Strategy plan
ETHNICAL CASE STUDY – Asking the Right Question
COMPANY PROFILE
EthniCal is privately owned family-run e-commerce business based in Orange County, California. It sells ethnic garments from around the world to US-based customers through a web-based portal. Ethnical was started in 1985 by a couple who began the company as a mail-order catalog selling high-end ethnic clothes to immigrant families. As they expanded the business to include garments across Asian and African countries, they discovered that customers would buy clothes from many different communities, not just their own. They were able to expand their customer base significantly beyond immigrant families, and by the late 1990s were generating ~$25MM in annual revenues through the national mail order business and five retail locations in Los Angeles, Irvine, Riverside, San Diego and Santa Barbara.
In 2005, the founder’s son Sam graduated from college and joined the company. The mail order catalog business continued with the owners still focused heavily on their retail locations. Due to cost pressures of operating the stores, the retail locations were closed down in 2012 and the company launched an e-commerce portal to become purely internet-based. Sam took over as CEO of EthniCal in 2013.
Operating the e-commerce business with a leaner staff, Sam was able to maintain ~$25MM in revenues in 2012 with improved profitability. He built up a small marketing team and launched acquisition campaigns and loyalty programs in 2013 which raised annual revenues to $30MM. Sam developed a strategy to increase annual revenues to $100+MM in 5 years by expanding the products to include jewelry and high-end handicrafts of different ethnic communities. His goal is to raise funding to initiate this expansion in 2017.
However in 2016, Ethnical faced sudden and unexpected competition from the launch of a US e-commerce site from BC2K, a British internet retail business with similar offerings. Ethnical knew that BC2K would launch with aggressively discounted pricing, so they increased the loyalty program incentives to ensure their customer base would not defect. Despite the increased spend on retention tactics, EthniCal sales were impacted significantly by BC2K’s competition with 2016 revenues dropping to $19MM. Sam concluded that their retention efforts were not aggressive enough and directed the head of Marketing, Sherin, to make any changes needed to their loyalty program.
Sherin recruits you as an Analytics expert on a short-term engagement to evaluate their retention activities, with potential for the role to be converted to full-time.
Initial Framing of Problem to Solve
You start work EthniCal office on January 5th, 2017 where you meet with Sherin and Sam and are immediately impressed. The office culture is informal and intense at the same time. Sam is charismatic and outgoing - passionate about the company, and very knowledgeable about the marketplace and customers. Sherin is thoughtful and precise – while relatively new to the business of ethnic apparel, she is an experienced e-commerce professional who is applying her well-honed skills to a new market environment. Sam and Sherin communicate well with each other, build off each other’s ideas and clearly have a high degree of mutual trust and respect.
In this initial conversation, Sam and Sherin make their expectations clear to you and give the opportunity to ask any questions. As you get into more detailed questions about the company history and current competitive environment, you notice that Sherin withdraws while Sam does more of the talking. He is passionate about the loyalty program and has come to realize that the incentives needed to be more attractive to customers to retain them against BC2K’s competition. He outlines his strategy to turn around performance in 2017 through a combination of activities:
Scaling back on customer acquisition efforts to ensure focus and higher investment on building loyalty and retention
Partnering with loyalty programs for ethnic restaurants and major online ethnic grocery businesses to provide joint offers to “win back” lost customers and retain others
Offering deeper discounts to returning customers for EthniCal products
As the meeting concludes, Sam and Sherin articulate their objective to optimize EthniCal’s customer retention strategy and tactics to win back the business lost to BC2K and turn around their revenue performance. In your first project you must conduct an evaluation of the current loyalty program, identify gaps and new opportunities, and recommend a new approach and incremental investments needed as soon as possible. How much investment should be shifted from acquisition to retention? Which partnerships will be most beneficial to loyalty? What are the maximum levels of discount that can be offered in the loyalty program?
Sam looks at the clock and wraps up the discussion so that he can get ahead of traffic for a meeting with a potential loyalty program partner. He asks you to confirm that you have understood the scope of the project so that you can move ahead on their request.
YOUR TASK
Starting from the objective stated to you, use the problem definition framework to determine if the question needs to be re-defined. What is the right question that EthniCal leadership should be asking?
