Free Business Essays - Tesco, Wal-Mart, And William Hill
Applications of information management and e-commerce intelligent systems in business
Technology continues to change not only business systems but society at large. The institution of infomration management systems and e-commerce intelligent systems illustrate this continued change. Information management systems are typically computer-based, in house systems that allow the recording and accessing of various consumer, product, and outlet data. E-commerce encompasses the various transactions of business functions over electronic formats, most notably the Internet, although several companies developed their own e-commerce systems before the Internet became widely used (McKenna 2002, 142). From a business standpoint, information management systems and e-commerce require a strong, networked infrastructure. Such infrastructure can make or break company success, ensuring the ability to exchange and track information and forming the foundation of many fuctions, from product distribution to marketing.
Effective information maangement and e-commerce depend on the interconnectedness of business systems. For example, today call enters are computerized customer network managers, receiving and integrating all the various access means - including phone, fax, and Internet requests - and then orchestrating and directing the appropriate responses (McKenna 2002, 33). Such integration also influences customer loyalty, as it allows firms to provide improved service. McKenna (2002) contends that if various technological input devices, such as kiosks, car systems, computers, and cell phones were interconnected, the consumer will become more dependent on - or even loyal to - the connecting total access system and the standards used to interconnect (37). Three businesses successful in information management and e-commerce are Tesco, Wal-Mart, and William Hill. Each of these firms demonstrate various theoretical and practical benefits of information management, and considerations regarding factors that influence successful implementation of such.
CASE STUDY - TESCO
Tesco employs a loyalty card system to record and manage customer data, combined with smart registers to track inventory and sales. In this scheme, consumers earn points for every pound spent when they also submit their Tesco Clubcard at the time of purchase; accumulated points can be used to pay for purchases. These points can be accumulated through purchases at the retailer's stores, through Tesco.com, and even through other participating retailers. As such, Tesco is able to generate a great deal of cross-platform information on many of its consumers.
Loyalty cards are a vital component of Tesco's information management system (Graeff and Harmon 2002). Data gathered from customers' purchases as they use their loyalty cards is invaluable to product and price decisions. Each time customers spend and use their cards, the store gathers detailed information about their purchases. This data has been found to be more accurate than other market analysis information previously available (Byrom 2001). Loyalty card information is typically used to develop customer group profiles, rather than tracking an individual consumer's spend, although such detailed analysis could be performed. As a product, loyalty cards draw new customers, whilst encouraging repeat customers to increase their spend so at so accumulate points at that particular store. Consumers have shown they increase their spend at shops offering popular loyalty card programmes (Byrom 2001).
Both theoretically and practically, loyalty cards can be used in positioning, product, and pricing. First, loyalty card data allows Tesco to profile its most profitable customer types, and thereby assist it in positioning decisions (Shabi 2003). For example, if the retailer can define a particularly profitable customer profile, such as affluent married women with children under the age of ten, who live within five kilometres of the store, Tesco can take steps to position itself to appeal to this consumer group. Loyalty cards themselves can be adjusted for positioning, with rewards schemes also targeted at the shop's desired customer type. The increased shopping and consolidated spending associated with loyalty cards contributes to a static customer base and more defined positioning for the retailer (Byrom 2001). Information regarding these groups can be further used in advertising plans (Uncles, Dowling and Hammond 2003). Loyalty card data reveals such details as which customers play tennis, which eat prepared meals, and which own a pet. Before such informaiton gathering and management systems were employed, Tesco would have had no alternative but to use its advertising and direct mail marketing based on a general plan based on many assumptions. Ads the firm placed in local newspapers or direct mail material were presented to many people outside the store's shopping group in order to also reach its desired customers (Rowley 2005). This was expensive, and lowered Tesco's return on advertising and promotion. Loyalty cards allow the retailer to avoic wasting marketing pounds on people with little potential as profitable customers.
Data gathered from cards can be used in retailers' product decisions (Graeff and Harmon 2002). For example, if a store stocks two similar products, it is likely both primary suppliers will want to partner with the shop to increase advertsing and the amount of product the store carries. However, as the two suppliers are in competition, the retailer can likely only accomodate one at a time. The retailers then faces the decision of which product to advertise and provide more shelf space for. In such a situation, Tesco examines data gathered from its loyalty cards . If one of the products is typically bought by customers with trolleys-full of high-profit items, and the other product is typically bought by customers with trolleys of loss leaders, Tesco can easily decide which product it would be better off promoting (Graeff and Harmon 2002).
Loyalty cards also allow retailers to determine their most profitable strategy in pricing (Shabi 2003). If Tesco wants to optimise profits on a product line of crackers, they can offer and advertise several different products from the line at slightly reduced prices, and see if and how much purchasing increases. The slight price reduction may increase the amount of crackers bought to a point of increased profitability (Shabi 2003). Tesco could also gradually increase the price of the crackers, and track at what point buying decreases. For example, if the crackers normally sell for a pound ten, and increase to a pound fifteen might have little effect on sales volume. With such information, Tesco can make minor price increases that greatly increase its overall profitability (Shabi 2003).
Implementation relied on several factors to ensure a successful system. First, stores were required to be fitted with networked smart registers that could input both loyalty card and detailed product information (Rowley 2005). This had to be further joined by a networked infrastructure to all points of Tesco's market presence, such as Tesco.com. Whilst this was a considerable expense, it was easily justified given the improved inventory control and data gathering possibilities such a system affords (Rowley 2005). There is also an implementation expense of budgeting for the actual operation of the card programme. Tesco issues vouchers worth pounds 200m each year, spends 11p on each physical card and sends loyalty letter to 10m clubcard homes four times a year, with no subsidies from Royal Mail (Shabi 2003). The company made plans to reduce these costs, in addition to other operational expenses, by including other retailers in the Tesco programme.
A second major factor to implementation of the loyalty card scheme then became attracting other retailers to participate. In addition to reducing expenses, Tesco had determined that its card would be more valuable to both its own information management plans and to the individual consumer if the card generated points at a number of participating shops. The company was then required to recruit and convince these other retailers to partner with it in the loyalty programme, a substantial investment of both cost and time (Rowley 2005). Fortunately Tesco introduced its card scheme fairly early in the introduction of such programmes to the UK. Had a number of other cards been already in use, it would have been harder to attract partnering retailers (Shabi 2003). Studies have also shown that too many loyalty cards available to the public results in marketing saturation and reduces their effectiveness (Shabi 2003).
A final factor in implmenetation was enticing enough customers to join up to use the cards, as they are only viable if customers regularly carry and use them when purchasing. Tesco again benefited in this area by being a fairly early player in the loyalty card arena, and one of the first to offer a multi-retailer variety (Shabi 2003). Many consumers were intrigued by the concept of the card and the potential savings to their household spend on such a wide variety of products and at such a wide variety of stores (Shabi 2003). The card even earns airline miles (Rowley 2005). Tesco employed a number of promotions and other special offers to to establish regular card use habits amongst its customers. By planning and overcoming such factors in implementation, Tesco now has oneof the most inticrate and data rich information managemeng systems in its market, and can track both its e-commerce and other outlet purchases through one unified networked infrastructure.
CASE STUDY - WAL-MART
One reason for Wal-Mart's success is their database structure and interconnected infrastructure, which the retail giant developed long before e-commerce or computer-based information management systems became popular. Wal-mart's database structure is globally second in size only to that of the US government (McKenna 2002). It links all Wal-Mart retail outlets, website, distribution centers, and suppliers. Information regarding sales and inventory is updated every ninety minutes, and spans over four thousand locations worldwide (McKenna 2002). The system tracks inventory and sales with such accuracy that the retailer typically knows more about product sales and other details than the suppliers themselves (McKenna 2002). Due to this information management, Wal-Mart is able to negotiate and offer the lowest prices of any major retailer, ensuring its market positioning and long-term success. It is further able to tightly control distrubution and inventory functions, reducing the likelihood of substantial clearance sales and seasonal discounting that reduce the profit margins of its competitors (McKenna 2002).
Wal-Mart is an example of information management used to improve operational functions. Orders made online are shipped from the nearest distrubtion center, the same location that ships to Wal-Mart stores (McKenna 2002). This also allows stores to quickly restock popular items and make pricing adjustments. As with Tesco, the company can make minor price adjustments and track resulting changes in sales to optimize profits. However, Wal-Mart does not track individual purchaser informaiton and therefore does not generate the demographic consumer group data that Tesco typically employs (McKenna 2002).
From a practical standpoint, moving into e-commerce as an already successful retailer has been shown to greatly enhance both sales and credibility (McKenna 2002). Online shoppers have the convenience of being able to actually view and handle product, then buy it later online and have it shipped home. Having an actual store to handle complaints and potential returns also increases customers' confidence in purchasing online from Wal-Mart (McKenna 2002).
Implementation began in Wal-Mart's retail outlets, as the Internet and e-commerce were unknown at that time. The major factor was expense, as the system had to be developed pretty much from scratch, and the firm went through years of adaptation to finally arrive at its highly successful system (McKenna 2002). Suppliers were required to barcode all products, or they were not carried in Wal-Mart stores. Employees at that time were used to keying in prices rather than scanning barcodes, and required extensive training (McKenna 2002). Firms wishing to implement similar information systems to enahance their supply and distribution management today have a much easier road, as ready-made computer programmes and hardware are now readily available.
CASE STUDY - WILLIAM HILL EPOS
William Hill is a major bookmaker not only in the UK but worldwide, having offered betting services for over seventy years (Lee 2004). In the UK alone the firm operates more than 1600 betting shops and serves more than 800,000 betting slips daily via phone (standard and mobile). William Hill wa the UK's first major gaming organisation to venture into online betting, beginning its Internet services in 1996 (Lee 2004). It remains the country's most prolific and successful player in Internet gambling, with over four million people betting in its online gaming rooms each month (Lee 2004). Well-known as a innovator in their market, the firm recently began Britain's first gambling-devoted interactive digital television channel (Lee 2004).
Whilst inovation is important to the firm, traditional betting shops still constitute the backbone of William Hill's operations. William Hill's traditional shops contributed over seventy percent, 166m of the pounds 232m, of the total profits earned in 2004 (WH Annual Report 2004). The shops contribute to the recognisable brand of William Hill and afford it a credibility not available to gaming companies that only offer e-commerce outlets (Thomas 2004). The retail shops therefore support the success of other gaming vehicles (Thomas 2004). As such, the company decided to implement an electronic point of sale (EPOS) system in all its shops as part of its information management scheme (Anon 2003). It was important for the retail and Internet divisions to be linked, not only to consolidate information and streamline various market and operational analysis functions, but to unify the company's expanding e-commerce practises with the introduction of the new interactive television component (Lee 2004). The EPOS machines are located inside the firms betting shops, and is paired with an electronic voucher system for online gamers (Anon 2003).
Before EPOS, the bookmaker manually took and recorded bets through a written ticket and receipt system. The customer's bet was recorded in that particular shop, and winnings were settled by that shop's manager or staff (Caldecote 2004). Shops used a number of different information systems to record financial data, and forwarded their information to the central offices (Caldecote 2004). This compromised both accuracy and detail of reporting, and made any detailed analysis extremely difficult. For example, the firm could not quantify annual unclaimed returns becuase not all shop's systems provided this information (Caldecote 2004). As this type of information is vital to any firm's profit and loss calculations, and analysis of overall health, the EPOS system was an important addition to the William Hill informaiton manatement system. EPOS not only saves time, but allows data from shops to be captured almost instantly (William Hill PLC 2004). The company can then calculate statistics and perform analysis on various events as they occur, particularly important in the time-sensitive business of gambling (Lee 2004).
EPOS enables William Hill to take, settle and pay bets, record information from these transactions, display and distribute betting opportunities, and manage sector-related risk (William Hill PLC 2004). The EPOS system, like the Tesco loyalty card, also allows for capture of extensive customer information, such as the number, frequency, average amount, and event for each bet (William Hill PLC 2004). William Hill can then create customer profiles of current and target consumer groups (Lee 2004). This facilitates a customer relationship management (CRM) system also part of their infrastructure, which helps the firm develop and maintain customer relationships, the heart of the marketing function (Lee 2004). For example, the firm noticed from data gathered on its website that a significant number of potential customers were registering but did not bet. As this was outside their typical information management management, they forwarded the information to an outside firm for plan to convert this unrealised web traffic into bets (Lee 2004). William Hill was able to determine service-led and offer-led email follow ups to these non-bettors increased the percentage of registrants who later engaged in betting by over five percent (Lee 2004).
EPOS' and the electronic voucher system's convenience are encouraging online gamblers to consolidate their activities with William Hill and expanding the firms demographic appeal. William Hill, through this new networked infrastructure, integrates their online business, television channel, and betting shops. Online customers can now deposit and withdraw money from accounts at any William Hill betting shop. The firm is finding the introduction of EPOS and electronic vouchers to its infrastructure has expanded its demographics in both betting shops and in online gaming rooms (Caldecote 2004). Younger gamblers and women, who were less likely to frequent the historically male-dominated, older, and somewhat working-class betting shops have barriers reduced as they come into betting shops to place a quick bet or draw on winnings from the EPOS terminal (Caldecote 2004). Traditional bettors, who are typically more hesitant to use credit cards or use them over the Internet, could not access online gaming and phoned-in bets before the EPOS and voucher system. Now these customers can deposit in their accounts at their favourite William Hill shop, and continue to gamble at home after the betting shops have closed via Internet or the firm's television channel (Lee 2004). As such, both traditional and online customers are consolidated, whilst the convenience of the infrastructure encourages new customers to try William Hill (Caldecote 2004). Using the Internet to place traditional bets also increases the likelihood that new e-commerce gamblers will try the arcade and casino games available online, thereby increasing the product types purchased (Anon 2003). This both expands the purchase mix of the William Hill consumer and increases the potential of larger total purchase per consumer.
One concern at the implenetation of any e-commerce scheme for a traditional retailer is the potential of online purchases to draw customers away from the company's traditional sales vehicles, cannibalising one operation for the other (McKenna 2002). William Hill's most recent Annual Report acknowledges this issue, but the company has found after analysing profit and other financial data that cannibalising is not currently taking place. In addition, all four gaming vehicles (betting shops, Internet, television, and phone betting) have shown modest to impressive growth, reinforcig that one is not building customers at the detriment of the others (WH Annual Report 2004).
In conclusion, Tesco, Wal-Mart, and William Hill all demonstrate how information management and e-commerce can provide both theoretical and practical benefits to three diverse firms. Whether primarily tracking customer data, such as the Tesco loyalty card, supply and inventory informaiton, such as the case of Wal-Mart, or integrating e-commerce functions and traditional sales outlets, as deomonstrated by William Hill, firms need to realise that as customers demand more and more access and points of sale, and as the market place becomes more competitve in general, information management and e-commerce are becoming vital components of firms business strategy. Whilst there are number of factors affecting successful implementation, these three firms show how these factors can be overcome and achieve successful implementation of effective information management and e-commerce.
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