Capstone Strategy Playbook for Exceptional Results: Description of the Playbook

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Internet DNA

Student 2

Capstone: Sustainable Business Practice and Strategies (WMBA - 6990 - 6)

Walden University

Table of Content

Table of Contents .............................................................................................................................1

Introduction ......................................................................................................................................2

Executive Summary .........................................................................................................................3

Strategy Map ....................................................................................................................................6

Appendix A ......................................................................................................................................7

Appendix B ......................................................................................................................................8

Appendix C ....................................................................................................................................11

Appendix D ....................................................................................................................................14

Appendix E ....................................................................................................................................17

Appendix F.....................................................................................................................................21

Appendix G ....................................................................................................................................25

Appendix H ....................................................................................................................................31

References ......................................................................................................................................32

Introduction

The introduction of internet affects all walks of industries. These industries can be

categorized into two groups – the traditional industries who transfer their business online and the

new business models that are based online. On one hand, traditional product manufacturers are

seeking their opportunities in the internet by opening e-stores or putting products on the online

B2C or B2B platforms. E-commerce is another name for these traditional players. On the other

hand, new business models that are internet-born are also emerging. Amongst these new business

models are social media, O2O, Groupon, and online games, to name only a few. The traditional

player is more product-based, while the new player is more service-based. As an online discount

retailer and a leader in this section, ExampleLtd. is a traditional player. As the smartphones

pushing the internet into Web 3.0, the product-centered Example should readjust its strategy by

adding internet DNA into its business model to better fit its future development.

Executive Summary

Example is a leading online discount retailer that offers high-quality branded products to

consumers in China through flash sales mainly on Example.com website. The business model of

flash sales is the combination of the advantages of e-commerce and discount sales through

selling a finite quantity of discounted products or services online for a limited period of time. By

the end of 2014, Example had attracted 127.8 registered members and over 27 million

cumulative customers, and promoted and sold products for over 13,000 popular domestic and

international brands (EXAMPLE Annual Report of 2014).

Example is making the unattainable expensive branded products available to its

customers. The domestic and international brands offered by Example include products like baby

and mother’s products, “apparel for women, men and children, fashion goods, cosmetics, home

goods and other lifestyle products” (EXAMPLE Annual Report of 2014). The target customers

who are attracted to those products mostly consist of “urban, educated, middle-class consumers

in China who are seeking lifestyle enhancements, 75% of which are young, female, white-collar

workers” (EXAMPLES, 2012, pp.22).

Example benefits a lot from its unique business model which also helps nurture the

following strengths that make Example as it is today:

 loyal customers and steady growing customer base,

 stable partnerships with suppliers and delivery companies, and

 attractive brand selections and appropriate product mix.

So much Example enjoys the leading position in the online discount retailing industry,

the competitions will be intense and the blue ocean strategy needs to be in place to get it through

the difficult times in the next 5 years to come. There will be two ways to cope with the situations

when Example hits bottlenecks in future development:

 acquiring existing competitors and

 going global in other developing countries.

According to five-force competitive analysis, Example may confront the threat from new

entrants like Taobao.com and Jd.com. As these two giants are capable of offering similar

products to customers, the bargaining power of buyers and the bargaining power of suppliers are

strengthened and the market share for Example will be shrinking. The key success factors for

future Example include:

 allowing the suppliers to take the customer service to improve time efficiency,

 acquiring one or two delivery companies or build its own delivery team,

 expanding product options like organic food to cover more customers, and

 encouraging no-bureaucracy and no politicking in the organization culture.

The existing strengths as well as the blue ocean strategy will serve as an example of

thinking within the box – thinking itself as a retailer who is selling stuffs online, rather than an

innovative internet company that embraces openness in its organization culture and moves fast in

creating new trends. Therefore, besides acquiring competitors and expanding global business,

there is a third way out. It is time for Example to embrace the internet DNA in this business

model:

 establishing strategic partnerships with mobile app stores, social media apps and mobile

game developers,

 providing better customer experience by linking customer data with supplier data as well

as developing a price-comparing plug-in, and

 developing Example’s own online payment method or acquiring one existing online

payment company.

What is Internet DNA? It is an abstract concept but we could find some examples to

demonstrate how an internet company with Internet DNA would look like:

 the best user experience is always one click away;

 “move fast and break things”;

 words spread much faster in social media;

 a sense of openness in the organization culture.

Example will need the internet DNA in the next 5 years if it wants to keep up with the

other e-commerce giants who have already begun to think as internet companies.

Strategy Map

Here is a strategy map for Example if it wants to survive or do better in the next 5 years.

An open, transparent, and fair organization culture has to be in place for Internet DNA strategy

to work out. Meanwhile, as we apply this strategy, the original strategy that works for Example,

the product-centered strategy, will still make contributions.

Table 1.1: Strategy Map for Example

The new Internet DNA strategy will serve as another engine for Example. Together with

its emphasis on products, Example will be powered by two engines in the next 5 years.

Appendix A

Selecting Example for My Strategy Playbook

I will choose ExampleLtd. for my studying in strategy playbook. It is a publicly traded

company that has more than 10,000 employees. “The Company offers high quality and popular

branded products to consumers throughout China at a significant discount from retail prices”

(EXAMPLE.com). The e-commerce industry is booming in China and Example is one of the

most successful e-commerce companies in China.

There are three reasons why I chose it. Firstly, my personal interest in e-commerce urges

me to research more in this field. For now, my ultimate goal is to start my own business in e-

commerce industry. A first-hand study in this field will definitely benefit me a lot. Second, I can

get access to the information of Example easier than other e-commerce companies. What’s more,

the headquarters of EXAMPLE is ten minutes’ walk away from where I live. Thirdly, my

girlfriend works in EXAMPLE and I want to do the research for her. She loves her job but she

has been trapped with a lot of things within the company. As an old Chinese saying suggests,

“Men are blind in their own muse.” I hope I can study more on this company and give some

suggestions on her career path there.

Appendix B

Evaluation of the Mission, Vision, and Values of Example: The Soulful Purpose in Action

According to Wolfe (2011), the Soulful Purpose of an organization is not merely about

what we do and for whom – it is about why it has come into being at the first place and why it

continues to exist in the long run (p.121). “Every organization exists to do more than make

money, increase market share, or be the best in their field. They do more than just sell goods or

services to customers. They make a difference.” (Wolfe, 2011, p.122). The mission, vision, and

values of an organization must connect to its Soulful purpose in ways we may or may not see.

For example, the mission of Signature Theater is to “celebrate the writer, dedicating a full season

to a retrospective on a living playwright’s work” (Callanan, Wei-Skillem and Onyemi, 2014,

p.2). It is more than just making money – it is about encouraging playwrights with actions and

bringing arts to the communities. For Example, the online discount retailer that I chose to study,

its mission is to “offer high-quality branded products to consumers in China through flash sales”

(Annual Report, 2015, p.45). Just like what Wolfe (2011) pointed out, the Soulful Purpose of an

organization cannot be summed up as a simple plaque – you could find some clue through the

stories of the organization and ask the question “What would the world be missing if this

organization didn’t exist?” (Wolfe, 2011, p.121). If there is no Example in China, there will

surely be another online discount retailer to provide similar products and services. However, we

can still find the difference between the world with Example and the one that without it. It does

make a difference. “Our strong merchandizing expertise enables us to select the brand

composition and product mix of our daily sales events that appeal to our customers, who mostly

consist of urban and educated individuals in China who are seeking lifestyle enhancements.”

(Annual Report, 2015, p.45). It exists because it tries to enhance the lifestyle of urban and

educated individuals in China. Example makes the unattainable high quality products available

for common people, which is something similar to what Houghton did to Signature Theater

through Ticket Initiative – to make theaters available and affordable for more people.

The targeted customers of Example are smaller in numbers when compared to other e-

commerce giants like Alibaba and JD.com. “Flash sales represent a new online retail format

combining the advantages of e-commerce and discount sales through selling a finite quantity of

discounted products or services online for a limited period of time” (Annual Report, 2015, p.45).

There are a lot more online retailers are doing similar things in China now. The competition is

intense in this market. Lucky for Example, it is the pioneer in this flash sales business model in

China. It had “127.8 million registered members and over 27 million cumulative customers, and

promoted and sold products for over 13,000 popular domestic and international brands as of

December 31, 2014” (Annual Report, 2015, p.45). Apart from Alibaba’s Tmall and JD.com,

Example ranks the third place in B2C market in China (Su, 2015). E-commerce giants like

Alibaba and JD.com are more like a supermarket online that sells everything while Example is

more like a department store that sells specific products – clothing and cosmetics, mostly. In

other words, the consumer base of Example is far smaller than that of Tmall and JD.com. If they

want to expand their market to take a larger market share, they need to add more products in the

list. Though more and more online retailers are using flash sales as their business model, not all

of them are selling brand products with high quality. After acquiring Lefeng.com in 2014,

Example’s biggest competitor in B2C cosmetics market is probably Jumei (NYSE: JMEI). In

fact, we could hardly tell the difference in the mission of these two companies except that

Example either follows the mission through by providing high quality products or it has amazing

public relations to ease scandals. What I am referring here is the ongoing fake product scandals

that haunted Jumei in the last two or three years in China. “In the ongoing Jumei scandal, the e-

commerce company has apologized and promised to have the fake products returned.” (Zhiming,

2014). Thus, in the B2C cosmetics market, Example still holds its first position as long as it

sticks to its mission by providing high quality products.

The mission of Example above is good enough for it to strive to be that organization it

wants to. Even with discounts, high quality products are still not quite available for people

outside the urban areas and the not-well-educated individuals in China. We could say that

Example offers good quality products through flash sales to consumers mainly in urban China.

Therefore, its mission will be appropriate in the long term if it wants to take up larger market

share from Taobao.com or JD.com and provides good quality products to more people – even to

the uneducated who are mostly located in rural area – it is a huge market too. It has mature

logistics system in the big cities in China and it has been known that it sells good quality brand

products. Yet it stays selling small product mix within big cities only. To better fulfill its

mission, it should expand its product lines with the help of its well-known platform or it can still

focus on its apparels and cosmetics products but expand its service to the rural area. In Wolfe’s

word, “strategic planning is dead – long live strategy execution” (Wolfe, 2011, p.117). So in my

opinion, Example has got a great mission that carries values or purposes that go beyond

monetary gains. But they need to stick to it and don’t lose sight of it.

Appendix C

Core Skills, Competencies, and Capabilities of Example

Example shares a lot in common with Trader Joe’s. For example, their targeted customers

are somehow similar. “Trader Joe’s is for overeducated and underpaid people, for all the

classical musicians, museum curators, journalists – that’s why we’ve always had good press,

frankly!” (Ager and Roberto, 2013, pp.2).” On the other hand, Example exists because it tries to

enhance the lifestyle of urban and educated individuals in China (Annual Report, 2015, p.45).

The second things these two companies share in common is that they try to provide better quality

products at lower prices with the help of expertise in product selection. “Trader Joe’s offered

products aimed at the sophisticated consumer interested in finding good bargains” (Ager and

Roberto, 2013, pp.2). “Our founders and management team have strong merchandising expertise,

which enables us to select the right brands and have the appropriate product mix for our daily

sales events, ensuring they appeal to our valued customers” (EXAMPLES, 2012, pp.22). What’s

more, both Trader Joe’s and Example have scored high in terms of customer loyalty. In Example,

“in the second quarter of 2012, over 70% of our 1.5 million active customers were repeat

customers.” (EXAMPLES, 2012, p.22), while “Trader Joe’s enjoyed a cult-like following” with

customers marketing its brand in social media spontaneously. However, Example using social

media as an effective marketing channel to reach customers and suppliers (EXAMPLES, 2012,

pp.23), which Trader Joe’s never takes the initiative to participate in social media (Ager and

Roberto, 2013, pp.8).

Strengthen supplier relationship. There is no third-party e-store in Example, which means

the suppliers cannot gather user traffics through Example. “The Hangzhou supplier complains of

Example’s lack of transparency. Customer information is kept secret by the company, cutting

brand partners out of any efforts to broaden the customer base” (Shao, 2013). Both e-commerce

giants like JD.com and Taobao.com view themselves as a platform that enables the brand

suppliers to grow together. “Example's unique business model offers limited quantities of

discounted products online, otherwise known as ‘flash sales,’ to consumers in China”

(EXAMPLES, 2012, pp.22). Due to this unique business model, Example may not be able to

offer solutions to satisfy its suppliers. However, it could and should lower its deduction point to

attract more brand suppliers. “On Tmall, 360Buy and Dangdang, the supplier notes that Example

has a 25% to 30% deduction point—much higher than Tmall’s 5% and 360Buy’s 10%–though

they also offer more services to suppliers such as photo shooting, storage, products delivery and

customer services.” (Shao, 2013). In fact, product-related customer services should be handed

over to the suppliers who know their products better – it improves customer experience by

cutting the time waiting Example staff passing the questions to the suppliers.

Increase transparency to the public. “The company’s rapid growth has caught the

attention of short sellers, one of which, Greenwich Research Institute issued a report in late May

noting discrepancies between the company’s traffic count and Alexa’s data. It also questioned

how the company was able to so quickly improve its gross margin, and to derive such a high

percentage of sales–93%–from repeat visitors.” (Shao, 2013). Even though Example denied all

the above charges, the sources that the public can find on Example are quite limited. It can

establish strategic partnership with social media to increase exposing rate in a good way.

Improve customer relationship. For one thing, Example needs to improve the shopping

experience. Due to the time-limit sales events all the time, customers cannot narrow their options

with the built-in searching function in selecting products. For example, I cannot type in “fry pan”

to search for my target product. Again, this could be caused by the business model. But it is

something the tech team can work on in the future. For another thing, Example should learn

more about its customers. According to Example’s CFO Mr. Yang, “In terms of industry

consolidation, first and foremost, the retail market targeting China's booming middle class is one

of the most significant and exciting business opportunities today, anywhere.” (EXAMPLES,

2012, pp.22). Obviously Example knows the online retail market, but in some customers’

perspective, the products sold in Example are “neither cheap enough nor high-end enough.”

(Shao, 2013). “The majority of my colleagues still go on Tmall.com, mainly because it’s

cheaper. More and more of them are also shopping directly on the websites of American

retailers.” (Shao, 2013).

Appendix D

Stakeholder and General Force Analysis for Example

Building delivery team. As the CFO of Example Donghao Yang pointed out, “For an e-

commerce company, logistics infrastructure and flawless logistics management is critical to

success.” (EXAMPLES, 2012, pp.22). Both Tesla Motors and Example understand the

importance in building infrastructures, be it logistics or charging infrastructures, they still have a

long way to go (Rothaermel and Zimmer, 2014). In terms of logistics management, Example

shares a few things in common with the two e-commerce giant Taobao.com and JD.com. On one

hand, Example builds its own warehouse to store products just like JD.com. “Now we have large

warehouses in Beijing, Shanghai, Chengdu and Guangzhou, covering the entire country. The

addition of new warehouses has enabled us to reduce the shipping distance to the customer,

therefore, decreasing the delivery time and improving the consumer experience. So the business

is growing and the infrastructure is expanding, which has helped Example strengthen its

leadership in the industry.”( EXAMPLES, 2012, pp.22). But JD.com goes one step further by

providing free same-day delivery service to major cities in China. In fact, I think JD.com is

merely copying Amazon’s business model in a good way. “Expanding same-day delivery is yet

another perk to encourage more people to sign up for Amazon Prime memberships. More

members translate into more loyal customers for Amazon, which is important as Walmart

reportedly gears up to compete with Prime” (Paul, 2015, pp.51). But for JD.com, the same-day

delivery service is truly free without requiring memberships or the amount of goods customers

have to pay before enjoying this service. On the other hand, Example does not have its own

mature delivery service, let alone same-day delivery service, just like Taobao.com. However,

Taobao.com is a C2C or B2C platform that formed by third-party store owners, while Example is

a B2C platform that has no third-party stores dealing with the customers directly. It would be

unreasonable for Taobao to limit the e-store owners in the website in choosing their own delivery

service providers. But Example should build its own delivery team, which is an opposite strategy

proposal I would have for Tesla – to cooperate with other infrastructure providers to cut the cost.

Adding organic food into the product list. When Example was founded, it was targeted

“to mass market brands of clothing, cosmetics and accessories” (Shao, 2013). It is still true

today. Well, one thing that both Tesla Motors and Example can do to increase their customer

base is to provide more product options. When Richard Liu founded 360Buy (JD.com), it was a

little electronics distribution business (Bill, 2011). Now JD.com covers a lot more popular items

from books to clothing, to electronics, to all sorts of things. Clothing, food, housing, and

transportation are the four major things in our daily life. When clothing, cosmetics and

accessories could still be the major things that the middle class will consume, Example should

include more food such as fruit and vegetables into its product list when its delivery service is

built. It is yet another huge market targeting different consumer groups. According to Wang

(2015), JD.com invested $700 million in Yonghui to “explore opportunities in the so-called

“online to offline” commerce, where consumers use their smartphones to order offline services

from food takeout to leisure and entertainment deals.” The food chain of Yonghui plays the key

role in this O2O deal. Example also has the platform to serve more people. As Donghao Yang

said, “In terms of industry consolidation, first and foremost, the retail market targeting China's

booming middle class is one of the most significant and exciting business opportunities today,

anywhere.”( EXAMPLES, 2012, pp.22). The same middle class, these “urban and educated

individuals” who would enjoy clothing and cosmetics would probably care about food security.

(Annual Report, 2015, pp.45).

Reshape the organization culture into no-bureaucracy and no politicking in the office. I

think one of Trader Joe’s core values, namely, no-bureaucracy, should be the most important

value for all Chinese enterprises (Ager and Roberto, 2013, pp.9). Bureaucracy is a common

phenomenon in Chinese enterprises. However, I do not have solid proof saying that bureaucracy

prevails in Example. But rumors are spreading fast in internet and I do have a few friends in

different apartment in Example who all confirmed that politicking was part of the Example

culture. For example, after Example “acquired a 75% equity interest in Lefeng.com Limited”, the

conflicts on resources and different organization culture between the original Example senior

management team and the newly-join Lefeng senior management are hurting the daily operations

of the company (Annual Report, 2015, pp.44).

Appendix E

Five-Forces and Blue Ocean Strategy Analysis for Example

“As China's leading online discount retailer, Example's unique business model offers

limited quantities of discounted products online, otherwise known as "flash sales," to consumers

in China.” (EXAMPLES, 2012, pp.22). Its business model is somehow unique but it is not

uncopiable. In today’s e-commerce industry in China, the ranking in the race is forever changing.

“Rivalry is especially destructive to profitability if it gravitates solely to price because price

competition transfers profits directly from an industry to its customers.” (Porter, 2008, pp.85).

Today we will go deeper in digging out Example’s (potential) competitors.

Bargaining Power of Suppliers

According to Shao (2013), some suppliers complained about Example’s not being

transparency in its business model and they cannot gather their own customers through

Example’s platform like they did in Alibaba and Jd.com. What’s more, Example has a higher

deduction point than the other e-commerce platform. “On Tmall, 360Buy and Dangdang, the

supplier notes that Example has a 25% to 30% deduction point—much higher than Tmall’s 5%

and 360Buy’s 10%–though they also offer more services to suppliers such as photo shooting,

storage, products delivery and customer services.” (Shao, 2013). In Apple’s case study, we did

not find more information on Apple’s part suppliers like Sony or the assemblers like Foxconn. It

is because Apple has very strong bargaining power over these suppliers. It is the same thing here.

Example now enjoys its strong bargaining power over the suppliers who want to get their

products sold in the platform. But for the really luxurious brands, they may not be impressed by

the achievement of Example.

Bargaining Power of Buyers

The CFO of Example pointed out in 2012 that the growth in active customers grew by

over 220% year over year (EXAMPLES, 2012, pp.22). In some customers’ perspective, the

products sold in Example are “neither cheap enough nor high-end enough.” (Shao, 2013). “The

majority of my colleagues still go on Tmall.com, mainly because it’s cheaper. More and more of

them are also shopping directly on the websites of American retailers.” (Shao, 2013). Even so,

judging by the annual report of the Example (2015), its revenues has been growing all the time,

which could be an indicator that it still enjoys the strong bargaining power of buyers. But the

truth is, buyers can also find the products offered by Example in other e-commerce platforms,

which weakens the bargaining power of Example over the buyers.

Threat of New Entrants

“An increasing number of general e-commerce sites, including DangDang (DANG),

JD.com (360buy), Yihaodian (backed by Wal-Mart), and Yixun.com (backed by Tencent), have

launched their own flash sales websites.” (Ren, 2014). And they are selling similar products like

apparel too (Ren, 2014). What’s more, Dangdang.com, Yhd.com, JD.com, and Yixun.com are all

having their own warehouse in big cities just like Example. “With a market share of less than

3%, Example has thrived behind its ability to grab basis points in China's business-to-consumer

(B2C) e-commerce market from the likes of Dangdang (NYSE:DANG), Yixun.com and

Yhd.com as well as smaller sites.” (Nichols, 2014). J.P. Morgan analyst Alex Yao seems less

concerned by this situation. He gave several reasons why Example’s leading position would not

be challenged in the short term: the largest brand coverage, mature B2C business model and

great user experience, and higher discounts available in terms of pricing strategy (Ren, 2014).

Threat of Substitute Products or Services

According to Munarriz (2014), Example is the replica of Groupon. Groupon-like services

such as Meituan, Lashou, Nuomituan, Dazhongdianping are booming lately. According to Lu

(2010), the Top 2 Chinese version of Groupon, Lashou and Meituan have already attracted

Venture Capitals. In fact, Meituan is backed by Alibaba, the No. 1 competitor of Example (Shu,

2015). However, these Groupon-like service providers all focus on location-based O2O service

for now. They are well funded by internet giants like Baidu, Alibaba, or Tencent. If they want to

cut into the market with more products, they have the capitals and resources to get the game on.

Rivalry among Existing Competitors

Example has a very unique business model indeed – it builds warehouse nationwide and

gets the best deals with the suppliers so that it can use its online platform to sell products. In the

e-commerce industry as a platform, it faces the challenge from Alibaba, JD.com. In the sense of

online apparel and cosmetics discount retailer, it has to consider Mogujie, Jumei, Meilishuo,

Jiapinhui, and Netease Kaola as their competitors.

Blue Oceans Strategy

Based on the two strategic moves, namely, “Never use the competition as a benchmark”,

and “reduce your costs while also offering customers more value”, I would like to offer two

strategies for the future development of Example (Kim and Mauborgne, 2004, pp.1). For one

thing, Example needs to think less of competition but more of partnership. Think about the time

when it “acquired a 75% equity interest in Lefeng.com Limited”, (Annual Report, 2015, pp.44).

It is a very good move. Lefeng could have been a very strong competitor. Now it makes its own

contribution to move Example forward in the ranking of the industry with its own resources and

customer traffics. In fact, Example can think about acquiring the other competitors like Mogujie,

Meilishuo, Jiapinhui, and etc. Secondly, Example could think about expanding its business into

other countries in the long run. It reminds me of the situation of Apple. Both Apple and Example

have a lot of loyal customers. And they all have customer issues in international business. For

Apple, it has to compete with the other smartphone suppliers who would launch less expensive

smartphone models to attract price sensitive yet the emerging market such as China and Brazil

(Rothaermel, 2014, pp.13). For Example, it focuses its business on China and thus it does not

brand recognition for customers abroad. Well, for the two e-commerce giants Alibaba and

Jd.com, Alibaba has been a platform for Chinese enterprises to sell products to other countries,

while Jd.com is doing exactly what Example is doing – merely involving the overseas brands as

suppliers since China itself is a very large market. In my opinion, not only the middle class in

China needs the product from overseas, but overseas buyers like India and Brazil also want brand

products.

Appendix F

KSF Analysis and Potential Strategic Pathways for Example

What Skills, Competencies, and Capabilities Example Has now

Loyal customers and steady growing customer base. By the end of 2014, Example had

127.8 million registered members and over 27 million active customers (Annual Report, 2015,

pp.5). Also, in the second quarter of 2012, the growth in active customers grew by 220% year

over year (EXAMPLES, 2012, pp.22). Millions of customers are the powerful strength of

Example. Just like Trader Joe’s, when the customers are on their side, they will be powerful in

the industry.

Partnerships with suppliers and delivery companies. By December 31 2014, Example had

worked with over 13,000 domestic and international brand suppliers and partners (Annual

Report, 2015, pp.5). Maybe some suppliers did complain about lack of transparency when

dealing with Example (Shao, 2013), but the relationships with the suppliers and partners help set

up the barrier for new entrants. Similar thing happens in Trader Joe’s. Trader Joe’s “required its

vendors to maintain complete secrecy about their relationship with retailer” (Ager and Roberto,

2013, pp.6). In this way, they can offer better prices to the customers.

In fact, as an online retailer, the role of Example is more or less an intermediate between

the suppliers and the customers. As far as this role is concerned, Example is a qualified

intermediate and will make the best out of it.

As the customers increasing, Example will have to employ better CRM system to

accommodate the customer needs in the future. Example has to provide customer services to the

13,000 brands on sales at this moment and it seems to take the customer service pressure pretty

well (Annual report, 2015). However, in the long run, the overwhelming customer

communication requirements will be a big problem. On one hand, as the number of customers

grows, the number of customer claims will also increase. It is not efficient to have Example as

the intermediate between the suppliers and customers this time. On the other hand, in answering

the product-specific requests and questions, it is very likely that the customer service from

Example is less professional than that from the suppliers since the suppliers are the producers of

the products. Example has to come up with a solution in advance. In fact, Trader Joe’s customer

service also needs to address customer claims or questions on a product-specific base and their

private label items are also provided by suppliers. But customers can return any product to

Trader Joe’s without questions asked if they are not satisfied with it (Ager and Roberto, 2013,

pp.7). This is not the solution for Example though.

Recommendation 1: Allow the suppliers to take over their customer service. Two metrics

need to be set to make it work. Firstly, Example needs to work out a function or system to

classify the customer claims into product-specific or service-specific. If they are referring to the

product features or functions, the system can transfer the claims or questions directly to the

suppliers; if the claims or questions are about the payment or delivery service, they can be sent to

the Example customer service. Secondly, they also need to work out a mechanism in monitoring

the product-specific customer claims or questions that are supposed to be sent to the suppliers. In

this way, Example can still refer to any customer claims or question if needed to.

In the future, Example will need to develop a delivery system as well. “We deliver orders placed

on our website to all areas in China through leading reputable third-party delivery companies

with nationwide coverage, including EMS, Shunfeng and Zhaijisong, quality regional and local

couriers, and our own in-house delivery operations.” (Annual Report, 2015, pp. 52). In fact,

Shunfeng, one of the best delivery companies available in China, began to offer products online

in 2012. Even though Shunfeng’s online store sells mainly organic food and drink, it does sell

mom and baby stuffs just like Example.

Recommendation 2: Acquire one or two delivery companies. If Aldi North did not

acquire Trader Joe’s in 1979, they would have been competitors in the grocery industry.

Acquisition instead of competition, it is what I call think out of the box in the competition.

Another example is Example’s acquiring Lefeng.com, one of the strong competitors in the

industry. Example can also acquire one or two delivery companies to complete its logistic system

and to eliminate a potential new entrant to the market. Two metrics work for this suggestion.

Firstly, the delivery service provided by the targeted delivery company should be compatible

with the locations of the warehouses of Example. In other words, after acquiring the delivery

company, Example should be able to use it right away. Secondly, Example needs to take a

delivery company that has better reach in big cities as well as small cities. The transportation and

delivery service will generally work nicely in big cities, but in the future when business focus

may shift from the big cities to small cities, Example needs to reach these areas as well.

Recommendation 3: Expand product options to cover more customers in small cities with

effective marketing campaigns. For now, the 13,000 brands offered in Example is already more

than the 4,000 SKU provided by Trader Joe’s. Both of these two companies prefer to provide a

mix of limited products at a low price. And both of them are targeting the better educated groups.

However, I would suggest the same expansion strategy to Trader Joe’s. They need to expand

their business to small cities eventually and they need better marketing strategies at these places.

According to the CFO of Example, there are four types of business models in e-commerce

industry: marketplace like Taobao, pure B2C companies like Amazon, vertical players like

Vancl, and then discount retailers like Example (EXAMPLES, 2012, pp.24). In fact, there are

overlaps in the customer groups among these four business models. For example, Example began

its business by selling apparels and Taobao, Vancl, and Amazon all sell apparels as well. “We

have increased our offerings to include other product categories, including fashion items,

cosmetics and home goods, as well as leisure travel packages and other lifestyle products, and

expect to continue to expand our product offerings to gradually diversify our revenue sources in

the future.” (Annual Report, 2015, pp.10). However, my suggestion is to reach the customers in

small cities with products that they can afford. Remember, Example’s targeted market is based

on the assumption that “Well-educated, middle-class Chinese consumers living in Tier II and III

cities shop online more than in stores given the dearth of brick-and-mortar brand stores in the

country.” (EXAMPLES, 2012, pp.22). And Example has “established a logistics network and

warehousing capacity with nationwide coverage” (Annual report, 2015, pp.51). In fact, Example

did talk the talk, but now it needs to walk the walk as well. The products offered are still slightly

more expensive for the customers in Tier III cities and consumers in these cities did not

recognize Example as a brand probably due to the lack of effective marketing campaigns in these

areas.

Appendix G

Competitive Force Analysis for Example

According to Investor’s Business Daily (2014), there are three growth drivers that make

Example as it is today: 1. “The Market is large and growing rapidly”; 2. "limited competition

from traditional discount retailers and substantial potential upside to customer numbers"; and 3.

“its mix of international and domestic brands in its flash sales”. The environment factors could

change as we speak. In fact, in the intense B2C competition in China, Example’s primary rivals

include “Taobao, Tmall, Suning and Jingdong as well as Amazon.com”. (Investor’s Business

Daily, 2014).

“Retailers planning their Chinese e-commerce strategy have two overarching goals:

expand their consumer base, and improve consumer satisfaction and loyalty.” (Chan, Tang &

Gu, 2012). The advantages that Example has over its rivals include “customer loyalty, driven by

a high-quality product selection chosen by what is considered to be the largest team of buyers in

China and a dedicated customer service organization; and effective operational management and

financial controls.” (Investor’s Business Daily, 2014).

However, based my 5 years’ experience in the online gaming industry, it seems to me

that it is very essential for an internet-based company to have the sense to detect the trends in

information industry. Example is an online discount retailer that uses “flash sales” as its core

business model. Its advantages mentioned above are very universal and could be happening in

any industry. It is not a bad thing at all. But I would suggest that it is time for Example to breed

its information-specific advantages. To begin with, I want to share with Example with 3 concepts

related to the industry: mobile device, the big data, and the online payment methods. Therefore,

my strategy for the future development of Example could be called Internet Thinking. Example

needs to remember that it is an online retailer, not a retailer online. It is doing great as a retailer

online and now it is the time to fully explore its internet gene to better serve its customers.

Mobile Device as an Entry for Internet Users

We cannot avoid talking about the trend in mobile applications. “In China, the number of

mobile phone subscribers climbed to nearly 1.3 billion in 2014, while the penetration of mobile

phone use soared to 78 percent.” (Steinbock, 2015). Applications in smartphones connect people

with information, people with people, and people with products/services. “69% of Chinese

buyers have made a purchase via their smartphone (in comparison with 46% of US buyers).

Alibaba’s platforms account for approximately 76% of the total amount of m-commerce

transactions in China” (Kulach, 2015). As more and more internet users are shopping through

smartphones, it is very important to create an entry for the mobile users.

1. Establish strategic partnership with social media apps – Tieba and Momo. Among all

applications, the most popular ones include social media like Google+, Facebook, Skype,

WhatsApp, and WeChat (Sacco, 2013). To answer the question why social media as an entry are

important to Example, “Generally speaking, Chinese customers trust social media and word-of-

mouth. They find it a more reliable resource compared to advertisements” (Kulach, 2015).

“WeChat, the WhatsApp for China, recently launched a new e-commerce offering called the

‘WeChat little store,’ which allows merchants to open online stores directly on the WeChat

platform” (Radovic, 2014). JD.com, the great rival of Example, is listed as one of the major

online stores on the WeChat platform. And Alibaba is behind Weibo, the China’s Titter (Shu,

2013). It is not likely for Example to partner with Alibaba or Tencent at this point. I have got two

potential partners for Example though: Baidu Tieba and Momo. These two internet giants are

still available for partnership with e-commerce industry. According to Statista (2015), Tieba gets

over 300 million active users while in accordance to Russell (2014), Momo has over 180 million

active users in 2014. For Tieba, Example can provide coupons to active users in Tieba

(represented by the score system). For example, if John gets 100 points in Tieba by logging in

Tieba for three days, he could be rewarded one $5 Example coupon that he can use to buy stuffs

in Example. For Momo, Example can do the same thing as JD.com partnering with Tencent –

Momo users can buy stuff directly via Example through the store listed in its user center.

2. Establish strategic partnership with Android app stores – uploading Example apps in

all Android app stores in China. If Example app is a department store, the app store is the

supermarket. We do not have Google Play in China Mainland – we have a lot of third party

Android app stores like PeaPod, Tencent App Store, HiMarket, and etc. These Android app

stores gather millions of Android users.

3. Establish strategic partnership with game developers – Example can provide an offer

wall to online game players. Here is how things work out: Example as a payment option to the

game players. They can be awarded with certain amount of in-game money if they buy things

from Example – the more they buy from Example, the more awards they can get in the games.

Example will cover the game companies for the awards. Example will spend money in marketing

anyway and this is just another marketing strategy that it can try.

Things change rapidly in the information age. To play this strategy smart, Example needs

to move fast. For example, as the wearing devices are becoming the heated topic, games that are

enabled with virtual reality by wearing devices may take up the majority of market share of the

online games within a few years. If Example can carry out this strategy within 3 years, it has a

potential access to millions of internet users.

Value of Big Data

Big data has a great impact on e-commerce industry in general. For example, “For e-

commerce merchants, this could be customer data like name, address and ZIP code.” (Kopp,

2013).

Linking the customer data with the supplier data. Within 5 years, Example can develop a

system that helps ease the stress of the CRM system. In this system, any callers to hotline will go

through the customer database. Once there is a phone number match in both the customer

database, there will be a pop-up window in computer of the customer service staff in Example

with order details, delivery tracking number, and a button to pass the request to the related

supplier in a single click. Or in the ticket system, Example can also use the customer ID to do

similar thing. In this way, customers do not have to wait a long time for customer service to look

up the information or pass the information to the suppliers before they can have an answer.

A price-comparing plug-in. Customers love to compare prices. As a discount retailer,

Example often offers competitive prices. New customers should find this helpful. For example,

John who usually buys staff from JD.com now wants to buy a hair-dryer in Example. When he

finds one hair-dryer that looks good, he also wants to know if JD.com offers a better price before

he could place the order. Example can help him without turning the page. On the right hand side

of the page, Example can provide a dropdown menu for customer to select the major e-

commerce platforms that offer the same product. John can select JD.com and finds out the

difference in price. Of course, Example can choose not to show the prices that are lower than its

prices and it could gather information on this and find out why the suppliers offer better prices in

other platforms.

Online Payment Method as the Exit of Internet Users

Online payment is one of the problems that hinder the development of China’s e-

commerce (People.cn, 2004). According to Bain Insights (2015), the fast growing digital

retailing in China is “supported by a population that eagerly embraces online and mobile

commerce and a leading-edge, cost effective infrastructure for payments and delivery.” Delivery

is not what I concern here. But the payment could be something Example works on. “23% of

mobile payments are via mobile payment systems such as Tenpay or Alipay. In fact, Chinese

consumers are going from cash to cashless at a more rapid pace than many western countries.”

(Kulach, 2015). And according to Go-Globe (2013), 47% of online shoppers pay via Alipay

(payment method by Alibaba where Example’s main rivals Taobao and Tmall come from) and

21% of them pay via Tenpay (developed by Tencent where the most popular social networking

apps WeChat and QQ come from).

Option 1: Develop an online payment method within 3 years. Politically speaking,

Example needs to get the license from the government before it can integrate online banking

system into its shopping experience; technically speaking, if Example wants to provide better

user payment experience, it can try to add the payment method into the shopping app, instead of

having a separate app for payment like the other payment methods.

Option 2: Acquisition of one existing payment method as soon as possible. In fact, it

would be much easier if Example just buys one of the mature payment methods in the market.

For example, Yeepay is not invested by any of Example’s rivals and it has about 4% market

share in online payment method usage (Go-Globe, 2013).

Of course, always provide Alipay and Tenpay as payment methods since they have a lot

of users. But Example needs an exit for its customers for a better shopping experience or for

avoiding the other payment methods closing the exit.

I always think that customers’ online buying experience is a cycle – there will be entry,

path, and exit. We know all internet users need to go through certain entry and exit. For example,

Example creates its own app as an entry, which is good. But there are a lot of things Example

can do with the internet. Armed the company with internet thinking and it can certainly benefit

from it.

Appendix H

Deleted

Table 1.1: Strategy Map for Example

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