AO World

Product Model






AO World

Ao World Plc, headquartered in Bolton, UK operates an exemplar Product business model. The company is an online retailer specialized in household goods such as washing machines, dishwashers, freezers and cooking appliances. The company purchases these products from manufacturers and wholesalers around the world, maintains inventory in its own warehouses, and then sells them to the retail customer once the customer places the order online. The company also operates a solutions for hire business model alongside the main product business model, by providing after-sales service through a call centre. This write-up will focus on the product business model.

HISTORY

Ao World Plc was originally founded as Appliance Online in 2001 by John Roberts. In its early stages, the company acted more as an agent and sold products on behalf of Boots, Iceland, B&Q and etc. In addition, the delivery process was outsourced.

In 2009, the company acquired “Expert Logistics”, and developed its own in-house delivery system. In 2011, it acquired a 15,000 sq ft warehouse in Manchester. In 2013, the company rebranded to the current AO World, and achieved 1 million fans on Facebook. In 2014, the company went public and is now listed on the London Stock Exchange at a valuation of £1.6 billion. In the same year, the company expanded its operation outside the UK to Germany. With the expansion, the company now owns the products that are sold online instead of selling on behalf of others.

In 2015, the company generated £385.1 million from retail sales through its website, an increase of 32.9% over 2014 sales. However, the operating profit is still negative, though improved from losing £7.2 million in 2013 to £2.2 million in 2014. Since its IPO, the share price of AO World Plc has decreased to a valuation of £674 million.

CUSTOMERS – WHO THEY ARE:

Customers are households in the UK and Germany who wants to purchase white goods without having to go to a physical store to do so.

ENGAGEMENT – VALUE CREATION PROPOSITION (INCLUDING NETWORK EFFECTS):

The main value proposition is the convenience of purchasing goods online. Selling white goods online also enabled the company to sell a wide variety of products – over 4,400 SKUs, which would not be possible in physical stores.

To improve the limitation of selling products online – in which customers cannot physically interact with the product – the company introduced a video review system by which existing customers are encouraged to upload a video review of the product that potential customers can use to help them make a purchasing decision.

The company enables next day home delivery and a service whereby products can be delivered to a local grocery store near customers’ homes. Products can be replaced or refunded within 14 days.

DELIVERY – THE VALUE CHAIN:

Ao World purchases white goods from manufacturers and wholesalers all over the world, including Hisense, Haier, Sumsung, Beko, Bosch, and Smeg. The products are stored in the company’s warehouses in the UK and Germany. After the customer orders a product online, and payment is received, the company delivers the product to customers or nearby grocery stores, using its in-house logistics organization.

MONETIZATION – VALUE CAPTURE:

The company earns revenues when customers purchase its products through the ao.com website.

Sources:

AO Website: http://ao.com/help-and-advice/help-with-my-order/a...

AO Website: http://ao.com/corporate/wp-content/uploads/2015/06...

London Stock Exchange listing: http://www.londonstockexchange.com/exchange/prices...

AO World’s Wikipedia Entry: https://en.wikipedia.org/wiki/AO_World

Disclaimer:

Written by Tong Guan and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016

Published 20 April 2016



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