APPLICATON CASE: 01

GIVE CASE STUDY ANSWER

EC APPLICATION: CRUTCHFIELD GOES MOBILE

The Problem

Crutchfield Corporation (crutchfield.com) is a successful consumer electronics retailer head-quartered in Virginia. They began in 1974 as a print "magalog" - a cross between a magazine and a catalog (see books.infotoday.com/books/ casinwitcon/sample.pdf). What distinguished their catalog from others was the inclusion of information designed to educate potential buyers. Critchfield sells a wide range of electronic products - televisions, digital cameras, stereo equipment, and the like. It is a multichannel retailer providing sales and service through their mail order catalog, call centers, and their website that includes live chat. Crutchfield has won BizRate's "Circle of Excellence Platinum" award for fourteen consecutive years (twice.com/articletype/news/crutchfield-earns-top-bizrate-honors-again/108515).

Crutchfield recognized the growing importance of mobile technology as new sales and ser-vice channels. Goldman Sachs' March 2014 forecast $626 billion in sales by 2018 would be accounted for by mobile online shopping glob-ally. This number represents about 98% of the total of mobile shopping in 2013 (reported by Severt 2014). Crutchfield concluded that they needed a payment solution that was built specifically for mobile transactions and could run on a variety of mobile devices. In addition, the solution needed to support their Canadian call center and the Web, as well as servicing other international buyers outside the U.S. and Canada and could be implemented quickly.

The Solution

As noted earlier, most e-payments are made with credit and debit cards. This is true for both non-mobile and mobile purchases. However, the num-ber of steps and the total amount of information required to card transaction with a mobile device can be a bit more because of the smaller design and the time delay in mobile responses. For this reason, Crutchfield decided to implement an alternative solution that could sup-port a range of mobile devices. They chose PayPal Mobile Express Checkout.

In October 2010, PayPal introduced their Mobile Express Checkout system (paypal.com/ us/webapps/mpp/mobile-checkout), which is a mobile version of their Express Checkout ser-vice. Before the introduction, they had approximately 5 million members using mobile devices to place orders. It was a cumbersome process requiring a number of steps. They tried to simplify the process with a pay-by-text service, but were unsuccessful. The Express Checkout is a comprehensive, streamlined, and highly secure service that expedites checkouts.

Crutchfield decided to employ Usable net Inc. (usablenet.com), which built Crutchfield's mobile site, to help integrate Mobile Express Checkout with their existing website. Usable net has over 400 clients worldwide, and has been named by Fast Company magazine as one of the top 10 innovative companies in mobile computing. They have lived up to their billing. They took only two weeks to get the system up and running, just in time for the holiday season.

The Results

Crutchfield's ROI from their new mobile system was substantial. First, testing revealed that the Mobile Express system increased conversion by 33.7%. In this case, conversion refers to the num-ber of unique visitors to a site who actually made a purchase. More importantly, testing also revealed that 65% of the PayPal mobile users were new to Crutchfield. Not only did the system result in improved sales, but it also attracted new customers. (The case study is available at

paypalobjects.com/webstatic/mktg/docs/ Crutchfield_case_study.pdf.)

Sources: Based on Severt ( 2014), O'Dell (2010), Hachman (2010), Hamblen ( 2011), and McMillian (2011).

Questions

1.Why was Crutchfield interested in implementing a mobile payment solution?

2.What solution did Crutchfield select?

3.What were the outcomes of the mobile payment implementation?

CASE STUDY 2: INNOVATIVE CREDIT CARD MICROPAYMENTS FOR THE KOREAN METROPOLITAN UNIFIED FARE SYSTEM

Boram, a banker in Seoul, Korea commutes by MRT and public buses. She uses a credit card that allows her to pay for both MRT and buses, not only in Seoul, but also in other major Korean cit-ies without having to recharge the card. The accumulated monthly charges are automatically paid by the bank. Boram recalls the days when she had to carry two different transportation cards in addition to credit cards.

In the past, Boram used to pay for the subway by using a Seoul MRT Card, which is a stored-value card. The card is issued by the city-owned Seoul MRT Corporation and could be recharged only at MRT stations. To ride a bus, she had to use a Seoul Bus Card that is another stored-value card issued by the private Seoul Bus Transport Association (SBTA). The Seoul Bus Card was introduced in 1996 as the first RF-type bus card in the world. Thus, she had to recharge both cards individually because they could not be used inter- changeably. Other cities have similar governance structures. Therefore, to take the subway in another city, Boram had to buy one-time subway tickets at the subway station.

Credit cards, as described in this chapter, are not cost-effective enough to be used for the micropayment of transportation because the card company could not justify its service fee. Therefore, as described earlier, Boram needed to carry at least one credit card and two transportation cards in her wallet.

Large cities in Asia such as Seoul, Hong Kong, and Singapore have adopted similar types of stored-value transportation cards. As such, credit cards and stored-value cards coexist as two major card services. The two types of card issuers compete to expand their application territory. The transportation card company wants to extend the card's application so users can pay for parking fees, various toll fees, and at restaurants and stores. However, the users have to load the cards for prepayment.

At the same time, for credit cards issuers to expand their application to include payments for transportation, they need to simplify the authorizations process and reduce the service fee for the participating transporters. The question is: which business model will eventually win? In Seoul, it is the credit card issuer that includes payments for transportation.

In order to pay transportation fares quickly, credit card payments for subways and buses must be processed without the full authorization procedure. This risk is tolerable because the frequency and amount of micropayment abuse is low in Korea. Therefore, the transportation ticket gate merely automatically checks whether the card is valid and not on a "blacklist." The gate displays not only the fare, but also the charges incurred during the current month as shown in Figure 11.5. The first credit- based MRT card was adopted by Kookmin Bank in 1998. Today, several issuers support this type of card.

The credit-based transportation card has revolutionized the recharge service process. In the early stage, both MRT cards and bus cards had to be recharged at manned booths. To reduce the expense of the recharge service, unmanned

booths were installed at MRT stations. However, with the credit card, recharge booths can be eliminated altogether and users do not have to spend time recharging their cards. Therefore, both the users and the city transportation authority benefit.

Another benefit of the smart transportation card is that it can restructure the city's transportation system by aligning and coordinating the routes of subways and buses. In the past, bus routes were designed in consideration of the departure and destination points of citizens' trips. This approach intended to make it convenient for citizens to take only one bus to reach their destination. However, too many buses created bottle-necks in busy streets, causing traffic jams. To avoid such congestion, the MRT and main bus companies planned to design the transportation system so that bus branch routes are connected to the subway and to the main bus routes. However, if citizens are required to pay an additional fee for branch routes, they may resist the new structure. Therefore, the transportation fare card should be interconnected.

To solve this problem, the transportation card, credit or stored-value, is designed to memorize the departure time from the MRT station so that the connecting buses do not charge passengers again if the elapsed time is less than 30 minutes. Taking a branch bus is regarded as a transfer for single trip. This means that the owners of transport systems need to agree on about how to allocate the collected fees. Therefore, the city of Seoul adopted the Metropolitan Unified Fare System in 2009.

Due to the national standardization and integration effort, nationwide transportation cards are now unified using smart cards. Credit card companies do not really make enough money through transportation payment services, but this service is essential for them to gain new customers and retain existing ones.

The city also can collect data about commuters so that additional buses can be dispatched depending upon the passenger load by route and time. Note that, at midnight, regular bus services stop. For midnight bus service, the control center analyzes the frequency of mobile phone usage in certain areas to estimate the number of potential commuters and dynamically determine the routes of midnight buses.

Another lesson that can be learned from Korea's experience is the C2C payment system use of credit cards. In C2C auction markets, escrow services that are based on credit cards allow individual buyers to pay eBay Korea directly. The sellers can receive payment through eBay Korea if delivery is confirmed by the buyer. Therefore, there is no need for an e-mail payment system such as PayPal that charges high service fees. The function of a debit card, combined with a credit card, has also virtually replaced the function of electronic checks, so e-checks are no longer needed. In this manner, payments by credit cards in Korea are electronically integrated for e-commerce, physical stores, and micropayments for transportation.

Sources: Case written by Jae K. Lee, Seoul -Korea.

Questions

1.How can credit cards be processed as quickly as stored-value cards at the ticket gate?

2.What is the major benefit of owning a credit-based transportation card for commuters?

3.What is the major benefit of credit-based transportation cards to the city government?

4.How can the Metropolitan Unified Fare System enable the restructuring of public transportation infrastructure?