Challenges and Risks Associated with Direct-to-Consumer Strategy
Competitive Business Market and Indirectly competing with Major Customers
The e-commerce market has been expanding at an impressive rate and have many established e-businesses online (high rivalry), this makes PnG’s breakthrough into the online market extremely competitive.
According to Porter’s Five Forces (Alertra.com, 2018), customers will experience no switching costs (high bargaining power of buyers and threats of substitute products) as they can switch from one retailer to another. Selling products directly to customers may also be indirectly competing with PnG’s major customers who are the supermarkets.
Insufficient Brand Awareness
Despite the fact that PnG is a huge national brand manufacturer, our market share will not be able to increase and hence will not be able to compete on such a competitive platform if PnG’s online presence doesn’t improve. To increase brand awareness more marketing cost will be incurred and costs cannot be offset by increasing prices of products. Hence, affecting sales and revenue.
Downtime Affecting Sales
Server downtime happens when there is a glitch in the server. Only the website provider can help to get the website up and running. (CGMA, 2018) This can have an adverse effect on the sales, revenue, productivity and customer retention. Once the ordering processing crashes, it is impossible to take orders and generate revenue as online platforms are the only outlets where online sales and revenue are generated. A typical Fortune 500 company’s labor component of downtime costs $46 million per year. (Thompson, 2015)
In 2017, 70% of large companies and 74% of SMEs reported that they had suffered a cyber breach (Export.gov, 2018). Costing e-commerce merchants and financial institutions an estimated $274 billion per year globally. Hence, there is a possibility that there will be a disruption of trade, theft of customer’s data, financial and corporate information. Affecting customer’s loyalty, the credibility and reputation of the company. PnG may also face legal charges (additional expenses) due to negligence of putting appropriate security measures in place. (Kardell, 2018)
Lack of Human Interaction
Purchasing items online also lack human touch that offline stores provide. If there is something wrong with the item delivered or if there are any feedback and enquires on pre or post purchase services, the business might lose its ability to upsell, retain potential sales and loyal customers as it can be time consuming and troublesome for customers to contact customer service to rectify the issue.
Delivery Costs and Human Error
3 out of 10 UK customers value free returns and reliable delivery. 28% of them only buys from stores that has a free return policy. (Baumber, 2017)
Delivery is integrated into online shopping to provide customer a seamless shopping experience. Problems that will be faced by the delivery department will be customers not receiving their parcels on time or at all, parcels need to be redelivered, wrong tracking number provided, and wrong items delivered. If these issues are not rectified quickly, it will affect customer’s satisfaction and hence affecting customer’s loyalty and future profits and revenue.
More Expenses Incurred
PnG is expected to incur more expenses during the first few years of entering e-commerce. Regular training is essential to make sure the departments have the necessary up to date information to work efficiently and productively.
Manpower expenses are also expected to increase as more staff in the front end and back end are required to keep up with the increasing volumes of transactions and demands
Work Together as a Team
Employees should work together harmoniously with a same aim and goal for the good of the company. Positive peer relationships can increase employee satisfaction by 50 percent and they are more supportive towards one another other (Chance, 2017).
Customers have purchasing power and negative feedbacks are free market research which can help improve PnG’s services by understanding our limitations (Hrmguide.co.uk, 2015). Being able to handle difficult situations and rectify customer’s issues shows the competency of a company.
Develop Satisfied Customers
One happy customer will share to nine people about their positive experience with the company while one angry customer will tell 16 people about their negative experience (Markidan, 2017). 5% in customer retention will generate 95% of profits (Markidan, 2017). Customers may not always be right, but we should always try our best to fulfil their needs. Customer’s loyalty and retention is crucial for new entrants in a competitive market.
Use the Correct Platform to Reach Target Market
Appropriate communication platforms will help the company to identify and attract the right audiences which will help generate revenue. This will help the company to save resources by not investing in areas that will not be profitable to us.
Identify the Right Target Market
Customers in the identified target market will have similar characteristics and are more likely to be attracted by the advertisement if featured on the right marketing channels (communication methods/ platforms). If a company’s target market are Millennials, companies should avoid using traditional advertising channels like the newspaper or magazines as the chances of Millennials chancing upon the advertisement is slim. In fact, the readers of age 50 years old and above are more likely to be attracted to advertisements featured on traditional methods (Intersectmediasolutions.com, 2018).
Sell the Profitable and Right Products
Products sold on the online store must be profitable and appealing to our target market. It will be a waste of resources if the products are not appealing and the return of investment is not high enough to cover the cost of advertisement.
Minimise Competition with our Major Customers
Supermarkets are the major customers of PnG. Apart from sales and revenue are made online, the majority of the remaining revenue comes from the supermarket. If the competition between PnG’s online store and the supermarkets are too stiff, the supermarkets can choose to remove PnG’s products off their shelves to avoid competition. This will be disastrous for PnG as sales and revenue will strongly be affected. Hence, competition with the supermarkets should be minimized.
Incorporate Highest Level of Data Security
PnG needs to adopt the highest level of data security. Data is not only an asset of the company but also customer’s confidential information which has been entrusted to us. Data breaches take seconds to tarnish the reputation that PnG took decades to build.
Aim to have No Downtime
Downtime can turn potential customers away and competitors may in turn take advantage of this situation to earn revenue at our dismay (Villanueva, 2018). Downtime has the ability to cause a chain reaction of consequences which cause inconveniences to many. Customer’s satisfaction, company’s reputation, sales and revenue, productivity as well as the supply chain will all be affected.
Part 3: Business Plan
Only 1 in 10 Millennials in the UK has never shopped online (Cbreresidential.com, 2016). In May 2017, the average weekly spending online was £1.1 billion which was an increase of 14.4% compared with May 2016 (Murphy, 2018).Total online sales in the UK has also increased from 3.4% in 2007 to 16.4% in 2017 (Murphy, 2018).
Hence, PnG will be using e-commerce and mobile-commerce to approach the Direct to Consumer channel of distribution.
Market Data Base
Our target market are the Millennials located in the UK. PnG will be advertising its products and services using social media marketing as Millennials are thirsty for validation from the social media (Bhalla, 2017). Also, 59% of the millennials make up of 28% of UK customers that have made purchases using their smartphone (Baumber, 2017). Millennials are more into keeping a healthy lifestyle than any other generations as they are educated than their parents, thus, knowing the importance of keeping a healthy lifestyle. Four out of five Millennials say that they exercise regularly, or would like to in the future (Cornelius.co.uk, 2016). They also spend an average of £155 per month on health and fitness (Stinson, 2018). 1 in 10 conversations were about eating healthily to lose weight healthy eating is now a lifestyle for Millennials (Betrand, 2017). In 2017, the UK millennials also became the largest generation in the work force (Lucky Attitude, 2018) hence have purchasing power to buy PnG’s products. Thus, PnG will be targeting at Millennials who wants to lead a healthy lifestyle, have purchasing power and use ecommerce services.
To attract the Millennials and generate revenue, the products that we will be selling are Meta and Align health supplements (probiotic for digestive support, fiber supplement, immunity support, appetite control and detox supplement).
65% of the UK Millennials ‘Always’ or ‘Very often’ use the delivery services provided when it comes to purchasing items online (Cbreresidential.com, 2016). Hence, we try to provide a seamless shopping experience by including; delivery, receiving payment online, and customer service via social media, online store and the mobile application in our services. The website as well as mobile app will provide real time tracking of their parcels after being dispatched. PnG will also provide free returns policy if they return the product to their nearest supermarket which carries PnG products. If the customer prefers to ship it back to us, it will be at their own expense.
PnG will provide trainings and hold staff retreats for employees. Training enables employees to have the relevant knowledge to work more efficiently and productively like answering customers enquires and knowing the flow of the job processes as venturing into the ecommerce industry could be something new to them. Staff retreats will allow employees to bond and mingle. This will help in sharing knowledge among themselves to help increase efficiency at work. An example would be providing fast customer service online. This can be a differentiating factor which sets apart PnG with other competitors. As customers are more demanding and impatient than before. Hence, they are expecting to be served quickly (Hyken, 2018). Technology has made life very fast paced and convenient (News.bbc.co.uk, 2004).
Not only that, staff retreat can also help align employee’s targets and goals with PnG’s.
Employees will all work together to be customer driven once their targets and goals are aligned. When there is good customer service, there will be maximum customer retention. Word of mouth from satisfied customers are the cheapest and most effective form of marketing and it will help in brand awareness as well as brand reputation. People are four times more likely to buy when referred by friends and generates two times of sales than paid advertisements (Sukhraj, 2018).
PnG can also purchase Customer Relationship Management tools to help PnG be more customer focused. With CRM, we will have the information to meet the needs and wants of customers and understand their purchasing behavior. It can also help the customer service team to provide excellent service by keeping history of past conversations and customer’s notes to serve them more efficiently (Nutshell, 2018). Thus, providing them with better personalised customer experience and reducing the lack of human interaction on ecommerce via the chat function. However, a good CRM tool can be expensive but essential for the success PnG since it is entering into a competitive market.
When PnG has more brand awareness, the mobile app and online website are more prone to having hackers and down time. PnG can purchase data security tool and do regular maintenances and updates to the mobile app and website to mitigate theft of data and being hacked. To aim for zero down time, proactive monitoring is required to identify network issues early before the down time escalates. However good data security tools are expensive and even after implementing measures, there are still chances of being hacked and experiencing downtime.
Since PnG will be selling products that have already been sold in supermarkets, there will be some form of competition with its major customers. To reduce competition with the supermarkets, PnG can repackage products in larger quantities or sell the health supplements in bundles (a variety of different products) as it is expected that the customers will consume a daily dose of different supplements daily. Selling in larger quantities also reduces the cost of delivery.
To reduce the cost of delivery, PnG will be hiring free-lance driver to deliver goods on behalf of PnG. Drivers will be able to select the time and location they would like to deliver parcels to using the PnG delivery’s app. This will be cheaper than having to employ thousands of full-time employees and purchasing assets for the delivery department as drivers will have their own car and mobile phones to work. To make sure customers receive the right orders and on time, the warehouse department will need to work as team and allocate different staff to double check and even triple check to make sure the packed parcels have the right items and addressed to the right person. Delivery drivers will be provided with training as well. However, there will always be human errors. Since it is a mistake on our part, customers can ship the item back to us and we will expedite their order and reimburse them their shipping fees once we have checked the returned goods according to their invoice. We will also provide them with a discount code for their next order to retain customer loyalty.
There will be a lot of cost involved in venturing into a market that is well established and has many players. However, the large sum of expenses will be incurred only temporarily. Expenses spend on training and marketing can be reduced once staff are familiar with the job scopes and PnG has sufficient brand awareness and loyal customers.
Technology solutions: to reduce the cost of increasing manpower. Adopt technology hence reduce cost in the long run
It also has been constantly upgrading itself in order to keep up with the ever-increasing demands for fast service. In e-retail businesses, different channels have been created to serve customer better. Business hours have also been extended to adapt with the increasing requests of superior customer services.