Recommendations

This thesis aims to be the starting point of click-and-mortar business model research in Taiwan. As a giant convenience store group in Taiwan, unavoidably, 7-11 is going to seek more revenue growth online, since the traditional retail market will eventually saturate. 7-11 and 7net is the first and the typical click-and-mortar retail business model in the market, leveraging one side‘s advantage to benefit the other; any physical retail business that would like to expand its channel to the Internet can look into 7net‘s business model and create its unique one. However, the most important factor of 7net still lies in the back-end physical resources—especially logistics capabilities. The reason for the competitors, for instance Yahoo Shopping and PChome 24 Hours Shopping, are able to gain such a stable position in the market is also because of their reliably short delivery lead time. Therefore, an effective

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logistics network is the key resource for both virtual and physical retail businesses.

As a burgeoning B2C player, 7net needs to stabilize its value proposition, and seek to increase its market share. This is its major task at this moment. 7-11 and 7net‘s brand awareness is remarkable in the domestic retailing market, but there are still questions about whether this brand can successfully attract consumers to buy all kinds of products on its shopping websites, especially those products that have little association with 7-11, for instance electronic products or fashion accessories at higher price. How 7net is going to expand its product spectrum in the future will be an interesting research subject to look into.

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Appendix: The Interview Log with Project Manager Ms. Chiang EC-Merchandising Manager of EC-Merchandising, E-Commerce Dept Date: Nov 29th, 2010 15:00-18:00, Taipei

What is your perspective about Internet shopping market in Taiwan? Do you think it is already saturated or still have room to grow?

Personally, I think that the Internet shopping market in Taiwan is yet saturated. There is still a plenty room for growth. Base on the research conducted by MIC, less than 50% of the consumers use the Internet, therefore, theoretically the market has the potential to grow twice as big. Through my observation, there are three market characters worth mentioning.

First, credit card transaction had been the main paying mechanism for online shopping before 2005; this may cause information security issues, so consumers usually did not feel confident shopping online. After 2005, more options are available for consumers; ATM transaction and cash upon pickup at store mechanisms allow consumers to shop without credit card number disclosure. Besides, the technology for information security is well developed;

therefore, the consumers are more willing to bear the risk to shop online, which has made the market size larger.

Different platforms aiming for different customer segments: Internet shopping market in Taiwan can be divided into three segments: B2C, C2C, and B2B2C; B2C and C2C have larger shares than B2B2C. Even though all the platforms are striving to expand its product spectrum as much as they can, they still have different customer segments. For instance, Yahoo Shopping focuses on women‘s apparel; PChome Shopping focuses on 3C electronic products.

7net currently focuses on commodity products such as food and beverage. Since the focus products are different, the market segments are different as well.

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Undeveloped product lines: Currently all the platforms focus on tangible and physical products; there are still many products, in intangible forms, yet to be sold online, for instance bill collecting and human labor services, can provide this market to grow.

Books.com.tw and Rakuten.com.tw are affiliates of 7-11. Does owning three shopping platform cause internal conflicts?

7net and Books are both B2C shopping websites and based on commission; although they share the same logistics system, they have independent managements and buffer stocks.

Products, Books.com.tw mainly focuses on publications, while 7net focuses on commodity products. As for Rakuten.com, it should be categorized as a B2B2C platform. With different product segments, positioning and business model, these three platforms will not encounter internal or channel conflicts.

7-11 used to run Unimall to approach the Internet shopping market. What are reasons for 7-11 to re-organize Unimall to 7net?

Unimall used to focus more on mail order business and invest less resource on the Internet. In 2010, 7-11 aims to evolve its brand image and increase its brand awareness on the Internet. Compared to the name Unimall, 7net makes it easier for consumer to associate it with 7-11, and with this name, the core competence--convenience and variety—of 7-11 can be emphasized.

Does the coexistence of both physical and virtual channel cause channel conflict and internal cannibalism? What is the store managers‘ attitude toward 7net?

The most common complaint from the store managers is about the packages waiting to be picked up in the stores occupy too much space. Therefore, 7net encourages consumers to

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choose to-door service by providing a lower minimum purchase to waive delivery charge.

Besides, the stores get additional handling fee for each package they receive, so the stores are commonly supportive toward 7net.

Which part comprises the most of 7net‘s cost structure?

Logistics costs comprise a large share of the structure. Since the distribution center RSI has to handling sorting, packing, delivering, and customer services, so it‘s the main segment of the whole structure.

Compared to the other existing B2C platforms, for instance Yahoo Shopping Taiwan and PChome Shopping, what would you consider as the unique values 7Net can offer to its customers?

I would consider vendors and consumers are both our customers. Starting from the vendors, there are several exclusive benefits that 7Net can offer to them, while the other platforms cannot due to their lack of physical resources:

Cost Reduction: 7net is able to provide integrated services to vendors because of it mother company‘s subsidiary Retail Support International (RSI) as the logistics backup. From slotting, advertising, to distributing center storage, sorting, packing, and delivery, the fixed percentage of commission includes all the steps of the deliveries to consumers. Y website, as I am aware of, has different commission system; it only covers the front-end service such as slotting and financial services (i.e. online transaction). If a vendor wants advertising service, it has to pay additional commission to Y websites. Moreover, since Y is a pure play website and has no distribution center, the vendors have to handle inventory and delivery by themselves.

In short, 7net‘s total solution to vendors makes it convenient and cost –efficient for them.

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Physical Retail Store Exposure: 7-11 has the highest retail store coverage in Taiwan.

Over 4,700 of chain stores and franchises provide physical store exposure as the most effective communication channel to consumers. Such a large number of stores is also a powerful source to expand website‘s member base; imagine the managers of each store gather 10 people to sign up for 7net‘s membership, then over 4700 new members are recruited. With such a fast-expanding membership base, the vendors can certainly communicate with a larger target audience.

7-11‘s Brand Awareness: Although 7net is a late comer in B2C e-commerce market, through the widely recognized brand image, the website can build up its awareness and customer base faster than any other new B2C platform.

PCSC Abundant Resources: 7net can develop synergies with over 32 subsidiaries of 7-11.

Cross-marketing can be designed with Starbucks, Cosmed (康是美), etc, which may be a strategy to attract consumers.

There are some unique values to provide to consumers such as:

Price cheaper than that of convenience stores: Most of the B2C shopping website set a minimal purchase amount for free shipping; consumers have to either buy more things to reach the amount or pay for the delivery. 7Net provide free store pick-up service on every item that goes to distribution center, meaning that consumers do not have to pay more for delivery charge.

Flexible paying and delivery method: most of the products available on 7net can be delivered to convenience store. Consumers can choose either to-door delivery or cash upon pick up at stores, which is more flexible than other major B2C shopping websites.

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Brick-and-click promotion: combining with 7-11 physical channels, 7net would launch more marketing campaign than the other shopping websites, for instance point collecting campaign for a free cup of coffee or figurines, or the online payment method through Icash prepaid card, which provides members a value of flexibility.

Exclusive mail-order apparel brands from Japan: One of the major target segment of 7net is female customers who age from 23-50. To appeal to their taste, 7net exclusively carries mail-order brands from Japan, such as Nissen, Cecil, and Bellemaison, which bring more variety to its product lines.

What are the short-term, mid-term, and long-term goals of 7net?

Since 7net is still young, in short-term, we aim to expand our customer base and focus on significant revenue growth. In the mid-term, we aim to be the leading shopping website for commodity products in Taiwan. In the long run, we aim to become the most convenient and fastest shopping website, in terms of paying method, delivery lead-time. We hope that 7net can be perceived by consumers as convenient as 7-11 physical stores.

In your opinion, what is the bottleneck or obstacle of 7net‘s development?

The most difficult obstacle for 7net is its late market entry. Due to lack of first mover advantages, 7net is still working on expanding its membership base. Although 7-11, as a powerful physical retailer, possesses influential purchasing power, but to vendors 7net would still need to provide large membership base. As for now, 7net still need to strive to convince well-known brands to post onto its website.

What is the main profit model of 7net?

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7net provides two kinds of services to vendors: distribution center storage or direct order transferring, which allows vendors to provide consumers two ways for delivery, distribution center delivery(入倉) and direct delivery. Distribution service costs 35%-40% of the revenue, for instance the end-user price of a product is NT100, 7net will charge NT35-40 as the handling fee. The second service costs around 25%.