What is Webvan’s value proposition? What do you think of its value proposition?
“For busy customers who do not have time or don't like to shop in grocery stores, Webvan offers grocery delivery in a 30-minute window, order anytime and get groceries delivered the same day.”
While the value proposition is a good idea in theory, the 30-minute window would be notoriously difficult to schedule for a busy parent or overworked employee. Avoiding traffic issues to make the promised 30-minute window would be impossible to predict in a pre -Waze world. In addition, it is an extreme leap of faith on the customer’s behalf to let an unknown courier into their home to unpack their purchases.
What is the real value that Webvan is providing to its customers? If customers are seeking out groceries on the same day, would it not be more proactive to go to the grocery store yourself without having to coordinate a time for delivery and then let a stranger in your home to organize? The service requires unnecessary steps that most customers do not want to take.
What is the compelling reason to use Webvan? When you need milk, you need milk. If you need a small purchase item like milk, a customer is certainly not going to pay a $4.95 fee to acquire an item that has an average price point of $2.50.
Are there any problems with their revenue model?
Grocery stores have low margins (1-1.5%) and make profit based off of high volume sales. Earnings are made off of volume because shoppers are not typically buying one SKU. With not much additional effort, a grocery vendor can get customers to buy more via unconscious conditioning marketing. That yummy slab of meat staring at you through the supermarket glass is a rewarding factor that you deserve that steak, it will taste delicious and your family will enjoy it too. You were planning on getting one for you and your wife, but now have bought steaks for the whole family because they were discounted, and your family will enjoy – you’ll be the hero. With online grocery orders, a customer is more likely to order just what they need because there is an impulse control factor.
In addition, since the ingrained human behavior is to shop weekly for groceries, Webvan would constantly be playing profit catch up. Webvan was projected to make $11.9 million in 1999 and expected to be profitable in five quarters. Most grocery chains like Safeway or Kroger will make $11.9 million in a single busy afternoon. With a service charge of $4.95 and the possibility of a refund of $3.00 for missing a delivery window, Webvan is losing money on almost every order. This in addition to free delivery on orders over $50.00.
How would you assess its market opportunity and competitive environment?
The US market for groceries, drugstore and prepared meals was $650 billion in 1998. The expectation for online grocery sales was expected to rise to $16.8 billion by 2004, representing 2% of the TAM. Webvan’s aim was to get a substantial chunk of this growing market, positioning itself with endless inventory, eliminating the cost of personnel and store set-up.
Although an initial strong consumer base was elated about the convenience and service –especially in web-savvy markets like San Francisco – online grocery services have been notoriously difficult to catch on for the American consumer, due to a highly ingrained behaviorsurrounding food shopping. In order for Webvan to catch market share, they would need an aggressive marketing strategy in attempting to reverse decades old mentality surrounding shopping behavior in addition to a nagging concern about food safety, ranging from food contamination to how food is stored – the core issue being temperature control. Webban had a small returning customer ratio (1.7 times a month) and did not seem to be concerned with developing customer lifetime value.
In addition, from a business standpoint it would be a total re-engineering of the supply chain and grocery business model – which is conservative and staunchly old-school – into a pure play, virtual merchant space that had never been attempted before.
Does Webvan have any competitive advantage?
Webvan has a competitive advantage of being a first mover with a transactional fee revenue model. It facilitates these transactions by managing product delivery of grocery by being able to have personalization/customization. For those whose really despise grocery shopping – for example a mid-40’s male divorcee – this would be an ideal service for him because he can order groceries without leaving his man cave and an added perk is he does not have to organize his purchases.
How was a customer going to be aware of Webvan in the first place? Correspondingly, what is Webvan’s market strategy?
Initially, the company offered San Francisco Bay Area residents free delivery regardless of the size of their order, in addition to Webvan’s prices being 5 % lower than a traditional grocery store. This would be followed by expensive radio and newspaper advertising to build brand identity and loyalty. After initial customers data was retrieved, Webvan could further segmenttheir customer and would concentrate on regional marketing advertising in the cities where launches were taking place.
Since Webvan would be attempting to undo decades of ingrained shopping behavior, the best course of action would need to be a mix of inbound and outbound marketing. Outbound marketing would create curiosity about the services and inbound marketing to gain trust of the customer. To get customers to understand the service, blogging, social media posts and user reviews would be the best way to gain trust and WOM in an uncharted space.
What do you think of Webvan’s “Get Big Fast” strategy? As Webvan's spokesman said: "You don’t build a rocket to go halfway to Mars".
There are countless e-commerce sites that lay in the graveyard because of aggressive growthranging from Pets.com to Ideeli, and of course, Webvan. The company was too confident in breaking a decades-long manner of grocery shopping. Very expensive infrastructure decisions were made with single design DC’s and uniform technology platforms costing $1 billion – $1 billion was spent on a business that was slated to make $11.9 million in its first year. While Boarders succeeded in eliminating store costs, the cost of building Webvan’s physical and IT structures was outlandish.
Webvan’s anticipated demand far exceeded its actual demand. The company believed that the “market demand for high quality reliable grocery service was enormous.” Unfortunately, this unwavering belief in Webvan led to billions of wasted dollars for a service with a lukewarm interest.
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