De La Salle University

Ramon V. Del Rosario College of Business - Management and Organization

Department

Case 5: Brick and Mortar vs. Online

In Partial Fulfillment of the Course Requirements in

MKT535M
Term 3, Academic Year 2019 - 2020

Submitted by:
Jucutan, Jennifer B.
Mahusay, Danish Bernadeth G.
Rivera, Chester Scott M.
Tayag, Irish June T.

Submitted to:

Patrick David Cenon

8 September 2020

QUESTION

GROUP 3
You have been hired by a leading sporting goods retail company to give advice to their
company on how to respond to the COVID-19 crisis.  They are wondering if they should
continue with a brick and mortar only strategy, hybrid strategy (both brick and mortar
and online) or adopt a full-on line strategy.  Describe in what conditions should you use
each of the possible strategies?

ANSWER
The Group initially analyzed how the operations of Sporting Goods Retail Company are
affected by different levels of community quarantine imposed, the advantages and
disadvantages of each marketing strategy in various decision aspects (i.e., market
reach, profitability and customer experience). Further, we expanded our analysis in
political, economic, social, technological, environmental and legal aspects.

Assumption:
The Leading Sporting Retail Company has its several branches in Metro Manila and
also places its stores in certain malls.

Background
Inter-Agency Action Task Force (IATF) released guidelines regarding the rules on
operations of sectors under different community quarantine conditions. The Group
believes that Sporting Goods Retail Company is classified under the Clothing and
Accessories Sector, hence, under Category III of ATF Guidelines. Below is the
guideline.

GROUP 3
IMPACT OF COMMUNITY QUARANTINE LEVELS TO THE OPERATIONS OF
SPORTING GOODS RETAIL COMPANY
In the table issued by IATF, it appears that the Clothing and Accessories Sector has
different working restrictions and capacity in different levels of community quarantine.
(a) It cannot operate during Enhanced Community Quarantine (ECQ), meaning,
physical stores are closed until further notice.
(b) It is partially allowed (50% work from home, 50% report onsite) during Modified
Enhanced Community Quarantine (MECQ); and
(c) It is allowed to operate provided that it is observing the safety protocol standards
during General Community Quarantine (GCQ).

In three conditions above, the management of Sporting Goods Retail Company should
be able to weigh the advantages (pros) and disadvantages (cons) of three marketing
strategies in order to flexibly reach out to their existing and potential customers and
maximize benefit over cost taking into consideration as well the consumer behavior
during the pandemic. But first, let us define the following marketing strategies.

1. Brick-and-mortar refers to a traditional business that has a physical store or

stores where customers browse and make purchases in person. In brick-and -

GROUP 3
 mortar stores, customers can speak to staff and ask questions about products or
services. Brick-and - mortar stores have the potential to provide shopping
experience that encourages consumers to test a product.
2. Hybrid Strategy means maintaining both physical and online stores.
3. Full Online Strategy is the buying and selling of goods and services over the
internet. It allows companies to develop a broader retail footprint by offering
affordable and more effective delivery platforms for their goods or services.

COMPARISON OF DIFFERENT STRATEGY IN DURING PANDEMIC

Brick and Mortar Strategy Hybrid Strategy Full Online Strategy
1. Market Reach
PROS
● Customer attention - ● Expanded market ● Can connect to purely
can market products reach that creates online customers and
with personal touch of visibility to both offline study consumer
customer service. and online customers behavior through
clicks.
● The products can be ● Have high advantage
● Shop open 24/7 or can
felt using five senses to competitors using
easily post with well-
traditional marketing
● Customers may feel known shopping
the sincerity and ● Online presence is an platform (i.e., shopee,
responsiveness of integral part to support lazada, carousell)
seller physical stores ● Can do live marketing
which facilitates selling
and other customers
can share your live
selling to other
audiences (potential
buyers)
● Can reach customers
that are far from the
location of the store
● Can operate
regardless of
quarantine levels

CONS

GROUP 3
 ● Physical location may ● More time is needed to
not be accessible to
customers due to
limitations / curfews to
mall / shop hours.
● Customers are scared
going out and limited
market reach based on ● Although physical
location and
availability of the store
● Prohibited to operate
during ECQ
● Changing landscape,
current location may
be productive for now
but it may change as
years passed
2. Financials
PROS
● No shipping / delivery ● Profits are derived
cost
● No hassle and
complexity in returning
unwanted items
● Faster and easier to
return defective
products
● Products strategically
placed in the physical
store has higher
chances of earning
more profit
CONS
● Costs (i.e., fixed and
● Revenues is limited
only to those visiting
the physical store
● Cost may not be
efficient attributed by
store’s fixed cost (i.e., ● Will require more staff
● The chat / reply
manage the physical turnover can affect the
store and online store responsiveness
(i.e., addressing metrics which may be
customer requests / reflected in the store
issues from physical rating
store and online store)
● Requires stability of
internet connectivity
stores can operate at
MECQ, no guarantee
that customers will visit
the store.
● Can strategize cost
from both traditional leadership driven by
and online customers. lower operating costs
(rental and utilities)
● Can quickly join to
discount / voucher
program to attract
more customers
● Additional facility,
other maintenance) equipment and other
capital expenditures
are derived from both
in-store and online (i.e., computers)
shops. ● May require technical
expertise to manage
the website
- staff to manage
GROUP 3
 rental/ leasing) and
other variable costs
3. Customers’ Experience
PROS
● Products can be taken ● Customers may
home immediately
after purchase
● Higher customer
satisfaction brought by
● Customers have
higher productivity
employee engagement
● Since this is a
personal item, some
customers need to
check its quality
● More customers enjoy
shopping retail often
with spouses or friends
and usually it follows
other activities (i.e.,
dining, coffee)
CONS
● Provides ● Should maintain
inconvenience to
customers especially
visiting multiple stores
to see availability of a
product
● Location limitation
prevents customers
from finding your store.
physical store and staff ● High delivery costs
to manage online store
● Most complex in terms
of return of defective
products
● Easier to encourage
browse the store impulse buy
online and visit the ● Easier to compare
store to check the products via specs and
item. design reviews
● Saving other cost like
options to choose on vehicle parking cost
sale programs the ● Saves time and more
store has. There are convenient (i.e., no
programs that can be more customer queues
availed on store only / waiting time)
vs. programs when
customers purchased
online.
● Limited customer
physical store and service
always be updated ● Lack of instant
with online trends and gratification
update webstore
● Inability to touch or
inspect the products
● Security risk and credit
card fraud
● Should always be
updated with online
trends and update
GROUP 3
 webstore

Pro-forma Income Statement

50% capacity full capacity mixed

BRICKS ONLINE HYBRID

Revenues xxx (50%) xxx (100%) xxx (combined)

Variable costs

Var product cost xxx xxx xxx

Var selling (commission) xxx xxx xxx

Var administrative (power) xxx - or lower xxx

Fixed Costs

Fixed OH-fac. depreciation xxx xxx xxx

Fixed admin (rent) xxx - xxx

Fixed selling (advertising) xxx - xxx

Fixed selling (salaries of xxx xxx xxx

sales)

Fixed admin (website maint) - xxx xxx

Fixed selling (subsidies) - xxx xxx

Based on the above, there are avoidable costs under Brick / Mortar Strategy (i.e., website
maintenance and delivery expenses), however, since the condition of community quarantine
necessitates 50% capacity, this strategy may not utilize the maximum generation of revenues
assuming working under 4 hours.

Further, for full online strategy, regardless of quarantine conditions, the company may generate
100% online revenues at full capacity. There are certain avoidable costs noted such as utilities,
rental of office space and some advertising expenses. For subsidies, some customers wait for
the free delivery or free vouchers, hence, this program may be shouldered by the company.

GROUP 3
The hybrid strategy may combine all revenues and other benefits on costs utilization and
efficiency. This may yield the highest profit although certain costs are not avoidable since two
set-ups are being maintained.

USING PESTEL ANALYSIS VIS A VIS STRATEGY

Brick and Mortar Hybrid Full Online
Strategy
Strategy Strategy
POLITICAL ● Unstable political ● Unstable political ● Unstable political
climate in the climate in the climate in the
Philippines (High Philippines (High Philippines (High
Threat) Threat) Threat)

● Improving ● Increased political

government focus in Online
support for Selling (High
infrastructure threat)
(High opportunity)
● Can operate
● Cannot operate regardless of
under Enhanced community
● Can operate
Community quarantine levels
under MECQ and
Quarantine (High Opportunity)
GCQ.(Mid
(Threat)
Opportunity)
ECONOMIC ● Bright economic ● Bright economic ● Bright economic
prospects and an prospects and an prospects and an
expanding expanding expanding
population population population
(Opportunity & (Opportunity & (Opportunity &
Threat) Threat) Threat)

● Purchasing power ● Boom of the ● Boom of the

of consumers freight and freight and
decrease due to logistics market logistics market
pandemic (High (High opportunity) (High

GROUP 3
 threat) ● Purchasing power opportunity)
of consumers
● Purchasing power
decrease due to
of consumers
pandemic (High
decrease due to
threat)
pandemic (High
threat)

● Low operating
costs (High
Opportunity)
SOCIAL ● Improving positive ● Improving positive ● Improving positive
attitudes about attitudes about attitudes about
sports & leisure sports & leisure sports & leisure
(Mid opportunity) (High opportunity) (Mid opportunity)

● Fast changing
online trends (Mid
threat)

● Reviews and
feedbacks from
customers are
readily available
(opportunity &
threat)
TECHNOLOGICAL ● There are new ● Widespread use ● Widespread use
and improved of mobile of mobile
POS systems that technology (High technology (High
generates better opportunity) opportunity)
sales report, data
● Increased in
analytics, and
online platforms
Customer
available for
Relations
selling goods
Management
(high opportunity)
(CRM)

GROUP 3
 (Opportunity)

● More cash
payments are
done via mobile
device and
acquiring more
available modes
of payment limits
physical
interaction
especially during
pandemic
(Opportunity)
ENVIRONMENTAL ● Increasing ● Increasing ● Increasing
sustainability sustainability sustainability
strategies among strategies among strategies among
firms (threat & firms (threat & firms (threat &
opportunity) opportunity) opportunity)
LEGAL ● Expanding health ● Expanding health ● Expanding health
and safety and safety and safety
regulations regulations regulations
(Threat & (Opportunity) (Opportunity)
Opportunity)
● Increasingly ● Increasingly
stringent online stringent online
trade policies (Mid trade policies
Threat) (High Threat)

● Privacy of
consumers (high
threat)

DECISION CRITERIA AND WEIGHTS

Criteria Weights Rationale

GROUP 3
 Market Reach 35% Refers to the total number of
customers that can potentially
reached by the strategy

Financials 35% Refers to the ability to

minimize expenses while
maximizing the target reach
of the strategy

Customers Convenience 30% Refers to the overall

customer experience with the
retail company

Total 100%

EVALUATION OF STRATEGIES
State 1: ECQ

Criteria Brick and Mortar Hybrid Full Online

Strategy Strategy Strategy

Market Reach - - 35%

Financials - - 35%

Customers’ - - 30%
Experience

Total - - 100%

Under EQC, physical stores are closed, thus, brick and mortar & hybrid strategy is not an
option.
State 2: MECQ

Criteria Brick and Mortar Hybrid Full Online

Strategy Strategy Strategy

Market Reach 20% 30% 33%

Financials 25% 25% 30%

Customers’ 30% 28% 28%

Experience

Total 75% 83% 91%

GROUP 3
State 3: GCQ

Criteria Brick and Mortar Hybrid Full Online

Strategy Strategy Strategy

Market Reach 28% 34% 30%

Financials 30% 30% 33%

Customers’ 28% 29% 25%

Experience

Total 86% 93% 88%

RECOMMENDATIONS
Based on our evaluation, we will recommend Full Online Strategy if the community is under
Enhanced Community Quarantine and Modified Enhanced Community Quarantine. On the other
hand, we will recommend Hybrid Strategy if the community is under General Community
Quarantine. All conditions necessitate that the Company should explore and improve its online
platforms / websites to place their products, strengthen their digital marketing efforts to survive
financially during the pandemic and lastly for long-term sustainability, sales boost and going with
competition.

REFERENCES

AZ Central (n.d) Retrieved from How SEM and SEO Work Together
https://yourbusiness.azcentral.com/sem-seo-work-together-6190.html

Bloomenthal, A (2020). Electronic E-commerce. Retrieved from:

https://www.investopedia.com/terms/e/ecommerce.asp

Frue, Kiesha (2018). PESTEL/PESTLE Analysis of The Retail Industry. Retrieved from
https://pestleanalysis.com/pestel-analysis-of-retail-industry/

Laurel, D (2020). What stores are open and what aren’t under MECQ?. Retrieved from
https://www.topgear.com.ph/news/motoring-news/store-operations-under-mecq-a962-
20200513

Murphy, C (2019). Brick-and-Mortar. Retrieved from

https://www.investopedia.com/terms/b/brickandmortar.asp

Rheude, J (2016). E-commerce vs Brick and Mortar: Profitability Called Into Question.
Retrieved from https://www.business2community.com/ecommerce/e-commerce-vs-
brick-mortar-profitability-called-question-01540188

GROUP 3
Ward, S (2019). Brick and Mortar Stores vs Online Retail Sites. Retrieved from:
https://www.thebalancesmb.com/compare-brick-and-mortar-stores-vs-online-retail-sites-
4571050

GROUP 3