Week 9 - IBM_Channel Management (SW).pdf

# Understanding the Singles Day shopping phenomenon Singles Day is a major global shopping phenomenon originating from China, which has transformed from a self-celebration for single individuals into an unparalleled online sales event, dwarfing other international shopping periods in consumer spending. ## 1. Understanding the Singles Day shopping phenomenon ### 1.1 Origins and evolution of Singles Day #### 1.1.1 Early origins as "Bachelor's Day" The concept of Singles Day originated in 1993 at Nanjing University in China, where it was initially known as "Bachelor's Day". During this early phase, single individuals would celebrate by treating themselves to gifts and organizing social gatherings and parties. It was conceived as a way to counter Valentine's Day by celebrating singlehood [2](#page=2). #### 1.1.2 Transformation into an online shopping festival Over time, Singles Day has evolved significantly from its origins. It has transformed into a massive, weeks-long online shopping festival, often referred to as "Double 11". The sales period has expanded, with the 2023 event commencing on October 14 and culminating on November 11, marking its longest sales period to date [2](#page=2) [3](#page=3). ### 1.2 Consumer spending and global comparison #### 1.2.1 Scale of consumer spending in 2023 The economic impact of Singles Day is immense. In 2023, the total value of goods sold during this shopping bonanza reached 1.14 trillion yuan. This equates to approximately 156.4 billion US dollars, according to data provider Syntun [3](#page=3). #### 1.2.2 Comparison with other global shopping events The spending volume during Singles Day significantly surpasses that of other major global shopping events. For instance, in 2023, Chinese consumers spent more than four times the amount that US shoppers did during Cyber Week, which encompasses the period from Black Friday to Cyber Monday. US shoppers spent 38 billion dollars during Cyber Week, as reported by Adobe Analytics. Cyber Monday is a key shopping day in the United States, occurring the day after the Thanksgiving Day holiday [3](#page=3). > **Tip:** When comparing shopping events, pay attention to the scope and duration of the sales period, as well as the specific consumer markets targeted. The sheer scale of Singles Day highlights its unique position in the global e-commerce landscape. --- # The platform-based business model and its implications This section explores the characteristics of platform-based business models, their value creation mechanisms, and the associated financial and scalability challenges. ### 2.1 Defining the platform-based business model A platform-based business model is defined as a business model that generates value by facilitating digital transactions between sellers and buyers, typically through a fee-based remuneration system. Alternatively, it can facilitate exchanges between people, such as on social media platforms, where remuneration is often through advertising. In this model, the platform acts as an intermediary without owning the physical product or service being exchanged. Marketplaces are a prime example of platform-based models [27](#page=27). ### 2.2 The role of platforms in re-intermediation Platforms play a significant role in re-intermediation, a process that counteracts disintermediation by introducing new, streamlined forms of intermediation. Examples include Uber connecting drivers with riders, Amazon connecting sellers with buyers, and Airbnb connecting property owners with travelers. These platforms facilitate connections and manage user experiences, including payment processing, customer reviews, and dispute resolution, without directly owning the underlying assets [26](#page=26). ### 2.3 Evolution of channel structures Historically, business relationships followed linear structures (producer → intermediary → customer). The emergence of platforms has shifted this to a centralized hub that connects multiple producers with multiple customers, optimizing interactions. This evolution has led to blurring distribution models, where pure platforms compete with hybrid retailers or brands. Direct-to-consumer brands often expand their offerings through marketplaces, and traditional retailers may launch their own marketplaces to host new suppliers and a wider range of products, evolving into hybrid models [28](#page=28) [29](#page=29). ### 2.4 Platform-side perspective: Value and Costs From the platform's perspective, the IT platform is central, offering clients instant and constant service availability 24/7, along with responsiveness, convenience, and flexibility. The core of the platform business model involves very high fixed costs associated with the IT infrastructure, technical teams, and back-office operations [30](#page=30) [31](#page=31). #### 2.4.1 High up-front investment and cash flow Initiating a platform requires substantial up-front capital investment to build and test the IT platform before going live. This often results in potential negative cash flow in the initial stages before the first revenue is generated. The objective is to reach the break-even point as soon as possible, where revenue equals costs [32](#page=32) [34](#page=34). > **Tip:** The break-even point signifies the time when total revenue generated equals total costs incurred, marking the transition from loss to profit [34](#page=34). #### 2.4.2 Limited working capital requirements Once a platform is established and has achieved critical mass to break even, the incremental cash required to serve additional clients is marginal. This is because the platform business model typically has no meaningful inventory or receivables, as ownership is not a factor and payments are often made in advance. Payables are generally related to licenses and services necessary for the platform's operation and third-party applications. Operating working capital is defined as inventories plus receivables minus payables [35](#page=35). ### 2.5 Scalability advantage of the platform model A significant advantage of the platform business model is its inherent scalability. In people-based business models, an increase in clients and volume often necessitates hiring more people. In contrast, a platform-based model can handle more clients and increased volume using the same IT platform, without a proportional increase in human resources [36](#page=36). ### 2.6 Challenges in achieving profitability Becoming profitable is a significant challenge for many pure platform-based players. The core issue often lies in the monetization model [37](#page=37) [39](#page=39). > **Example:** Uber Technologies, a prominent platform company, finally began breaking even in 2023 after years of operating at a loss, illustrating the long road to profitability for such ventures. Their EBITDA has shown improvement from negative percentages in prior years to positive percentages, accompanied by fluctuating revenue figures [38](#page=38). The cost structure of platforms is largely fixed, meaning profitability is highly dependent on revenue levels and how quickly the break-even point is met. Profitability can be elusive even for sizeable platforms [59](#page=59). ### 2.7 Key challenge: Attracting both sides of the market A critical challenge in reaching meaningful scale for platforms is the necessity to attract both "providers" (sellers, drivers, hosts) and "customers" (buyers, riders, travelers) simultaneously [58](#page=58). ### 2.8 Financial balance for success To ensure a return on investment, platforms should aim to be utilized at maximum capacity most of the time. Planning adequate capacity, which refers to the volume of transactions the platform can handle, is crucial. While the working capital required to run a platform business model might be high during the launch phase, it tends to diminish as the platform scales up. The platform business model is considered profitable once a critical size has been achieved [59](#page=59). ### 2.9 Key takeaways from the brand perspective From a brand's viewpoint, platforms offer cheap market access and a route-to-market for initial contact and visibility, providing wide reach with little required investment. However, relying on platforms as a sole sales channel structure for sustainable growth can be dangerous due to the loss of customer ownership and the commoditization of products, making differentiation difficult in a standardized environment [59](#page=59). ### 2.10 Key takeaways from the platform perspective From the platform's perspective, it is fundamentally an IT business, highly dependent on the technical skills of its people. Substantial upfront capital investment is required for launch. Scalability is paramount, as profitability hinges on revenue levels and achieving break-even quickly due to the fixed cost structure. Customer acquisition, retention, and growth are three complementary strategies essential for ensuring steady revenue for the platform. Financial balance is achieved through maximum capacity utilization and adequate capacity planning. The platform business model becomes profitable once critical mass is reached [59](#page=59). --- # SHEIN's transition to a marketplace and associated risks SHEIN's strategic shift from a traditional fast-fashion retailer to a marketplace platform introduces significant changes to its operations, consumer experience, and risk profile. This transition allows for rapid expansion of assortment and reach while simultaneously diminishing direct control over product listings [11](#page=11) [13](#page=13) [18](#page=18). ### 3.1 The marketplace model explained #### 3.1.1 Defining the marketplace model A marketplace platform, in SHEIN's context, means allowing third-party sellers to list and sell their products on the SHEIN website, rather than SHEIN exclusively selling its own inventory. This fundamentally alters the company's operational approach from controlling products to controlling the platform that others utilize [11](#page=11) [13](#page=13). #### 3.1.2 Key characteristics of a marketplace * **Third-party sellers:** The platform hosts external sellers, expanding the range of products available [13](#page=13). * **Decentralized supply chain:** Instead of a centralized supply chain, SHEIN relies on a network of external suppliers [13](#page=13). * **Algorithm-driven onboarding:** Automated processes are used for seller and product onboarding, which can lead to challenges in screening and filtering [11](#page=11) [12](#page=12). * **Trust-based quality and compliance:** Reliance shifts from internal checks to seller trust and algorithmic monitoring [13](#page=13). ### 3.2 Consumer benefits of the marketplace model ("Downstream") The marketplace model offers significant benefits to consumers, primarily through increased variety and convenience [10](#page=10). * **Huge assortment and convenience:** Consumers gain access to a vast selection of products, creating a "one-stop shop" experience [10](#page=10). * **Everyday-use categories:** The inclusion of non-fashion categories encourages more frequent visits, contributing to platform stickiness and a data feedback loop [10](#page=10). * **Low prices:** Seller competition and economies of scale within the marketplace environment can drive down prices [10](#page=10). * **Platform value creation:** The platform generates value through offering variety and accessibility to consumers [10](#page=10). ### 3.3 Challenges for SHEIN as a marketplace ("Upstream") The transition to a marketplace introduces substantial complexities and challenges for SHEIN's operations [11](#page=11). * **Monitoring thousands of suppliers:** Managing a large and diverse group of sellers becomes a significant governance and compliance challenge [11](#page=11). * **Quality and regulatory control:** Maintaining consistent quality and ensuring adherence to regulations across numerous third-party products is difficult. The company faces a trade-off between channel control and achieving scale [11](#page=11). * **Reputational risk:** The brand's reputation becomes intrinsically linked to the products sold by third parties, creating a direct channel liability [11](#page=11). * **Algorithmic onboarding and global sellers:** The use of algorithms for onboarding, combined with a global seller base, presents challenges in visibility and effective filtering of listings [11](#page=11). ### 3.4 Reasons for illegal and inappropriate listings Issues such as illegal or inappropriate listings can arise due to several factors inherent in the marketplace model [12](#page=12). * **Open seller application:** When anyone can apply to sell, the sheer volume of sellers makes individual screening harder [12](#page=12). * **Automated onboarding:** Products can appear on the platform without thorough human oversight [12](#page=12). * **Varying international laws:** Sellers may not be fully aware of or comply with local regulations in different countries [12](#page=12). * **High volume of listings:** The daily influx of thousands of new items makes comprehensive checking impractical [12](#page=12). * **Incentive for rapid growth:** Platforms may prioritize expanding variety and speed over stringent filtering processes [12](#page=12). * **Reduced direct control:** The marketplace operator does not own or physically inspect every item, relying on system management rather than individual product validation [12](#page=12). ### 3.5 Strategic advantages and rationale for the marketplace model Despite the inherent risks, SHEIN adopts the marketplace model for strategic advantages [18](#page=18). * **Rapid assortment growth:** This allows SHEIN to quickly expand its product categories and compete with larger e-commerce players like Amazon and Temu [18](#page=18). * **Increased traffic and frequency:** The marketplace model creates a "flywheel" effect, where more visits lead to more data, which in turn drives more sales [18](#page=18). * **Low inventory risk:** As a marketplace, SHEIN is not burdened by holding inventory, thus avoiding significant working capital requirements [18](#page=18). * **Supply pipeline discovery:** Onboarding new sellers can serve as a discovery mechanism for new factories and product innovations [18](#page=18). > **Tip:** The core takeaway is that while marketplaces offer expanded reach and assortment with reduced financial and capital risks, they inherently trade these benefits for decreased control and increased channel risk [18](#page=18). ### 3.6 Model comparison: Retailer vs. Marketplace The shift from a direct retailer model to a marketplace platform involves a fundamental change in operational focus and control [13](#page=13). | Feature | Direct Retailer Model (Original SHEIN) | Marketplace Model (New SHEIN) | | :--------------- | :------------------------------------- | :------------------------------------------ | | Product sales | Own products only | Hosts third-party sellers | | Product control | Full control | Limited control over product content | | Supply Chain | Centralized | Decentralized, external suppliers | | Checks | Internal quality & compliance | Relies on seller trust + algorithms | | Assortment | Controls assortment | Expands far beyond core offer | | Reputation | Tied only to own products | Tied to every item listed | | Customer knowledge | Knows who they buy from | Assumes it's still the brand | This move from controlling products to controlling a platform signifies a trade-off: increasing scale and convenience at the expense of direct product oversight, thereby elevating brand and regulatory risks [13](#page=13). #### 3.6.1 Control versus assortment trade-off * **High Control, Low Assortment:** This represents a traditional retailer model with strict oversight over products but a more limited selection [14](#page=14) [15](#page=15). * **Low Control, Huge Assortment:** This describes the marketplace model, where a vast array of products is available, but with significantly reduced direct control [14](#page=14) [15](#page=15). The general trend is: Control $\downarrow$ and Assortment $\uparrow$ when moving from Direct Retail to a Marketplace Platform [16](#page=16). ### 3.7 Risks associated with the marketplace model The marketplace transition exposes SHEIN to increased risks, particularly concerning governance and brand liability [11](#page=11) [22](#page=22). #### 3.7.1 Channel governance and brand liability * **Loss of control:** The primary risk is the diminished direct control over what products are listed and sold [13](#page=13) [22](#page=22). * **Compliance risk:** Ensuring that all third-party sellers adhere to varying local and international regulations becomes a significant challenge [11](#page=11) [22](#page=22). * **Brand exposure:** The SHEIN brand becomes associated with all items sold on its platform, making it vulnerable to negative publicity from any product issue [11](#page=11) [13](#page=13). * **Suspension implications:** Incidents like the temporary suspension in France are not solely due to fast fashion practices but are directly linked to the challenges of channel governance in a marketplace setting [22](#page=22) [8](#page=8). > **Example:** The temporary suspension in France is a prime example of a "channel governance problem," highlighting how the lack of control over listings on a marketplace platform can lead to significant operational and reputational consequences [22](#page=22). ### 3.8 Seller experience on SHEIN's marketplace SHEIN's marketplace aims to attract sellers by offering competitive advantages [20](#page=20). * **No monthly fees:** Unlike some competitors, SHEIN does not charge a monthly fee for professional seller accounts, reducing overhead for sellers [20](#page=20). * **Initial fee waiver:** Seller fees are waived for the first three months, with a subsequent flat 10% marketplace fee on sales [20](#page=20). * **Massive customer reach:** Sellers gain access to SHEIN's large customer base, estimated at over 72 million monthly active users [20](#page=20). * **Free promotion:** SHEIN offers free promotional opportunities for sellers, enabling them to reach more customers with less marketing expenditure [20](#page=20). #### 3.8.1 Becoming a seller on SHEIN The process for becoming a seller involves a straightforward application and review procedure [21](#page=21). * **Step 1: Access Marketplace:** Navigate to the SHEIN Marketplace and select "Join Marketplace" [21](#page=21). * **Step 2: Complete Application:** Fill out a sign-up form with essential business details (name, title, contact information, company name, website) [21](#page=21). * **Step 3: Provide Business Details:** Specify product categories, operational regions, annual revenue, sales channels, and a business description. Agreement to SHEIN's policies is required to submit the application [21](#page=21). * **Review and Onboarding:** Applications are reviewed within 1 to 3 business days. Approved sellers receive dedicated onboarding support [21](#page=21). ### 3.9 SHEIN's broader transformation SHEIN is evolving beyond its identity as a fashion brand to become a comprehensive commerce ecosystem. This fundamental shift involves not just product strategy but also a redefinition of its operational model and risk management [11](#page=11) [22](#page=22). --- # Brands competing and thriving on platforms This section explores how brands navigate and leverage digital platforms for growth, examining strategic partnerships, the benefits and risks of platform dependence, and recommendations for success in the platform economy. ### 4.1 The rise of platform-based brand competition Digital platforms have fundamentally altered the competitive landscape for brands, with most now selling through these intermediaries rather than solely via their own channels. Companies are largely dependent on platforms rather than building their own [53](#page=53). ### 4.2 Case Study: Hyundai and Amazon Partnership The partnership between Hyundai and Amazon exemplifies a significant shift in automotive sales. In 2024, auto dealers began selling vehicles directly through Amazon's U.S. store, with Hyundai being the first brand available for purchase [42](#page=42). #### 4.2.1 Channel functions and dealership roles This collaboration allows customers to search for available vehicles on Amazon based on various preferences, select their preferred car, and complete the purchase online within the Amazon interface. Key channel functions handled by Amazon include promotion, negotiation, ordering, and payment. Other functions, such as physical possession and ownership transfer, are delegated to local dealerships. This initiative aims to create a convenient online shopping experience and build awareness for dealerships' inventory [47](#page=47) [48](#page=48). ### 4.3 The VUORI Case: A strategic choice to avoid Amazon VUORI, an American clothing brand founded in 2015 and generating approximately 1 billion dollars in sales revenue, operates over 50 stores globally and plans to expand significantly. Despite the potential for growth offered by large platforms, VUORI has chosen not to rely on Amazon for its expansion. This decision raises questions about whether this avoidance of a major platform is a strategic mistake or a deliberate choice to maintain control [50](#page=50) [51](#page=51) [52](#page=52). ### 4.4 Understanding the dynamics of competing on platforms The article "Competing on Platforms" highlights how major digital platforms like Amazon, Apple, and Google have reshaped competition by becoming central sales channels for most brands [53](#page=53). #### 4.4.1 The "Dream Channel" and platform advantages Platforms are successful due to their ability to provide sellers with a vast customer base and buyers with a wide selection of searchable offerings. They often adopt a "winner-takes-all" strategy to achieve near-monopolistic market share. For sellers, initial entry costs are low, marketing costs can be reduced, and rapid growth is possible due to access to millions of customers [54](#page=54) [55](#page=55). #### 4.4.2 Constraints and risks imposed by platforms Despite the benefits, platforms impose significant constraints: * **Customer Relationship Ownership**: Platforms own the direct customer relationship, creating an information asymmetry in their favor [54](#page=54). * **Limited Value Proposition Construction**: Platforms can restrict brands' ability to build a unique value proposition [54](#page=54). * **Self-Promotion**: Platforms may systematically promote their own offerings ahead of third-party brands that contributed to their success, as seen with Apple's App Store [54](#page=54). * **High Commission Fees**: Platforms charge substantial, non-negotiable fees on revenue, such as Apple and Google taking 30% of app store revenues, and YouTube taking 45% of advertising revenue [54](#page=54). > **Tip:** The power of platforms stems from their control over traffic, search, visibility, data, payments, rankings, and rules. They can significantly boost a brand or cause it to disappear quickly [55](#page=55). #### 4.4.3 Platform re-intermediation and brand differentiation challenges Platforms act as re-intermediaries, displacing traditional retailers and becoming the primary sales channel. This power is concentrated because platforms control customer access, data, search visibility, and the entire purchase journey. Consequently, brands struggle to differentiate themselves on platform pages, where price and customer reviews often become the primary competitive factors [55](#page=55). ### 4.5 Strategies for thriving in the platform economy Brands must adopt strategic approaches to succeed on platforms without becoming overly dependent. Key recommendations include: #### 4.5.1 Platform multihoming Operating on multiple platforms simultaneously can reduce reliance on any single one and expose the brand to a wider customer base [56](#page=56). #### 4.5.2 Utilizing platforms as marketing tools Brands should consider using platforms primarily as a marketing and discovery channel rather than solely as a sales tool [56](#page=56). #### 4.5.3 Playing the algorithm game Understanding and leveraging platform algorithms is crucial for maintaining visibility and driving traffic [56](#page=56). #### 4.5.4 Diversifying income streams Reducing dependence on platform sales by developing alternative revenue channels is essential for long-term resilience [56](#page=56). > **Example:** The U.S. Department of Justice's lawsuit against Google for monopolistic practices in search and advertising markets highlights the intense scrutiny and power wielded by major platforms. Brands must recognize that platforms are continuously analyzing data and refining algorithms to capture more value from the digital economy [56](#page=56). ### 4.6 Balancing platform engagement and brand control Digital platforms have become dominant in retail distribution, offering brands scalability but also capturing control, customer data, and profit margins. The core challenge for brands lies in finding a balance: leveraging platforms for reach and growth while mitigating the associated loss of control and increased risk. The decision of whether to prioritize rapid growth through marketplaces or slower growth with retained control is a critical strategic consideration for brands and their suppliers [57](#page=57). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Singles Day | An annual shopping festival originating in China, which began as a day for single people to celebrate themselves and has evolved into a major e-commerce event with significant sales. | | Double 11 | An alternative name for Singles Day, referring to the date November 11th, which is the peak of the shopping festival. | | Cyber Week | The period of major online shopping sales in the United States that spans from Black Friday to Cyber Monday, immediately following the Thanksgiving Day holiday. | | Digital Transformation | The process of using digital technologies to create new—or modify existing—business processes, culture, and customer experiences to meet changing business and market requirements. | | Platform | A business model that creates value by facilitating digital transactions or exchanges between multiple parties, acting as an intermediary without owning the product or service. | | Marketplace Platform | A type of platform business model where third-party sellers are allowed to list and sell their products directly to consumers, with the platform provider managing the infrastructure and facilitating the transaction. | | Downstream Channel | Refers to the processes and activities involved in getting products or services from the seller to the end consumer, focusing on consumer benefits and market accessibility. | | Upstream Channel | Refers to the processes and activities involved in managing suppliers and the supply chain, focusing on challenges related to governance, quality control, and supplier complexity. | | Governance & Compliance | The systems of rules, practices, and processes by which a company or organization is directed and controlled, ensuring adherence to laws, regulations, and internal policies. | | Reputational Risk | The potential for negative publicity or public perception that can damage a company's brand image, trust, and financial standing. | | Algorithmic Onboarding | A process where new sellers or products are integrated into a platform's system using automated algorithms, which can streamline the process but may reduce human oversight. | | Re-intermediation | The process by which new intermediaries emerge to streamline or facilitate transactions and connections that were previously handled through traditional channels or were more fragmented. | | Disintermediation | The removal of intermediaries in a supply chain, allowing producers to interact directly with consumers, thereby reducing costs and potentially increasing efficiency. | | Fee-based remuneration | A payment model where the service provider receives a fixed fee or a percentage of the transaction value for facilitating a service or sale. | | Remuneration through advertising | A payment model where revenue is generated by displaying advertisements to users of a platform, common in social media and content-driven platforms. | | Channel Structure | The arrangement of intermediaries and organizations involved in the distribution of products or services from the producer to the end consumer. | | Hybrid Retailers | Businesses that combine aspects of both traditional retail and e-commerce, or that operate multiple distribution models simultaneously, such as direct sales and marketplace hosting. | | IT Platform | The underlying technology infrastructure, including software, hardware, and networks, that supports the operations and services of a digital platform. | | Fixed Costs | Business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and IT infrastructure maintenance. | | Variable Revenue | Revenue that fluctuates with changes in the volume of sales or services provided. | | Break-even point | The point at which total revenue equals total costs, meaning the business is neither making a profit nor incurring a loss. | | Working Capital | The difference between current assets and current liabilities, representing the funds available for day-to-day operations. In platform models, it's often low due to lack of inventory. | | Scalable | The ability of a business or system to handle an increasing amount of work, or its potential to grow and expand, often with a proportional increase in resources. | | EBITDA | Earnings Before Interest, Taxes, Depreciation, and Amortization; a measure of a company's operating performance. | | Monetization Model | The strategy or method by which a business generates revenue from its products or services. | | Channel Management | The process of strategically planning, implementing, and controlling the flow of goods and services from the point of origin to the point of consumption. | | Commoditization | The process by which goods or services become indistinguishable from those of competitors, often leading to price competition as the primary differentiator. | | Commoditization of products | The process where products lose their distinctiveness and are treated as interchangeable commodities, driven by factors like intense competition and standardization on platforms. | | Customer Ownership | The degree to which a business directly controls the relationship with its end customers, including access to data and communication channels. | | Critical Size | The minimum scale or volume of operations required for a platform business model to become financially sustainable and profitable. |