adopting Multi-Channel strategies including both web-based channels and (pre-) existing offline-channels. According to the research questions, lots of the outcomes can be transferred to other industries. Some of the deliverables were that competitive pressure rushes the trend, keeping off-line channels is usual, adopting a coordinated dual-channel strategy is necessary when faced with competition from web-based entrants, the buyers level of discomfort with on-line channels is important and off-line sellers can preempt competition by improving convenience, personalized after-sale service and trust.157

King et al. define a seller as any business entity that sells goods or services directly to end-consumers, which allows transferring deliverables to both traditional retailers and manufacturing companies. Besides reaching a wider customer space, web-based sales channels allow better control of sales and marketing activities, support existing off-line channels and reduce transaction costs.158 Incorporating web-based channels raises some concerns as the lack of prior experience in direct selling, increasing rather than decreasing transaction cost or the cost of managing channel conflicts that may arise from a multichannel strategy.159 Several questions need to be addressed (Under what conditions should traditional off-line sellers incorporate web-based sales channels in the overall strategy? A dual-channel strategy or an exclusive on-line channel strategy? Coordination between dual-channel strategies?) in order to succeed in a multi-channel strategy. King et al. differentiate four categories of buyers (economic, apathetic, personalized and ethical) and put their focus on personalized and ethical shoppers, being with low intentions of using on-line channels, whereas economic and apathetic buyers have high intentions of shopping via web-based on-line channels160:

Economic/apathetic buyers: Time-starved and looking for convenience in buying. The economic shopper looks for the best bundle of quality and price, whereas the apathetic shopper tries to minimize buying effort. Both qualify with high intentions of buying on-line and believe that web-based benefits outweigh the costs.

Personalized/ethical buyers: Low intention of purchasing from web-based channels due to inconvenience and mental fatigue or a lack of trust. The personalized shopper enjoys personal interaction within off-line channels and tends to shop close to home, whereas the ethical shopper feels morally obligated to shop at local stores. Both types believe that web-based benefits do not outweigh the costs.

Customers value and increasingly expect a seamless buying experience across all on-line and off-line channels. Assembling data from both channels in a timely and coherent manner should be a high priority from a technological perspective according to the authors.161 Achieving successful coordination across all channels requires seamless integration and coordination at the technology level (sellers want to have an accurate customer profile; Customers do not want to be asked for the same information twice).162 In addition, the author’s describe another operational concern that is the competition between old distribution inventory systems for off-line channels and new centralized inventory-management systems for on-line channels that need to be integrated accurately. Optimizing customer lifetime value across all channels and adjusting them to changes in market, availability of technology and customer expectations is another factor for success according to King et al.163 Market size and competitive forces are two of the main criteria for deciding the optimal channel strategy and should be taken into consideration besides product attributes, the amount of control and flexibility offered by various channel options and the pressure from customers. 164

3.2.1 Fundamentals of Multi-Channel Marketing

Due to the increasing competition, changing customer needs in the digital era and strategic realignment in terms of distribution, multi-channel marketing has a huge impact on diverse business models, holds opportunities and risks. A successful channel management has to deal with the integration and coordination of new channels within existing distribution strategies.165 Schögel et al. (2003) postulate that single distribution channel marketing will belong to the past and industries have to realign their strategies. The author’s see three main drivers for this changing environment.166

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Illustration 19: Influencing factors for changing marketing channel systems167

Changing Customer Behavior: The multi-optional customer, individual, heterogeneous, mobile, self-determined, overloaded with information, aware of time and convenience. Use of various channels (Channel-hopping in the buying cycle) at the same time to interact with a company and cross-channel influence through experience perceived in any channel.

Competitive conduct of rivals: Use of alternative distribution channels, regardless of the characteristics of the product, affecting business models. Clicks and Mortar strategies due to the Internet (new economy), allowing organizations to offer a unique buying experience in off- and online channels, with a seamless integration of brand awareness.

Internal restructuring: The choice of a Multi-Channel distribution system becomes a general management decision based on the increasing interdependency of channel-marketing and organizational impact. Customer Relationship Management need to be established in order to fully exploit customer potential, improve customer satisfaction and loyalty.

The author’s enumerate opportunities and risks of Multi-Channel systems such as increasing market capture or Channel-Conflict.168 The most important opportunities are coverage of diverse customer needs through different channels, cost reduction through saving fixed costs and risk diversification through adding channels. Risks include customer confusion through an imprecise product experience in diverse channels, loss of control through an increase in complexity and a lack in identifying characteristics of diverse channels. In order to succeed, the author’s state that both an external fit and internal fit need to be accomplished for effectively aligning distribution channels within the market- and competition environment and amongst themselves.169

Schögel et al. introduce a three-step iterative process for effective Multi-Channel management. The central aspect that needs to be taken into consideration is the question, where the company wants to attract specific customers through specific channels.

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Illustration 20: Three-step iterative process in multi-channel management170

Integration of latest distribution-channels: Distribution-channel portfolios may aid to identify channels. In addition, old channels might be abandoned due to their lifecycle. Dickson, P. R. (1938) describes a distributor portfolio analysis in the journal of marketing that can be applied in this context.

Configuration of channel-mix: Adjust value chain to different channels in order to define the long-term interaction in between the channels. Autarkic allocation of tasks for each channel and interdependency in between tasks.

Coordination of channel-mix: Creation of a seamless customer experience across all channels with a clear distribution of tasks for each channel.

The author’s conclude that organizations need to be able to provide information about customer behavior in every channel and weight it accordingly in order to become a “Multi-access Corporation”171. They emphasize that companies need to do both establish a channel and manage it for effective customer- acquisition and loyalty. One of the greatest challenges is the successful positioning of each channel for attracting customers through unique value delivery.

3.2.2 The role of Electronic Commerce in Multi-Channel Marketing

Xi (2011) illustrates that under the background of E-Commerce, traditional marketing is challenged to a large degree. Besides the Customer Life Cycle and Marketing Mix (7Ps), Xi attempts to explore the phenomenon of customer experience as critical issue related to marketing innovation. Current research proposes to shift marketing from the mere advertising to the customer experience along with its web presence.172 As Ford once said, “The enterprise who can meet customer need mist effectively is the final survivor”.173

According to Schneider’s (2003) five-stage model, customer loyalty, as one of the major goals of marketing, develops over time.174

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Illustration 21: Schneiders’ five-stage model175

In the first stage (Awareness), customers note the name or product or the company, but haven’t had any interaction with the company. Prospective customers begin to care about products or services in the second stage (Exploration). At this stage a large amount of information interchange takes place.176 Existing customers have already had several transactions with the company (Familiarity), however they are still likely to buy from competitors. Highly satisfied customers cultivate an intense loyalty for the brand of the company and are likely to share their purchasing stories (Commitment). Potential disappointment by changes in the level of service or product quality may lead to an end of the relationship (Separation).

Besides Schneiders’ five-stage model, the traditional Marketing Mix model, usually known as the 4Ps model can be used to assist in defining a marketing strategy177. In addition to Product, Price, Promotion and Place, People, Process and Physical Evidence have been brought forward due to the customized and diversified consumption with the use of E-Commerce.178 In correlation with the research approach, the author emphasizes each contributor with regard to the automotive industry and strategic E-Commerce adoption179:

Product: Anything provided in the market for satisfying needs and desires of customers. Successful car manufacturers will identify customer’s needs and provide the right product through the right channels, with attractive contents and innovative services offered by Web sites.

Price: Only element of the Marketing Mix that generates revenue. Successful car manufacturers can increase customer value through innovative price strategies that may occur due to the shift in channel-distribution.

Promotion: The way a company spreads what it does and what it can offer consumers. Successful car manufacturers must gain attention and convey a consistent message with existing and potential customers to promote their distribution shift.

Place: Having products or services available in many different locations. Successful car manufacturers may have to figure out where customers want to purchase the vehicle, either on- or offline. The Internet may help in solving logistics and distribution problems.

People: All people that are directly or indirectly involved in the consumption of a service. Car manufacturers will depend upon corporate culture and brand reputation affected by employees and consumers.

Process: Procedure, mechanism and flow of activities by which services are consumed. Successful car manufacturers will decrease waiting time, and increase and improve information access in order to retain customers.

Physical Evidence: Ability and environment in which the service is delivered. Successful car manufacturers may establish clean and tidy showrooms that may help reassure high quality standards to the customers, due to the fact that the purchasing process could take place online.

The author concludes that companies must concentrate on gaining customer loyalty through unique goods and services in the era of E-Commerce.180 As customer experience refers to the perceptions and interpretations of the interaction with a company, the improvement of this element needs to be considered properly due to the virtualization. Both models help to evaluate, analyze and establish a proper marketing strategy in terms of digital business.

The fast adoption of digital technologies and evolving shopping behavior transforms E-Commerce into an essential element of multi-channel distribution. In order to attract the digital consumer, companies need to enhance collaborative relationships and build strong digital capabilities that are aligned with the business strategy to drive engagement with the customer across the entire path to purchase.181 Egol et al. (2012) postulate to consider several key questions to prioritize the right opportunities in E-Commerce and to identify investments and organizational structure that is best suited for a successful implementation.182

[...]


1 Harvard Business Review Press, Boston 2011, p. 39, cited Porter, M. (1996), p. 34

2 cf. Porter, M. (1996), p. 40

3 cf. Egol, M. et al (2012), pp. 3 sqq.

4 cf. Sherman, L. et al (2001), p. 1

5 cf. Sherman, L. et al (2001), p. 1

6 cf. Hai-jian, W. (2011), p. 1

7 cf. Buss, D. (2012), http://www.brandchannel.com/home/post/2012/05/25/bmw-future-retail-052512.aspx (status as of: 25.05.2012)

8 cf. Sherman, L. et al (2001), p. 1

9 cf. Creswell, J. (2003), p. 1 sqq.

10 cf. Selz, D.; Klein, S. (1998), p. 592

11 cf. Selz, D.; Klein, S. (1998), p. 593

12 cf. Selz, D.; Klein, S. (1998), p. 593

13 cf. Selz, D.; Klein, S. (1998), p. 593

14 Found in: cf. Selz, D.; Klein, S. (1998), p. 593

15 cf. Selz, D.; Klein, S. (1998), p. 594

16 cf. Selz, D.; Klein, S. (1998), p. 596

17 cf. Selz, D.; Klein, S. (1998), p. 597

18 Found in: cf. Selz, D.; Klein, S. (1998), p. 598

19 cf. Selz, D.; Klein, S. (1998), p. 598

20 Adapted from: cf. Selz, D.; Klein, S. (1998), p. 593

21 Applied Research Design, 1993, p. 216, cited Maxwell, J. (2005), pp. 243 sqq.

22 cf. Yin, R. K. (1994), p. 19

23 cf. Oxford-Dictionary (2013a), http://www.oxforddictionaries.com (status as of: 11.01.14)

24 cf. Mintzberg, H. (1978), pp. 934 sqq.

25 cf. Mintzberg, H. (1978), pp. 934 sqq.

26 cf. Mintzberg, H. (1978), pp. 934 sqq.

27 cf. Mintzberg, H. (1978), pp. 934 sqq.

28 cf. Mintzberg, H. (1978), pp. 934 sqq.

29 Harvard Business Review Press, Boston 2011, p. 39, cited Porter, M. (1979), p. 34

30 cf. Bakos, Y. J.; Treacy, E. M. (1986), p. 2

31 cf. Bakos, Y. J.; Treacy, E. M. (1986), p. 3

32 cf. Bakos, Y. J.; Treacy, E. M. (1986), p. 3

33 cf. Bakos, Y. J.; Treacy, E. M. (1986), p. 3

34 cf. Oxford-Dictionary (2013b), http://www.oxforddictionaries.com (status as of: 11.01.14)

35 cf. Oxford-Dictionary (2013c), http://www.oxforddictionaries.com (status as of: 11.01.14)

36 cf. Rangaswamy, A.; Van Bruggen, G. (2005), pp. 2 sqq.

37 cf. Beck, S. J.; Sarner, A. (2013), p. 1

38 cf. Beck, S. J.; Sarner, A. (2013), p. 2

39 cf. Beck, S. J.; Sarner, A. (2013), p. 2

40 cf. Beck, S. J.; Sarner, A. (2013), p. 2

41 cf. Beck, S. J.; Sarner, A. (2013), p. 5

42 cf. Beck, S. J.; Sarner, A. (2013), p. 5

43 cf. Beck, S. J.; Sarner, A. (2013), p. 5

44 cf. Beck, S. J.; Sarner, A. (2013), p. 5

45 cf. Oxford-Dictionary (2013d), http://www.oxforddictionaries.com (status as of: 11.01.14)

46 cf. Gabler-Wirtschaftslexikon (2013), http://www.wirtschaftslexikon.gabler.de (status as of: 11.01.14)

47 cf. DeLone, W.; McLean R. E. (2004), p. 1

48 cf. DeLone, W.; McLean R. E. (2004), p. 1

49 cf. DeLone, W.; McLean R. E. (2004), p. 1

50 Adapted from: DeLone, W.; McLean R. E. (2004), p. 1

51 cf. DeLone, W.; McLean R. E. (2004), p. 1

52 cf. Lamnek, S. (2009), pp. 19 sqq.

53 cf. Beck, S. J.; Sarner, A. (2013), p. 1

54 cf. Bakos, Y. J.; Treacy, E. M. (1986), p. 1

55 cf. Hax, A. C. (2010), p. 216

56 cf. Prahalad, C. K.; Hamel, G. (1990), pp. 71 – 91 sqq.

57 cf. Hax, A. C. (2010), p. 216

58 cf. Porter, E. M. (1980)

59 cf. Hax, A. C. (2010), p. 206

60 cf. Porter, E. M. (1980)

61 cf. Hax, A. C. (2010), p. 207

62 cf. Hax, A. C. (2010), p. 207

63 cf. Hax, A. C. (2010), p. 207

64 cf. Hax, A. C. (2010), p. 207

65 cf. Hax, A. C. (2010), p. 208

66 Found in: Petaraf, A. M. (1991)

67 cf. Hax, A. C. (2010), p. 208

68 cf. Hax, A. C. (2010), p. 208

69 cf. Kim, E. et al. (2004), p. 19

70 cf. Kim, E. et al. (2004), p. 19

71 cf. Kim, E. et al. (2004), p. 19

72 cf. Mohapatra, S. (2012), p. 5

73 cf. Mohapatra, S. (2012), p. 1

74 cf. Mohapatra, S. (2012), p. 7

75 cf. Mohapatra, S. (2012), p. 9

76 cf. Xiquan, W.; Haiwei, Z. (2009), p. 313

77 cf. Pagani, M. (2013), p. 617

78 cf. Pagani, M. (2013), p. 617

79 cf. Bharadhwaj, A. et al. (2013), p. 2

80 cf. Bharadhwaj, A. et al. (2013), p. 2

81 cf. Bharadwaj, A. et al. (2013), p. 472

82 cf. Bharadwaj, A. et al. (2013), p. 481

83 cf. Bharadwaj, A. et al. (2013), p. 481

84 cf. Mithas et al. (2013), p. 1

85 cf. Mithas et al. (2013), p. 1

86 cf. Mithas et al. (2013), p. 1

87 cf. Mithas et al. (2013), p. 3

88 cf. Mithas et al. (2013), p. 3

89 cf. Sawy, E. et al (2010), pp. 835 -848 sqq.

90 cf. Mithas, S. et al. (2011), pp. 237-256 sqq.

91 cf. Dess, G.; Beard, D. W. , date of publication unknown, pp. 52–73 sqq.

92 Found in: Bharadwaj, A. et al. (2013), p. 472

93 cf. Johnson, R. et al. (2002), p. 243

94 cf. Johnson, R. et al. (2002), p. 243

95 Found in: Johnson, R. et al. (2002), p. 3

96 cf. Johnson, R. et al. (2002), p. 243

97 Found in: Porter, M. (1980)

98 cf. Johnson, R. et al. (2002), p. 243

99 Found in: Johnson, R. et al. (2002), p. 243

100 cf. Kogan, R. (1998)

101 cf. Labuschagne, L; Eloff, J. (2001), p. 289

102 cf. Labuschagne, L; Eloff, J. (2001), p. 289

103 cf. Labuschagne, L; Eloff, J. (2001), p. 290

104 cf. Labuschagne, L; Eloff, J. (2001), p. 290 sq.

105 cf. Labuschagne, L; Eloff, J. (2001), p. 291

106 Found in: Labuschagne, L; Eloff, J. (2001), p. 291

107 cf. Labuschagne, L; Eloff, J. (2001), p. 292

108 cf. Rossudowska, A. (2001)

109 Found in: Rossudowska, A. (2001)

110 cf. Yeates, D.; Cadle, J. (1996)

111 Adapted from: Labuschagne, L; Eloff, J. (2001), p. 295

112 cf. Labuschagne, L; Eloff, J. (2001), p. 297

113 Found in: Labuschagne, L; Eloff, J. (2001), p. 297

114 Found in: Labuschagne, L; Eloff, J. (2001), p. 297

115 cf. Labuschagne, L; Eloff, J. (2001), p. 301

116 cf. Teece, J. D. (2010), p. 172

117 cf. Teece, J. D. (2010), p. 172

118 cf. Teece, J. D. (2010), p. 172

119 Adapted from: Teece, J. D. (2010), p. 172

120 cf. Teece, J. D. (2010), p. 173

121 cf. Teece, J. D. (2010), p. 173

122 cf. Teece, J. D. (2010), p. 173

123 cf. Teece, J. D. (2010), p. 173

124 cf. Teece, J. D. (2010), p. 173

125 cf. Teece, J. D. (2010), p. 178

126 cf. Teece, J. D. (2010), p. 179

127 cf. Teece, J. D. (2010), p. 181

128 cf. Teece, J. D. (2010), p. 190

129 Adapted from: Teece, J. D. (2010), p. 190

130 cf. Teece, J. D. (2010), p. 190

131 cf. Teece, J. D. (2010), p. 192

132 cf. Schumpeter, J. (1939)

133 cf. Zhang, J. et al. (2010), p. 400

134 cf. Zhang, J. et al. (2010), p. 400

135 cf. Zhang, J. et al. (2010), p. 400

136 cf. Zhang, J. et al. (2010), p. 401

137 cf. Zhang, J. et al. (2010), p. 401

138 cf. Zhang, J. et al. (2010), p. 401

139 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 1

140 Adapted from: Osterwalder, A.; Pigneur, Y. (2002), p. 1

141 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 2

142 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 4

143 cf. Gordijn, J. et al. (2001), pp. 11-17

144 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 4

145 cf. Gulati, R. et al. (2000), pp 203-215

146 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 5

147 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 5

148 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 5

149 cf. Hamel, G. (2000), p. 5

150 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 6

151 Found in: Osterwalder, A.; Pigneur, Y. (2002), p. 7

152 cf. Hagel, J. (1997), p. 3 sq.

153 cf. Friedman, B. et al. (2000), pp. 34-40

154 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 7

155 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 8

156 cf. Osterwalder, A.; Pigneur, Y. (2002), p. 8

157 cf. King, C. R. (2004), p. 103

158 cf. King, C. R. (2004), p. 103 sq.

159 cf. King, C. R. (2004), p. 104

160 cf. King, C. R. (2004), p. 105

161 cf. King, C. R. (2004), p. 125

162 cf. King, C. R. (2004), p. 125

163 cf. King, C. R. (2004), p. 126

164 cf. King, C. R. (2004), p. 127

165 cf. Schögel, M. et al. (2003), p. 1

166 cf. Schögel, M. et al. (2003), pp. 5 sqq.

167 Adapted from: Schögel, M. et al. (2003), p. 2

168 cf. Schögel, M. et al. (2003), pp. 6 sqq.

169 cf. Schögel, M. et al. (2003), p. 9

170 cf. Adapted from: cf. Schögel, M. et al. (2003), p. 11

171 cf. Schögel, M. et al. (2003), p. 19

172 cf. Xi, Y. (2011), p. 1

173 cf. Ray, H. (2005), pp. 1-4

174 cf. Schneider, P. G. (2003), pp. 148-187

175 Found in: Xi, Y. (2011), p. 2

176 cf. Xi, Y. (2011), p. 1

177 cf. Xi, Y. (2011), p. 2

178 cf. Xi, Y. (2011), p. 2

179 cf. Xi, Y. (2011), pp. 2-4

180 cf. Xi, Y. (2011), p. 5

181 cf. Egol, M. et al. (2012), p. 1

182 cf. Egol, M. et al. (2012), p. 1

Excerpt out of 169 pages

Details

Title
Multi-Channel Distribution in the Age of the Digital Customer
Subtitle
An Empirical Analysis and Critical Assessment of Strategic Electronic Commerce Adoption in the German Automotive Industry
College
Baden-Wuerttemberg Cooperative State University (DHBW)
Course
BWL - International Business
Grade
2,0
Author
Year
2014
Pages
169
Catalog Number
V299277
ISBN (eBook)
9783656960379
ISBN (Book)
9783656960386
File size
72370 KB
Language
English
Tags
Keywords – Business Strategy, Digital Business Strategy, Multi-Channel Business, Multi-Channel Marketing, Electronic Commerce, German Automotive Industry
Quote paper
Sebastian Schulz (Author), 2014, Multi-Channel Distribution in the Age of the Digital Customer, Munich, GRIN Verlag, https://www.grin.com/document/299277

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