The goal of this report is to make a recommendation to Webvan’s management team whether Webvan, once the largest online grocery enterprise in the United States and a large investment failure, should be restarted as a new enterprise using the original strategy and business model before the company went bankrupt in 2001.
Webvan began in 1998 as an innovative business idea that excited and drew support from investors already caught up in the dot-com phenomenon.The company ultimately failed to attract and sustain an adequate customer base to justify the large investments it made in the development of high-tech information technology systems and elaborate distribution warehouses. Team 21 was hired to explore the key elements of Webvan’s original business model and provide relevant recommendations and action steps to the company’s management.
Analysis of Case Data
Team 21 analyzed Webvan’s original business model, decisions, and milestones using several strategic analysis tools, such as analysis of the external environment , SWOT analysis and Porter’s Five Forces analysis.
Furthermore, it reviewed the company’s value disciplines and identified the key mistakes in the original business model. The results of the review provide insight to the company’s problems and serve as a basis for the development of the recommendation to Webvan...
’s management. Vision and Mission The vision and mission are the key drivers of the analysis and recommendations, as they are also the drivers of Webvan’s original business model. Webvan’s vision was to provide a faster, cheaper and more efficient way of delivering items to consumers.
Webvan’s mission was to deliver the last mile of e-commerce to the increasing number of people making purchases online by creating an enterprise that would provide a greater variety of products than a conventional store while still providing the instant gratification that online shoppers miss.
Analysis Economic, sociocultural and technological factors had significant influence on Webvan’s business and therefore are the focus of the PESTLE analysis.Economic – Although Webvan garnered considerable favor among investors, it faced an almost insurmountable obstacle in trying to convince customers to relinquish discretionary income in favor of the convenience of grocery delivery. Much of Webvan’s early success in attracting investment can be attributed to the large amount of investor interest in speculative Internet-based companies between 1995 and 2001, which is often referred to as the “dot-com bubble . In April 2001, when Webvan needed an infusion of $25 million to continue operations, it found the bubble had burst, and investors were no longer putting money into online ventures.
The end of the dot-com era led to the beginning of a mild recession , which likely served to put the final nail in Webvan’s coffin. Even without the recession, customers had shown an unwillingness to spend additional money on delivery fees when most lived within a convenient distance of a grocery store that accepted coupons not accepted by Webvan.Finally, supermarket chains had developed an economic model that is tightly efficient. The physical store also serves as a warehouse, existing technology started being used for customer self-checkout
and in-store shelf-space management and strategic product placement programs were being utilized to improve profit margins.
Webvan’s plan to capitalize on centralized distribution centers could not compete with the efficiencies of traditional grocery stores due to the high costs inherent in home delivery.Sociocultural – Though a survey conducted by Webvan in San Francisco indicated that 6% of those surveyed would “absolutely” buy groceries online, and 23% said they would “probably” buy groceries online , the reality was that consumers often say one thing and do another, as shown by a Jupiter survey’s finding that only 2% of web users had bought groceries online from 2000 to 2001. As Peter S. Fader, a Wharton marketing professor, succinctly noted, Webvan’s service solves a “non-problem that doesn’t need a solution … Grocery shopping is not something that people complain about. Supermarket chains strive to make the consumer experience as convenient (stores located close to residential areas), easy (organized and stocked shelves, a similar floor plan in every store, aisle signage), and quick (self-checkout, multiple checkout counters for shorter lines, and a streamlined checkout process) as possible, and Webvan’s failure affirms the chains’ success. Grocery shopping is a habit for consumers and, due to the chains’ efforts, not an entirely unpleasant one.
Additionally, Webvan saw its target market as families with children and focused its marketing to women.Grocery shopping has become a social event for this target market. Stay-at-home parents use the grocery store as a place to socialize with friends and run into neighbors while the children are at school. Saturday morning grocery shopping is often seen as a family outing where the family can spend time together and the kids get to choose what they want for lunch for the upcoming week. Technological – Although there were rapid advances in technology and rapid proliferation of internet throughout households in 1999, only 35% of U. S. adults were online. 1] While this represents a significant number of people, George Shaheen noted that 1 to 3% of Webvan’s target market would be needed to make Webvan work but did not confirm that 1 to 3% of that target market was even part of the 35% of adults online at that time. The technology was certainly available but was not yet being utilized by enough people for Webvan to be a success. The limitations of online grocery shopping may never be fully removed. Grocery shopping is a highly tactile, sense-intensive activity. The online grocer cannot appeal to a person’s senses the way touching and smelling the actual product can.
Secondly, a 2005 study finds that in-store media such as product demos, product packaging, shelf signs, and check-out line advertising often spurs spontaneous and impulse buying.  These additional sales tools are difficult, if not impossible, to translate online, thereby decreasing possible online grocery sales from the $4,600 the average family spends in a grocery store annually due to the loss of impulse buys. SWOT Analysis As a business with high capital investments and fast growth, Webvan had many strengths, weaknesses, opportunities and threats.A number of them are inter-related, providing insights into what caused the company’s failure and possibilities
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