Lauren Foery
Genevieve Guenther
Luke Humphreville
Alexandra Stroup
The Virtual Market: Battling Big Business
Problem Recognition
After eliminating their second largest cost (hardware) with the introduction of their app,
Virtual Market still had yet to break even after 4 years. Even though their products and services
were highly innovative, years of losses exposed large weaknesses in their business model. The
management decision to be made is what to change, introduce, or eliminate in order to move
Virtual Market out of the red and help evolve their business model into one with greater income
and sustainability.
Relevant Background
As of 2016, tienditas, or small family owned shops, produced about 15% of Mexico’s
true GDP. This large, unconsolidated business segment screamed opportunity in Mexico and the
Latin America and Caribbean (LAC) region. These small stores represented 78% of Latin
America’s retail sales of fast-moving consumer goods in 2016. Mom-and-Pop stores maintained
business up until the time before Virtual Markets because of strong sociocultural constructs
present in the low-income areas in which these shops thrived. Poor infrastructure, inability to
travel, social influences, and informal payment structures allowed these shops to retain
customers that otherwise would have to travel to more urban areas to shop in bigger retail stores.
With evolving customers who wanted more options for payment as well as ones exposed
to new online platforms, Virtual Markets looked to consolidate these stores and give them the
technology and capabilities to compete with emerging competition and retain their evolving
customer base, all while connecting them with suppliers and other collaborators. The problem is
not VM’s product, it is their revenue model. With the services they are delivering so cheaply,
they have not been able to turn a profit since they started in 2013.
Alternative Recommendations
VM could add logistics management to its product offerings, while striking deals with a
few large suppliers, promising business from all stores under VM’s umbrella. This would give
VM back a good bit of buyer power, allow them to raise their store’s margins and thus their own.
This would necessitate VM integrating something into their technology that connects these
suppliers with all their stores for logistical ease.
Logically Derived Recommendation
Another option for VM would be to create a consumer side of their store operators’ app.
VM calls themselves “The AirBnB of mom-and-pop stores.” The main driver behind AirBnB’s
success is their convenience with their app and massive accessibility. A consumer side of their
“VM Movile” app would allow consumers to view in-store inventory availabilities, engage in
online ordering with in-store pickup, write and see reviews for smaller stores, order special items
that may not be on hand, and allows for the possibility of these small stores to engage in same
day delivery of online orders. The benefits of the app not only help the efficiency and
convenience for the customer, but also would help the shops fight back against other online
platforms eating up market share. When measured with Keller’s Consumer-Based Equity Model,
VM would occupy the space of the third stage. They have already built brand salience because
they have great brand awareness and advertising therefore, customer knowledge is deep and
broad. They have a good performance record and a trustworthy company image. VM is known as
a company bent on helping small stores stay afloat in the changing retail space. Their next step is
to allow the customers to judge their credibility, quality, relevance and brand superiority on a
larger scale. The app would help facilitate moving to this next step.
Proactive Metrics
For this app to help VM turn a profit, many resources and capabilities must be captured
with its implementation. The app must act as a CRM database and help manage relationships.
High-quality research must be obtained to ensure that the app does not fail to become a
successful service enhancement. VM must also sustain their sales with high quality sales reps
and sales rep training. With VM not having made a profit, it will need funding for the research
and development of the app which may be a large issue.
Similarly, there are capabilities that must be harnessed to successfully launch a customer
side of the app. VM needs to have superior market sensing in order to be nimble and adaptive in
a market with a high rate of change. The company must also be capable of doing highly effective
marketing because they will be offering something straight to consumers for the first time and
will need to raise awareness around this. Barriers that stand in the way from VM being able to
progress their company and harness these resources and capabilities would be capital and
competition. They do not currently possess the capital needed to fund such a huge investment in
their company and they will be faced with tough competition from other online retailers.