Business Strategies for Emerging Technologies

EXECUTIVE SUMMARY:

China is a giant in the E-commerce market with about 710 million users and the number growing faster(Tan, Tyler & Manica 2007). Statistics show that E-commerce in China has the largest share of GDP constituting 19.4% compared to only 11.4% in the United States in 2014.  China has the two largest competitors in the E-commerce market Alibaba and JD.com and many other small companies(Clemons et al. 2013). JD wants to be the largest market share holder in online retailing in China but the gap between JD and Alibaba is huge. The vision of both JD and Alibaba is the same to be the top player in e-tailing while advancing and expanding further but the mission is what which makes the difference between them amidst of the huge competition and the gaps in reaching the vision of JD. In Business to Customer(B2C), Alibaba’s Tmall and Taobao holds around 75% of share whereas JD is next largest with only 14% of market share. Alibaba dominated in other areas as well. In the Business to Business(B2B) market, Alibaba dominated others with a 52.8% share and in Customer to Customer(C2C) market also it dominated others with a share of about 80%. This report would be an assessment of JD’s existing strategies followed by proposal and suggestions for new strategies and then the recommendation of the proposed strategies which could make JD reach its vision in the near future.

CURRENT STRATEGIES ASSESSMENT:

JD is currently competing Alibaba and its subsidiaries Tmall and Taobao majorly. The current business strategies of JD are listed below:

JD operates on a self-operated model in B2C model as it purchases the products, stores in its warehouses and fulfilment centres and delivers most of them by its own logistics. This model is expensive due to greater number of warehouses, and requirement of employees. Its rival Alibaba runs as a third-party business making money out of the commissions on the sales. Third party model is less expensive, saves storage space and money while it rises issues such as inferior quality and low customer satisfaction(Yang et al. 2016).

JD’s positive delivery customer service experience and the speed of its delivery thanks to its same day delivery made it the leader of fast delivery and positive customer satisfaction.

JD has bought goods on its own from multiple sources and opted for its own warehouse storage. So, it has better quality control over the products that they sell which gives them a positive edge over its rivalries.

JD’s huge investment in its self-owned logistics system rather than leasing it third party delivery companies has allowed it to control over the deliveries and positive customer experience and increased customer satisfaction.

Many foreign companies such as eBay, Amazon, GroupOn etc were blocked by the Chinese government to reduce the overseas giants influence on Chinese market has opened up an opportunity for JD to expand in Overseas markets along with the World’s largest e-retailing home market on the other hand Alibaba also has the same advantage(Xu & Zhang 2015).

 JD has launched JD worldwide website which allows Chinese products to sell overseas targeting overseas customers and to attract Chinese customers to get trusted Chinese products. It also attracted over 1200 brands to China with without their direct existence in the country. JD also launched USA mall specially to make US brands available in the home country

JD has started partnering up with major companies overseas to supply tailored delivery and payment options for overseas customers. For example, in Singapore it partnered up with iKnow to provide vivid options to customers such as fast delivery and cash upon the delivery.

JD started online financing known as JD Crowd funding and JD Baitiao. JD Crowd funding allows public to invest even insignificant amounts to attract more investments. JD Baitiao allows people to pay within 30 days of purchase or in 24 payments over six months. This has significantly increased the sales over 33% and the average spending by 58%.

JD has partnered up with Tencent which is the largest Chinese social media and mobile media which owns WeChat and QQ to expand its number of users. On the other hand, Alibaba joined with the second largest Chinese social media micro blogging site Weibo. JD has an upper hand in terms of social media penetration due to a greater number of users in WeChat and QQ.

Employee satisfaction also plays a significant role in business and supplying incentives often has become expensive for JD and it is reducing the profit margin. Alibaba has half the number of employees as JD and still they deliver 14 times more parcels than JD.

Both JD and Alibaba have invested heavily in Mobile apps as the number of mobile users is increasing rapidly and the conquering the mobile markets will be a key for JD to reach its vision. 

Expanding its reach to rural areas in China is an innovative strategy taken by JD and it set up a considerable number of warehouses nearly 100 in rural areas for faster delivery. Alibaba also invested hugely in expanding its sales over rural areas, but JD has an advantage over Alibaba due to faster reach with the availability of Warehouses

JD has introduced 3C products in e-commerce in Chinese home market.

JD has launched customer service centre and website to serve online customers 24*7 to solve issues instantly.

JD allowed to its Purchasing Managers to purchase trending goods in particular without the consent of head quarters which is a game changer in the business and allowing to update to the everchanging market quickly.

JD invested around 8 Billion RMB for building self-owned logistics system.

JD is competing with Alibaba in Pharmaceutical market and is planning to expand to more markets.

JD took a step recently to allow around 29,000 third party sellers to sell directly on JD.com which would improve profit margin but due to that fake products in delivery has been noticed which is affecting the core business. JD is also trying third party suppliers for deliveries whose customer service experience is not up to the level as of JD’s logistics.

NEW STRATEGIES:

Business Canvas Model For JD.com

KEY PARTNERS

KEY ACTIVITIES

VALUE PROPOSITION

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

  Chinese Government which is supporting JD.com and other Chinese companies to improve and serve its citizens. It also helped by blocking foreign companies in China.

  Tencent is helping in social media penetration and advertisements using WeChat and QQ.

  iKnow in Singapore is partnering up to provide Singapore customers some tailored delivery and payment options.

Walmart is helping in developing O2O business model

 

Merchandising of digital, electronic, home appliances as well as general goods.

Acquiring goods from manufacturers, distributors and selling them at competitive pricing.

Offering wide range of products of over 1.8 million SKUs and still increasing

Customer support 24*7 on the website and over phone

Storage of acquired goods all over China in fulfilment centres and warehouses.

Building up Self-Built logistics system helps for faster delivery and positive customer service

JD simplified shopping experience for customers

JD offers same day delivery and in 6 selected cities it offers delivery in 3 hours

Customers can access wide range and variety of products as JD expands the variety all the time.

Partners with more local and international brands to offer more choice for customers.

JD simplified check out options and payment methods. They offered cash on delivery.

JD Baitiao offers customers to pay in 30 days or in 24 payments in six months at convenience.

Offers credit support to customers to spend more by partnering with credit finance companies.

 

JD uses web technology and mobile technology to simplify the customers search for products.

Their 24*7 support team helps customers with issues online and by phone.

Personalises products based on search history

JD invested heavily on user friendly interface.

JD mainly serves two customer segments Direct customers and Merchants

For direct customers it offers multiple product categories over 1.8 million SKUs and expands the number of products every day.

JD targets customers who look for high quality imported goods via JD worldwide, USA Mall and Yihaodian.

JD targets Chinese outside China via JD worldwide to offer quality Chinese products.

JD targeted rural population by offering them variety of products and fast delivery by opening more than 100 rural warehouses.

JD targeted overseas customers by offering both foreign and local goods and sells at a very competitive price.

KEY RESOURCES

CHANNELS

JD has 7 fulfilment centres, 256 warehouses and 6906 delivery and pick up locations across China. Such large storage space offers space for storage of wide range of products.

Self-Built logistics system offers fast delivery options and positive customer experience.

Finance system, JD Baitiao allows customers to spend more than 50% by allowing them to pay in 30 days or in dividends for 6 months

 

By partnering with Tencent, they partnered with WeChat and QQ to penetrate in social media.

JD allows purchasing managers to directly buy products without the permission of headquarters.

JD uses largest Social media platforms WeChat and QQ for increasing awareness in online retail and mobile platforms

 It has Online marketplace for third party businesses those who offer to sell on JD.

Self-owned logistics channel offers fast delivery

Finance channel JD Baitiao offers customers more payment options and finance to purchase more.

COST STRUCTURE

REVENUE STREAMS

JD has around 50,000 employees has a huge payroll and a large network of 7 fulfilment centres, 256 warehouses and 6906 delivery and pick up locations across is big financial burden to maintain all.

JD has self-built logistics systems on which JD invested hugely to improve it.

JD employees low price strategy, by which it offers very low price in attempt to avoid competition and to occupy market which leads to low margin of profit.

 

JD buys goods rather than acting as a third-party supplier as a core strategy which is high risk margin offering low profits.

Major revenue stream is online retailing for JD.

JD also generates income by logistics and advertising it does for third party suppliers.

JD crowd funding also raises funding from the people in smaller amounts.

 

Adopting a mixed business model with Quality control teams:

JD is already a leader in Chinese E-commerce just next to Alibaba but to cross the huge gap between them is quite a challenge. JD needs to apply some new business strategies apart from its existing strategies to conquer both domestic and international markets.

JD should focus of changing its business model. JD rather than completely buying merchandise from manufacturers and suppliers it can go for a mixed model(Mahadevan 2000).  Alibaba works as a third-party service and generates income by charging commissions. JD can go for a mixed model of buying merchandise along side acting as a third-party service for valuable and large sized goods. The main problems according to JD would be the negative reviews from its customers and bad reputation as a result of fake or low quality products is against the core strategies of JD.com In applying this model there will be problems of fake, low quality products or even fake suppliers(Lowry et al. 2008; Wen, Lim & Lisa Huang 2003).

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JD can appoint large teams for quality control. Quality control teams can have inspections on third party suppliers regularly and the products which are to be sold by the third-party vendors can be inspected first before adding the item in the online sale listings(Head & Hassanein 2002). Such mixed working business model or method can increase the profit margin of JD while making actual profit along with eliminating negative reviews and bad experiences for customers by proper quality control. Investing in quality control could be expensive as it requires large number of employees and costs would occur in the form of payroll and trainings but at the same time by adopting the mixed model, the staff for storage can be cut due to the presence of third party service and a point to be noted is that higher profits can also be used for employing quality control teams. JD should run a trail to check the success rate of this model. With this model due to better profit margin JD can attract more investors.

Staff trainings:

JD should consider frequent and proper trainings for employees and should provide targets hourly, daily and weekly for all employee roles for warehouse and delivery workers so that they can be competitive. JD can cut workers who are unable to reach targets often and hire efficient workers. This should be a consideration because 50,000 employees would send only 2 million parcels every day on the other hand Alibaba sends out 14 times more parcels roughly around 27% with only half of the employees.

Automation:

JD can also look for automation in the warehouses and fulfilment centres. Repetitive jobs can be automated which could potentially reduce the number of employees wanted for the job and this could make the delivery system efficient along side it improves the speed of the system which means more parcels can be sent out and more deliveries can be made faster in even lesser time which JD is offering customers currently(Lau 2007; Phippen, Sheppard & Furnell 2004). For example JD can go for efficient scanners for order pickers, automate the packing line, create a software which sorts the orders by date and time and optimises the process paths, automated card board crushers which could be handy to eliminate cardboard wastage faster in receiving items etc.

JD can also partner with more convenience stores to provide fast pick ups for customers which could save money on deliveries at the same time increasing trust of customers.

Investments in Analytics:

JD can invest in data analytics either by outsourcing or by hiring employees. JD is a huge company with lots of data history which could be used in strategical ways to predict what items to be sold, to predict pricing based on location and demand and to suggest offers and personalised items to customers similar to Netflix which recommends an user based upon his search and watch history. Good predictions can change the game.

RECOMMENDATIONS:

Some recommendations for JD.com are:

Investing in big data and cloud computing to perform data analytics to determine most selling products according to price, location, season and to predict pricing of products etc

Investments on Mobile apps and providing personalised recommendations for customers exclusively based on their search and purchase history

JD can adopt mixed model acting both as a third-party service as well as buying merchandise and selling as our own combinedly can bring profits, but quality controls teams should be established to quality check and control.

JD can automate repetitive and tiring jobs to cut the number of unnecessary employees.

Frequent and effective staff trainings can be held to improve employee skills

Targets should be kept hourly, daily and weekly for all employees to improve competition and efficiency.

Ideas should be encouraged from employees in the form of suggestions as only the workers can know the problems in their jobs better than anyone and effective ideas can be implemented.

REFERENCES:

Clemons, EK, Jin, F, Wilson, J, Ren, F, Matt, C, Hess, T & Koh, N 2013, ‘The role of trust in successful ecommerce websites in china: Field observations and experimental studies’, in 2013 46th Hawaii International Conference on System Sciences, pp. 4002-11.

Head, MM & Hassanein, K 2002, ‘Trust in e-commerce: Evaluating the impact of third-party seals’, Quarterly Journal of Electronic Commerce, vol. 3, pp. 307-26.

Lau, RY 2007, ‘Towards a web services and intelligent agents-based negotiation system for B2B eCommerce’, Electronic Commerce Research and Applications, vol. 6, no. 3, pp. 260-73.

Lowry, PB, Vance, A, Moody, G, Beckman, B & Read, A 2008, ‘Explaining and predicting the impact of branding alliances and web site quality on initial consumer trust of e-commerce web sites’, Journal of Management Information Systems, vol. 24, no. 4, pp. 199-224.

Mahadevan, B 2000, ‘Business models for Internet-based e-commerce: An anatomy’, California Management Review, vol. 42, no. 4, pp. 55-69.

Phippen, A, Sheppard, L & Furnell, S 2004, ‘A practical evaluation of Web analytics’, Internet Research, vol. 14, no. 4, pp. 284-93.

Tan, J, Tyler, K & Manica, A 2007, ‘Business-to-business adoption of eCommerce in China’, Information & management, vol. 44, no. 3, pp. 332-51.

Wen, HJ, Lim, B & Lisa Huang, H 2003, ‘Measuring e-commerce efficiency: a data envelopment analysis (DEA) approach’, Industrial Management & Data Systems, vol. 103, no. 9, pp. 703-10.

Xu, T & Zhang, J 2015, ‘A Development Strategy of O2O Business in China’, in 2015 International Conference on Computer Science and Intelligent Communication.

Yang, Q, Zhao, X, Yeung, HYJ & Liu, Y 2016, ‘Improving logistics outsourcing performance through transactional and relational mechanisms under transaction uncertainties: Evidence from China’, International Journal of Production Economics, vol. 175, pp. 12-23.