Webvan Case Analysis
This analysis will consider the Webvan strategy and its market position to serve as a basis for recommendations to Webvan's management team. Webvan was once the largest online grocery enterprise in the United States. However it is now considered a classic large investment failure despite the fact that the total industry volume was over one billion dollars per year while the online segment was over two hundred million dollars annually. Webvan failed to live up to its expectation despite the large amount of capital it had at its disposal.
Webvan began in 1998 as an innovative business idea that excited and drew support from investors already caught up in the dot-com phenomenon. However, the company finally botched the opportunity to attract and develop a customer base large enough to justify the large investments it made in the development of technology systems and elaborate distribution warehouses.
It was found that the consumer acceptance of the model was relatively low. With hindsight, it was recommended that the company should incorporate more outsourcing and strategic partnerships to keep its capital requirements at lower levels. Furthermore, the company needs a new strategy to attract and retain customers. The company could narrow its target market and focus on tribal marketing to narrow groups. By partnering to reduce the capital utilized in the business model, this would have allowed the company more flexibility in its development.
Contents
Executive Summary 2
Situation Analysis 6
Vision and Mission 7
Market Opportunity 7
Industry Profitability 8
Porter's Five Forces 8
Threat of Substitute Products 8
Competitive Rivalry 9
Threat of New Entrants 9
Bargaining Power of Suppliers 9
Bargaining Power of Buyers 10
Customer Analysis 10
Competitive Review 11
SWOT Analysis 11
Strengths 11
Weaknesses 12
Opportunities 12
Threats 13
Company Assessment 13
Marketing Strategy 14
Objectives 14
Target Market 15
Value Proposition 15
Distinct Competency 16
Marketing Mix 16
Product 17
Place 17
Price 17
Promotion 18
Financial Plan 18
Pro-forma Income Statement 19
19
Sensitivity Analysis 20
Challenges / Risks 20
Additional Research Needed 21
Situation Analysis
Webvan developed a unique and innovative business model that was heavily dependent on developing technology. The company's product mix was composed of about 20,000 high-quality grocery items, including fresh fruits and vegetables, meats, and frozen foods, and delivered the orders to customers throughout a large metropolitan region. Webvan had no retail outlets, but instead it operated out of massive regional distribution centers of about 350,000 square feet each. Using warehouse space allowed the organization to save money relative to the traditional model for groceries that required prime real estate. This in turn provided the company the opportunity for higher margins.
Vision and Mission
The vision and mission serve as the foundation of the analysis and recommendations, as they are also the drivers of the Webvan's business model.
Webvan's vision was to provide a faster, cheaper and more efficient way of delivering items to consumers.
Webvan's mission was to deliver the last mile of e-commerce to the increasing number of people making purchases online by creating an enterprise that would provide a greater variety of products than a conventional store while still providing the instant gratification that online shoppers miss.
Market Opportunity
The grocery industry is one of the largest in the world, with annual retail store sales that are estimated at $650 billion. However, despite the industries size, it is difficult to operate in this industry because profit margins are slim, sometimes as low as one to two percent of total revenue. Furthermore, the industry is very price sensitive. The most successful Web retail sales of grocery items involved delivery of products several days after the order was placed via parcel delivery services such as UPS or FedEx. However, Webvan wished to change the distribution channels to make delivery much quicker so that the consumer could still have some sense of instant gratification. Yet this business model required an aggressive strategy to overcome many obstacles that would make such a distribution channel possible.
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