Case Study – WebVan and Peapod

Group - 2

Agenda

• Business Models of WebVan & Peapod• Peapod’s Success• WebVan’s Failure• Relevant Business Model – Current Scenario

Business Models of WebVan & PeapodParameters WebVan Peapod

Strategy Massive expansion into new markets • Another medium to purchase groceries• Expand as per market requirement

Organisational Structure Vertical Integration Horizontal Integration• Tie-ups with Ahold and Stop & Shop stores

Operations • Used technologies for providing automated process

• Relied on human labour

Delivery Model • Hub & Spoke Model • Hybrid model

Infrastructure • High Tech distribution centres• 26 warehouses

• Existing infrastructures

Delivery-Time • First come first serve basis (Half hour delivery windows)

• Delivery as per customer convenience (Either pick up from Stop & Shop or deliver the next day)

Product Portfolio • Perishable and Non Perishable food products• Over the counter drugs• General Merchandise

• Groceries

Pricing & Order Size • $15 per order• Any order size

• Varies with order amount• Minimum $50

Peapod’s Success

• Use of existing facilities to lower infrastructure cost.• Realistic model of 10,000 customers.• Use of minimum order size of $50 and variable delivery fee• Alliance with local supermarket chain in developing grocery

business (Quick Pick Centres)• Use of human labour

WebVan’s Failure• High Investment in high tech Distribution Centre, each cost

$25-35 million and model of 26 cities• Utilization of Resources was about 20-30% - Demand was

uncertain• Violates Fundamental Strategic principles (eg: need to align

Supply Chain operation with Marketing).• High Break even point of 4000 orders per day• Wrong Distribution policy - Lead to loss of $130 per order• Failure in delivering groceries at the same price as in brick &

mortar stores• Merger with HomeGrown

Relevant Business Model – Current Scenario

Some websites still use existing facilities and some have come up with their own infrastructure.Today e-commerce websites are following mix of both models:• Have a tie-up with a store, customer can come and buy the

product at a low price showing coupon, or he/she can buy the same from a new website. (Eg. Flipkart and Snapdeal)

• A customer can choose from a portfolio of products from the website and can do online payment or cash on delivery. Companies can opt for drop ship strategy for warehousing, thus saving on infrastructural costs. (Saltnsoap.com)