13.2. The OnLine Computer Store Problem
Consider an online retailer, called e-buypc.com, that sells computer products, software, and electronics to consumers, exclusively over the Internet. This online store offers a large selection of products with detailed product description and pictures to help visitors and customers in the selection and purchasing processes.
The site of e-buypc.com offers a simple and attractive interface to consumers. The shopping process, as shown in Fig. 13.1, is organized around three major steps: 1) Find a Product, 2) Register, and 3) Place an Order. The Find a Product step can be accomplished by two main functions, namely Search and Browse. A third way to select a product is to pick up one of the hot items, which are displayed in the special offer section, located in the Welcome page. To place an order, a consumer has to select the product using the Add to Shopping Cart function. Before checking-out, the customer must have gone through the registration process, which sets up an account and provides the customer identification and password. The store uses secure connections for transactions that transmit confidential information. To check out, the customer simply clicks on the Check-Out button to submit the order for the items in the shopping cart. During the check-out process, the store contacts the billing service, which checks with the buyer's bank or credit card company to obtain the credit authorization. Then the billing service informs the store that the transaction is approved and the product delivery process is started. The transaction completes when the customer receives the products purchased. From the customer's perspective, the site is easy to use and efficient. With three clicks, a registered customer is able to perform all the steps required by the purchase process, from product selection to check-out. The site has also a privacy policy clearly stated in the Welcome page.
Figure 13.1. CBMG of the Shopping Process of e-buypc.com.
The store's revenue consists of merchandise revenue and banner advertisement sales. Merchandise revenue is all revenue derived from sales made through the site. By letting outside marketers advertise on its Web store front, the online company obtains another source of revenue. Last fiscal year, which ended September 30, generated a merchandise revenue of $94,378,000 and an ad revenue $900,000. Most of the customer base is formed by small to medium businesses and home office customers. This type of customer is substantially less seasonal in buying behavior than consumers who buy gifts, flowers, toys, books, and CDs during holidays. However, the online store wants to increase the number of seasonal customers and attract more traffic to the site. It is common in the Internet economy for online retailers to see surges in traffic during events like the Super Bowl or holidays such as Valentine's Day and Christmas. Increases in unique visitors of about 400% relative to the week before are not uncommon during these special events. Retailers seize the opportunity to attract online shoppers seeking the comfort, ease, and efficiency of buying on the Web. Moreover, the Internet is turning out to be a great advertising medium, particularly for event-driven efforts when advertisers can make pushes tied to e-commerce. Thus, ad sales are becoming an important source of revenue. The e-buypc.com vice-president of operations observed that around 95% of the company's site visitors do not purchase any products. So, the company wants to make money from the traffic.
13.2.1. Planning Situations
Two different planning situations are being addressed by management. In the first case, management wants to know the impact of corporate goals on the site's infrastructure. In the other case, management would like to know how to prepare for a given future scenario. The planning situations are as follows.
Assessing the Impact of the Business Goals.
Corporate management has set several business goals for the e-buypc.com computer store. Some of these goals are related to stock holders, personnel, and financing. The board of directors set a goal for next year: $130 million of merchandise revenue and $3 million dollars of ad sales. The question management wants to answer is whether the site has an adequate infrastructure to support the increase in revenue without compromising the quality of service.
Introducing Digital Downloadable Products.
The company will soon be announcing the launch of a new online store that will allow consumers to purchase and download digital products. The company will begin selling high quality downloadable music in MP3 format. Before introducing the new product, management wants to plan the site capacity to adequately support the new business.