Critical analysis big success of VIPShop in China
the company I choose is a Chinese company: VIPShop.I have already written the literature review part. the methodology should be secondary data. please write the rest of the dissertation. thank you
i want to add: the methodology should be qualitative approach
Table of Contents
1. 0 Introduction………………………………………………………………………………………………1
Table of contents………………………………………………………………………………………………2
2.0 Literature Review……………………………………………………………………………………….4
2.1 Overview………………………………………………………………………………………………..4
2.2 Trends in current luxury goods market in China………………………………………….4
2.2.1 stable and sustainable growth in purchase………………………………………….4.
2.2.3 Growing requirements for user experience………………………………………..5
2.2.2 Emerging markets in the second-tier and third-tier cities…………………….5
2.2.4 Emphasis on brand images………………………………………………………………4
2.2.5 Current situation in luxury goods consumption in China…………………….6
2.3 Competitive advantage…………………………………………………………………………..6
2.3.1 Introduction to competitive advantage……………………………………………6
2.3.2 Value chain………………………………………………………………………………….7
2.3.3 Implications for e-commerce in competitive advantage…………………….8
2.4 Core competence………………………………………………………………………………….9
2.4.1 Introduction to core competence…………………………………………………….9
2.4.2 Various focuses or views on core competence………………………………….9
2.4.3 Features and identification of core competence………………………………10
2.4.4 Methods to core competence cultivation………………………………………..11
2.4.5 Core competences of VIPshop………………………………………………………12
2.5 Customer loyalty………………………………………………………………………………..13
2.5.1 Introduction to customer loyalty…………………………………………………….13
2.5.2 Previous research on customer loyalty…………………………………………….13
2.5.3 Methods to establish and enhance customer loyalty…………………………..16
3.0 Research Methods
4.0 Findings
5.0 Contributions
6.0 Conclusions
7.0 References
Chapter Two Literature review
2.1 Overview
In an era of internet, e-commerce is increasingly popular and an increasing number of online stores or retailers are springing up one after another. Among the numerous online retailers, most of them failed because of a series of problems, while as a newly emerging online retailer VIPshop survives the cutthroat competition and develops at a good momentum. As the competition among online discounter retailers is increasingly fierce, VIPshop does not fail but develops vigorously and has become a leading online retailer in China within only less than 10 years. Its development is really miraculous and it makes the public confused why VIPshop can achieve such huge accomplishments within such a short period. Hence, this research will focus on the reasons contributing to its success. After a research and analysis, the success of VIPshop can’t be separated from the following strategies: competitive advantage and strategy, customer satisfaction and loyalty, branding, core competencies, and core resources and capabilities. Based on relevant theories, these strategies leading to VIPshop’s success would be analyzed in detail in the following.
2.2 Trends in current luxury goods market in China
2.2.1 stable and sustainable growth in purchase
In current years, with the Chinese economy developing prosperously, the demands for luxury goods are on the rise in China and such a growing trend can be associated with several reasons. For example, driven by the huge demands for luxury goods in the Chinese mainland market, the number of stores with various brands keeps increasing, which stimulates consumers to purchase with a wider range of selections available(Carmine, 2012). The luxury goods supply of foreign brands to the Chinese market is considerably enhanced, which vastly improves the consumer consumption experience. Due to the operational cost reduction, various foreign brands narrow down the price differences of their products in Chinese market and foreign market, and at the same time they rely on the diversity and variety of products to appeal to Chinese consumers.
2.2.2 Emerging markets in the second-tier and third-tier cities
In the second and third-class cities, there are a large number of consumers with strong purchasing power, and they have something in common with the consumers in the first-class cities in China. In recent years, the prosperous development of economy in these small and remote cities also stimulates the booming of demands for luxury goods.
2.2.3 Growing requirements for user experience
In Chinese market of luxury goods, the majority of consumers are increasingly mature about the attitude towards and awareness of luxury goods, and what the emphasizes more is the user experience (Kwon and Lennon,2009). With regard to this trend, various brands open their large-scale flagship online and physical stores, to better facilitate consumers and better perfect the after-sales service. Currently, many people use luxury goods as gifts to present to friends, relatives and colleagues or even familiars, which requires various types of luxuries goods to be developed based on the occasions.
2.2.4 Emphasis on brand images
At present, a wide selection of luxury goods brands are expanded to Chinese market and they stress their brand image establishment. A large number of brands actively advocate and support the activities for public welfare and charities, to enhance their brand image (Carmine, 2012). In addition, in order to deepen the brand image, many brands of luxury goods transfer their global marketing center to China, for example, Chanel chose Shanghai City as the marketing center in China, and cooperated with the Museum of the Contemporary Art to establish the Cultural Chanel, and hold various art exhibitions.
2.2.5 Current situation in luxury goods consumption in China
As the Chinese economy develops prosperously, the disposable personal income considerably increases and people have higher requirements for living standards, along with the attitude to luxury goods changing from blindness to acceptance, identification and pursuit. The brands of luxury goods started to enter Chinese market in the 1980s, and after more than 30-year development, these brands of luxury goods witness the changes in consumption philosophy and behavior among Chinese consumers. In the recent seven and eight years, great changes have take place in people’s consumption of luxury goods, and the luxury goods industry has taken a great leap in development, with the consumers increasing at a good momentum within the latest 3 years (iResearch, 2016).
2.3 Competitive advantage
2.3.1 Introduction to competitive advantage
The concept competitive advantage was put forward by the American economist Michael Porter in his book Competitive Advantage, and there has two basic schools about the competitive advantage theory, of which one is the structural school with Porter as a representative, and they believed that the competitive advantage comes from the series of interactive activities in the enterprise value chain, and it is this structural school that argued the competitive advantages from the cost leadership and differential competition(Porter,2004). The other is the resource school represented by the American strategic managerialist C.K.Prahalad, and they considered that the competitive advantage comes from the unique resources and competence or core competitiveness within the enterprise, arguing that the core competitive advantage was the outward manifestation of the core competitiveness.
A clear or comprehensive understanding of the competitive advantage should keep in mind two key points: first of all, competitive advantage is a comparative advantage, which means that the competitive advantage can be found through a comparison with the competitors(Gourlay, Rita, 2013). Thus, the competitive advantage is a dynamic comparative advantage, which would take into account the realistic interest and potential interest.
In addition, the competitive advantage can be analyzed in both a narrow and wide sense. Specifically, in a narrow sense, the competitive advantage refers to the advantage gained through a comparison from the perspective of the market and Porter from the marketing perspective analyzed the competitive advantage, arguing that the competitive advantage originated from the extra valued created by enterprises much more then the cost(Barney and Delwyn,2007). The value refers to the price the clients are willing to pay, while the excess value is created due to lower prices than the competitors for the same effects or benefits. Porter also pointed out that the competitive advantage has two major forms: cost leadership and otherness or difference, and these two basic competitive advantages originated from the competition about product or service marketing(Govindarajan,2008), thus, it is a concept in a narrow sense. The competitive advantage in a wide sense should start from the perspective of the enterprise comprehensive competitiveness and make a comprehensive analysis and comparison, which is usually required to make a comparison from the perspectives of system and market, to gain the core or comprehensive advantage. It is considered that the internal competence, resources and knowledge accumulation are key for enterprises to gain excess earnings and keep competitive advantages. The competitive advantages can be gained through price and quality competition of products, services and sales process, new products, technology, supply channels, and new types of competitions(Barney, 1991). Hence, seen from the internal system within enterprises, the competitive advantage is also closely related to technological innovation, product innovation, systematic innovation and management innovation.
2.3.2 Value chain
Porter creatively took the value chain as the basic tool to determine the competitive advantage and seek new methods to strengthen the competitive advantage. According to Porter, the competitive advantage came from the series of independent and interactive activities in the whole operational process, and each activity was favorable to the enterprise’ relative cost position and laid foundation for the differentiation image(Porter,2004). Porter took the value chain to express these activities and he further divided the value chain into value activities and profit, of which profit is the balance or margin between the total value and the total cost for value activities.
The value activities are classified into two categories: basic activities and secondary value activities. The basic value activities refers to activities of product production, sale, delivery and after-sale service in the physical form, including internal logistics, manufacturing, shipping logistics, marketing or sale, and service(Gourlay and Rita, 2013). The secondary value activities support the basic activities, including procurement, technology development, human resource management, and infrastructure. All these value activities become the foundation of enterprise competitive advantage and each value activity’s importance to each company varies from one to another. The competitive advantage comes from each single activity as well as the interaction of all value activities.
At the same time, Porter argued that the value chain is not simply an integration of a series of independent value activities, but an interdependent and interactive system, which consists of the interaction among various value activities, the vertical linkage between the enterprise value chain and the supplier value chain, as well as client value chain.
2.3.3 Implications for e-commerce in competitive advantage
In an era of e-commerce, the wide application and popularity of the internet, computer technology and communication technology provides new key factors for e-commerce enterprises to gain competitive advantages, whose sources would be enlarged and widened by the technological innovation and competition changes. The e-commerce can gain competitive advantage through cost leadership, differentiation, fast reaction and information, of which information may be the major source of competitive advantage for e-commerce(Power and Micallef,1997).The prosperous development of the internet and online technology speeds up the sharing and exchange of information, and it has increasingly become a determinant for an online retailer to succeed whether it has powerful information network, fast and convenient information channels, and complete information infrastructure including the platform for information sharing and database.
2.4 Core competence
2.4.1 Introduction to core competence
The concept core competence was first put forward by Prahalad and Hamel in 1990, referring to the collective learning within the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies(Prahalad and Gary, 1990). Core competence is the communication, participation, and the promise to the collaboration depth of work across the organizational boundary, and it will not reduce with the increasing use, but needs cultivation and protection since knowledge would fade away without frequent use and the core competence is the source to keep competitiveness. Prahalad and Hamel (1990) also gave out three basic principles to identify the core competence, of which the first one is that core competence can offer potential to enter various markets, another is core competence contributes to users’ perception of value from the ultimate products, and the third principle is that core competence can be hardly imitated by competitors.
2.4.2 Various focuses or views on core competence
Though Prahalad and Hamel put for ward the concept of core competence, they did not give a clear definition to it, but only gave a descriptive concept. Up to now, it still hasn’t had a complete theoretic framework or a consensus in terms of the core competence, and there were five major views about the this concept. The first view is the concept of integration and the representatives are Prahalad and Hamel (1990), who argued that the enterprise core competence lies in the knowledge accumulated within the corporation, especially the knowledge involving how to cooperate various production skills and integrate multiple technology flows.
The second is the cultural perspective and the representatives are Rafa and Zoll, who believed that the enterprise core competence not only lies in the enterprise operating subsystem, but also in the cultural subsystem permeating the entire organization, of which the consensus lays the foundation to the integrated and inimitable core competence(Alastair,2010). Another one is the competence-based view and the representatives can be Coombs and Coyne, who deemed that competence as an essential factor is the main element of core competence, and believed core competence as the integration or synthesis of various competences(Jay and Hesterly,2007).
The fourth view the resource-based and the representative is Jay Baron, who argued that the continual core competence can be created only when the enterprise resources are equipped with the four major characteristics, value, rarity, inimitability and irreplaceability(Wernerfeit,1994). The resources include the enterprise asset and knowledge information, ability features and organizational procedures, while the core competence means the unique ability of enterprise to obtain and own these special resources. The fifth view is knowledge-based, and Barothy Leonard-Barton is the representative, who considered that the basis or prerequisite of core competence is knowledge, and establishing a learning-oriented organization is an important approach to enhance the enterprise core competence(Anthony,1996).
Hence, it can be seen that the enterprise core competence can be interpreted from various perspectives and the core competence can be created through multiple methods, on condition that the method is suitable to the real situation of the enterprise.
2.4.3 Features and identification of core competence
According to Prahalad and Hamel, core competence is featured with three characteristics, ductility, value and inimitability, while Barney defined another four features of core competence, value, heterogeneity, inimitability and irreplaceability(Klein and Gee,1998). In addition, it is considered the core competence has another significant features, like the key to support enterprise, favorable to explore business opportunities, long time to be formed, and ductility(Rasoava,1999). Other scholars argued that there are three outstanding features in core competence, of which the first one is core competence definitely has extraordinary contribution to the value stressed by customers, another is that the enterprise owns the basis or foundation to create core competence, and the third one is that core competence is the effective tool to explore the potential market.
An appropriate identification of core competence is the prerequisite and foundation to cultivate and apply the core competence for an enterprise. It is considered that six methods can be used to identify the core competence, value chain analysis, skills and strategies analysis, asset analysis, knowledge analysis, customer contribution analysis and competition difference analysis(Jay and Hesterly, 2007).
2.4.4 Methods to core competence cultivation
Generally, three are three major methods to cultivate core competence, of which the first is to cultivation within enterprise(Anthony, 1996). In this method, the enterprise can organize a team specially designed for core competence cultivation. When setting the target of core competence development, the team should combine the development tendency of this product at home and abroad and the real situation of the enterprise, make a comprehensive analysis of its overall competence and evaluate whether such products are unique.
Another method is merger&acquisition outside the enterprise. Theoretically, the core competitiveness can not be transplanted, but through merger& acquisition the enterprise can bring in the core external technology and apply it into the internal enterprise(Alastair, 2010). Based on asset reorganization and structural adjustment, the enterprise is able to make the technology of the merged or purchased company transform into new competence of the enterprise, and ultimately become the specialty and core competitiveness.
The third method is innovation imitation(Rasoava,1999). The effective and rapid way for enterprises in developing countries in particular to enhance core competence is to imitate innovation. Though core competence can hardly be imitated, the key technology can be similar at the maximum and imitation enables enterprises to keep track of the latest technology, development tendency, to realize innovation at low risk and low cost.
2.4.5 Core competences of VIPshop
Established in 2008, the website establishment of VIPshop looked reference to the business model of Vente Privee and Gilt Groupe, and it has kept the about 30% increase in the past few years, and has owned more than 2 million members and its commodities cover a wide range, like fashion clothing, ski care products, accessories, and perfume. VIPshop owns a large number of favorable advantages, which can contribute to core competences. First of all, though VIPshop cooperates with a wide selection of brands, it will cooperate with one brand for less than 8 times to guarantee not to influence the sales in the physical stores and the off-line sales channels of these brands, at the same time to keep the feeling of freshness among the members who will hold expectation to the promotional brands.
Another advantage lies in its own platform for members interaction. VIPshop creates the platforms specially designed for its members to communicate and give their ideas, like the information platform, blogs and message board. Through these communication platforms, the members can freely express their ideas and give their suggestions, while the VIPshop can obtain the needed information from its members and make discussion about the topics or commodities concerned about by the members, to form the guiding mechanism based on the public members’ preferences and views, to ultimately guarantee their products marketable. In addition, VIPshop also relies on various methods to realize its market expansion or promotion, for example, once you purchase from VIPshop, you will gain points and these points can be used to exchange gifts and members also have opportunities to be offered gift voucher, which are all quite attractive to the public.
Compared with the websites of other luxury goods, the website design of VIPshop has a great advantage. On the website of VIPshop, consumers can see the advance notice of new brands, and the column “date with brands” clearly displays the brand names, discounts, and the sales situation, which can be shared to whoever you want whenever browsing the information on the website. Such a design on the website enables consumers to have a better mastery of the brands they are interested in and to do shopping in a pleasant and easy way.
In addition, more advantages of VIPshop lie in its value chain and the value chain plays a leading role in an organization’s sustainable development in the long run(Normann and Ramfrez, 1993). For example, as to the supply chain, up to now, VIPshop has had more than 200 brands, and more than half of the brands are directly from the branding business and the rest come from the agents, and it also has special personnel in charge of procurement in the foreign markets. VIPshop has an advantageous capital or fund flow. On 8th December 2010, VIPshop declared the completion of the first-round financing, gaining the venture investment as much as 20 million dollars from Sequoia Capital and DCM, which was also the largest amount of the first-round investment in the domestic B2C field. The logistics can be another major advantage of VIPshop. It has its own warehouse and a logistic center covering an area of 20 thousand square meters is located in the South China and another two large-scale logistic centers were set up in East China in 2011, with the logistic center in the North China under planning.
2.5 Customer loyalty
2.5.1 Introduction to customer loyalty
Newman and Werbel defined customer loyalty as the repetitive purchasing of the same brand and consumers’ only selection and preference for this brand, without any consideration of other brands(Rober and Jill, 2002). Oliver (1997) believed customer loyalty can be represented from three perspectives, the consumers’ willingness or intention to do repetitive purchasing, purpose of cross-buying and customer referrals. He also argued that customer loyalty is the effective promise made by consumers to the enterprise and brands they love, which would drive them to do repetitive purchasing in the future for a long time, regardless of the sales situation or the marketing strategies(Carmine, 2012).
2.5.2 Previous research on customer loyalty
In an era of internet and e-commerce, customer loyalty is increasingly significant to an organization especially the online stores or retailer. According to Frederick, under the circumstances of the internet, it has been the key method for corporate to make profit and keep competitive advantages through establishing and enhancing customer loyalty(Justin, 2013). According to Keller, consumers’ repetitive buys of the same brand clearly indicate their loyalty to the brand. Gremler and Brown believed customer loyalty consists of behavioral loyalty, willingness loyalty and emotional loyalty(Luarn and Lin,2003), which is further extended and enriched by Oliver (1999), who argued that the customer loyalty can be divided into attitude loyalty and behavioral loyalty. The attitude loyalty is made up of recognition loyalty, willingness loyalty and emotion loyalty. Fornell considered that the customer loyalty can be evaluated from customers’ tolerance of the price increase and their repetitive buying. Smith (2001) also believed that the essence of customer loyalty is similar in online and offline stores, and the key lies in how the corporate uses the existing information technology to establish good relations with consumers. Seen from the findings in the research made by Luarn, due to the instability, risks and complicity in the online shopping environment, it is more challenging to gain the online customer loyalty(Wallace, Giese, and Johnson, 2004). Some scholars also found that the online customer loyalty is influenced by a series of factors or variables, such as interaction, communication, diversity and personality in goods.
2.5.3 Methods to establish and enhance customer loyalty
Enterprises not only provide goods or products for customers, but also help satisfy consumers’ other demands, to establish long-term and good rapport with customers(Wulf and Odekerken, 2003). In a times of internet, consumers can obtain and share information rapidly and the online consumers have more rights of selection, with the consumption mobility vastly enlarged. This requires the online retailers to strengthen its relations with the customers, to establish a reciprocal rapport with consumers, and gradually enhance the customer loyalty to guarantee the long-term development.
In addition, the online retailers should improve their speed of reaction and service (Smith, 2001). In the internet economical times, people’s life space has been vastly sped up, and online consumers continually reduce their time spent on online shopping, which poses higher requirements for online retailers in the reaction and service speed. The faster the online stores respond to consumers and offer corresponding services and products, the more likely they would be to win customers and establish customer loyalty. Hence, the online retailers like VIPshop ought to attach more importance to the improvement in the reaction and service-offering speed.
More importantly, the online stores ought to improve their emotional associations with customers (Morgan and Hunt, 1994). According to Schultz, compared with the relevance theory which stresses reliance on promises or unique marketing means to appeal consumers to purchase, the relationship theory emphasizes the post-trade customer retention or maintenance, to improve the customer loyalty. Seen from the 5A theory, a long-term relation between enterprises and consumers can be maintained by stressing the five points centering on consumers: Aware of the customers, making Acknowledgments for consumers, Appreciating customers, Analyzing customers, showing willingness to take Actions to serve customers to satisfy their demands, to ultimately cultivate a group of customers with high customer loyalty with low marketing cost but high marketing efficiency (Robert, 2002). Hence, as an online retailer, VIPshop should deepen its relationship with online customers, and strengthen its emotional communication with the consumers, to know their psychological demands and personal needs, to deepen the emotional ties between VIPshop and its customers, and ultimately improve the customer loyalty.
Last but not least, VIPshop can rely on reward to enhance customer loyalty. According to the 4R theory( relevance, reaction, relationship and reward) put forward by Schultz, relevance reaction refers to the speed for enterprises to make response to consumers’ demands, relevance requires the enterprises to provide products and services based on consumers’ practical demands, individual needs and the expected demands, while the relevance can be realized through the user association, production connection and interest interrelation. Relation has deeper connotations than relevance emphasizing the realization of the promise to appeal to consumers, and relation stresses relying on the customer maintenance after sales to improve the rate of second buying and develop customer loyalty (Kwon and Lennon, 2009). Reward means that enterprises can satisfy the stakeholders’ demands based a series of marketing activities, and it emphasizes rewards and the benefits for customers (Gefen, 2002). Therefore, this implies that VIPshop should pay more attention to create benefit and offer reward to customers, to enhance customer loyalty. This can rely on various methods, offer a wide selection of quality products, enhance service quality, guarantee products and service to be customer-oriented, carry out cost leadership strategy to minimize the expenditure and maximize customer shares to form the economies of scale, to reach a win-win situation between VIPshop and its customers.
