Transcript Document

Morning365: An online
bookstore’s strategy to grow in the
constantly changing market
Speaker: Aya Wang
1
The online bookstore industry
• The country boasted the widest access to
broadband in the world, e-commerce in Korea
had been growing fast as well.
• The internet book market constituted about
5% of internet shopping mall sales during the
same period.
2
Shares of major product categories in
the internet shopping mall sales(%)
The internet book market constituted about 5%
3
The traditional book market
 Three types of bookstores in Korea:
1. Mega
a) Sold a variety of books, other fancy items, fast food
b) Retaining huge inventories
c) Provide customers with a one-stop shopping experience
2. General retail
a)
b)
c)
d)
Located in small neighborhoods
Product lines were limited
Lacked cost competitiveness vis-à-vis the mega stores
Easy access to customer and able to build close personal
relationships
4
The traditional book market
3. Specialized
a) Focused on particular types of books
b) Tailored their services to a small group of customers
 Attributes
1. inefficient book distribution system
•
These small publishing companies could not afford to
maintain their own distribution channels, and
therefore had to rely on regional intermediaries
2. high inventory managing costs
5
The traditional book market
 Problems
a) Intermediaries themselves were small business
b) Each intermediary was able to maintain exclusive
distribution contracts with only a few publishing
companies
c) Complex distribution system difficult to forecast the
demand accurately
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The online book market
 In order to facilitate cyber transactions, it was better
for the goods to be standardized then will be easy to
evaluate the quality of the product
7
The online book market
 Online bookstore’s advantages




Prices 20-50% lower than regular ones
Order-to-order →no inventory
Easy and 24hr opening online shopping
Books were delivered directly to customer
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Market share
Yes24 – the first internet bookstore in Korea
Signing favorable contracts with several major publishers
and to become the market leader
Selling books and variety of culture goods
Kyobobook – the largest offline bookstore
Leverage its offline prowess not only to win the online
market, but more importantly to protect its offline territory
Morning365 – became the second-largest player in
the market only 10 months after its opening
Table C10.6 Market share (%): June 2002
Yes24+Wowbook
Kyobobook
Morning365
Aladdin
Others
40
14
10
9
27
9
Morning365’s distinctive competitive
advantage – subway logistical system
•
•
Besides being cost competitive, online additional valuable
service, delivery, which was usually free with a purchase
over a certain dollar amount
Three different delivery methods for customers
a) Subway delivery system
 Logistics centers, distribution hubs for order
 Happy Shop, terminals where customers could
receive their orders
b) Convenience store pickup
 the stores signed contracts with Morning365(i.e.
Family Mart)
c) Door-to-door delivery (the most widely used)
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Customer incentives
• Except for an order over $26.16, the customer had to pay
$1.74 for door-to-door delivery, and $1.31 for convenience
store pickup
• Happy Shop could offer an additional discount depending on
the order size
Table C10.9 Morning365’s delivery fee schedule ($)
Order size
Happy Shop
Convenience store Door-to-door
Less than $8.72
0.44
1.31
1.74
$8.72 to $17.40
0
1.31
1.74
$17.41 to $26.16
-0.87
1.31
1.74
$26.16 to 34.87
-1.74
0
0
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Door-to-door delivery service’s pitfall
1)
2)
3)
4)
5)
If there were no recipients at home
If the recipient received the wrong order
Difficult to guarantee the quality of delivery services
2-3 days delivery time
Complex and inefficient mail address system (not been
updated frequently and systematically)

Contrary to Happy Shop




Reduce their waiting time
Easily exchange or return books
Get refunded
Delivery time was much shorter (if they lived in the Seoul
metropolitan areas, can get their orders within eight hours)
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Morning365’s subway logistics
• Reduce delivery costs
– Delivery was made to the designated Happy Shops instead of
individual customers’ homes
• Trucks were only used to delivery books from logistics
centers to subway station
• Capable of accumulating relevant logistical knowledge and
experience
※ see page.325
Table C10.10 Cost structure of respective delivery methods
Average purchase amount Sales proportion
Average
delivery cost*
$41.85
40%
100
Convenience store $41.85
10%
78
Happy Shop
50%
35
Door-to-door
$21.76
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Delivery cost structure
• The cost advantage from using the subway logistics system
directly affected the company’s bottom line
• The two delivery options cost more in terms of variable costs
Table C10.11 Delivery cost structure
Fixed costs
Variable
Delivery
Costs
Other**
$2,000/month/shop*
Itemized ($/month/shop)
-Fees to SMSC: $455
-Salary: $910
-Administrative cost: $455
-Miscellaneous: $180
None
1% of sales
Convenience store**** None
$1.64/order
3% of sales
Door-to-door****
$2.18/order
3% of sales
Subway***
None
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Managing Happy Shop
• Happy Shop were located at the transfer points where
two subway lines met, this limited market coverage
was one critical shortcoming of subway delivery
• There were eight subway lines, which covered almost
every neighborhood in each of the areas of Seoul
• Expand its market coverage to the outer boundary of
the Seoul metropolitan areas
– Built extra delivery spots by adding nine new Barota
Zones
15
Managing the inventory
• The most ideal situation might be
‘zero inventory’
Daunting task
• Morning365’s goal was to keep four days’ inventory
• To retain inventory only for the best-selling books
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Environmental changes
• The fixed price policy
• Reaction of the online bookstores
Delivery war
• Bookpark- not charge delivery fee when the order amount was
over $34.87
• Yes24- convenience store pickup services could receive their
orders in 1-2 days, and offer a $0.87discount on their order
• There are 2000 convenience stores throughout the
metropolitan areas, which made it very easy for office worker
to pick up their orders
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New strategy for the next 10 years
• New development in fixed price policy
– Facing the hard criticism from the online bookstores in a
week economy, the government prohibited the bookstores
from discounting books published within one year,
exception practical knowledge and reference books
• Contract expiry
– With the Seoul Metropolitan Subway Corporation and
Seoul Metropolitan Rapid Transit Corporation
→would expiry in 2006
18
Conflicting reports from the field
• Have no price competiveness over its rival in the market
• Dismal customer satisfaction outcomes
• Huge contradiction between what Mr. Park had believed and
what the market said.
※see page.333
• Door-to-door was becoming more and more widely used
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Question
• What would you recommend Mr. Park in order
to sustain Morning365’s position in the Korean
retail book market?
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Thanks for your listening
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Subway lines and Happy Shops
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