Dr. Maximilian Groh
Dr. Maximilian Groh    Love e-commmerce & brand management, meaningful relationships, and getting things done. Fascinated by people, work, leadership, and strategy.

Benchmarking of e-commerce companies

Benchmarking of e-commerce companies

The world economy has entered the downward spiral. Companies may naively hope that this trend will not affect them, but many of us realise that the probability is very low. In times like these, you have to use tools like benchmarking.

In recent years, benchmarking has been one of the three most common business management methods in large international corporations. It provides insight into how companies can change their strategy by comparing business processes and performance metrics to industry bests and best practices from other companies.

Since the late 1970s, benchmarking has been actively used in Western Europe and the USA. Classic examples are Xerox and Ford. The first, having found a weak link in its logistics, took the experience of L.L. Bean to improve their logistics. Ford went to Japan to study the best practices in the field of the automotive industry. As a result of research and application of Japanese developments, this company managed to provide a reduction of significant cost of developed models and fixing of the high-quality level at the stage of development. At the same time, the use of benchmarking allowed to reveal the high cost of assembly processes in comparison with competitors.

The characteristic feature of the modern economy is that each new technology induces a chain reaction of innovations. The core of information technology and the basis for their development was the Internet economy, which had a qualitative impact on the way of management and brought new methods and technologies in the production and distribution of the product.

Nowadays, business is undergoing fundamental transformations. The introduction of digital technologies, telecommunications and globalisation in the economy has radically changed the nature of each firm and their approaches to value creation. The transformation of business has affected such traditional industries as education, insurance, health care, automotive, trade, as well as new areas of activity, such as Internet search engines, social networks, etc. The transformation of business has also affected the development of new industries. This transformation is based on two principles :

  1. Value is created based on the unique and individual experience of consumers. Companies need to learn how to focus their attention on each consumer;
  2. No company, no matter how large in a scale of its actions, will be able to satisfy the needs of the client fully. All companies, through access to network resources, form a global ecosystem. What matters here is access to resources, not ownership.

Now the Internet allows accelerating rates of development both established and new business, operatively to enter the market. It becomes a priority factor of competitiveness, changes the scale of the world space.

According to the results of research conducted by IDC, out of 11 thousand heads of enterprises all over the world, almost 40% consider participation in the electronic market to be essential for their company. Thus in fast-developing countries of South East Asia, the USA and others, this share reaches 50-60 %.

The attractiveness of e-commerce is related to the following factors:

  • the Internet is becoming the norm of business life everywhere;
  • space and time factors are becoming irrelevant, and commercial activities are spreading around the world;
  • transactional (from lat. transactio - making, catch-up, agreement between buyer and seller) costs decrease;
  • the conditions of interaction are the same for all enterprises.

Internet technologies also influence the market structure; signs of it are shown in the following:

  • Internet involves all companies regardless of their location in global competition;
  • increased competition due to the appearance on the market of companies operating only in the network;
  • low entry barriers to e-commerce;
  • network buyers are more demanding because they can compare prices among competing companies in a short period;
  • the Internet allows to choose suppliers in any country of the world and to establish close mutually advantageous cooperation with it;
  • electronic technologies require an increase in the pace of the company’s work;
  • electronic technologies open new possibilities for reconstruction of a branch chain of values;
  • The Internet is a relatively cheap channel for consumers;
  • electronic technologies for their perfection regularly require applying new technical knowledge and experience of developers.

It is necessary to take into account the fact that e-commerce systems significantly differ from traditional types of trade and require the development of their infrastructure elements, the main of which are:

  • special software;
  • database and application management system;
  • telecommunications and communication;
  • a system ensuring the security of acts of sale of goods and provision of services;
  • legal support;
  • special payment systems;
  • automated warehousing;
  • system for delivery of goods and rendering of services;
  • system of taxation and customs tariffs;
  • marketing service, which includes departments of advertising, sales, pricing, web-page design.

When choosing an online store, the assortment of goods, their availability in stock and delivery speed are crucial for an interactive buyer. Thus, a clear idea of the infrastructure of e-commerce company will allow in a reasonable time to design and economically substantiate the structure of the e-commerce trade, reduce labour costs and time to create an effective e-commerce company.

Well, the theory is more or less clear, but what tasks should be set at benchmarking? Among the tasks of benchmarking research used to study competitors, the following areas should be noted:

  • researching and analysing the dynamics of competitors’ market positions in Internet search engines in all segments of the target market;
  • analysis of traffic to competitors’ websites;
  • collection of information about competitors’ goods and services, their quality and purpose;
  • the analysis of price and assortment policy of competitors;
  • analysis of competitors’ advertising policies on the network (banners, search engine advertising, nature of the use of other types of advertising);
  • SWOT-analysis of the received information.

Let’s move on to the algorithm. I suggest to include the following stages in the algorithm of monitoring the process of benchmarking analysis of e-commerce:

Definition of functions of e-commerce, the analysis of which can be carried out from the point of view of benchmarking
Identification of factors and variables to be analysed
Selection of industry leaders among direct, parallel, latent competitors as well as companies outside the industry
Collection and evaluation of leaders' indicators by selected factors (assortment, price, delivery time, etc.)
Comparison of leaders' indicators with their indicators to determine gaps
Development of a programme of action to close the gaps
Implementation and monitoring

The first step is to define those functions of e-commerce, which need to be improved from a benchmarking point of view. Thus it is not necessary to aspire to make “all and at once” as the considerable quantity of the formulated problems will make the project practically impossible. Here those functions demanding improvement, on which the economic result of the activity of the enterprise to the highest degree depends are defining.

At the second stage, concrete factors and the variables demanding improvements which can be decomposed on levels: variables, processes, divisions etc. are allocated.

At the third stage, the choice of leaders of the branch or outside it is carried out. These can be direct competitors, competitors in related fields, latent competitors, i.e. those companies with which the given enterprise does not compete now, but which can become such for it at a particular stage in appropriate conditions. It is desirable that the list of such real leaders was not very extensive, 7-9 companies - real leaders in terms of market share, sales volume growth, profitability, etc. - are enough.

At the fourth stage, there is a collection and evaluation of market leaders’ indicators on open sources of information (commission reports, articles in the business press, exhibition data, direct contacts with companies of other industries, suppliers, informal contacts of employees of competing firms).

At the fifth stage, the comparison of similar indicators of leaders with their indicators is carried out to determine the gaps.

At the sixth stage, programs of action to eliminate gaps are developed. It can be the program on the achievement of results of the leader, on copying of activity of competitors, the program of ahead of competitors based on the information from other branches, change of rules of the game in the market: the advancement of new products, change of segments of the market, change of target group of clients etc.

At the seventh stage, it is advisable to systematically monitor the results of benchmarking, including it in the annual business planning cycle, controlling its solvency, including other areas of the company.

One of the most important stages is the gap analysis stage to understand how far this enterprise lags behind the leaders. In the literature, it is called GAP-Analysis. This analysis helps to identify problem areas that hinder the development of the company. These gaps can generally be included:

  • the gap between the market supply of the company and the level of demand existing in the market;
  • the gap between the current activity or business processes and their characteristics and vision, from the manager’s point of view, as it should ideally be;
  • the gap between the actual goals and objectives of the company as a whole and the employees in particular;
  • the gap between the current performance and the best performance in the industry.

I hope that after reading you understand that having data is not enough, you need to apply it correctly. That’s why, next time, we will talk about how you can prepare a marketing concept by using benchmarking.

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