Estore at Shelll Essay

In recent years there has been shift in the fuels and lubricant marketplace that has resulted in more price-sensitive customers and a growing downward pressure on Shell Canada’s margins. Due to the financial pressure to reduce costs, Shell Canada launched an online, self-serve â€Å"eStore† to their agricultural customers in hopes of streamlining their business, cutting costs and salvaging their shrinking profit margins. The purpose of this case report is to address and analyze the issues surrounding eStore, identify the best alternative to solve the key issues and determine the most appropriate method of implementation. It is anticipated that these findings will illustrate the strengths and weaknesses of potential solutions, which will in turn lead to actual implementation of the best solution. Key issues encompassing Shell’s shrinking profit margins, communication and delivery and technology were identified and discussed. Using a SWOT analysis and the Porter’s Five Forces model, internal and external factors affecting the eStore business plan were analyzed. In accordance with the analysis, three alternatives were generated including the redesign of eStore website, abandonment of the online project and the generation of alternative self-serve strategies. After considering which solution would best serve the eStore initiative at Shell Canada, it was determined that continuing with the project and redesigning eStore would be most effective and a plan of implementation was established. It is recommended that Shell Canada follow the implementation plan in order to attain maximum success for eStore. Despite some reluctance of agricultural customers to adopt an online ordering system, there are clear opportunities for Shell’s eStore initiative to succeed in this market. Introduction As a leading manufacturer, distributer and marketer of refined petroleum products, Shell Canada limited is one of the largest integrated petroleum companies in Canada. With consolidated earnings of $810 million and $9. 5 billion in assets in 2003, Shell Canada was ranked the 14th largest company in the country. In recent years there has been a shift in the fuels and lubricant marketplace that has resulted in more price-sensitive customers and a growing downward pressure on Shell’s margins. The agricultural segment s specifically underperforming and because of this, Shell hoped to effectively implement an online ordering system that would decrease the need for costly rural sales representatives. After the initial launch in September of 2002, it was noted that eStore was not as successful in attracting and retaining customers as initially planned. This report will outline key issues, conduct internal and external analysis and prepare an action plan to implement the best solution to achieve success in Shell’s eBusiness initiative. Key Issues Shell has three key issues that need to be addressed before deciding how to best proceed with the implementation of eStore. Shrinking Profit Margins in the Agricultural Segment With the shift in the agricultural segment towards price-sensitive customers, Shell Canada is currently experiencing a growing downward pressure on margins and is thus faced with the need to minimize costs. The remoteness of Shell Canada’s agricultural customers provides unique challenges in managing communication, delivery and sales settlement, therefore there is a need for a more streamlined process in managing these customers. Using local sales representatives in the agricultural segment is costly, and thus Shell is faced with the need to move towards a more efficient, self-serve strategy for these customers. In order to effectively decide on an implementation strategy for eStore, Shell Canada needs to determine an optimal self-serve strategy to satisfy these customers. Communication and Delivery The second key issue is centered upon the lack of sufficient marketing of eStore. After the initial implementation of eStore, Shell Canada noted a pattern whereby customers had signed up for an account only to not use it again or use the system only perfunctorily. Feedback from the customers indicated a range of issues, including a lack of familiarity with eStore and a preference to use other options such as their local sales representatives, or the call center to place their orders. Some customers had not heard of eStore, and those who had, did not see the added value of eStore, and were concerned that an online solution was no better than either placing their orders directly through the 1-800 call center or faxing orders in directly. Many preferred to do business with their local sales representative as they valued the personal relationship of dealing with someone in their own community. Shell is faced with the need to develop a strong marketing platform that will attract customers to eStore in order to increase usage levels. Technology A user experience review of eStore by RareMethod consulting group also indicated a number of technological issues with the eStore website. While some customers saw the value, many found it cumbersome to use and experienced inconvenient interface-related issues. Some customers found the website cryptic and often encountered trouble when typing the Web address. If they failed to type the secure connection URL, it appeared as if the system was non-responsive. Also, the passwords automatically generated by eStore were often too complex for the customers to remember. They required the customer to remember a random sequence of letters and numbers in order to conform to the strict security guidelines. The log-in screen was confusing to customers as it presented what appeared to be two separate log-in panes, one for customers, and one for employees. As these two options were not clearly labeled, customers who chose incorrectly would be presented with an error notification, and would invariably stop trying to log on. The e-mails customers were receiving from eStore were also confusing. Instead of receiving e-mails from eStore, customers were receiving e-mails from eBusiness, and having no familiarity with eBusiness, would often ignore them. In order to enhance the user experience and retain customers on the system, Shell must eliminate these cumbersome interface-related issues and design a website that is more user-friendly. Given these key issues, the following ranking was created based upon their importance and urgency. Shell’s greatest strength is arguably the relationship they have developed with their agricultural customers. By taking advantage of the rapport the local representatives have built with their rural customers, Shell can effectively use these employees as distribution channels to promote eStore. By using Shell International, Shell Canada can also capitalize on considerable resources and expertise to develop an effective implementation strategy. The Electronic Customer Access to Shell (eCATS) initiative by Shell International to develop a generic electronic store can be used as the basis for the self-serve application needed in the Canadian marketplace. By using eCATS as their platform, Shell Canada is able to considerably reduce the development costs. Capitalizing on these strengths will allow Shell to effectively implement eStore in their target market. Weaknesses  Although assessed above as a strength, the relationship the local representatives have built with the rural customers is concurrently one of Shell’s weaknesses when considering the implementation of eStore. Because customers have been able to enjoy a personalized working relationship with members of their own community, they could be hesitant to adopt an impersonal online system that will remove the valued relationship they have with their local representatives. The lack of sufficient marketing for the eStore project is also one of the weaknesses Shell faces in implementing eStore. Many of Shell’s customers have never heard of eStore, and those have do not see the added value in using an online system. Even the local representatives are not fully on board as many feel their time is better spent dealing with client issues rather than promoting eStore. Other weaknesses pertain to technological and user-interface related issues. The customers that have tried eStore are not currently satisfied with the online system and as a result, eStore is experiencing low usage levels. Opportunities Due to the remoteness of many of Shell’s agricultural customers, there is an unfulfilled need to develop a system that makes communication, delivery and sales settlement easier and more efficient for these customers. An online, self-serve strategy provides customers with an easy, convenient way to place orders and gives Shell an opportunity to more effectively manage these customers and generate sales. Also, while a competitor analysis showed that there were many competitors in the market such as Imperial Oil, Irving Oil, UFA, PetroCanada and Federated Co-op, none was pursuing initiatives similar to eStore. Because these companies are likely experiencing the same margin compression, this gives Shell the opportunity to salvage profit margins and simultaneously increase their market share by providing customers with the innovative offering of an electronic store. Streamlining business using an online system would not only attract new customers, but it would also cut costs and relieve some of the pressure on Shell’s margins. Threats Although Shell Canada has few external factors that would seriously threaten the implementation of eStore, there are a few considerations to keep in mind. With the shift in the agricultural segment towards price-sensitive customers, Shell Canada must find ways to satisfy these customers in order to maintain their business. Shell must ensure that an online store is the most effective way to keep these customers, not deter them. Also, although no other company has currently developed an electronic store, there is nothing stopping them from developing one in the future. If Shell is unable to effectively implement their eStore, another competitor could easily learn from Shell’s mistakes, and develop a more effective online system that would satisfy the particular customers Shell was trying to attract. Porter’s Five Forces Analysis The ‘Porter’s Five Forces’ model was designed primarily to conduct industry analysis. It may aid a company to understand both the â€Å"strength of their current competitive position and the strength of the position that they are looking to move into. The model is used to identify whether new products, services or businesses have the potential to be profitable† (Porter’s Five Forces, 2010). Figure 2: Illustration of Porter’s Five Forces Model Source: http://www. quickmba. com/strategy/porters. html Supplier Power- Low  The supplier provides the input for the final product or service, and therefore the supplier for Shell’s eStore is the developer and platform owner. Although implementation of the online system requires the development of at least some the applications since they are not readily available in the marketplace, Shell has extensive resources to draw upon from within the organization therefore making the supplier power low. Members of the Calgary IT group were involved with the development of eCATS and Shell Canada has a strong information architecture already established to guide the implementation of eStore. Buyer Power- High With the shift in the agricultural segment from traditional based farming methods to business-class farming, the fuel and lubricant market currently consists of highly price-sensitive customers. As business-class farmers make up a vast majority of Shell’s agricultural business at 95 per cent, these customers control about 2 percent of Shell’s total market share, and make up a significant source of revenue. Since there are no associated switching costs, customers can easily choose to do business with any company offering the lowest price. As well, customers can decide which services best meet their needs and implementing an electronic store website is only as useful as the number of users. If few people make the transition, regardless of the services eStore can offer, the system will be virtually useless. Threat of Substitutes- High Although substitution is currently not a threat as no other companies have developed an eStore, it is likely that another company could easily develop the same initiative in the near future. While the internet is not heavily regulated in Canada, there is no way for Shell to develop a patent on their eStore system. Another company could not only follow suit, they could learn from Shell’s mistakes and make their own store more effective. Although Shell Canada had the cost-saving advantage of using eCATS as their platform foundation, technology is getting cheaper and companies may be easily able to buy better, more effective online applications off the shelf. Similarly, if Shell fails to satisfy customers with an online ordering system, ustomers may look to other companies that offer the representative relationship they prefer. Barriers to Entry- Low The marketplace in which eStore will conduct business is online, and therefore there are very few barriers to entry. Because there is little regulation online, other companies can easily enter this marketplace with similar initiatives. Moreover, it is often the case that the second version of an IT system is better than the first, therefore other companies can see what Shell has done with eStore, and make their version even more efficient. Competitive Rivalry- High  Taking into consideration the aforementioned factors, competitive rivalry can be considered high. With price sensitive customers in the agricultural segment occupying 2% of the market share, and many players in the market, the company that offers the lowest price will assume this customer base. Shell’s online initiative could potentially set them apart from the competition by offering an innovative, more efficient way of doing business. By reducing their own costs, the savings could then be passed on, at least partially, to the customer in the form of lower prices.