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© 2005 UMFK. 1-1 internet business models text and cases Jeffery T. Pelletier.

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Presentation on theme: "© 2005 UMFK. 1-1 internet business models text and cases Jeffery T. Pelletier."— Presentation transcript:

1 © 2005 UMFK. 1-1 internet business models text and cases Jeffery T. Pelletier

2 © 2005 UMFK. 1-2 Introduction History Customer Service Provided Business Model Target Customer Retailers Competition Marketing Market Segment Regulatory Issues Building Online Trust Organizational Shift GBF? Conclusion Questions?

3 © 2005 UMFK. 1-3 Introduction Founded by Mike Lannon. (20 years of business experience but no technology background) –He founded the company because he once had problems with state laws trying to send a bottle of wine, from Boston to Atlanta, to his fiancee. Was established to help consumers send wine and other gifts over the Internet. He developed a business plan to create a service that would send wine as easy as sending flowers. –Ended up investing his whole life savings of $150,000 into the business in a risky move. Had to somehow bypass the old laws that dated back to the days of Prohibition that stated that liquor could only be sold to retailers by licensed vendors. Set up a FTD-like network that included many fine wine merchants throughout the country. –Took phone orders to start of with. He later was introduced to the idea of Internet business and in 1998, got investors to invest $500,000 to fund website development and marketing. Lannon purchased the URL “” for $20,000 in fall of 1998 to expand into a broader audience just in time for the Christmas season. –Started of with 8 employees.

4 © 2005 UMFK. 1-4 Introduction Cont… It was crucial for to launch before the 1998 Christmas holiday season. Fliers were sent to existing customers and the fliers described how they could do all their business easier through the Internet. The company launched a radio ad campaign in New York, Boston, and San Francisco that was $150,000. The successful Holiday season of 1998 resulted in quadrupled sales and just under $1 million in revenues. By March, Lannon had $10 million invested in his company from a number of VCs. Lannon, now 40 years old, was in the middle of an E-commerce revolution. –His new goal was to send other gifts, as well as, wine.

5 © 2005 UMFK. 1-5 Customer Services Provided The customer service provided was too create a company that worked in compliance with State Laws and Regulations would take the orders and fax them to one of the 100 networked retail stores that would carry out the order and deliver it. –After delivery was complete, would reimberce the retailer: Courier Charges. The retail price of wine. Taxes Incurred. The number one service was too cater the customer with the perfect gift. –One important key that was marketed was the timely efficiency in which the gifts arrived at their recipients. –The wine bottles were each individually wrapped and polished and decorated. –The wine bottles also came with a stylish booklet on storing and serving wine.

6 © 2005 UMFK. 1-6 Business Model Main goal was to establish an E-commerce business that would be fast and efficient with orders customers put in. One key goal, in the business model, was to make the gift stylish and tailored to each customers wants and needs. Wanted to eliminate storage and distribution costs and guarantee speedy delivery. Offered 40 different gift packages that ranged in price from $39 to $750. –Prices were higher than brick and mortar retailers but most people on Internet were not as price sensitive when buying gifts.

7 © 2005 UMFK. 1-7 Target Customers Four different customer segments: –The busy Professional Usually a male and gift needed to be sent right away to make customer look good. –The frequent gift-giver Generally female and packaging was crucial to make it look as if they packaged the gift themselves. –The mass-market consumer Used site to a less extent than the first two. –The wine expert Also used the site to a less extent because of the different prices and tended to know a little more about pricing of wine.

8 © 2005 UMFK. 1-8 Retailers Avoided larger retailers and preferred to do business with mid-size retailers. –Big store would look at to just another customer. –Small stores lacked the inventory. –Mid-sized stores gave the potential to be the best customer.

9 © 2005 UMFK. 1-9 Competitors Company believed that main competition was the inertia of busy people. –Designed to overcome this inertia. Major competitors: –Harry and David’s –911 gifts –eGifts –Yahoo became a big competitor in 1999 when they spent $49 million to acquired the ability to host small and medium sized retailers. –Amazon introduced their version of gift services in November 1998. In 1999 Amazon stepped up it threat with the introduction of their own E-commerce host site for thousands of smaller and medium sized retailers. – – – –Virtual Vineyard

10 © 2005 UMFK. 1-10 Marketing now realized that with their new found VC funding wealth of $10 million, they could escalate their marketing efforts. In 1999, decided to take marketing campaign to the next level from the previous radio advertising in New York, Boston, and San Francisco. Started advertising in magazines and journals like the Wall Street Journal. Eight of their 46 employees were dedicated to marketing.

11 © 2005 UMFK. 1-11 Market Segment Due to the record breaking 1998 online retail buying patterns, the new idea was online shopping would increase and it was the wave of the future. Number of websites offering gifts increased in 1998 and the quality of service for these sites also increased. Overall retail sales were expected to hit $29 billion by 2002, up from $5 billion in 1998. –Of this $29 billion, $1.4 billion was expected to be from specialty gift sales. – had a goal to capture just 5% of the market share for specialty gifts and be worth $70 million by end of 2002.

12 © 2005 UMFK. 1-12 Regulatory Issues Some of the competitors had been sending wine across state borders illegally for years. –Wine was sent via UPS or federal express. –US House of Representatives made bill to stop direct wine sales to customers via mail services. –Resulted in crackdown. Laws now made it illegal to send wine across state borders without proper state license. avoided this by having retailers who fulfilled their orders in each state.

13 © 2005 UMFK. 1-13 Building Online Trust did survey in 1999 and came to 2 conclussions: –First, it was found that one third of first time visitors bought gifts. –Second, had to overcome credibility and quality with their customers. This was done through a professional looking website and the promise of secure online transactions. Website Design, Content Development, and Marketing Strategies were crucial to enhance customer trust. Website Design included developing a website that offered simplicity and flexibility in navigation. –Hired a Director of Web Design, Paul Griffiths, and gave him the task of redesigning the website.

14 © 2005 UMFK. 1-14 Building Online Trust Cont…. Content Development would include content that described certain wines and more information about products on the site. The Marketing Strategy shifted from banner ads and portal deals to traditional media like TV, radio, print, and billboard ads in late 1999. – had to decide which marketing technique to entrust in.

15 © 2005 UMFK. 1-15 Organizational Shift Lannon decided to develop new website called to provide for other gifts. –These gifts would be like cigars, beers, or gourmet food. Lannon had to overcome new challenges to keep up with the changing times. –Recruiting was major concern because talented people were needed to keep business running. Lannon even considered weather he was the right man to still be the CEO with the ever changing times. One key advantage Lannon had was to keep people, not with larger salaries, but with a great work environment and stock options.

16 © 2005 UMFK. 1-16 GBF? Network Effects: –Low to Moderate due to the fact that there are a lot of people who drink wine, but these people vary in different lifestyles. It is just too much of a wide range of customers. Scale of Economics: –Scale of Economics would be fairly moderate and profit margin would be moderate also because wine is an item that can be just as easily bought at any liquor store or supermarket. The key is the customer service that provides. Customer Retention: –Low for the same reason.

17 © 2005 UMFK. 1-17 Conclusion is still alive today and offers services from wine to whiskey to beer. –

18 © 2005 UMFK. 1-18 Questions Questions??????????

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