Take home exam

Full-Time MBA Class of 2022_II

Marketing

-TAKE HOME EXAM-

By Vincent Plautz

1. 
   Marketing Insights
   

a. The reasons for supermarket chains and discounters to increasingly test stores without check-outs are twofold. On the one hand, they are forced to react to higher competition from online delivery services. On the other hand, technological advances make it possible to gain a competitive advantage through higher customer convenience, cost reduction, and new customer data.

Since the outbreak of COVID-19, the online grocery market has more than doubled. The average supermarket purchase has increased in size and supermarket shoppers buy with a higher frequency. On-demand grocery stores such as Gorillas or Flink have received massive funding and are expanding rapidly. This trend is to stay because lockdowns were not the only reason for it [ CITATION PRN21 \l 1031 ].

For customers, it is becoming more important to have a comfortable shopping experience. That’s why in the past, supermarkets had already tried to replace cash registers by automated software. However, implementation failed because software was either bugged or too expensive. Now, new technologies promise a hassle-free and inexpensive shopping experience. [ CITATION Day21 \l 1031 ]

Long waiting times at the check-out have always annoyed customers. This had a severely negative impact on the entire shopping experience because what customers remembered most was how it ended. Therefore, eliminating waiting times increase customer satisfaction. Also, removing cash registers from supermarkets can save up to 81% of the time of a supermarket’s personnel. This time can be used to offer individual in-store customer advise or to extend opening hours [ CITATION Mar20 \l 1031 ].

In addition, the transition to automated check-outs can reduce labor costs and keep retailers more competitive on price. Although first-year data of Amazon Go indicates that the system is not perfect – only seven in eight items are captured – that is no cause for concern. Deep learning algorithms will improve over time and losses through missed items are outweighed by the lower number of in-store workers [ CITATION Mas18 \l 1031 ].

Moreover, every product is associated with somebody when it leaves the store. Therefore, safety costs plummet as it becomes nearly impossible to steal products. Furthermore, supermarkets gather a lot of data which can be used to maximize earnings per square meter, improve the customer experience and grow sales [ CITATION Abb19 \l 1031 ].

b. In the short run, Aldi Nord’s digitized stores will not completely replace the classic store concept with check-outs because it is still uncertain how the elimination of check-outs will affect profits.

While removing cash registers from stores creates additional shelf space which can be used to boost revenue, impulse sales of highly profitable products around the check-out desk such as gum or candy bars are cannibalized. Hence, it is unclear whether replacing check-outs will increase revenue. Also, the transformation of larger stores comes with high implementation costs because more sensors and cameras are needed. At the same time, less products might be captured by the system because in larger stores, accuracy is an issue due to the greater distance between sensors and cameras. Moreover, suppliers could rise prices to offset their investment costs for products with RFID chips which are necessary to communicate with sensors and cameras [ CITATION Mar20 \l 1031 ].

In the long run, however, Aldi Nord’s digitized stores could eliminate check-out desks. As software based on artificial intelligence collects more customer data, pricing will be more accurate, and customers can be targeted more precisely. Simultaneously, labor and safety costs will decrease since a more accurate system allows for staff cuts and lower theft rate [ CITATION Ale18 \l 1031 ].

The implementation of check-out-free stores could especially prove beneficial for small convenience stores in highly frequented areas such as train stations in big cities or big supermarkets with integrated restaurants and bars.

Particularly in small convenience stores, customers are sensitive to long waiting times at the check-out because they tend to be in a rush. For example, a customer at a train station store who quickly wants to buy a sandwich before his train departs might not be delighted if he misses his train because he had to wait at the check-out. Also, investments in small convenience stores pay off quickly because the implementation costs of cashier-less check-outs are low and the earnings per product are high. Compared to large stores, less sensors and cameras are needed, and profit margins are higher because customers purchase higher priced products for direct consumption such as drinks or candy [ CITATION Flo21 \l 1031 ].

Furthermore, customers in big supermarkets with restaurants and bars might be even more sensitive to long waiting times than customers at small convenience stores. Anyone who enters such a supermarket wants to have a good time and does not want to get disturbed by a check-out desk. For instance, a customer who just had a few drinks at the supermarket bar might be in the mood of spending money but get deterred from an impulse purchase if the process is too complicated. Thus, a seamless check-out can harness the unleashing effect of alcohol [ CITATION Mic16 \l 1031 ].

Question 2

With Chinese online fast fashion brand Shein entering the German market, fashion retailers are under more pressure than ever. In 2020, Shein generated revenues in the amount of € 235 million in Germany, representing a staggering increase of 40% compared to the previous year. This year, Shein even conquered the top of the global ranking for shopping apps [ CITATION Chr21 \l 1031 ].

In this context, the launch of Zalando’s “Care & Repair” service is a bold move to re-capture market share in the online fashion industry. It could be seen as an evolvement of the previous differentiation strategy which was based on providing unique online shopping experience by identifying customer needs, and then presenting products accordingly through unique and exceptional services. In doing so, Zalando has been successful in retaining customers. However, Zalando customers – especially millennials – have recently started to use Shein. As Zalando fears to eventually lose them, the launch of “Care & Repair” might prove as right approach to prevent this from happening [CITATION Suc18 \l 1031 ].

Research indicates that this strategy could convince customers to stay with Zalando. Customers who seek emotional fulfilment through purchasing non-essential, trend or style-based fashion – so-called fashion sensitive consumers – typically buy at Shein. At the same time, these consumers are willing to repair damaged clothes. Hence, having the opportunity to repair worn items with Zalando could fulfil the needs of fashion sensitive customers who consider switching from Zalando to Shein and eventually detain them from doing so [CITATION Lis20 \l 1031 ].

The other side of the coin is that the introduction of “Care & Repair” has the potential of cannibalizing sales. It’s common sense that someone who repairs worn clothes instead of throwing them away is less likely to buy new ones. However, the gains of a repair service outweigh the cannibalization losses since repairing damaged items collects valuable data of customer preferences which can be used to boost sales. As research suggests, there is a correlation between emotional attachment to clothes and willingness to repair. Thus, the collected data can help to pinpoint which items are most popular in specific customer groups and target them individually with tailored product offerings [CITATION Lis20 \l 1031 ].

Question 3

a. Because the revenue growth of Netflix has been slowing down recently, the streaming service is teaming up with retail giant Walmart to open Netflix Hub. Although Walmart already started selling Netflix merchandise in 2018, the online Hub brings new opportunities. With it, Netflix will be able to offer consumers a seamless shopping experience and challenge Amazon’s dominance in merchandise sales of viral streaming shows [ CITATION Sou21 \l 1031 ].

First, as Netflix Hub will be a one-stop-shop, consumers won’t have to sift through millions of items before they find the product they are looking for. At the same time, consumers can buy Netflix merchandise at a vast array of physical stores which are mostly easy to reach and offer a similar scope of products as Amazon. In addition, in-store returns at Walmart can be made at 30 seconds or less, providing unprecedented ease of return. On top of that, Netflix merchandise can be purchased instantly at Walmart, saving consumers a lot of waiting time [ CITATION Mar21 \l 1031 ].

Moreover, what is good for their customers is good for Netflix and Walmart. Both can benefit from aligning physical and online stores by avoiding showrooming or webrooming. If consumers can find the same items at the same price offline and offline, they may have no reason to buy at another store. Furthermore, the opportunity to purchase products on the same day may boost sales. Imagine a consumer finds a costume on Netflix Hub on the morning before a Halloween party, he has no time to buy it online. Instead, he can drive to the nearby Walmart store and make the purchase there [ CITATION Fas21 \l 1031 ].

Second, with the launch of Netflix hub, Amazon’s dominant position in merchandise is in peril. In the past, Amazon had been one of the first places consumers searched for merchandise related to Netflix shows. By converting searches to sales, Amazon benefited from viral Netflix shows and monetarized their advertising effect. For instance, when Netflix released The Queen’s Gambit – a series about a chess prodigy on her rise to the top of the chess world - Amazon sales of chess set skyrocketed. Thus, the launch of the new hub will enable Netflix to capitalize on the virality of its streaming shows and to steal significant market share from Amazon [ CITATION Mic21 \l 1031 ].

b. When Netflix launched its own online shop earlier this year, it did not attract a significant number of visits. Between July 2021 and September 2021, the Netflix shop had only 178,989 of monthly traffic — far less than Disney’s merchandise store, which had 8.097 million monthly visits. This failure prompted Netflix to release merchandise in partnership with Walmart and in addition to its existing own shop. Selling its merchandise through two distribution channels enables Netflix to both address a broader customer base and stretch its product mix. [ CITATION Mic21 \l 1031 ].