Cronin Auto Retail (CAR) is a car dealer that sells used cars bought at auctions by its experienced team of buyers. Every car for sale is less than two years old and has a full service history. The company concentrates on small family cars and, at any one time, there are about 120 on display at its purpose-built premises. The premises were acquired five years ago on a 25 year lease and they include a workshop, a small cafe and a children’s playroom. All vehicles are selected by one of five experienced buyers who attend auctions throughout the country. Each attendance costs CAR about $500 per day in staff and travelling costs and usually leads to the purchase of five cars. On average, each car costs CAR $10,000 and is sold to the customer for $12,000. The company has a good sales and profitability record, although a recent economic recession has led the managing director to question ‘whether we are selling the right type of cars. Recently, I wonder if we have been buying cars that our team of buyers would like to drive, not what our customers want to buy?’ However, the personal selection of quality cars has been an important part of CAR’s business model and it is stressed in their marketing literature and website.

　　Sales records show that 90% of all sales are to customers who live within two hours’ drive of CAR’s base. This is to be expected as there are many competitors and most customers want to buy from a garage that they can easily return the car to if it needs inspection, a service or repair. Consequently, CAR concentrates on display advertising in newspapers in this geographical area. It also has a customer database containing the records of people who have bought cars in the last three years. All customers receive a regular mail-shot, listing the cars for sale and highlighting any special offers or promotions. The company has a website where all the cars are listed with a series of photographs showing each car from a variety of angles. The website also contains general information about the company, special offers and promotions, and information about its service, maintenance and repair service.

　　CAR is keen to expand the service and mechanical repair side of its business. It would particularly like customers who have purchased cars from them to bring them back for servicing or for any mechanical repairs that are subsequently required. However, although CAR holds basic spare parts in stock, it has to order many parts from specialist parts companies (called motor factors) or from the manufacturers directly. Mechanics have to raise paper requisitions which are passed to the procurement manager for reviewing, agreeing and sourcing. Most parts are ordered from regular suppliers, but there is an increasing backlog and this can cause a particular problem if the customer’s car is in the garage waiting for the part to arrive. Customers are increasingly frustrated and annoyed by repairs taking much longer than they were led to expect. Another source of frustration is that the procurement manager only works from 10.00 to 16.00. The mechanics work on shifts and so the garage is staffed from 07.00 to 19.00. Urgent requisitions cannot be processed when the procurement manager is not at work. The backlog of requisitions is placing increased strain on the procurement manager who has recently made a number of clerical mistakes when raising a purchase order.

　　Requests for stationery and other office supplies also go through the same requisitioning process, with orders placed with the office supplier who is offering the best current deal. Finding this deal can be time consuming and so employees are increasingly submitting requisitions earlier so that they can be sure that new supplies will be received in time.

　　The managing director is aware of the problems of the requisitioning system but is reluctant to appoint a second procurement manager because he is trying to keep staff overheads down during a difficult trading period. He is keen to address ‘more fundamental issues in the marketing and procurement processes’. He is particularly interested in how the ‘interactivity, intelligence, individualisation and independence of location offered by e-marketing media can help us at CAR’.

　　Required:

　　(a) Evaluate how the principles of interactivity, intelligence, individualisation and independence of location might

　　be applied in the e-marketing of the products and services of CAR. (16 marks)

　　(b) Explain the principles of e-procurement and evaluate its potential application at CAR. (9 marks)

　　(25 marks)

　　Answer：

　　(a) This question uses four of the ‘6 Is’ developed by McDonald and Wilson to explore the differences between traditional and e-marketing. Candidate answers do not have to be strictly classified within each of the factors identified below. In reality, suggestions will cross the boundaries of these factors.

　　Interactivity concerns the development of a two-way relationship between the customer and the supplier. The traditional display advertising and mail-shots used by CAR are examples of ‘push media’ where the marketing message is broadcast to current and potential customers. Their current website continues this approach, with the stock listing essentially representing a continually updated, but widely accessible, display advertisement. Supplementing mail-shots with e-mails could be immediately considered by CAR and would be a cheaper alternative to mail-shots. However, it still remains a ‘push technique’ with little dialogue with the customer.

　　Here are three ideas that CAR could consider to improve the interactivity of its site. Other legitimate suggestions will also be given credit.

　　(1) Encouraging potential buyers on their website to ask questions about any car that they are interested in. Both questions and answers are published. This may provide someone with the vital information that clinches the sale. It also creates a great enthusiasm around the car. Buyers may move quickly so that they do not lose the opportunity to buy the car. On e-bay, customers are encouraged to ‘ask a question’ of the seller and this often leads to long threads where the supplier and potential buyers interact.

　　(2) Many buyers would like to test drive a car before they purchase it. CAR could provide the opportunity for customers to book a test drive over the Internet.

　　(3) Once a purchase had been complete, CAR might encourage feedback which could be published on the website. In this instance, customers are actually providing information that is commercially useful to buyers. This may be in the form of testimonials, or in the form of more structured feedback that e-bay encourages. Suppliers who have 100% positive feedback backed up by testimonials from previous buyers are powerfully reinforcing their marketing message.

　　Intelligence is about identifying and understanding the needs of potential customers and how they wish to be communicated with. It is traditionally the area of market research and marketing research. Currently CAR does very little research. It relies on a database that only consists of people who have actually bought cars from the company. Collecting email addresses through promotions and interactivity initiatives (see above) provides a much greater pool of potential customers who can be kept up-to-date through email. It can also give CAR significant intelligence about the type of cars that they are interested in and at what price. At present, the buyers for CAR use their experience when buying cars at auction and there is some concern that they buy what they would like to drive, not what the customers want to drive. It would be useful to support this experience with quantitative information about the type of cars potential buyers are really interested in. This may lead to a change in buying policy.

　　Individualisation concerns the tailoring of marketing information to each individual, unlike traditional media where the same message tends to be sent to everyone. Personalisation is a key element in building an effective relationship with the customer. In the context of CAR, individuals who have shown interest in a certain model or type of car may be selectively emailed when a similar car becomes available. This approach may also be used for current customers. For example, someone who purchased a particular car two or three years ago might be e-mailed about an opportunity to upgrade to an updated model. For individualisation to be successful, sufficient details must be collected through the intelligence and interactive facets of the

　　‘6 Is’.

　　Individualisation will also be key in offering relevant after-sales service. This may concern inviting customers to return their cars for servicing at the correct dates or offering services only appropriate to that type of car. For example, circulating details of air-conditioning renewal only to customers with air conditioned cars.

　　Independence of location concerns the geographical location of the company. Electronic media increases the geographical reach of a company. For many companies this gives opportunities to sell into international markets which had previously been inaccessible to them.

　　This facet of the new media is unlikely to be appropriate to CAR. Most sales are to customers who are within two hours’ drive of the CAR premises. The commodity nature of the cars that CAR are selling means that similar cars will be available throughout the country, often from garages that offer local service and support. Independence of location would be more significant if CAR was selling collectors or classic cars where each car is relatively rare and people are prepared to travel long distances to view the car they are interested in. Furthermore, the long term lease on CAR’s current premises makes it unlikely that they will be able to locate to a cheaper site and hence exploit the independence of location offered by the new media.

　　(b) Procurement is concerned with purchasing goods or services for the organisation. It is concerned with sourcing items at the right price, delivered at the right time, to the right quality, in the right quantity and from the right source. Many contemporary definitions of procurement also include the inbound logistics required to get the product from the supplier to the customer.

　　E-procurement looks at the opportunities presented by automating aspects of procurement to improve the performance of the five ‘rights’ identified above. There is a wide range of potential answers to this part of the question depending on the scope and focus of e-procurement selected by the candidate. Solutions may vary from the simple automation of part of the system, to re-thinking the way the company does business.

　　In the context of CAR, two distinct types of procurement can be identified. The first is production-related procurement and is directly related to the core activities of the organisation. This relates to the purchase of cars for sale and the purchase of parts required for servicing or repairing vehicles. The second is non-production procurement.

　　CAR has always purchased its vehicles through experienced buyers attending auctions. On average this attendance costs the company $500 per day, leading to the purchase (on average) of five cars. This purchasing cost of $100 per car represents 5% of the average profit margin on each car. This cost could be eliminated if cars were purchased through e-auctions, with bids made on-line. The risk here is that the cars bought were not of the right quality. CAR prides itself in the personal selection of its cars. However, it could be argued that cars which are less than two years old with a full service history are unlikely to have much wrong with them.

　　The parts needed for servicing and mechanical repairs are ordered from motor factors or manufacturers. A number of regular suppliers are retained, many in long-term relationships with CAR. This is known as systematic sourcing. Most of the problems here are caused by the need to pass requisitions for parts through a procurement manager. The first problem is the delay in the purchasing cycle. There is a backlog of requisitions that have to be reviewed, agreed and sourced by the procurement manager. This is particularly problematic when a customer’s car is in the garage awaiting a part. The customer is likely to be frustrated and annoyed by the delay, whilst the car is occupying garage space that could have been profitably used for a fee-paying job. The second problem is the cost of the paperwork and the processing time of the procurement manager associated with the purchase. The final problem is that purchases can only be made between 10.00 and 16.00 when the procurement manager is at work. Mechanics work 07.00 to 19.00 and are frustrated that they cannot make orders outside the times the procurement manager is at work. Giving the mechanics the systems and authorisation to order parts (up to a certain value limit) from specified suppliers over the Internet should deliver cost savings and speed up repairs and services. A direct ordering system should also reduce administrative errors and enhance customer goodwill. CAR might also use eprocurement to open up competitive bidding between potential suppliers; posting their requirements on their website and inviting competing bids. Parts could be sourced from a number of suppliers, taking advantage of the lowest prices for each part. This could be combined with just-in-time supply, reducing the cost of stock holding at CAR.

　　Non-production procurement is concerned with ordering things such as stationery, paper, ink toner and other office supplies. Christa Degnan (quoted in Chaffney, E-Business and E-Commerce Management) suggested that for ‘every dollar a company earns in revenue, 50 cents to 55 cents is spent on indirect goods and services – things like office supplies and computer equipment. That half dollar represents an opportunity. By driving costs out of the purchasing process, companies can increase profits without having to sell more goods’. CAR is in this situation. It uses the same process for office supplies as it does for car parts. However, most office supplies are cheap, commodity products where sometimes the cost of ordering the product exceeds the value of the purchased product, particularly where a cumbersome purchasing process is in place. With little differentiation between products, it is the availability and cost of the product that become the most significant aspects in the procurement process. E-procurement should provide better information, identifying alternative suppliers and allowing spot sourcing of office products to fulfil immediate need.

　　Overall, e-procurement should reduce the administrative burden on the procurement manager, giving him or her the opportunity to concentrate on negotiating terms, agreements and product standardisation; more strategic tasks in the procurement process.