IB Business Management SL 4.5.6 Place Question Bank

SV is considering two options:
Option 1: open a business-to-consumer (B2C) e-commerce "store".
This option would involve selling wines online to consumers. They currently sell directly to customers at the vineyard.

Benefits of this approach include:
- SV can reach a wide market area.
- The website and consumer traffic on the website is relatively inexpensive advertizing. It is important for a new company trying to enter new markets to keep costs of entry low.
- Promotion and advertizing can easily be extended via social network sites.
- Online offers can reach much wider target markets.
- From a consumer perspective, B2C e-commerce also has benefits, especially the convenience and ability to compare prices and explain the differences between wines sold to make an informed decision. Important in a premium market.

B2C e-commerce also has disadvantages, which include:
- SV would have to address consumer concerns that its site is secure.
- SV would have to incur costs making sure that the site is secure.
- Competitors can easily track what SV is doing to promote and sell its products
- Setting up the website and establishing the procedures for fulfilling orders could be expensive. New supply chains to reach new customers may have to be created adding to short-term costs.
- Alcohol is a heavily regulated product, especially in the United States, and it could be complicated and cumbersome for SV making sure that it is in compliance with federal and state laws (and laws regarding alcohol vary from state to state).
- SV would also have to make sure that selling wines online did not conflict with the premium brand identity that SV otherwise tries to maintain.

Option 2: sell SV wines to wholesalers serving the whole of the US market for premium wines.

Advantages of this approach include:
- The wholesaler stores the product, thereby reducing storage costs for SV.
- The wholesaler purchases in bulk and then breaks the bulk purchases into smaller batches for the retailers. This process means that SV does not have to concern itself with small orders by individual retailers. This may be important in a premium market.
- Because SV wants to sell over long distances - the entire United States - this approach pushes much of the complicated processes of distribution to wholesalers.

However, working with wholesalers has disadvantages:
- Wholesalers sell the products of many companies, and their loyalties and highest priorities may be with other brands.
- Working with wholesalers adds another intermediary and mark-up, which can lead to higher prices to consumers (who may respond by purchasing other products) or to thinner margins for SV.
- Working through wholesalers and distributing across the United States, SV may not be able to afford national promotion. If it cannot, it will have to rely on the wholesalers and retailers for much of its promotion. Can SV be confident that the wholesales will position SV's new wines positively? How will they check?

Overall, option 2 is possibly the longer term option, involves considerable costs, is potentially the greater risk, but the profits could be considerable over option 1. Option 1 is a market penetration strategy effectively trying to sell the same product in the same market via an online channel. Initially, customers who would have bought directly from the vineyard could go online instead. Overall sales may increase marginally. This will change over time as the e-commerce store becomes more sustainable but from the information given in the stimulus, option 2 would seem to have the greater market potential for growth. (Market development to use the Ansoff terminology but direct application to the matrix is not expected.)

Balance in the context of this question means having at least one advantage and one disadvantage for each option (and, thus, addressing both options).

Accept any other relevant evaluation.
These mark awards in the table below should be viewed as maximums.

Maximum Mark award

Option 1

Option 2

Judgments/conclusion

3

One option unbalanced

N/A

4

One option balanced (one argument for and one argument against) or both options in an unbalanced fashion

N/A

5

One balanced and one unbalanced

N/A

6

Both balanced

No judgments/conclusions

7-8

Balanced

Largely effective use of business language and the stimulus

Judgments/conclusions based upon analysis and explanation in the body of the response

9-10

Rich use of business language, business theory, and the stimulus

Judgments/conclusions based upon analysis and explanation in the body of the response

Marks should be allocated according to the markbands on page 5.