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REPORT PREPARED FOR:
COMPANY BUSINESS MODEL ANALYSIS
BY HA, ANTON, KSENIA, HELEN, ERIN
POSTGRADUATE DIPLOMA IN BUSINESS
APMG 8119: DIGITAL ENTERPRISE
ASSOCIATE PROFESSOR DR. NITIN SETH
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AUTHOR CONTACTS
ANTON
Mobile: 021 175 1916
Email: [email protected]
Student ID: 1493707
HA
Mobile: 020 415 05 614
Email: [email protected]
Student ID: 1491643
KSENIA
Mobile: 020 415 20279
Email: [email protected]
Student ID: 1482496
HELEN
Mobile: 027 688 8858
Email: [email protected]
Student ID: 1485282
ERIN
Mobile: 027 428 0448
Email: [email protected]
Student ID: 1455866
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TABLE OF CONTENTS
AUTHOR CONTACTS.............................................................................................................2
TABLE OF CONTENTS........................................................................................................... 3
EXECUTIVE SUMMARY.........................................................................................................4
BUSINESS BACKGROUND.....................................................................................................6
REVENUE ANALYSIS CHART................................................................................................. 8
COST ANALYSIS CHART...................................................................................................... 11
VALUE CREATION ANALYSIS.............................................................................................. 13
THEORETICAL IMPLICATIONS............................................................................................ 16
MANAGERIAL IMPLICATIONS............................................................................................ 17
SUMMARY..........................................................................................................................18
REFERENCES.......................................................................................................................19
APPENDICES.......................................................................................................................21
PRESENTATION.................................................................................................................. 27
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EXECUTIVE SUMMARY
Noel Leeming is New Zealand's top household appliances retailer and the main
retail brand for Noel Leeming Group. The company operates successfully both
online through its website and offline providing wide range of high quality
branded appliances by 76 stores nationwide. Noel Leeming collaborates with
New Zealand’s 100 top companies developing solutions and technologies for it.
The New Zealand customer electronic and appliances industry is extremely
competitive. Despite that the company is leading the industry. Its exceptional
results have been achieved by offline presence mostly while in online there is still
a significant space to growth left. The implementation of e-commerce platform
has been a valuable step of the company development that increases its
capabilities. However, as it is clearly seen, Noel Leeming is far from being a
leader of consumer electronics sales online.
The purpose of this assignment is conducting analyses about Revenue, Cost and
Value Creation of Noel Leeming business in general and Noel Leeming Digital
Business in particular.
Noel Leeming receives revenue from resold products and related services. The
company also has advanced the services to the business level. The KPMG
digital revenue model could help Noel Leeming to identity some opportunities to
improve company value propositions. However, the company still needs to work
on identifying and developing the revenue streams coming from values of
Compelling Content, Coverage, Choice, Combinations (Bundling). Noel Leeming
currently has high costs in running business and developing digitally would help
the company to reduce its expenses, improve the cash flow and increase profit.
Digitally enabled supply ecosystem, telecommuting, labor-saving innovation and
online advertising would be possibilities of shortening company's expenses.
Related to the value creation for company, currently Noel Leeming has mere
Traditional Content Website, without any opportunities for social interactions
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between customers or experts online. Within five years’ horizon, in cooperation
with the declared strategy, it is recommended to further develop the firm's social
networking and provide additional ways to engage customers and continuing
development of personalization through 'myNoelLeeming' program during the
next ten years. Noel Leeming could continue to utilise digitalization to help
minimize bad complexity and maximize good complexity by continuously
improving the website and working toward process simplification for customers.
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1. BUSINESS BACKGROUND
Noel Leeming is New Zealand's top household appliances retailer and the main
retail brand for Noel Leeming Group. The company was founded in 1973; the first
store in Christchurch was opened the very same year. Nowadays, the firm
operates both online through its website and offline providing wide range of high
quality appliances by 76 stores nationwide. Noel Leeming collaborates with New
Zealand’s 100 top companies by developing solutions and technologies. In 2012,
Noel Leeming Group become a part of the largest non-food retail company in the
country, The Warehouse Group. Since then, the company’s financial
performances were improved greatly. In 2016, the annual revenue achieved
$752.1 million (13% increase comparing to the previous year) and its operating
profit was $12.1 million (87.6% more than in 2015) (NZ Herald).
With the purpose to ‘Make Kiwi Lives Better’, Noel Leeming does not only sale
customer electronics and appliances but also provides added values. The
company educates its customers, especially young generation, through and
about technology. In New Zealand, there are 23 build-in cooking centers opened,
where customers can experience live appliances demonstrations. The Noel
Leeming Mobile Learning Centre has visited 167 schools nationwide (The
Warehouse Group Annual Report, 2016).
The New Zealand customer electronic and appliances industry is highly
competitive. Despite that, the company is leading the industry. Its results have
been achieved by offline presence mostly while in online there is still a space to
grow left. According to SimilarWeb, online performance of the company and its
rivals looks like the following.
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Figure 1: Total Visits in August
Figure 2: Bounce Rate
The implementation of e-commerce platform has been a valuable step of the
company development which increases its capabilities. However, Noel Leeming
is far from being a leader of consumer electronics sales online. The firm gains
only second place among its competitors in terms of monthly audience, it has the
highest bounce rate on the market, and its visit depth is low comparing to what
the others have (see Appendices).
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2. REVENUE ANALYSIS CHART
a. Revenue streams.
The brand’s major earnings have come from two areas: products and services.
This is the case for both online and offline. Besides, the firm offers different kinds
of services for businesses by Noel Leeming Commercial and Noel Leeming Tech
Solutions by using economy of scale, and also being a part of the major retail
group of New Zealand. Being one of the biggest retailers in the country, the firm
resales technological products and provides end-to-end services for them.
b. Revenue creation explanation and discussion.
The revenue is created due to demand from both people and business structures
in technological innovations and their support. With ongoing trend of massive
digitalisation of all human processes (from e-commerce to the internet of things),
demand for such products as well as services has grown considerably. The
complex offering from Noel Leeming, complemented with the brand promises,
creates a valuable competitive advantage for the retailer.
The revenue is created by:
- Collecting a margin while reselling technological products.
- Offering of complementary accessories for the products.
- Providing a wide range of services in connection to sold products.
- Providing complex solutions for firms.
The declared revenue of the company for 2016 year is about $752.1 million (The
Warehouse Group Annual Report, 2016). The company has shown significant
growth of sales and revenue due to ever-increasing demand for its products and
services.
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Using KPMG Digital Business Model (KPMG, 2009) will help Noel Leeming to
identify risks and opportunities associated with their revenue components.
Understanding company digital value proposition is the fundamental step to
determine appropriate revenue model. Noel Leeming has strong propositions in
Context, Convenience, Customisation, Customer Experience, Compelling
Context, Choice, Combinations, Customer reviews and compensations (see
Appendices). However, the company is weak in Connectivity, Conversations and
Coverage. According to characteristics offered by the KPMG model, it is
assumed that Noel Leeming should target either Digital Marines or Digital
Nations. Due to a strong loyalty to their shared areas of interest, social
networking is essential to be taken into account within the revenue model.
Figure 3: KPMG's Digital Convergence Equaliser for Noel Leeming
The model suggests that customer is willing to pay for Compelling Content,
Coverage, Choice, Combinations (Bundling) but it will be difficult for such
technology reseller as Noel Leeming to charge customers about these value
proposition.
There are several risks associated with the Noel Leeming’s revenue sources.
First of all, the retailer does not have its own branded products. Hence, it
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substantially depends on suppliers and their bargaining powers. Customers
would easily buy from a competitor if there are no extra value factors given from
the reseller.
It is also essential for Noel Leeming to improve their weaknesses. Noel Leeming
should develop their mobile app to meet customer demand on Coverage.
Besides, in order to improve Connectivity and Conversations, setting up a
community could provide connection between Noel Leeming and consumers to
exchange and experience new technology and increase customer loyalty.
c. Key findings.
Noel Leeming receives revenue from resold products and related services. The
company also has advanced the services to the business level. The KPMG
digital revenue model could help Noel Leeming to identity some opportunities to
improve company value propositions. However, the company still needs to work
on identifying and developing the revenue streams coming from values of
Compelling Content, Coverage, Choice, Combinations (Bundling).
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3. COST ANALYSIS CHART
a. Cost structure.
Based on The Warehouse Group Limited Financial Statements in the fiscal year
2016, Cost of retail goods sold, Lease and occupancy expense, Employee
expense, Operating expense are inherent costs in the business model of Noel
Leeming.
b. Online and offline costs.
Most of the Cost of retail goods sold, Lease and occupancy expense and
Employee expense comes from offline process costs. Operating costs include
both offline and online costs such as running the digital site or paying for online
advertisement.
c. Cost occurrence explanation and discussion.
Cost of retail goods sold, which is the total cost associated with the sale of the
product including shipping, is the highest expenditure item for a technology
reseller like Noel Leeming. Inventory risks namely Input Shortage, Excess
Inventory, Supply Shortfall and Value Loss are potential for losses due to
inventory planning and control deficiency. Bargaining power is important for the
company to gain better price. Noel Leeming also could cut cost and reduce
Supply Chain risks by the digitally enabled supply ecosystem (PWC, 2016).
Lease and occupancy expense are costs related to occupying spaces for offices,
stores or warehouses. This type of fixed cost can cause many potential risks
associated with fixed lease term, management, property maintenance and the
variation in real estate market. Noel Leeming should work on strategies to
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maximise the utilisation of spaces and labour expenses. Noel Leeming could also
use telecommuting allowing employees to work at home.
Employee expense, a variable cost, is the wages paid to all employees. Non-
productive employees and fake claims made by employees are main risks. Noel
Leeming could create a labor-saving innovation by combining jobs and reducing
head count or raising the store’s sales goals by a commensurate amount. Noel
Leeming might also save cost by switching some manual tasks to electronic
processes if it is applicable.
Operating expense is a variable cost that can be saved by embracing technology
automating business functions. Marketing and Advertising expense can be
reduced by going digital. Noel Leeming could focus on pay per click criteria, and
utilise the company’s own social media as a tool for communication and
marketing.
Based on the Warehouse Group financial report of 2016, Noel Leeming
estimated cost was approximately 740.1 million. This high expenditure leads to a
low Retail Operating Margin which was only 1.6%.
d. Key findings.
Noel Leeming currently has high costs in running business and developing
digitally would help the company to reduce its expenses, improve the cash flow
and increase profit. Digitally enabled supply ecosystem, telecommuting, labor-
saving innovation and online advertising would be possibilities of shortening
company's expenses.
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4. VALUE CREATION ANALYSIS
a. The company’s current approach to value creation.
Based on revenue and cost analysis, Noel Leeming current approach to value
creation will be summarised in Canvas Business Model and Three components
of a Digital Business Model.
Figure 4: The Business Model Canvas for Noel Leeming
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Figure 5: Noel Leeming's Digital Business Model
b. Value creation.
According to The Warehouse Group Annual Report, Noel Leeming's mission is to
‘Make Kiwi Lives Better’ through technology (2016). In order to achieve this, the
company established a strategy which clearly underlines its intended values.
From the customer perspective, the firm provides a set of values. By means of
'myNoelLeeming', the data is being collected to tell customers about the latest
updates on chosen products or offer personal promotions. Additionally, the brand
provides a range of exclusive products and gives ‘Fly Buys points’, which might
provide extra value for customers (see pictures in Appendices).
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c. Implications of the approach to value creation.
The site offers to users valuable instrument for finding, comparing and buying
technological products. However, currently Noel Leeming has mere Traditional
Content Website, without any opportunities for social interactions between
customers or experts online. Within five years’ horizon, in cooperation with the
declared strategy, it is recommended to further develop the firm's social
networking and provide additional ways to engage customers (e.g., by creating a
forum or a blog), with continuing development of personalization through the
'myNoelLeeming' program during the next ten years. Noel Leeming could
continue to utilise digitalization to help minimize bad complexity and maximize
good complexity by continuously improving the website and working toward the
process simplification.
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5. CONCLUSION
a. Theoretical implications.
Based on the mentioned Model Analyses, the business model of Noel Leeming is
built.
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b. Managerial Implications.
From the analysis results, it is recommended for the company to:
- Pay attention to the determined target audience needs and values:
provide an opportunity to communicate by creation of some platform, such
as a blog or a forum, or add ‘discussions’ space on products pages. The
blog and/or the forum can be free to customers but the manufacturers will
have to pay to publish posts about new products.
- Use social networking as a tool for communication with customers and as
a chance to explore their needs instead of just another informational
resource.
- Determine a content marketing strategy and develop independent content
for different social platforms.
- Develop further personalisation on the website with the help of the
‘myNoelLeeming’ program to enhance users’ engagement and their
interactions with the brand.
- Provide exclusive online educational courses based on their offline
experience with Mobile Learning Centre.
- Going digital in Supply Chain Management and Operating System to cut
cost and gain higher profit.
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6. SUMMARY
In order to increase Noel Leeming’s profit, the company should modify and
improve revenue and cost structure. Digitization can help business to generate
more revenue and reduce expenses. Continuing to improve company value
propositions by applying managerial implications is essential for the company in
the next 5 and then 10 years.
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REFERENCES
Barney, M. (2013). Value Creation in Perspective. Leading Value Creation, 209-219. doi:10.1057/9781137361509_8
Bergo, G. S., Lucas, B. H., Sobreiro, V. A., & Nagano, M. S. (2016). MultiproductCost-Volume-Profit Model: A Resource Reallocation Approach forDecision Making. Journal of Cost Analysis and Parametrics, 9(3), 164-180. doi:10.1080/1941658x.2016.1251348
Built-in Cooking Centre - Noel Leeming. (n.d.). Retrieved fromhttps://www.noelleeming.co.nz/built-in-cooking-centre
Charoenphol, D., Stuban, S. M., & Dever, J. R. (2016). Using Robust StatisticalMethodology to Evaluate the Cost Performance of Project DeliverySystems: A Case Study of Horizontal Construction. Journal of CostAnalysis and Parametrics, 9(3), 181-200.doi:10.1080/1941658x.2016.1267598
Clayton, R. (2017). The Warehouse Group looks to digital future after profit drop.Retrieved from http://www.stuff.co.nz/business/90228300/the-warehouse-group-feels-loss-after-poor-christmas-season
Coles, L. (2018). Social media for business. Foolproof tips to help you promoteyour business or your brand. Brisbane, Australia: John Wiley & Sons.
Dick Smith demise boosts Noel Leeming. (2016). Retrieved fromhttp://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11717046
Home - Noel Leeming Commercial. (n.d.). Retrieved fromhttp://www.nlgcommercial.nz/
KPMG. (n.d.). Emerging Business Models to Help Serve Tomorrow's DigitalTribes. KPMG International.
Mocker, M., Weill, P., & Woerner, S. L. (2014, June/July/August). Revisitingcomplexity in the digital age. Research Features, 55(4).
Oestreicher-Singer, G., & Zalmanson, L. (2013, April/May/June). Content orcommunity? A digital business strategy for content providers in the socialage. MIS Quarterly, 37(2), 591-616.
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O'Leary, D. E. (2016). KPMG Knowledge Management and the Next Phase:Using Enterprise Social Media. Journal of Emerging Technologies inAccounting, 13(2), 215-230. doi:10.2308/jeta-51600
PWC (2016). Industry 4.0: How digitization makes the supply chain more efficient,agile, and customer-focused. Munich, Germany: Schrauf S., Berttram P.Retrieved fromhttps://www.strategyand.pwc.com/media/file/Industry4.0.pdf
PWC. (2016). Industry 4.0: Building the digital enterprise. Munich, Germany:Schrauf S., Vedso J., & Geissbauer R. Retrieved fromhttps://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enterprise-april-2016.pdf
Temath, C., Frank, M., Pölt, S., & Suhl, L. (2012). Modelling dependent demandstructures in a network-based revenue opportunity model. Journal ofRevenue and Pricing Management, 12(2), 162-176.doi:10.1057/rpm.2012.19
The Warehouse Group Operating Model Change. (2017). Retrieved fromhttps://www.nzx.com/companies/WHS/announcements/295313
Tian, X., & Martin, B. (2009). Business Models in Digital Book Publishing: SomeInsights from Australia. Springer Science Business Media, 25, 73-88.
The Warehouse Group Annual Report 2016. (2017). Retrieved fromwww.thewarehousegroup.co.nz/download_file/force/914/174
Warehouse Group consults head office staff over changes. (2017). Retrievedfrom http://www.radionz.co.nz/news/business/324538/warehouse-group-consults-head-office-staff-over-changes
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APPENDICES
PICTURE A
PICTURE B
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PICTURE C
PICTURE D
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PICTURE E
PICTURE F
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PICTURE G
PICTURE H
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PICTURE I
CHART 1
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CHART 2
CHART 3
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PRESENTATION
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