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eBiz Models

Turn Bricks Into Clicks
Isabelle Chan, Leong Khay Mun and Anita Devasahayam, 1-Jun-2000

E-commerce is still very much a catch phrase for many brick-and-mortar companies. Many are just discovering the power of the Internet; others are awed by what their neighbours are doing and are afraid of missing out on a good thing.


However, four companies in the Asia-Pacific - OCBC Bank, Arthursbooks, Whirlpool and Sunspirit—are rewriting business rules and hoping to reinvent their industries using the Internet.

Although in different areas of business, there is a common theme across all four e-commerce stories. They all recognise the sweeping changes taking place, remain undaunted by channel conflict and legacy issues, and hope to seize first opportunities created by the Internet.

According to authors Christina Ford Haylock and Len Muscarella of Net Success, "there is no single formula for success in this environment. Yet some guidelines emerge".

Haylock and Muscarella offer five guiding principles "appropriate for managers of companies who must deal with the added complexity and legacy operations of an ongoing
business":

Guiding Principle #1: The Internet is not a strategy: It serves the business strategy.

Guiding Principle #2: Internet initiatives require commitment and leadership.

Guiding Principle #3: The Internet requires the re-examination of intermediate relationships.

Guiding Principle #4: Internet-technology advances are overrated: It's business-model advances that count.

Guiding Principle #5: Partnering is the key to success in the Internet's multifunctional environment.

These are only guidelines. Success comes with managing expectations and creating an environment and cultures that view and support e-commerce wholeheartedly. The Internet model must not be seen just as a trial project. Be creative and think out-of-the-box, but be mindful of your core business.

Maverick 1: OCBC Goes finatiQ


Strangely, Singapore-based OCBC has likened its new Internet bank - finatiQ (www.finatiq. com) - to running a stationery business. When asked why it established a separate e-bank using the banking license of its wholly-owned subsidiary, Bank of Singapore, when it will only cannibalise OCBC's click-and-mortar (OCBC Internet banking) business, the bank gave a long analogy of OCBC as an incumbent pen maker selling blue pens.

"It costs me $0.20 to manufacture a blue pen and I sell it at S$0.25. But my competitor comes in and produce the pen in red," said Ooi Sin Teik, senior executive vice-president and head of strategy, OCBC.

"This startup is able to produce it at $0.15 per piece and sells it at $0.20. What do we do? We can lower the price and sell our pens for $0.20 each. But this is what I call cannibalising our business; we'll be destroying our franchise this way. But if we try to find a way to make the pen at $0.15 and sell it at $0.22 at any colour... then it is not slashing your own franchise."

Although the stationary business is far from similar to running a bank, the bottom line is that OCBC, like many other banks out there, would rather lose some of its business to its own e-bank than to competing Internet banks.
This three-month-old e-bank is OCBC's "attack strategy" to new opportunities in the buyer space. Said Ooi: "We want to provide convenience to self-directed customers. And because the barrier to entry is lower, as there is no need for us to build expensive distribution network, this is a highly
scalable solution that will allow us to expand
regionally."

The e-bank hopes to gain 60,000 to 80,000 customers and, according to David Tan, general manager of finatiQ, he intends to expand the e-bank operation to three countries by the end of this year, and 10 countries by '02.

finatiQ is prepared to incur a loss of S$10 million (US$5.78 million) in the first year. However, it hopes to gain a "positive return of about 20% after three years". It currently offers unit trusts at a competitive initial sales charge of 2.5% and interest bearing investment accounts online, and has plans to offer securities trading facilities, mortgages, insurance, fixed deposit and credit/debit cards in the coming months. finatiQ will derive its revenue mainly from interest income, sales commissions, referral fees, trail fees and advertising.
The story doesn't end there. The bank intends to transform its brick-and-mortar operation into a click-and-mortar one. But in this case, the Internet, it emphasises, is not just another delivery channel.

"This click-and-mortar bank is not about using a new technology to merely enhance existing banking processes. It is not about adding new products and services to our existing Internet banking channels," said Teng Soon Lang, OCBC's head of group IT. "It's about making e-commerce the core focus of all our business activities and about straight-through processing. Essentially, we want to create unique offerings from standard products," she added.

What works well for OCBC, is that, as it is not treating the click-and-mortar business as a subset of its traditional business, it doesn't have to deal with legacy banking and processing issues. Teng said: "It is not a migration of our brick-and-mortar business. The click-and-mortar business would adopt a strategy of a totally new player."

Explaining this strategy, she said: "For our customers, some prefer banking via a half-click, half-mortar way; others prefer some click, majority mortar. Therefore, we will package them in a convenient way for customers, just like how you can pick and package your own furniture. We want happy customers."

Teng added the click-and-mortar bank will also price its products accordingly because OCBC "doesn't want its 'click customers' to be paying for costs incurred by 'mortar customers'". And with this strategy in place, it hopes to migrate 80% of existing customers to the click-and-mortar world.

This 68-year-old bank is throwing a lot of weight behind the two e-commerce strategies. OCBC is sinking a total of S$1 billion (US$0.57 billion) over the next three years in various e-commerce initiatives, of which S$400 million (US$231 million) will be invested in the click-and-mortar operation and S$600 million (US$347 million) in the new
e-bank.

Maverick 2: Arthur Takes His Books Online


When Arthur Lee opened his first bookshop in Johor Baru, Malaysia, two years ago, it was in his grand plan to create an online store. So it was a blessing in disguise when the Registrar of Companies then, turned down the initial name of the bookshop at the eleventh hour, forcing him to name it eponymously.

Arthur's Books is easily recognisable and replicating that personality on the ’Net proved to be a boon for Lee. Arthursbooks.com opened for business this January and attracts between 400 to 500 visitors daily.

Repeat online orders from Malaysia Multimedia Development Corp. (MDC) and Telekom Malaysia as well as enquiries from Hewlett-Packard, Sony, Hitachi, Siemens, Dell, Intel and Seagate is testimony.

"I believe that we would not have been well received had we not constituted ourselves as a click- and-mortar selling concept," said Lee.

The site, that cost US$2.5 million to set up, carries over 35,000 titles. Plans are underway to mirror the site in Chinese and Bahasa Melayu as Lee continues his quest to increase Asian content on the site. Localised Web sites in Hong Kong, Shanghai and Bombay are on the drawing board. The BookFinder feature provides visitors and customers access to more than a million titles.

Arthursbooks.com's trump card lies in its range of Asian books. Lee is determined to grow the Asian icon in the online shopping space that is currently dominated by American-based content.

"The expanding online community in Asia-Pacific and the rest of the world will be looking for sites with Asian content in future."

Lee believes that Asian homegrown companies will surely succeed as their American counterparts had, as Asia continues to integrate Internet technologies in their businesses and lifestyles.

He pointed out that part of his dotcom success was predated by the set up of the physical stores. "First, companies and consumers who had bought from us or have seen our physical brand name Arthur's Books readily recognised our online presence. Second, we had a team of 20 staff that was well organised and in place to take on the work. Third, we had established a rapport with our network of suppliers in US, UK, locally and elsewhere."

The online bookshop plans to beef up operations by hiring professionals for jobs, enhance its logistic capabilities, widen its online product offerings in addition to promotional and marketing activities in the coming months.
"We will need to pump in between US$10 and US$20 million in the next three years as our expansion programmes unfold. The Internet business is an expensive one," admitted Lee.

To draw traffic, Arthursbooks.com tied up with MSN, Intel Internet Centre and Beenz.com, an international Web currency site and marketing organisation. It also listed on Yahoo!

Lee does not think that a Web presence will
displace sales from their physical stores but views the retail outlets as support facilities for its online
business.

"Having a Web presence offers customers an alternative and gives them the convenience they seek. Our existing customers would not have to wait in a check-out queue at busy periods and they have a wider selection of titles. They can shop 24 hours a day, round the clock. And, they need not get into a car, travel on congested roads, and find parking in order to purchase a book from us. This itself is a great incentive," he pointed out.

Customers who place a large order of book titles within the Klang Valley will also enjoy free delivery service. For stocks that are available in the retail outlets, delivery is within one to two days for customers in Malaysia and Singapore. Shipments to customers abroad take two to three days.

"We have international partners such as DHL, FedEx, OCS and other local courier companies such as Poslaju and Gdex that work with us," said Lee.

He added that the computing system is linked to some suppliers and partners for real-time visibility of stock levels and real-time tracking of movements of products to customers. However, not all suppliers and partners are fully computerised.

Arthursbooks.com hopes to hit US$1 million in sales in its first year of Web operations and expects sales to rapidly grow in the next five years in tandem with Internet usage.
And Lee is optimistic. He is on track with his grand plan and the pleasure is doubled as he makes his childhood favourites from Biggles, Secret Seven, Famous Five and more, available to the world at a click of a button.

Maverick 3: Whirlpool Makes Lifestyle Changes


The consumer is not just king but placed first in every aspect of Whirlpool's business plans. In line with this consumer-centric strategy, the home appliance manufacturer has made e-commerce an integral part of its future.

In March this year, Whirlpool Singapore launched its e-commerce initiative for its home appliances, the first of its kind in Asia and for Whirlpool worldwide.

Consumers can now choose to buy Whirlpool domestic appliances at traditional stores, via the Web site (whirlpool.com.sg), or through a combination of both.
Whirlpool believes that consumers want and should be better-informed, and what better way to empower them than through the Web. In August 1999, it decided to make the consumer the centre of attention.

"After brainstorming, we decided on launching our e-commerce initiative in Singapore. I called our Southeast Asia managing director to discuss the plans, and the group started working full time in September," said Dott. Claudio Baggiani, vice-president, Emerging Markets, Whirlpool.

"This is a big announcement because it's the first time we're officially launching our brand in Singapore and it is supported by our e-commerce initiative." Out of the 115 countries Baggiani oversees, he found Singapore to be the best suited for e-commerce.

"Simply because Singapore has a good network infrastructure for e-commerce and it has a pool of educated and technically-inclined workforce. I also think Singapore is the gateway to Asia, and is a step ahead of other Asian countries," he said.

Whirlpool's Web plans were not due to peer pressure or the thought of e-commerce as the "hip" thing to do.

"We want to serve the consumer in the best possible way, and to give them alternatives. A consumer can buy directly from us via the Internet or choose to browse the Web site but go to the traditional retail shops to buy," said Baggiani.

The features of the Web site does not tell the full story of Whirlpool's e-commerce plans. There is more up its sleeves.

"I think e-commerce will develop and what we see and offer today is just the first step to give the consumer the opportunity to go straight to the producer to buy goods, or to look at the producer site and have a choice to go to the traditional retailer to shop. The next phase is where a producer like Whirlpool offers give a home solution where through a portal, consumers can do download recipes, be part of virtual cooking schools, and manage what's in the fridge," said Baggiani.

"Clearly, consumers will be able to connect with us, and what we're really talking about is building customer loyalty."

Whirlpool also emphasised that e-commerce is not aimed to disintermediate the middlemen.

Said Stanley Chan, managing director, Southeast Asia, Whirlpool: "Our objective is not to cut away the middleman. We're launching this with our partner, Harper's Trading who distributes our products to the shops. Harper's Trading does the fulfilment of online orders for us.

"We're only delivering consumers choice. We think consumers will still go to traditional shops, but we're catering to those who want to shop online."

Chan believes consumers will go to the Web site, browse, and make a decision. Others may want to be better informed before going to the retail shop.

"At Whirlpool's Web site, we have built in a locator feature, a map to allow consumers to locate the shops that carry the products. So you see, we're using the site to build relationships with consumers. In the past, relationships are built at the shop. Today, they can do at both shopfronts."

Added Baggiani: "If you are able to have a direct link with the consumer and continue dialogues, the Web site will allow us to serve customers better. It is not important if sales is done over the Web or the traditional shops; either way, it benefits everyone."

Although e-commerce is part of the overall customer experience, Whirlpool is not leaving anything to chance and is making sure it has all its bases covered.

"E-commerce isn't about technology, but how you bring all the activities around it together. E-commerce is about speed. My concerns have to do with everything from the delivery to the installation of the appliances. After-sales service should be as speedy as well. The call centre must be in place to handle after-sales inquiries. If, on the Internet, the customer wants to talk to someone, and wants the product tomorrow, you need to be there. The biggest frustration is when the delivery is a long time after the purchase order is made, or the customer doesn’t get any confirmation on the order, or after buying, the customer needs after-sales support," said Baggiani.

"We took six months to build the activities around the consumer to make sure we satisfy our customers.”
With so much commitment and investment, what does Whirlpool hope to gain in the long run?

"I don't know how much or how many consumers will order directly over the Internet but our objective is to triple sales over the next three years, and that will make us the No. 1 Western brand in Singapore. With our brand building activities, I believe we can do it," said Baggiani.

Maverick 4: Sunspirit Works Web to An Advantage


Sunspirit, one of a new breed of small-to-medium enterprises in Australia, is using the Web to streamline business processes while increasing revenues. Its latest e-commerce strategy is to increase sales and drive expansion into new markets.

The 100% Australian-owned-company has been producing and marketing natural aromatherapy products and essential oils from New South Wales' North Coast since 1975, and has annual revenues exceeding A$4 million (US$2.3 million).
Managing Director David Dane believes e-commerce can help sustain Sunspirit's growth by providing its suppliers, distributors and customers with online, real-time access to vital information such as pricing, inventory and delivery dates.

Dane, not a technology expert, knows that all he needs to do is understand how the Web works for his business.

"Our company grew out of a genuine interest in plant medicine, and appreciation of the healing properties of nature's botanicals," said Dane. "That's our core skill and it's not essential that we understand the technical intricacies of e-commerce. We just need it to work for us.

"However, we do understand the importance of business growth. Our goals for e-commerce are very clear to increase sales and take our products into new markets, including Russia, Japan and Taiwan."

Besides capturing B2C transactions, Dane hopes to streamline Sunspirit's existing business processes, and improve the quality of relationships with key suppliers and customers.

"We want to lower our cost-per-transaction. The more we can automate, the cheaper it is for us to operate, and the easier we are to deal with as a supplier. Retail chains like Coles and Woolworths are already placing large orders with us. By streamlining our business processes, it becomes easier for these organisations to do business with us," said Dane.

Sunspirit receives many purchase orders by e-mail or fax, resulting in an inefficient and error-prone double-entry system as administration staff are required to re-key information into the order processing system. Its new e-commerce initiative, where systems are integrated with one another, will ensure that orders received over the Internet are seamlessly transferred into the backend systems. That way, there is no room for error.

Sunspirit has invested in software from Great Plains and Microsoft, which allows the company to automate its business processes, such as inventory updates and the printing of packing slips.

With Great Plains' B2C solution, transactions can pass directly to the back-office financial management solution as well as pull inventory pricing and availability information in real-time.

Another advantage of the Web is the ability for Sunspirit to trail a new product by gauging its popularity on the Web. "This allows us to make our purchasing decisions based on evidence, rather than speculation," said Dane.




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