T ERMINOLOGY

The term retail describes companies focusing their efforts on selling any types of products and services directly to its end-consumers. This encompasses the selling through any form of channels and touch points. (Roy et al., 2017, p. 257; Li et al., 2016, p. 1391)

Figure 2: Definition of retail (rpc, 2018)

rpc defines retail as the place of interaction between brands and customers. This interaction can take place in both physical and digital world. (rpc, 2018) This definition of retail further will be applied in the thesis.

2.1.2. Megatrends

As a result of globalization and technological advancement, the world has become a smaller place. The interconnectivity and dependency of markets and economies through communication and transportation networks has led to the rise of global forces, the so-called megatrends. (Gebalska, 2017, p. 601 f.) The term megatrend is

very controversial, and is often used as a superlative in the wrong context. As the futurologist Matthias Horx explains in his book, there are certain criteria that can be applied, to identify megatrends:

Table 1: Criteria that define megatrends (Horx, 2011)

Megatrends mainly occur on a large global basis and dramatically shape the world we live in. They impact each human being on this planet as they shape economics, politics, science, technology as well as culture. (Gebalska, 2017, p. 602; Zukunftsinstitut, 2018) 2.1.3. Consumer Trends

Consumer trends are based on large reoccurring patterns in consumer behaviour.

Solomon describes consumer behaviour as the process where customers ‘select, purchase, use or dispose of a product, service, ideas or experiences to satisfy needs and desires.’ (2013, p. 31) Consumer trends basically mirror the motivations and approaches in the decision-making process throughout the entire customer journey.

With their decisions, consumers are shaping entire industries and business models, as they have a clear idea how desires should be satisfied and are dictating companies how business models have to be adapted. (Black et al., 2017; Priporas et al., 2017, p. 375) 2.1.4. Digital Technology

Literature defines digital technology as electronically powered hardware, software, networks etc. that help companies to collect, store, process, deliver and analyse data.

(Snow et al., 2017, p. 2; Wei et al., 2018, p. 586; Pagoropoulos et al., 2017, p. 21 f.) If

Criteria Description

Longevity Mostly lasts longer than a centaury Entrenchment Emergence often has historical roots

Ubiquity and complexity Never only visible in partial areas, industries or special fields. They holistically shape living environments, ecology,

Globality Always observable on a global scale

Robustness Resistant to crises and overcome stagnation and reverse trend developments

Slowness Grow with an average speed of 1% per year and are not a sudden development of circumstances

Paradoxality Are not developing rectilinear, instead move in form of strange loops and often develop retro-trends (counter movements, contrary drifts)

applied correctly, digital technologies can immensely improve a company’s performance, as they increase the degree of business intelligence and can help overcome difficult challenges in the field of application. (Snow et al., 2017, p. 2) 2.1.5. Digital Transformation

Digital Transformation describes the transformation of processes, products and events through an increasing usage of digital devices, the integration of new technologies into the business model as well as the usage of data, to better foresee changing consumer behaviour and match customer expectations. (Schallmo et al., 2017, p. 3 f.; Hagberg et al., 2017, p. 264; Goerzig & Bauernhansl, 2018, p. 541)

2.1.6. Business Model

As the Business Model Canvas, developed by Osterwalder and Pigneur in 2009, is the central framework for this paper, the following definition of a business model will be applied: ‘A business model describes the rationale of how an organization creates, delivers, and captures value.’ (Osterwalder & Pigneur, 2009, p. 14) Their canvas for a business model is based on nine different building blocks, capturing all relevant aspects of a business model and transparently delivering an overview about key factors encompassing the entire value chain. For this paper, the three building blocks channels, cost structure and revenue streams will be considered.

2.1.6.1. Channels

In the BMC Osterwalder and Pigneur define channels as links between a company and their customers. There are communication, distribution and after sales channels. They can be utilized to generate awareness, exchange information and deliver value propositions to customers. They further define five distinct phases for channels.

(Osterwalder & Pigneur, 2009, p. 27)

Figure 3: Distinct channel phases (Own illustration, adapted from Osterwalder & Pigneur, 2009, p. 27)

2.1.6.2. Cost Structure

The building block cost structure displays all costs that are linked to the operations of a particular business model. Osterwalder and Pigneur separate business models into two different categories, cost-driven and value-driven. While cost-driven business models focus on the minimization of costs at all times through outsourcing, automation or cheap value propositions, value-driven business models focus on creating value through, for instance, highly personalized services. (Osterwalder & Pigneur, 2009, p.

40 f.)

Osterwalder & Pigneur suggest measuring costs in fix and variable costs, as well as costs which cause the effect of economies of scale and economies of scope. (2009, p.

40 f.) Ongoing, a TCO-model based on OPEX and CAPEX will be applied. This decision will be explained and justified under section 2.1.7.

2.1.6.3. Revenue Streams

The building block Revenue Streams describes how a business model aims to generate revenue from its customer segments. Companies need to identify which form of value proposition customers are actually willing to pay for, and in what way. Osterwalder and Pigneur define two different types of revenue streams, one-time transaction revenues and on-going transaction revenues. Companies can choose between various types of pricing mechanisms to find the best fit for a specific market and target

Table 2: Overview revenue streams (Osterwalder & Pigneur, 2009, 31 f.)

2.1.7. Total Cost of Ownership

As in the empirical study, the impact of consumer trends and digital technologies on retailers’ cost structures should be elaborated on, a TCO-model will be applied to extract information from the empirical data and clearly categorize and summarize the results. TCO is a common way for IT-vendors to explain the impact and usefulness of their products. It helps to transparently show companies how much cost reduction potential exists in which cost categories as a result of the implementation of digital technologies. (Wiggers et al., 2004, p. 57; Coughlan, 2012, p. 37)

In the following analysis, the paper proposes to apply a TCO model based on OPEX (operating expenses) and CAPEX (capital expenditures) for measuring the impact of digital technologies on the retailer’s cost structures, as this approach has proven to be successful in other studies. The Operating Expenses refer to the running costs of a functioning business model. This position includes all expenses regarding raw materials and supplies, marketing and advertisement, labour costs, rental, utility and leasing fees. (Gabler Wirtschaftslexikon, 2018; Mandolini et al., 2017, p. 1941; Tracy, 2004, p. 11) Capital Expenditures revolve around all investments referring to long-term fixed assets, such as machines, buildings, equipment, spares, computer systems and more. With increases in CAPEX, the capital assets in the balance sheet increase.

Depending on the type of asset, they can be depreciated over a longer or shorter period of time. (Gabler Wirtschaftslexikon, 2018; Mandolini et al., 2017, p. 1941)

Revenue Stream Description

Asset Sale Selling of ownership rights of a physical/digital product to its buyer in exchange for a price. (i.e. Automotive OEM’s)

Usage Fee User will be charged based on the use of a specific service. The higher the usage, the higher the resulting fee. (Hotels)

Subscription fees Fees charged on a regular basis in exchange for continuous access to a service (weekly, monthly,…). (i.e. Music Services)

Lending/Renting/Leasing Temporarily giving the right to use a product or service for a period of time in exchange for a pre-determined fee. (i.e. Car Rental) Licensing Customers are given the opportunity to make use of protected

intellectual property in exchange for a license fee. (i.e. Software firms)

Brokerage Fees Fees that are charged for intermediation services performed between at least two parties. (i.e. Credit Card providers)

Advertising Advertisement fees that are charged for advertising products, services or brands.