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Home Plus, a brilliant business model

24 November 2014 – by Jeroen Geelhoed, &samhoud consultancy

Imagine a busy subway station in the city of Seoul, South Korea. Busy, because 6 million commuters use the subway network of Seoul every day. Waiting for their train to come, people usually grab their smartphones to read the news or check Facebook. But what if this waiting time could be used to do something useful and necessary –like shopping for groceries? This is probably what the people at Home Plus were thinking a couple of years ago.

Home Plus is a successful chain of discount stores in South Korea owned by the British company Tesco.  Their stores are called hypermarkets, which are like warehouse stores with everyday products, clothing and electronics offered for the lowest price. Home Plus did not enter the market until 1999 but at that time the first Korean discount retailer E-mart already existed for six years. At first sight this looks like a disadvantage: Home Plus had less stores and less customers than E-mart. However, Home Plus was able to turn this disadvantage into an advantage in a very creative way. The late start enabled Home Plus to analyse the market thoroughly and to pick a position that surprised every competitor. In 2011, they asked themselves: What unique market approach will help us become #1 in Korea without increasing the number of stores? The answer: virtual stores.

HomePlus &samhoudWaiting time = shopping time
The most important part of the business model of Home Plus is that the client is the #1 focus. This is not as easy as it sounds. Focusing on the client starts with truly empathising with the needs of customers. Thanks to extensive customer research, Home Plus understood that South Koreans want to spend their precious free time as efficiently as possible since they are the second hardest workers worldwide. Grocery shopping therefore is considered a necessary but annoying task that needs to take as little time as possible. This fact prompted a genius idea in the minds of some Home Plus employees: we need to bring the store to the people instead of bringing the people to the store. And what is a better place for doing this than a subway station? Here people’s waiting time could easily be turned into shopping time.

Home Plus placed life-size posters of supermarket shelves in the Seolleung Station on Seoul Subway Line 2 and later expanded to other subway and bus stations. While waiting for their train people can use a free app on their Smartphone to scan the products they would like to buy and place them in their online shopping cart. More importantly, it is possible to continue shopping online whilst on the train. The order is packed in one of the conventional Home Plus hypermarkets nearby the customer’s house and delivered shortly after.  The so-called virtual stores enable travelers to shop in time that they would otherwise be spending doing nothing. As DW Seol, Executive Vice President of Corporate Affairs at Tesco Home Plus, said: “We are always looking to make the shopping experience easier and more convenient for our customers and the introduction of the virtual store is a great achievement” .

Bypassing competitors
Home Plus was able to discover new market possibilities by looking at its organisation in a different way. Of course online shopping was possible in South Korea before the introduction of the virtual stores. However, Home Plus decided to instead bypass the fight of (online) competitors: online shopping has turned into a real-life shopping experience by mimicking store shelves with life-like posters. In this way subway stations become store aisles and more importantly: marketing directly becomes sales. The poster – normally used as an advertising tool – now serves as a self-service shop at the same time. There is another advantage Home Plus has over its competitors.

Since the already existing Home Plus hypermarkets are now also used as distribution centers it is possible to order fresh products like fruit or meat. Also, it is not necessary to throw away any fresh products in case someone cancels an order. These products can still be sold at a conventional hypermarket. Because the already existing online Home Plus store and the corresponding infrastructure are used only two things needed to be developed: the application for smartphones and the posters. So Home Plus did not only come up with a completely unique concept; it also ensured that the development of this concept was kept as cheap as possible.

Success story?
Obviously, Home Plus creates remarkable customer value with its virtual stores: the effort clients have to make to obtain their groceries is reduced by the ease of using the virtual store.  The creation of this value is explicitly stated in Home Plus’ higher goal: “The creation of value for customers to earn their lifelong loyalty”. Additionally, Home Plus is an expert in creating value for its employees by offering extensive opportunities for personal and professional development. At the same time society is not forgotten: Home Plus has set up a wide range of social projects, one of which contributes to the development of children.

On top of all this, Home Plus consistently performs well in the financial field. The sales volume amounted to about 7.5 billion Euros in 2011. It seems like the opening of the virtual stores contributed a great deal to this. According to Home Plus, online sales increased by 130% after the launch of the virtual stores, the app was the most downloaded shopping app in South Korea in June 2011 and, moreover Home Plus has become #1 in the online market and is a very close second online. Initial research shows that the virtual stores are most popular among young adults (20-30 years). These people are willing to pay extra for delivery in order to spend less time on grocery shopping. New virtual stores are therefore opened in places where this group can be found – for example in subway stations near universities.

With the virtual stores still relatively young, it is difficult to draw definitive conclusions. Whether Home Plus will be able to maintain its success rate therefore remains an unanswered question for now. But in our opinion, as long as Home Plus continues to empathise with its customers and adapt its services to their needs, Home Plus has still not reached its peak.

This article is a short impression of the Home Plus case which was originally written by Raheel Raisi and Thomas Bachet and appears in the book “Briljante Businessmodellen”.  This book is a coproduction between Achmea and &samhoud. Jeroen Kemperman, Jennifer op ’t Hoog (both from Achmea) and Jeroen Geelhoed (from &samhoud) had been working together intensively in a big change process. When the project was done, they were still full of energy and decided to continue their search for inspiring business models. This resulted in the book Briljante Businessmodellen. Interested in the book or the business models? Please contact Jeroen Geelhoed via j.geelhoed@samhoud.com

 

 

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