Shipping Wars

Shipping and delivery have been vital to the success of e-commerce, both for retailers
and for the shipping companies themselves. FedEx, UPS, and the United States Postal
Service (USPS) have earned many billions of dollars handling the massive amount of
products ordered from Amazon and other e-commerce sites. Convenient and seamless
online ordering and shipping processes, along with free or low-cost delivery or two-day
delivery, are a source of competitive advantage for online merchants over traditional
brick-and-mortar retailers.
Especially important in logistics is the ''last mile," which refers to the last step in a
delivery that takes the package to the customer's doorstep. Instead of using the USPS,
FedEx, or UPS for the last mile, Amazon is building a fleet of delivery vans and
expanding its fleet of Boeing 737 and 767 airplanes for this purpose. Amazon Air is a
cargo airline operating exclusively to transport Amazon packages. By 2021, Amazon Air
will have at least 70 cargo aircraft operating out of over 20 air gateways in the United
States. Amazon additionally expanded its airport hub operations, building a $1.5 billion
hub at Cincinnati/ Northern Kentucky International Airport. Amazon also has operations
at Fort Worth Alliance Airport and Chicago Rockford International Airport.
Amazon taking over the "last mile" will drain billions of dollars of business away from
the US Post Office (which handles 62 percent of Amazon's packages), UPS (handling 21
percent), and FedEx (handling 8 percent). Amazon is not trying to replace these shippers
but does want to gain some control over logistics in order to guarantee that Amazon
Prime members get their two-day shipping on time and that it has capability to handle
very large sales volumes during the holidays or bad weather periods. Amazon will also
save on costs. According to Morgan Stanley, Amazon saves $2 to $4 per package,
amounting to $2 billion annually, when it uses its own fleet. Additionally, having total
control over the entire shipping process makes it possible for Amazon to provide a better
customer experience. It is easier to track lost packages and respond immediately to
customer inquiries if Amazon does not have to work through another shipper. Amazon's
shipping policies have been a principal driver of its rapid retail growth.
When Amazon announced one-day shipping for Prime members in April 2019, FedEx
canceled its express delivery contract with Amazon, redefining its business strategy.
Management believes FedEx doesn't really need Amazon to flourish, since Amazon
accounted for less than 1.3 percent of FedEx's $70 billion in consolidated annual
revenues and had been one of FedEx's least profitable customers on a margin basis.
Management also believed that working with Amazon was cannibalizing FedEx's own
business. The direction FedEx has chosen calls for focusing on its ground delivery
service and establishing new partnerships with other retailers and brands to serve the
broader e-commerce market.
For example, in June 2019 FedEx and Dollar General announced a strategic alliance to
offer new, convenient access to FedEx drop-off and pickup services at thousands of
Dollar General stores. The effort is designed to increase access to FedEx for all
customers, particularly those living in rural communities where Dollar General has a
large footprint. FedEx and Dollar General began rolling out the service in more than
1,500 Dollar General stores in late summer 2019, and will be in more than 8,000 stores
by the end of 2020. The Dollar General alliance will expand the FedEx Retail
Convenience Network to more than 62,000 retail locations. That move will put more
than 90 percent of Americans within 5 miles of a FedEx hold retail location. Customers
will be able to drop off prepackaged and pre labeled FedEx Express or FedEx Ground
shipments at Dollar General stores and pick up packages sent to their neighborhood
Dollar General stores.
FedEx thinks it can overtake Amazon and become the fastest, most cost-efficient e-
commerce delivery service. In December 2018 FedEx announced its Extra Hours'
Delivery Options for Retail Customers, which will provide next-day and overnight
shipping to e-commerce customers. FedEx is also initiating package delivery seven days
a week to further compete with Amazon.
How does United Parcel Service (UPS) stack up in this competitive arena? Unlike
FedEx, UPS is deepening its ties to Amazon. It wants to stay neutral, whereas FedEx has
broken away from Amazon in favor of courting the brick-and-mortar retailers. UPS is
also relying more on the U.S. Postal Service, especially for Sunday deliveries. FedEx is
now delivering on its own about 2 million packages per day that it had formerly handed
to the U.S. Postal Service for last-mile delivery. By handling an increased volume of
packages on its own, FedEx believes it can make better use of its more than 600 sorting
and delivery facilities around the United States to help retailers with shipments from
stores to residences. However, analysts such as Morgan Stanley's Ravi Shanker are not
sure 127 that increasing the volume of short-haul deliveries will generate the kind of
returns FedEx is seeking. Which company will win the retail shipping wars? The
outcome could determine the future direction of the entire e-commerce retail industry.

1. Why is shipping so important for e-commerce? Explain your answer.

Shipping is very important for e-commerce because of their logistic in delivery

order to e-commerce customer.

e-commerce has conditioned customer to expect convenient and timely delivery of

products. Hence, quick and reliable shipping is important to keep customer
expectations.

Efficient shipping allows e-commerce companies to reach broad customer

including those in the rural areas and remote. This expanded can lead to increases
in sales and market growth.

Reliable and fast shipping can lead to higher customer loyalty which encourage
customer to repeat purchases.

2. Compare the shipping strategies of Amazon, FedEx, and UPS? How are they
related to each company's business model?

Shipper Strategies
Amazon Amazon taking over the “last miles”

Bargaining Power of Suppliers:

Amazon:
As it builds its own logistics network,
 Amazon reduces its reliance on
external shipping providers like FedEx
and UPS. This shift allows Amazon to
have more control over its supply
chain and reduce its dependence on
third-party carriers.
FedEx FedEx and Dollar General announced
a strategic alliance to offer new,
convenient access to FedEx drop-off
and pickup services at thousands of
Dollar General stores.

Threat of New Entrants:

FedEx focuses on ground and express
delivery services, where it faces
competition from other logistics
companies but has a strong presence. It
also benefits from high entry barriers
due to the substantial capital required
for establishing a global delivery
network.
UPS UPS is deepening its ties to Amazon.

Competitor;
FedEx and UPS: These companies
compete not only with each other but
also with regional carriers and postal
services for market share in the
logistics and delivery industry.

3. Will FedEx succeed in its push into ground shipping? Why or why not?

While FedEx is focusing on providing next-day and seven-day-a-week delivery

options, it faces competition from Amazon, which is also investing heavily in its
logistics network.

FedEx's ability to generate satisfactory returns from increasing its volume of

short-haul deliveries remains uncertain, as it requires efficient utilization of its
sorting and delivery facilities

Ultimately, the outcome will depend on how well FedEx can execute its strategy
and compete with both Amazon and UPS in the e-commerce delivery space.
3-8 Dolce is an Italian company selling high-end turnkey kitchen designs—
designer stoves, refrigerators, microwave ovens, and other appliances as well
as worktops and kitchen cabinets. To compete better globally, Dolce has
decided to let customers design their own kitchens through a web-based
interface. The client needs to insert the exact measurements and make
requests for appliances and furniture materials, and then the order will go to
the Italian factory, where the kitchen’s parts will be assembled, packaged,
and sent to the client. How can Dolce take advantage of information systems
to succeed with this concept?

Product differentiation. Customer submit their design on web to have custom

made kitchen

Strengthen customer and supplier intimacy. Information systems helps Dolce to

retain their customer and gain new customer with their custom made option

Information systems can be used to automate the ordering of the kitchen

appliances from supplier absed on customer specification

IS also provide customer with the ability to track thr progress of their kitcher order

3-9 Habibi Watches sells trendy watches and other apparel online in the
United Arab Emirates. As a purchase requires registration, the company has
been able to acquire a lot of customer data. Information regarding a
customer’s previous purchases and email and home addresses is therefore
easily obtainable. How can information systems help Habibi Watches attract
more attention from existing customers? How can management decisions be
made regarding quality of customer service, product quality, etc. using
information systems?

Personalize marketing:

Customer data analytics: use IS to analyze customer data including previous

purchase and browsing history to determine customer preferences.

Targeted marketing campaign:

Use customer email addresses to send targeted email campaigns including
exclusive offers. Customer can be divide into different segment for targeted
marketing campaign.

Performance analytics and decision support:

 Establish KPIs related to customers satisfaction, sales and product quality. IS can
provide real time dashboards and reports to monitor these metrics.

Discussion Questions Chapter 3 Information Systems, Organizations, and

Strategy

MyLab MIS 3-5 It has been said that there is no such thing as a sustainable
strategic advantage. Do you agree? Why or why not?

Strategic advantage is sutanaible only when it can be copy by the competitor.

MyLab MIS 3-6 It has been said that the advantage that leading-edge
retailers such as Dell and Walmart have over their competition isn’t
technology; it’s their management. Do you agree? Why or why not?

Yes, it is important for management to support the change to embrace the

technology. Because implementing strategic information system requires many
change inorganizations. Management also responsible to make decision regarding
business process that need innovation by integrating IS.

3-7 What are some of the issues to consider in determining whether the
Internet would provide your business with a competitive advantage?

Issues to consider including;

Low-cost leadership ; produce product and service at lower cost compare to

competitor. Example, Walmart efficient customer response.

Product differentiation ; example Nike. Enable product stand out compare to

competitor

Focus on Market Niche: to enable focused market strategy. Example Hilton OnQ
systems which help streamline their operations and improve guest experience.

Strengthen customer supplier intimacy: IS help gather data about customer

preferences and use it to analyze to meet their needs better. Example Amazon,
offering other book title to their customer.

Offline, Online, and Back: The Evolution of the UK Grocery Market

CASE STUDY
The UK grocery market is predicted to grow by 12.5 percent through 2024, and according
to the food and grocery research organization IGD, it is expected to reach a value of £217. 7
billion. The main grocery stores operating in Great Britain are Tesco, which, as of
December 2020, had a market share of 27 percent; Sainsbury, 15.7 percent; ASDA, 14.1
percent; and Morrisons, 10.3 percent. Together, they cover over 65 percent of the grocery
market and are considered the "Big Four" in the United Kingdom. Tesco reached its peak in
2007, when it held 31.1 percent of the UK grocery market share. Worldwide, the company
operates around 7,000 stores across Europe and Asia. In the United Kingdom, Tesco
focused on implementing a strategy that enabled the company to offer the lowest costs and
achieve cost leadership. This drew price-sensitive customers away from its competitors and
increased its market share. Tosco adopted the following strategies to maintain this cost
leadership: (1) high utilization of assets through production oflarge outputs and spreading
fixed costs over large quantities, (2) minimal direct and indirect costs in the production and
distribution stages, and (3) strict control over the supply chain to ensure low costs. This
strategy was viable for Tesco; as a big company, it could take advantage of economies of
scale in the market. However, due to the popularity of discount supermarkets such as Aldi
and Lidl, Tesco has recently been struggling to maintain its cost leadership. Consumer
behavior has changed in the United Kingdom due to economic recession and inflation,
leading customers to shift to budget supermarkets for their grocery purchases. Over the last
several years, Tesco's market share has fallen slightly; by contrast, Aldi and Lidl have
continuously been increasing their market share over the last few years. In December 2020,
Aldi was the fifth largest grocery chain in the United Kingdom with a market share of 7.7
percent. Besides the physical supermarkets, Tesco initially operated two online platforms:
Tesco.com for grocery home deliveries and Tesco Direct for household goods and clothing.
However, in May 2018, Tesco announced Tosco Direct's closure in an unexpected move.
Tesco Direct had been launched in 2006, and it had cost the company £25-£30 million.
According to Charles Wilson, the then CEO ofTesco's UK chain, closing one of the
websites would help them to focus their investment in one platform to offer better service
and more products to customers. Although the closure cost 500 jobs, it was not a huge
surprise, considering that Tesco had, by its own admission, faced challenges in making it
profitable. Tosco's attempt to compete with huge online retailers such as Amazon and Argos
had failed because it had been unable to make profits after covering the costs of marketing
and order fulfillment. Besides this setback, Tesco must also contend with the threat from
discount supermarkets. By June 2019, Aldi had opened 830 stores in the United Kingdom
since 1990, when its first store was launched. Aldi reported £11.3 billion in revenue for
2018, an 11 percent increase over the previous year. Similarly, Lidl reached a total of760
stores by June 2019 and also plans to continue to grow over the next five years. Customers
were skeptical at the beginning, but once they saw the low-price products, they switched
their buying preferences to these discount supermarkets. The COVID-19 crisis served as a
further boost to the discount sector. According to some estimates, customers who switched
from the Big Four supermarkets save over £2.2 billion annually by shopping at Aldi. Aldi
UK's most successful year was 2017, when it generated £10 billion in annual sales for the
first time. Experts argue that the main reasons these discount supermarkets have been
successful is rising inflation and the stagnation in wages, and the atmosphere of uncertainty
brought about by the COVID-19 crisis. The services offered by Aldi are similar to those that
the "Big Four• provide their customers, but Aldi has the advantage oflower prices and is
still considered a discounter, which is especially attractive for customers during inflation.
Surveys show that Aldi also gets very good ratings in customer satisfaction. During the
COVID-19 crisis, Aldi announced the opening of 100 new stores and further investment in
a new online ordering service. Aldi is trying out new formats of home delivery; for
example, "click-and-collect" enables shoppers to order groceries and pick them up at a
nearby store. Furthermore, a partnership with the courier firm Deliveroo allows for rapid
grocery delivery service within half an hour. Ever since the two discount supermarkets
came to the United Kingdom from Germany, they have forced the big grocery stores to
rethink their approach. Thanks to their low-price grocery strategy, Aldi and Lidl have
changed the UK supermarket industry for some time to come. Big supermarkets like Tesco
and Sainsbury already offer online grocery shopping, but they faced difficulties making a
profit from their e-commerce operations. With Aldi and Lidl's entry into this market, these
challenges will only increase. In the beginning of 2016, Aldi opened its first online store for
the UK market. The discount retailer made its opening move by investing £35 million to
launch an online website for selling wine, which was followed by non-food "special buys."
According to Kantar Retail analyst Bryan Roberts, this move is a smart way of reaching
customers who don't have access to an Aldi. Lidl founded the Lidl Digital Logistics, and
experts expect this supermarket to enter the grocery delivery market too. So far, Lidl has
sold wine and some nonfood items online in parts of Europe, but not groceries. Lidl's
approach to entering the digital market is quite innovative: recently, they launched a chatbot
designed to help customers in their choice of wine based on what they are eating. The public
love for the discounters signifies a major threat for big supermarkets looking to keep their
market share, both on- and offiine. To take the fight to Aldi and Lidl, and having seen Aldi
and Lidl's success in gaining market share, Tosco announced plans in 2018 to open a
discount chain of60 stores all over the United Kingdom, thus entering the fastgrowing
discount market. History has shown that attempts by big supermarkets to launch discount
brands have largely failed. Tesco was no exception, and it has since scaled back those plans
and even closed some of those stores. With Aldi and Lidl trying to enter the e-commerce
industry and Tesco trying to defeat them by entering the discount market, the war between
the big and budget supermarkets has taken some interesting turns, especially since food
shopping has undergone changes too: more people prefer to buy food on a daily basis and
more locally, and a high number of them prefer to buy their food online. A number of
European retailers have responded to this by opening smaller stores in nearby locations,
launching online stores, and testing other new models for shopping. Tesco has been in the
business of selling on the Internet for a long time now; in 1996, it became the first
supermarket to launch online shopping. There are several ways Tesco is using information
technology to its advantage. For instance, in 2011, while Tesco's domestic United Kingdom
sales were dropping, it was a huge success in South Korea, its largest market outside the
United Kingdom, as a result of its ability to adapt to local customer needs. As South
Koreans are among the people with the longest working hours worldwide, Tesco introduced
"virtual stores" with its Homeplus brand in the country. It displayed these virtual stores in
subways and bus stations, where people could scan products' barcodes using their
smartphones and purchase them online. These products were then delivered to them right
after they returned home, thus saving time and effort for the consumers. History has shown
that the grocery industry needs to adapt to consumer demands and lifestyles continuously.
The United Kingdom and South Korea are a study in contrasts. While people in the United
Kingdom switched from domestic big supermarkets to budget supermarkets, the opposite
happened in South Korea thanks to Homeplus, which turned Tesco into the country's second
largest grocery retailer. Customers in the United Kingdom are pricesensitive due to
economic recession and inflation, whereas customers in South Korea have embraced the
technology made available to them to suit their time-sensitive lifestyle. E-commerce is a
huge opportunity for discounters, but what will happen to the grocery sector if Aldi and Lidl
decide to offer their full range of products online? Perhaps more importantly, can they gain
a bigger share of the grocery market at the expense of the Big Four in United Kingdom?
Some experts believe that this strategy is untenable. According to retail consultant Graham
Soult, the discount supermarkets' initiative of entering the online shopping market runs the
same risks and problems that other supermarkets have faced. He believes that the
uniqueness of these supermarkets lies in their simplicity and low cost, which they might be
putting at risk when they start to sell food and groceries online. Simply put, the complexity
of the e-commerce industry might not fit their low-cost business model.

CASE STUDY QUESTIONS

3-13 Analyze the cost leadership strategy of Tesco based on Porter's Competitive
Forces Model. Why would it be a smart move to close one of its online shopping sites?
Porter's Competitive Forces Model. Analyze
New Entrants Create barrier for other entrants
Substitute Even there is might be substitute product
such as online shopping, Tesco’s cost
leadership strategy deter customers from
switching to substitute
Traditional Competitor Tesco’s cost leadership successfully drive
the price sensitive customer away from its
competitor. This leads to price competition.
Supplier Tesco strict control over supply chain
reducing the supplier bargaining power and
this contribute to its cost leadership
strategy
Customer Price sensitive customers attracted to
Tesco’s low prices,
Increasing their loyalty
Thus, reducing their bargaining power

Tesco’s cost leadership keep customer

engaged.

Why would it be a smart move to close one of its online shopping sites?

Competitive Position
Tesco faced challenges competing with online retail giants like AMAZON.
Thus, Tesco only concentrate its effort on being competitive in a specific market segments.

3-14 Do you think Aldi and Lidl's strategy of venturing into e-commerce is a good
idea?

Good idea, offering online shopping can provide competitive advantage over traditional
discount stores. Because, it allow wider market reach .Also, it strengthen customer and
supplier intimacy by serves customer who prefer online shopping .
3-15 Comment on Tesco's strategy of opening a discount chain. Do you think it could
recover Tesco's former market position? Explain your answer.

Tesco’s strategy of opening a discount chains is a response to the competitive threat posed
by Aldi and Lidl, here are considerations;

By opening a discount chain, Tesco’s will attract price sensitive customer and this will
strengthen the relationship between supplier and buyer.

Establish product differentiation will make Tesco broader it range of service to meet
customer preference and needs for low price.

The success of this strategy is depend on Tesco’s ability to balance cost-efficiency with
price competitiveness in the discount market.

3-16 How much potential do you see for virtual stores (like the ones Tesco introduced
in South Korea) in the United Kingdom?

Tesco virtual store success is seen on how it adapt the customer needs. The success in Korea
able to achieve as most of Korean worker have longest working hour making the Korean
consumer cut groceries time by shopping virtual to have more rest at home after tired
working.This, show that the market segment for busy people in Korea is align with what
Tesco virtual stores offer.

But the situation is different in UK. To make sure the virtual store is success in UK, need to
assess the environment in UK. Is all the consumer there able to embrace the new technology
shopping virtual at bus stop or they tend to resist?

Also, in term of technological structure, is it conducive and equipped with high speed
internet.

And as for competition, Tesco virtual stores would face competition from online grocery
retailers.