Tesco.Com as an Online Distribution Channel free essay sample

This case discusses and analyses how Tesco started online-grocery-retailing as a new distribution channel for its business, as well as the challenges, milestones, and rewards it encountered along the way. In recent years the internet has served as a platform for online retailing for most products, take the case of online retailers such as Amazon. com or EBay who have successfully been able to sell a wide range of products over the internet. However, most companies have not been able to emulate this success in online grocery retailing. In fact, most early attempts resulted in failure as it is the case of Webvan. com and Peapod. com among others. Failure in this arena can be attributed to three main reasons. First, many customers want to actually sample the products to ensure their freshness, specially fruits, vegetables and meats. Second, high distribution costs due to large volumes and the fact that many products are perishable. We will write a custom essay sample on Tesco.Com as an Online Distribution Channel or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page And third, grocery retailing is a low margin/highly cost-competitive business. Tesco PLC also struggled in the 1990s when it first tried to deliver groceries to customers’ homes via catalog and phone ordering â€Å"It was an operational mess and very inefficient† as CEO Laura Wade-Gery recalled. With the emergence of the internet, Tesco found the platform it needed to satisfy its customers by being able to deliver the groceries to their homes in a cost-efficient manner. Tesco PLC sales increased from $55. 3 billion in 2005 to 64. 6 billion in 2006, and profit before tax from 2. 8 billion to 3. 3 billion. Today, Tesco is the biggest and most successful online grocery retailer in the world, and it has been able to do so without cannibalizing its brick and mortar business. The next section analyses the process Tesco went through in implementing this new distribution channel and the key factors that allowed its unprecedented success in online grocery retailing. The success of Tesco. com has a lot to do with what the company did at the very early stages of implementing its new distribution channel. Tesco followed a very conservative approach to reduce the risk of failure. The company used what they call the â€Å"in-store picking model† which basically means picking the goods the customer wants from their existing brick and mortar stores. The other option was to build large warehouses and use them exclusively for their online distribution channel; this is the strategy that failed online groceries retailers such as Webvan. com and Peapod. com had used. In this context, Tesco was wise to stay away from the warehouse model, which would have also required an initial multimillion investment that the company was hesitant to undergo on an unproven business. Another important initiative from the company at the early stages of Tesco. com was to open cyber-cafes in stores across the country during the year 2000 to empower customers that were not comfortable with using the internet. This idea was probably crucial in gaining customers that were interested in the convenience of having their groceries delivered to their homes but that might have stayed away from Tesco. com just because of their internet illiteracy. Additionally, Tesco. om focused all the efforts on designing their website to be as user-friendly as possible rather than aiming their efforts towards a highly technical and complicated website, and keeping in mind that convenience is what the customers wanted in the first place. The previous shows how Tesco successfully aligned technology (its website) with its business, which ties right with the article â€Å"Key Issues for IT Executives 2011† where IT and business alignment is at the top of the list of issues for IT execut ives. (3). Tesco also offered convenience to their customers by making the transition from the brick and mortar experience to the online experience as smooth as possible. When customers registered into the online system, they were encouraged to key in their Tesco Clubcard number which allowed the system to identify the customer’s most frequently bought items (in physical stores) and then suggest those items for their online shopping cart. By doing this Tesco was not only offering its customers convenience, but it was also providing them with an incentive to get the Tesco Clubcard which in turn would increase customer loyalty. An additional benefit of having customers use the Tesco Clubcard was that it allowed the company to track how many online shoppers were also frequent Tesco (physical) store shoppers, and this would in turn help the company gather useful data to analyze performance metrics to compare and contrast the two distribution channels. Once Tesco. com was up and running, the company still had challenges to overcome and decisions to be made in order to become successful in the unproven business of online grocery retailing.