Relating to Peapod Case Study

Relating to Peapod Case Study

Situation

Peapod is a consumer-direct grocery delivery service founded in 1989. The company’s early approach to grocery delivery had been to partner with an established grocery store chain. They took orders by phone or modem and filled the orders out of the chain’s brick-and-mortar stores. The customer response was positive, so in 1998, Peapod successfully tested a centralized, warehouse-based fulfillment model in the Boston area market. During this time, Peapod started to phase out phone and fax ordering and encouraged customers to use a disk-based ordering software en route to its Internet-based system in Mid-1998.

As the company expanded to different markets, delivery options allowed customers to either pick-up their orders or have them delivered to their house during a predetermined window of time.

Problem

Early in the company’s history, Peapod’s customer service was touted as exceptional, in both delivery and over the phone. But as they expanded, the focus on customer service declined rapidly, causing customers to become unhappy and leave. Customers complained that the amount of time that it took to receive their order was excessive and the option to pick up groceries had been eliminated. With the reduction of the brick-and-mortar stores, Peapod also reduced the number of items available to the customer.

Analysis

Peapods greatest strength as a business was its original belief in customer service. Customers believed that Peapod treated them with respect and were attentive to their concerns. When a customer would call, Peapod responded quickly to solve their problem, whether a wrong item had been delivered or a customer had ordered incorrectly. Peapod took care of refunding the customer or replacing the item. A survey of Peapod’s customers resulted in praise for the company. One customer, Michelle, said of Peapod that “the customer is always right, (Fournier & Schulman, 2002, p. 21).”

In the survey, customers spoke of the convenience of ordering groceries and having them delivered either the same day or within a customer friendly delivery window. Another customer surveyed, Lester, pointed out that he “could get up and place my order during breakfast and have them deliver that afternoon, (Fournier & Schulman, 2002, p. 18).”

Another one of the company’s early strengths was the large number of products that were available to the customers. The greater the number of Stock Keeping Units (SKU’s), the more likely the customer was to order more items and order more frequently. This resulted in a larger per order dollar amount and in encouraging the customer to order more often. Customers also spoke of the excellent variety of fresh fruits and vegetables that were available to order. Veronique, one such customer, is quoted as having “been ‘pleasantly surprised’ with the quality of Peapod’s produce, (Fournier & Schulman, 2002, p. 25).” The customers enjoyed having about 20,000 SKU’s to chose from.

Peapod greatest strength in their customer’s eyes was price. Peapod offered competitive membership, delivery and product prices. As shown on Exhibit 3, Peapod’s average price for 10 items was only $18.13, which was $0.17 lower than their next competitor and $1.47 lower than the other two competitors shown, (Fournier & Schulman, 2002, p. 30). Peapod’s initial memberships were $4.95 per month. Low prices were often coupled with specials that increased the value for customers, for example, “order $60 in groceries and get free delivery, pg. 5 (Fournier & Schulman, 2002).”

As every company can tell you, however, with every strength comes weaknesses. For Peapod, that weakness was customer service. As Peapod expanded, the quality of customer service declined. Peapod customer Beatrice used the word “betrayal,” (Fournier & Schulman, 2002, p. 14) to explain her feelings about how the company’s customer service had changed. With increasing call volume, Peapod found it difficult to continue to call each customer with out of stock notifications. Peapod eliminated the customer call centers and replaced them with an answering machine. Eventually, the company eliminated telephone calls notifying customers of out-of-stock items and substitutions. Customers who had enjoyed the luxury of one-to-one conversations with the Peapod staff and were turned off by the new, more automated approach.

As demand for Peapod’s services increased, the time that the customer had to wait for the computer to respond also increased. This damaged customers’ perception that Peapod was a time-saving alternative. Although, customers still said that it was faster than going to the store themselves. Peapod also went through a period of technology growing pains, further alienating customers. As customer Michelle pointed out, she could no longer use her laptop