With the rapid change of information technology in twentieth century, internet has become a catalyst for the way people in the world to communicate and sharing or access information speedily. Many businesses also adopted the internet as a means of trading or improving internal processes and more importantly, engage and build relationships with customers. In this paper, the author will analyst the competitive environment and resources for one of the market leading electrical appliances chain stores in Malaysia and propose a information systems strategy plans which suits the company best.
1.2 Company’s profile
SenHeng Electric (KL) Sdn. Bhd is one of the well known household electrical retailers among few names in the annals of Malaysian retailing business. Founded in 1989 by Lim brother, K.H., K.C., and K.Y., the company has started its business from a tiny consumer electronics half shop set up with stocks worth less than RM30,000.00 to one the largest electrical chain store in Malaysia. Currently, SenHeng has more than 100 stores spread throughout nationwide with 10 distribution centre located in Selangor, Johor, Perak, Terengganu, Penang, Malacca, Sabah and Sarawak. This has assured its customers to enjoy consistent and punctual delivery of all purchased items.
Political – Economic Transformation Programme
The Economic Transformation Programme (ETP) embraced by Malaysia government in year 2010 is a comprehensive effort to transform Malaysia into a high-income nation by year 2020. It targeted to lift Malaysia’s gross national income (GNI) per capita from USD6,700.00 or RM23,700 in 2009 to more than USD15,000 or RM48,000 in year 2020. Specific attention has been paid to raise the incomes of the bottom 40 percent of households, with a target of increasing the monthly mean income of this group from RM1,440 in 2009 to RM2,300 in 2015. The prospect of Malaysian retail industries like SenHeng Electric is expected to be positive as consumer spending power will eventually boost by the plan. According to Ecmlibra investment research, total retail sales are forecast to increase by 34 percent to RM123.5bn in 2014 from RM92.3bn in 2010.
Retailer profits have a correlation with the country overall economic performance. After the global economy downturn in 2009, the Malaysian economy experienced a strong resumption of growth in 2010. The growth was driven by robust domestic demand, with strong expansion in private sector activity. For the year as a whole, the overall aggregate domestic demand expanded strongly by 6.3 percent from -0.5 percent in 2009. It was reflected in the strong performance of major consumption indicators such as passenger car sales, retail sales and imports of consumption goods. (http://www.bnm.gov.my/view.php?dbIndex=0&website_id=1&id=819). According to Bank Negara Malaysia annual report 2010, the Malaysian economy is projected to grow by 5 percent to 6 percent this year. However, inflation hikes which caused by rising prices of food and energy in Malaysia continuous to worry the nation and will likely to affect consumer spending behaviors and trim down purchasing power in household electrical appliances.
Social – Consumer Buying Behavior
The growing population in Malaysia and steady rise in household disposable income in recent year has permitted them to spend more on luxury goods outpaced on basic items like food. High profile international retailers and the global mass media have also played a hand in shaping consumer buying behavior to chase after high end electrical appliances. This is predominantly true for young and large working-age populations often looking up for better lifestyle are more willing to spend more on high tech home appliances which can save their time from doing home work. Greater access to credit allowed individuals to fund discretionary spending and sometimes squander more than what they have earned. According to Bank Negara Malaysia annual report 2010, in the period between 2000 and 2009, household debt grew at an annual rate of 13.5 percent.
Technological innovations encouraged consumer spending in areas like internet services, mobile communication equipment, cable television services and audio visual equipments. The advent of mobile technology is impacting the way retail businesses operate today compared to a decade ago. Urban consumers who armed with smart phones are getting smarter every day. They are able to access information on products, prices and stores anywhere at any time. They can compare price for the same product offered by different retailer shop easily. Retail businesses are able to reach out to their customers instantaneously with tailored information and product offers via mobile broadcasting.
1.3.5 Environmental – Global Warming
Global warming and climate change continues to be threatening humanity today. The impact of global warming is already being seen around the world. With the world as a whole is pumping out more and more carbon dioxide (CO2) every year, the IPCC has concluded that global temperatures will likely to rise by 1.2 to 6.5 degrees C by end of the century. The increase individual awareness of global warming issue, consumer tend to favor for home appliances which are more eco-friendly, energy saving and with minimal impact on the current environment.
Legal – New Credit Card Rules
Bank Negara Malaysia has recently announced new measures on credit card application by rising minimum annual income requirements for credit card eligibility from RM18,000 per annum to RM24,000 per annum. Cardholders can only hold credit cards from a maximum of two issuers. For existing cardholders whose outstanding balance which exceeds the maximum credit limit, a grace period of two years given to them to meet the new requirement. The new guidelines are to address concerns over rising household debt in the recent year. (http://www.theasianbanker.com/press-releases/6368). However, with the limited access to credit, the move will trim down the purchasing power of the lower income group and affect the buyer shopping behaviors which ultimately affect retailers business.
1.4 Strength of the Company
1.4.1 Supply Chain Management
SenHeng Electric has installed a comprehensive supply chain management system into the day to day operations of its business. This system allows the company to gauge and manage product flow seamlessly. Furthermore, it allows the company to continuously maintain optimum stock of goods within all their outlets. This will ultimately reduces excessive cost on overstocking and eliminate low supply upon consumers demand is rise. The system was designed in the way of centralized order that liked online directly to its suppliers.
Given the long history of the company in household electrical appliances business, SenHeng electrical is a well known branding in Malaysia. The company continues to execute its brand building strategies by creating more streamlined look and feel for all its branches. This new identity spans across the board, its marketing brochures, posters as well as uniform for its employees. With the company’s trademark green, these stores are brighter that the usual electrical store. This exercise has given SenHeng electrical a friendlier image and enabled the company to provide more professional service to its customers.
The company has implemented “PlusOne” loyalty card, a unique plan to reward its customers. The card members of PlusOne are allowed to enjoy extra thirteen months of product warranty as well as thirty percent off on all service or repairing labor costs. In additional to that, those products that purchased by card members will be delivered to their doorstep with no charge. Every purchased item is rewarded with specific points to its member card and these points will be used to redeem for other goods.
Fixed price policy and flexible payment scheme
To standardize the service standard and eliminate poor experiences by customer in the company’s outlet throughout the nation, the company has implemented a fixed price policy and the product offered by its outlets carried the same price. The company has partnership with more than ten major banks for flexible payment methods where customers are allowed to make payment via cash or credit and opt for their preferred installment plan with interest free.
Varieties of products
To provide conveniences for its consumers and enhancing their shopping experience, the company has offered varieties of electrical products for different brands. It covers home appliances, digital imaging, computer, audio video, office automation and those electrical appliances from bedroom to kitchen. Product testing and demo facilities are provided to its consumers to learn on the products prior to purchase.
2.0 Weaknesses of the Company
Consumer is the kind in today’s market. In order to retain existing customer and convert them into loyal customer, the company needs to listen and understand their consumer needs. Despite SenHeng’s effort in providing training to improve the service standard of its employees, however, it is still difficult to manage the service quality standard for all its outlets due to the large number of the outlets spread throughout the nation. Customer’s feedback is therefore important to the company to gauge the service standard of respective outlet and put in appropriate preventive measure which SenHeng needs to focus on it.
Opportunity – E-Commerce
According to euromoney latest statistic, the internet users in Malaysia have continues to grow from 14 million in 2007 to 17 million in 2011. E-commerce served one of the most popular tools for many organizations to tackle the fierce competition in the market. It will untapped the potential business market segment and increase the sales of their products in a cost effective manners. With the emerge popularity of smart phones, M-commerce becomes another potential channel for business to promote their products or promotion effectively.
2.0 Porter five forces
2.1 Threat of new entrants
Currently there are large numbers of small or medium size companies in Malaysian electrical retailing market. Not to include large departmental stores like Giant or Tesco. Thus, the profit margin is rather tiny due to the stiff competition in the market. With the maturity level for electrical retailing business, it’s very unlikely that new entrants would step in without a new business models. However, in view of the rising internet penetration, online shopping may be the novel trend in Malaysia. With the increase trend for consumer to shop online, online retailer may be one of the threats which will potentially slide off the market share of SenHeng.
2.2 Threat supplier bargaining power
As there are large numbers of suppliers in the electrical appliances market, thus the bargaining power of supplier is minimal. Furthermore, SenHeng Eletric has established a long history of relationship with its various suppliers. With its well established branding in Malaysian household home appliances and large market share in this retail business segment, supplier would find it difficulty to get the similar buyers like SenHeng Electric to cross selling their products.
2.3 Threat buyer bargaining power
In electrical retailing business, prices are sensitive to consumer. The consumer is always looks for the better price for electrical products. As the competition in this industry is stiff, small retailers often offered lower price to sell out the goods during bad season. The selling prices sometime don’t even sufficient to cover their delivery cost. Furthermore, easy access to information through internet allows consumer to compare price and products against the company’s competitors. Although SenHeng Electric has established a fixed price policy to its outlets to eliminate price bargaining. However, to offer a fair price to its consumer still deems to be the main concern to stay competitive. The company has since 2002 implemented a centralized order management system to manage its stock inventory level which helps the company to reduce its inventory cost.
2.4 Threats of substitutes
As most of the competitors in this industry are selling finished products with similar brands of household electrical appliances in the market, thus at a glance, selling price becomes the key consideration factor for consumer to decide where they spend. However, some consumers do take consideration of other aspect like after sales service, product testing, repair service and etc.
2.5 Rivalry among competitor
Although SenHeng Electric is one of the largest electrical chain stores in Malaysia, the company still facing stiff competition from its competitor – HLK (Chain-Store) Sdn Bhd whom continues to slide the market share of SenHeng Electric. To avoid cutthroat pricing competition and sustain its market present, service differentiation is one of the key areas for the company work on.
3.0 Strategy implication
Determined market segmentation is vitally important in every business. Through identify who the actual and potential customers are, the company would able to determine how to position themselves into that specific market segment. Michael Porter has pointed out that combining a market segmentation strategy with a product differentiation strategy is an effective way of matching the firm’s product strategy (supply side) to the characteristic of the target market segments (demand side). Below table illustrated Porter’s generic strategies which differentiated into three dimensions (level of differentiation, relative product cost, and scope of target market).
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The traditional electrical retailing business like Senheng electric and other similar competitors are usually focus on middle income group consumer with age range from 30 to 50 years old. The approach has limit the expansion of the company as there are many of its competitors out there in the market are chasing the same group of consumers. To stay competitive, SenHeng Electric is in need to differentiate themselves from its competitors by improving its services and enhancing customer’s experiences towards its outlet. Understand its consumers by collecting feedback from them would in turn help the company to look into those areas where they need further improvement.
With the economic growth in last two decades and Malaysian government effort in building higher education infrastructure in the country, there are increasing number of young working adults whose earned higher salary income in recent year. Moreover, rising demand in home electrical appliances is foreseeable with the My First Home Scheme launched by Malaysia Prime Minister Datuk Seri Najib Tun Razak recently which has enabled young adults to buy houses costing between one hundred thousand ringgit and 220,000 ringgit with a repayment period of up to thirty years. This is a potential lucrative market segment which SenHeng should untapped into it.
As online shopping is becoming popular in Malaysia, E-commerce is an alternate channel for the company to reach out consumer in different market segment. E-commerce eliminates the traditional purchase approach which is time consuming and labor intensive. It helps the company to reduce cost of purchasing transactions and speed delivery. Customers can reach a company via internet for twenty four hours which increase the business competitiveness. This will helps the company to relieve their sales person to take up other important task. Furthermore, it enables the company to collect consumer buying behavior or pattern as all sales orders for individual buyers are traceable. The company can use the data to strategize the marketing or promotion approach accurately.
In view of the above, the author proposes to enhance the current webpage of SenHeng Electric by engaging its vendor – Webz Design and Solution Sdn Bhd.
4.1 Business proposal plan and objectives
Below consists of the webpage enhancement needs for the company:
To setup a user friendly e-commerce website which inducing internet users to purchase the company’s products and services online.
To utilize the webpage for marketing and promotion activities run by the company.
To increase the professional looks of the company and brand awareness to its potential consumers in the market.
To enable online order status checking for the company and its consumer.
To conduct consumer survey and served as a channel for consumer to escalate feedback/complaint for its products and services.
To provide alternate channel where consumers are allowed to place their order anywhere anytime. Customers can trace their order online easily without calling the outlets for assistance.
To untapped young adults market where online shopping becoming a common trend in the market.
To improve its services through collecting complaint/feedback from its clients.
To increase its sales volume by 20 percent from second years onwards after the webpage enhancement.
To achieve economic scales of assigning other tasks to its sales people.
4.4 Projected Incremental in Sales Volume
4.5 Business Assumption
4.5.1 Sales volume
Assumption make that progressive incremental in sales order which will generate yearly gross revenue of RM100,000.00 starting from the second consecutive year onwards after e-commerce website launched.
4.5.2 Headcount Impact – Sales department
Assumption makes that no requirement for additional sales staff as customer will perform self online visit to evaluate the products nature and price offered.
In conclusion, consumer buying trends and pattern will undergo significant changes over the next five to ten years. Shopping centers and the entire retail industry will be affected immensely by the increasing number of online shopper. With the broader accessibility of internet and high speed broadband implemented throughout Malaysian nation, embrace in e-commerce is certainly a right business strategy move for traditional retailer in Malaysia. In author’s view, online retailing business is foresee to have positive growth continuously in the next fifteen years. Adopting service differentiation approach will eventually help the company to stay competitive and position themselves in better aspect to avoid price war situation.
See appendix 1 (http://www.euromonitor.com/malaysia/country-factfile).
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