Casadellibro.com (shouldn't it be Casadellibro.es?)

The case describes the situation Casa de Libro was facing when the internet bubble burst and with it their projection of sales. They had to choose whether to stick with the already acquired high tech system, or change to a new one, more inexpensive in both maintenance and development.

I will first start with how I would mathematically frame the problem regarding revenues to solve this, then name the most important factors I would need to take into account for the inputs of the problem (with assumptions about them) and finally make the choice.

The mathematical approach

I would frame the problem following the next steps:

• Build brand new selling projections of sales, for at least three scenarios (best, medium and worst), and estimate some probabilities.
  
  
• For each scenario, draft how your plan would evolve if you chose each of the options. Probably, in the worst case of sales, your sales would be low, and we wouldn't need to change to a new server until much time after that. In the best case of sales, the simpler system would run out of resources fast and I would need to change it.


• Draft, following the plan, what would be the monetary outcomes in each of the scenarios, and the risks incurred.
  


• If the risks incurred weren't dangerous (we will further develop on this), I would calculate the expected profits (average of the expected profits for each scenario, weighted by their probability) of starting either with each option , compare and choose the highest

Until here, it looks simple... but not all in life are maths!

The factors to take into account

The procedure above leads to different results, or may even be invalid depending on management's preferences and strategy for casadellibro.com:

• The first question is... which are the forecasts now?! In each scenario, when would it be necessary to change to a bigger system if the smaller one was adopted? Is it long enough to expect a shift in prices and technology regarding these kinds of systems? How much will have technology evolved?
  
  Most of the internet forecasts were far far far away from reality. Books was probably one of the greatest deception, having experts procastinating the disappearance of physical bookstores in the short term. I therefore assume their forecasts were possibly 10 to 100 times to high, thanks to all of the massive internet adoption assumptions and "winner takes all" theories.
  
  If this is so, probably the smaller system could do it's job for several years before needing an update, and it would be worth to follow this path to avoid the high maintainance costs and expect lower development and maintainance costs when the time to change will have arrived.
  
  
• How much does Casa del libro gives up its previous strategic objectives?
  
  Given Planeta has overall a conservative strategy, and, as said in the case, cost control and loss reduction was the priority, I would assume Planeta wouldn't want to invest heavily in big sunk costs for a smaller than forecasted market.
  
  

• What kind of risks does management prefer? Do they prefer the economical risk of overstating demand or the risks of a potential need to reescale and redesign?
  
  What happens when the system runs out of resources? Will it become a bit slower? Will it deny service to a few users? Will it deny service to many users? Is reescaling a safe operation or will it leave customers unatended for two weeks? Could the reescaling process damage the online version of Casa Del Libro reputation forever? Could it even affect the whole Casa del Libro brand?
  
  I assume that the problems of the Microsoft solution would not damage the Casa del Libro brand in any case. Standardized solutions often offer better possibilities for migration than tailormade expensive ones.
  
  
• What are the technical advantages of each solution? Is it just a question of capacity or also quality of service, stability and features? If there are differences in features, how much value do we assign to them given the environment?
  
  I assume there are features that will probably be better in the Unix system, such as faster search for users, but I would expect a standardized product to develop faster than an expensive tailor-made system, as R&D costs will be distributed among a higher number of clients.
  
  Therefore, when the time to upgrade has come (if ever), computers will be less expensive, have better performance and come with better systems. Starting with the big system incurrs in the risk of becoming obsolete in some years too.

My choice...

...as you probably have already guessed from above would be the Microsoft solution

Nowadays....

I would consider outsource the whole system development and maintainance:

- Less risk for better service (outsourcing companies can dinamically increment resources as my demand grows, with no idle resources being paid for)
- No core competence is lost - unless they pretend to be the next amazon. Competitive advantage online would be the same as offline: a great catalogue and supplier base, and the Casa del Libro brand
- Brand risks would be controllable by taking an active role in design and quality control

I assume in this case I can compete for a certain amount of time with amazon, thanks to brand awareness, proximity, and knowledge of the spanish book market and demand.

The Tesco case

In the Tesco case, it is shown how the good use of IT can lead to significant advantages. The example shown is about retail, but advantages can be built based on IT use on most of the industries.

As it is the case's main focus, I will first do a quick summary of the competitive advantages they get from their CRM/loyalty program:



1) Knowing better who your customers are: Better direct your direct marketing

Knowing their customers' addresses were, allowed Tesco to send eight million customers a quarterly mailing. But the power of CRM and loyalty cards goes much beyond the use of your info as a regular mailing-list. Tesco analyzed who these people were, and sent 80,000 variations of their magazine. Sending the right adaptation of communications leads to improved impact.

The same way we don't talk to elders as to young people, neither should companies. It is amazing how there are companies that have this data or can easily gather it and keep sending mass-advertising almost without segmenting.

2) Knowing better what they buy: Better choose your promotions

Having real time information about what each kind of customer bought, Tesco was able to focus it's promotions strategy towards its regular clients, and not waste efforts on clients that only bought during promotions.

3) Knowing better what they may want: Better choose your new services and products
Knowing your customer base needs other than the products and services you already offer, you can more carefully decide what new services to launch. As an example, knowing how many of your customers are heavy profitable customers of banking services, you can decide to launch your own banking services, knowing already what amount of your customers may eventually be interested in them.

4) Having more and more loyal customers: Selling more to more buyers

Tesco, with the loyalty-card extra incentives for the clients, managed to sell to their clients more stuff they usually didn't buy in Tesco. This scraps market share, increasing revenues and profits. It also increased revenues comming from new customers, attracting about 20 million members.


Other than the loyalty cards and CRM, information technologies also helped Tesco in other ways:


Tesco.com contributes successfully to the revenue stream. It is not only the systems that allow shopping that have contributed to that success, but also the services over them, such as "Price Check", that will probably enhance customer satisfaction having more information in the moment of buying and eventually discovering they are buying cheaper in Tesco. The shopping list offered to the client helps him not to forget anything he usually buys, increasing both, customer satisfaction and Tesco revenues.


The case mentions the SAYE and BAYE programs, that constitute additional benefits to employees willing to adhere. It also mentions the GAYE program, that eases the way for employees willing to donate part of their salaries to charity. This wouldn't be possible without advanced systems to manage the compensation of employees, and gives Tesco a competitive advantage in hiring new employees and in its image towards the community.

Tesco also supports the British Farm Assurance Mark, with its supply chain "master class" program, and probably also uses an Enterprise Resource Planning (ERP) system to manage all of its supply. Correctly drafting and executing a supply strategy, including the reception of goods from suppliers, delivery times, inventories and payments, is often as important as drafting and executing the selling strategies. Correct handling of supplies gives Tesco a competitive advantage probably in both quality and cost of its products.


All of these competitive advantages can be used to enforce its position in the markets they already compete in, as well as to expand to other markets. Answering to the questions at the end of the case:

- They can compete against supermarkets and irate lusury brand owners alike by correctly segmenting their clients and offers, and focusing their promotions and marketing using this segmentation.

- They can expand the supremacy of Tesco.com to other fields of e-commerce, selling, as a real example nowadays, telecom services through their websites. The systems they have used for targeting in the past can also be applied to new products and services. Cannibalization management is done by correctly pricing and promoting the web-services in carefully selected products and customer segments.

- Nothing assures Tesco that they will be able to convince the American consumer to pay 9.95 for home-delivered groceries, but with their customer knowledge they are in better position to know what potential those services have and what are the market segments to target.

- China... I guess that's not really part of the IS subject, is it?

My Meneame case

In the case assigned today, we see a story of an outstanding growth of users and number of visits of a well known spanish website. Whether meneame could be turned into an economically sound project, can be generalized into: can you turn traffic into money? The answer is a "yes, sometimes, but...".

In order to capitalize this traffic, you should define a business model that goes well with the service you are offering. This doesn't have a trivial answer, and, in fact, in the early stages of the web, wrong business models were chosen not few times. With time, it seems that for most of online services it is advertising what best results (vs paid content or services that succeed in very few ocasions).

The assumptions needed to be done to monetize traffic through advertising are:
- That you can give advertisers what they need: potential clients' atention. Meneame has a huge number of visits, but probably comming from a wide variety of users, something that makes targeting difficult for non-technological products (a probably shared need of many of meneame users). Also, while other sites get benefit from the theme of their website (traveling sites sell advertising inventory useful traveling agencies, dogs sites sell advertisement space useful to dog food manufacturers), the content in meneame reveals what it's users are interested in reading about, but does not reveal what they are interested in buying or paying for. As targeting will be of poorer performance, click through rates will probably not be outstanding, and therefore, its advertising inventory has less value than the one other kinds of sites would have with the same traffic.
- That you can serve this advertising in a way that doesn't bother your own service (or at least too much). In the case of meneame, they can use advertising, without bothering too much the users if put in the correct place and quantity. (Note that this is applicable to communication services read through a PC, but complicated for some other services, such as the ones that are needed to be served through mobile phones with a tiny screen)

Some quantitative analysis should help us decide how much money one could get. He seems to get at an average about 20M page loads a month (June), multiplied by a click through rate of its ads of about 0.2% and a pay per click of 5 cents (both low, as there is low targetting and an educated audience as bloggers would click through less times), you could expect an estimate of 2.000 euros per month if it is sustained. You also have costs (mantainace, communications), but even without counting them, it is not so much money. I may have been overly pessimistic because of my interpretation of the internet bubble, but I doubt it could be "sound" even with a great growth from June on, and higher KPIs.

The types of proposals they could expect from me would be:
- Begin an advertising program. Compare the offers of the different players (google, doubleclick, ouverture), and choose the one that seemed to give the best offer for the types of ads needed. I would probably end up using adsense (with the advantage of good quality targetting technology), and , paying particular attention to where and how I place the ads so that they don't bother much.
- Research the nature of meneame users, to find out what needs are shared by them, and try to help out targeting by writing in the page the appropriate meta-data for users.
- Research how Digg and Reddit are trying to monetize their traffic (the same thing probably tuenti does with facebook nowadays). Are they selling something other than advertising inventory? Do they have partners to which they redirect some traffic?
- Research on potential buyers that could be interested in my technology: would elmundo.es be interested in it to build a similar page? If so, would I win more money by selling them the technology than the money I might loose because of a traffic outflow if they overpass me?

My Vichy assignment

If I were to give a very short advice to Vichy, Delphine and EuroRSCG, would be: "Understand technology before using it!".

While many people make technical errors when using technology (see this entry on a user asking how to get tipex out of a screen), more important errors are the ones can be made, such as the one described in the case.

This is my first blog, so it is easy for me to put myself in Delphine's shoes. Here is what I would have done to avoid her mistakes:


1) Contact bloggers, consider even hiring one to get some advice.

As I don't know the unspoken rules of this game, and also have no experience in it, to hire and have an experienced blogger on my side will help me to:

a) Not brake the rules of the game (e.g. create a fake character, without stating it or visit other bloggers site to give opinions, without stating I work in L'Oreal or EuroRSCG)

b) Have more chances of success as bloggers understand better what is the interest in blogging and what makes a blog a success

Also, although this may undermine the "surprise factor", I would consider contacting the most important french blogger, to send them information on our future campaign, asking them for the advice, and on the sake of transparency. Risk would be minimized as they would give their opinions in advance, and no one could say we have been trying to fool our consumers.

2) Balance risks and profits, think carefully of what I plan to win from the blog, how, and what the risks are.

Your profits and risks are different on what strategy you should follow. Different strategies could have been, depending on what they plan to achieve:

a) Make a blog with a fake character (stating it is fake, don't lie, we'll talk about this later). Profit is you are able to talk of your products in first person so that your clients can feel more identified. Risk is that you are trying to get your clients identified with one single personality, something that it is quite difficult (isn't the internet more about niches, and different tastes?)

b) Make a blog with an expert of the product that can state the profits of your products and answer questions. Profit is that you give a more serious/proffessional taste to your blog. Risk is that you lose emotional connection (the writer is not longer a client like you).

c) Get consumers to make your blog, tell their experience (maybe offer prices to participants). Profit is that they will be realistic, and this can be very powerfull if you have satisfied clients. Risk is that you attract angry consumers.

d) A mix of the above. Possibilities are huge.

3) Don't treat your customers as idiots, supervise carefully the content of your communication tools (specially blogs that can so easily be critisized).

When you are creating a fake character that gives a superficial speech, and expect your clients to feel identified, you may be saying you think they are superficial.

If your character fakes her voice, you will be looked as a company that targets fakers that are ashamed of their age.

4) Tell the truth if you are trying to be a trustfull brand. Identify yourself in your blog and in other's blog. You can still talk in first person, but put a clear note that this is a fake character.

5) Search for success stories, use google. Identify what makes a blog a negative scandal. Identify what makes a blog a success. Although back then she wouldn't have obtained so much info, probably she would have done better.

If you type in google "company blogs", one of the entries will be "How-To Create the Perfect Company Blog", and also "Examples of Great Company Blogs - Search Engine Guide Blog "

If you type blog risks for a company, your first entry will be "Communication Overtones: Top 10 Risks for Corporate Blogs ", that hits in the spot for Vichy's problem.

ONCE THE MESS IS DONE... I would make great effort to create a campaign in the blogosphere as well as in traditional media to undo the harm as much as possible, this time with full transparency. I would specially contact important bloggers that have been most critic, to discuss possible solutions, and how apologies should be addressed.

Just to wrap up, when you create a blog, you will have to deal with a lot of problems at the same time. This might happen if you are not well prepared:

Introduction

Dear all,

this is my new blog, thanks for visiting it, but notice it is only a provisional solution. I am planning something a bit more sophisticated, lets see if I get the time and it works. I'll keep you updated.

Soon, my Vichy response on next entry.

Miguel