4. Looking Inside Strengths and Weaknesses
In order to understand the actual position of a company in the market, it is not only important to understand the outer world for threats and opportunities, but also important to look inward for evaluating the strengths and weaknesses of an enterprise. External analysis provides an understanding of the opportunities and threats existing in the market, whereas internal analysis imparts practical knowledge of a company’s goals and strategies (HBR, 2005). An internal analysis of a company is done in the three most important areas; core competencies, financial condition, and management and culture. Zawoh’s internal analysis will also be done using these three important areas.
4.1. Strength
Zawoh is a joint venture between two companies, "Neumühle – Zauberhaft Wohnen” and the start-up “Dormando". Neumühle – Zauberhaft Wohnen is an offline furniture store, whereas Dormando is a pure online store. Zawoh uses a pure online model in which it sells its goods only through online channel.
4.1.1 Brand Value and Operational Synergy
One of the main strengths of the company is its strong brand name which it inherited from Neumühle. Neumühle – Zauberhaft Wohnen is in this business for over 30 years (Zawoh, 2016). Over the years, it was able to create a loyal base of customers. With the strong customer base of Neumühle, Zawoh will be able to head start its online business. Creating brand value takes a lot of time. Through the years, Neumühle – Zauberhaft Wohnen was able to create the brand value of the offline stores among its local customer base. Any new company entering the market will not be able to create brand value quickly. One of the major concerns of online shopping is the factor of trust. Most of the customers are not willing to buy items from a particular website, because they do not trust the payment methods, security, and shipping process. Neumühle has a joint venture with Dormando that has huge experience in online trading. With the help of Dormando’s expertise, Zawoh was able to create a website that was secure from the perspective of payment method. Zawoh also certified its website with “trusted shops” to improve the customer perception about the trustworthiness and safety of website (Zawoh, 2016).
4.1.2 Small Overhead Cost Structure/ Financial Structure
Another big strength of Zawoh is its small overhead cost. The company is entering into online business where the price margins are small. Therefore, keeping a huge overhead cost often leads to low profitability. Zawoh was able to reduce salary by recruiting temporary workers in its payroll for operation. Almost all the employees recruited to manage Zawoh’s operation are apprentices or trainees. Therefore, the salary overhead for these employees is very low. Currently, the company has no permanent employee in its payroll apart from the owners, Mrs. Ostberg and her son. Additionally, to run the website and manage the technical part of the information technology (IT) process, Zawoh has not recruited any employee. After the joint venture between Neumühle and Dormando, Zawoh was able to use the huge expertise of Dormando to run and manage its online portfolio. For example, Zawoh uses the photographers of Dormando to take pictures of products of Neumühle and post it into the website. For any technical issues such as slow website response or updating the website, Dormando IT personnel help Zawoh. Finally, in order to reduce the cost of designing and managing the Zawoh website, Zawoh is using a standard website template available in the market. It has not designed a customized template which is more time-taking and cost intensive to manage and operate. Although a standard template provides less flexibility, it is easily manageable even by people with limited knowledge of IT. However, this is a strength that will provide benefit to the company for only a limited amount of time. In the long run, competitors will be easily able to copy these features. Additionally, Zawoh was able to create a low overhead supply chain. As the company has very strong relationship with its suppliers and retailers (expertise inherited from Neumühle), it was able to negotiate with them to send the final products directly to the end customers. This minimized the need of holding inventory. By minimizing the need of holding inventory, Zawoh was able to reduce the overhead cost of buying and operating warehouses not only near the present brick and mortar store, but also in other areas of the country that generate demands.
4.1.3 Well Established Supply Chain
One of the big strengths of Neumühle is its well-established logistics and supply chain. Over last 32 years, Neumühle was able to negotiate with its retailers and create a world-class supply chain. Through long term partnership and high volume sales, Neumühle was able to establish trustful relationship and negotiating power among the retailers. Because of its long term relationship, Mrs. Otsberg can include a brand in its portfolio through only a few phone calls with its retailers. Over 30 years, Neumühle was able to create a product portfolio that includes most of the leading home furnishing brands available in Germany. Over and above that, Neumühle was also able to establish its homegrown brand successfully. Zawoh inherited this strength from Neumühle. Also, after the launch of Zawoh’s online stores, Zawoh was able to negotiate with its retailers to send the final products directly to its customers. Thus, Zawoh reduced the need of holding inventory. The creation of a lean supply chain model is not easy and cannot be easily imitated (HBR, 2005). This provides a competitive advantage for Zawoh in terms of lower supply chain cost.
4.1.4 Industry Expertise
Zawoh has in-depth understanding of the home furnishing industry. Mrs. Otsberg has been working in this industry for the last 32 years. She knows a lot of customers personally and has created a relationship based on trust. Mrs. Otsberg has also worked directly with the customers and has created the marketing and sales strategies for Neumühle over the years. She knows the local market very well and understands the needs of the targeted customer segment. Although she may not be familiar with the large segment of online customers, the choices and preferences of home furnishing customers within Germany are fairly similar no matter from where they come from. Therefore, this deep industry knowledge will certainly help Zawoh in devising its future online marketing strategies. Additionally, over the years Mrs. Otsberg has worked with a large network of dealers and suppliers. She has been able to create a longstanding relationship with many brands. This knowledge and expertise of both suppliers and customers is a big asset and strength to Zawoh.
4.2. Weaknesses
Although Zawoh has much strength stemming primarily from its offline company Neumühle and online partner Dormando, there are several weaknesses that may restrict the growth of Zawoh through online medium.
4.2.1 Management Structure
One of the main weaknesses of Zawoh is its team structure. Although Mrs. Otsberg is highly experienced in the home furnishing industry and understands both suppliers and customers very well, the same cannot be said about the rest of the team in Zawoh. For instance, Mrs. Otsberg’s son, who is the actual owner of Zawoh, lacks sufficient knowledge of the business and takes little or no interest in running the business. Additionally, to lower the overhead cost, Zawoh uses trainees and apprentices to run its operation. This may help in reducing the cost, but Zawoh does not have experienced employees in its payroll. Most of its employees are trainees who stay in the company for hardly three to six months. Therefore, none of the employees has any substantial knowledge or understanding of the business. Due to the absence of permanent employees in the payroll, employees do not feel motivated to give extra effort when required. Also, the employees of Zawoh do not feel motivated to provide suggestions for improving the system. Because of a number of trainees in the payroll, employee turnover rate is extremely high, which means that the owners need to spend time significantly in human resource planning and recruitment rather than concentrating on important business strategies. Although Zawoh is trying to use Dormando’s expertise to compensate for the lack of expertise of its employees, this may not always fall into place as desired by the company. Dormando’s employees give more importance to the problems and issues associated with Dormando’s business and products such as mattresses. Dormando’s employees attend problems ahead of the problems reported by Zawoh and this creates bottlenecks.
4.2.2 Management Decision making Process
Another major problem with Zawoh is its fragmented decision making process. Presently, most of its decisions are taken by Mrs. Otsberg. Mrs. Otsberg has exceptional knowledge of both customers and suppliers and has done commendably well in the past 30 years. However, she is not uncertain about the online business model and lacks full understanding of the sales and marketing process of an online store. Mrs. Otsberg’s son comes from the generation Y and is more familiar with the internet and online business, but he takes less interest in business and does not participate in the day to day business activity. There are a Deputy Managing Director of Zawoh and two founders of Dormando managing the daily businesses of the company. Also, the company has hired a consultant and a marketing agency for managing some of its sales and marketing operations. The management team sits in two different locations. Mrs. Otsberg and her team work from Schlangenbad while the rest of team operates from Frankfurt, Germany. Although the whole team wants to communicate with each other more frequently and wants to take part in the decision making process, communication and decision making process get hindered due to the geographical separation. Many a time, important decisions are discussion over telephone. In many occasions, decisions are taken without informing the whole management team and decisions are conveyed afterwards.
4.2.3 Online only Business and Luxury Segment
One of the main problems with Zawoh is that it does not own a physical store. Although the online only presence reduces the overhead cost and helps the company operate more profitably, it does not give the actual physical appeal to its customers. In the home furnishing segment, often the customers want to see and feel the product before making a buying decision (OTTO, 2015). Interior design and decoration of a house are more close to a person’s heart, and therefore, many customers do not prefer shopping home furnishing products through online medium. This is why the absence of a physical store is a disadvantage for Zawoh. This problem is specifically true for luxury end customers. Luxury end customers often spend from a few hundreds to a few thousands Euros in buying interior decoration and home furnishing products. Most of these customers prefer viewing the products in person before making the purchasing decision (OTTO, 2015). With only online presence, Zawoh may not be able to attract a large segment of luxury end customers. However, most of the products that Zawoh will be selling through online stores are national and international brands and are therefore available in many competitor stores as well. So the customers will be able to see the products by visiting a competitor’s store. However, in such case, the potential customer may get lured away by the competitive offerings.
4.2.4 Poor Website Design
One of the strengths of Zawoh is its simplistic website features that make navigation through the website easier for the customers. However, since Zawoh uses a standard template, the website looks ordinary compared to its competitors such as Home24 Online, Fashion for Home, and IKEA. For an online only company, the website is the first point of interaction between customers and sellers. Therefore, website attractiveness is crucial to the success of an online business (Robbins and Coulter, 2014). Since Zawoh’s website looks pale compared to that of its competitors, Zawoh is lacking the competitive advantage in this case. Additionally, because of simple HTML based website design, the performance of the website does down considerably if high quality product pictures are uploaded in the website. In order to improve the website performance, Zawoh compromises with the picture quality. This also adds to the problem of customer dissatisfaction while navigating through the website. Presently, the company is not willing to invest in improving the backend of the company website. This indicates that if additional products are loaded to the website, the response time will become slower. To solve this issue, the company will either have to reduce the quality of the pictures further or need to optimize its product portfolio to a level so that the website response does not get affected. Till the time, Zawoh does not invest heavily in developing a website backend with more sophisticated technology and hires technical experts to manage the website, this problem will continue to haunt the company and remain as the biggest weakness for Zawoh.
4.2.5 Poor Website Performance
Currently, Zawoh offers limited number of products through its website. One of the main features of any online business is that it often can offer more number of products through its online business channel than it can offer through a brick and mortar store. However, it is the other way round for Zawoh. Neumühle store sells more variety of products than what is available in Zawoh online store. Additionally, the company does not feature any market leading brands such as USM, Vitra, and Rolf Benz. This results in fewer website visits for Zawoh. Presently, the company only sees approximately 2,000 searches per month compared to over 40,000 searches seen by the leading brands.
4.2.6 Lack of Technical Expertise
Another weakness of Zawoh is its lack of priority towards the technical aspects of online business. The company has little idea about increasing the number of products in its website without reducing its ranking in Google search. Presently, the company seeks to increase its product portfolio. However, product increase will decrease its ranking in Google search if the company is unable to generate sufficient interest about its offering among the online customers. . Zawoh has some idea about search engine optimization, but it does not have the knowhow of balancing between the number of products and Google page ranking. It seems that the company does not have clear marketing strategy to back up its product expansion plan. Concentrating more on search engine optimization may improve the number of visitors, but without proper online marketing efforts, the company will not be successful in generating more interest and searches for the Zawoh website and products.
References
OTTO. (2015). OTTO and TNS Infratest present Living Study 2015: home furnishings and feeling comfortable – furniture buying in Germany. Retrieved on 2nd Jan, 2016 from <https://www.otto.de/unternehmen/en/newsroom/news/2015/Moebel-PK_PM.php>
Robbins, S. and Coulter, M. (2014). Management. Upper Saddle River, NJ: Pearson Prentice Hall.
HBR. (2005). SWOT Analysis II: Looking Inside for Strengths and Weaknesses. Retrieved on 2nd Jan, 2016 from < https://hbr.org/product/swot-analysis-ii-looking-inside-for-strengths-and-weaknesses/an/5535BC-PDF-ENG>
Zawoh. (2016). About the Company. Retrieved on 2nd Jan, 2016 from < https://www.zawoh.de/>
