Artificial Intelligence Case Analysis

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The brief will not exceed two typewritten, double spaced pages in outline format with “bullets” identifying key issues only – no essays! It will also address the very same questions assigned to the case for class discussion purposes as well (see questions listed for each case in the respective session elsewhere in the syllabus).

Case Study Questions:

  1. Katrina Lake (K-L) struggled to raise money for her venture and secured only $42 million while a competitor secured $2 billion. What factors might explain the difference? What could she have done differently to address the gaps?
  2. K-L looked at three different industries to create her business model (retial, personal stylists, subscription services). What were the salient attributes she drew from each segment? Applying a Blue Ocean framework, how would you characterize her actions (use the Four Actions Framework)?
  3. If you look at the industry configuration at the end of the case, what do you think the future might hold for Stitch Fix? What changes would you recommend that K-L consider as she navigates the company strategy? ------------------------------------------------------------------------------------------------------------------- PLEASE read the Artificial Intelligence case very well and answer the above question based on the slides. NO OUTSIDE resourced

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For the exclusive use of A. Alkhateeb, 2021. IN1630 Case Study Artificial Intelligence: Stitch Fix A Blue Ocean Retailer in the AI World 12/2019-6540 This case was written by Mélanie Pipino, Research Associate of the INSEAD Blue Ocean Strategy Institute, under the supervision of W. Chan Kim and Renée Mauborgne, Professors of Strategy at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. To access INSEAD teaching materials, go to https://publishing.insead.edu/. Copyright © 2019 INSEAD COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, TRANSLATED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER. This document is authorized for use only by Almutasemvellah Alkhateeb in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) PM taught by Kannan Ramaswamy, Thunderbird School of Global Management from Jan 2021 to Apr 2021. For the exclusive use of A. Alkhateeb, 2021. Whether you are a shopaholic, a need-based shopper or totally disinterested by retail shopping, you will need to shop for clothing. Everyone must. In 2018, the U.S. apparel market was valued at approximately US $340 billion, U.S. dollars, 1 which makes it the largest in the world. Stores have always been the primary source of sales in the U.S. Apparel industry, but while most shopping is still done in brick-and-mortar retailers, online sales had grown faster than brick-and-mortar sales and “Apparel, Footwear and Accessories” is now the largest U.S. e-commerce category. 2 When you experience brick-and-mortar shopping, you can see and touch products as well as take items home immediately. But in-store shopping is time-consuming and inconvenient: go there, park your car, enter crowded shops, try on clothes in tiny rooms with questionable privacy, get limited choice that is typically far more expensive than online and have limited opening hours and long check-out lines. These pain points have propelled the Apparel and Accessories e-commerce revenues to US$103 billion in 2018 – rising to an expected $145 billion by 2023. 3 Low price and convenience 4 rank highest among the reasons why customers choose to shop online versus in stores and most online stores focus on low prices, fast delivery and easy returns. However, online shopping for clothes has its downsides as well. Because of the tremendous choice, online shopping has become time-consuming and confusing. Customers have countless websites and an endless number of pages. This overwhelming selection of apparel, shoes and accessories, coupled with a lack of professional advice and the impossibility to assess quality and how an item actually fits before buying can make the online shopping experience difficult and frustrating, especially when customers do not know which style suits them. What used to be extremely convenient in the first place has become tricky. Stich Fix: Reinventing the E-commerce Retail Experience "Spending a day at the mall, or devoting hours of time to sifting through millions of products online is time consuming, overwhelming and neither effective nor enjoyable. I knew there had to be another way." Katrina Lake, CEO of Stich Fix Stitch Fix, a San Francisco-based e-commerce company, is a personal styling service that chooses clothing for shoppers using a combination of artificial intelligence (AI) and professional stylists and sends a personalized box of apparel based on the customer's sizes and preferences. In 2017, founder Katrina Lake, named by Forbes as one of America’s wealthiest self-made 1 2 3 4 Apparel - United States | Statista Market Forecast. (n.d.). Retrieved from https://www.statista.com/outlook/90000000/109/apparel/united-states Garcia, K. (2019, February 11). The State of US Apparel Shopping in Five Charts. Retrieved February 25, 2019, from https://www.emarketer.com/content/the-state-of-us-apparel-shopping-in-five-charts U.S. online apparel and fashion market size 2022. (n.d.). Retrieved from https://www.statista.com/statistics/278890/us-apparel-and-accessories-retail-e-commerce-revenue/ Total Retail 2015: Retailers and the Age of Disruption. (2015, February). Retrieved February 2019, from https://www.pwc.com/sg/en/publications/assets/total-retail-2015.pdf Copyright © INSEAD 1 This document is authorized for use only by Almutasemvellah Alkhateeb in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) PM taught by Kannan Ramaswamy, Thunderbird School of Global Management from Jan 2021 to Apr 2021. For the exclusive use of A. Alkhateeb, 2021. women, 5 was one of the few women to lead an IPO and at 34, Lake was the youngest. That year less than 8% of IPOs were led by women; since 2000 the percentage has never exceeded 13%. 6 The Stitch Fix adventure started in 2010, as part of a class project, when Katrina Lake tested the concept, formerly known as Rack Habit, in her apartment, while finishing an MBA at Harvard Business School. Lake had a lifelong love of clothing; retail fascinated her. But she couldn’t help noticing that retail, an age-old industry, never changed. She just kept thinking about how technology could be leveraged to change the value you are able to provide to people and, in doing so, create a fundamentally different and superior experience to buyers. Lake had watched industry leader Blockbuster quickly succumb to Netflix, a company that leveraged technology to create a leap in buyer value which set it apart and was irresistible to people. In 2009, Netflix pivoted from mailing disks to streaming videos, creating an entirely new experience. Customers could not only stream a rich array of movies but also amazing original series like Crown, House of Cards, and Orange is the New Black, anytime, anywhere, anyway without leaving the comfort of their home, a new value proposition. In contrast, retail may as well have been selling 1970s leisure suits. There were so many inefficiencies. Online clothing stores just basically digitalized the physical stores, creating more selection but removing the ability to try and buy immediately. This was not a new value proposition. How would technology possibly change that, Lake wondered? Lake thought about her sister, a personal shopper in New York City who helped women find the right clothes to match their attitude, body type and sense of style, and wanted to extend that privileged experience to women everywhere. But she knew that only the wealthy and the in-theknow would go for a personal shopper, such as Michelle Obama who is famous for always looking great thanks to the personal shopper she uses. Lake also recognized that people don’t have time anymore and widely enjoy the convenience of online shopping, hence explaining its enormous growth. She wondered how to combine the best of online retail stores – the large selection and the ability to shop from anywhere, anytime – with the ultimate tailored experience of personal shoppers. Doing that, she reasoned, would offer a leap in value and open up a new market. But Lake’s reasoning didn’t stop there. At the same time, in her personal life, Lake had joined a community-supported weekly fruit and vegetable subscription where customers received seasonal produces directly from local farmers. Because these boxes depend on what the farmer harvested, customers don’t know in advance what it would contain. They only know that it will be fresh and in season, so likely delicious. Lake loved the surprise factor and that it would push her to try new fruits and vegetables she had never tried before. Then the idea came up: why not do that with clothing too? Making It Happen To make this work, she knew technology would be a key enabler. Was there a way to combine the human element of a personal shopper with AI doing the early matching so a business could be built that not only would customers love but would importantly also be economically scalable? 5 6 O'Connor, C. (2017, November 30). Stitch Fix Stock Surge Puts CEO Katrina Lake Among America's Richest SelfMade Women. Retrieved from https://www.forbes.com/sites/clareoconnor/2017/11/29/stitch-fix-stock-surge-puts-ceokatrina-lake-among-americas-richest-self-made-women/#6be4f8e830f9 Rey, J. D. (2017, November 17). Women in tech see today's Stitch Fix IPO as a milestone. Retrieved from https://www.vox.com/2017/11/17/16668888/stitch-fix-ipo-katrina-lake-women-tech-female-founders Copyright © INSEAD 2 This document is authorized for use only by Almutasemvellah Alkhateeb in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) PM taught by Kannan Ramaswamy, Thunderbird School of Global Management from Jan 2021 to Apr 2021. For the exclusive use of A. Alkhateeb, 2021. Here’s how she set out to make that happen. Initially, customers would fill out a Survey Monkey questionnaire to describe their style profile and preferences which Lake would store in an Excel spreadsheet. 7 Once done, Lake had to go and buy clothes that matched these preferences using her own funds, and hand deliver the clothes to her customers. Buyers would pay by check for what they wanted to keep and return the unwanted items. Lake wasn’t making any money: she was selling clothes at cost. But she was gathering data to pitch the business to investors. And women seemed to love it. As the number of orders increased, Lake needed funds to grow her company. In February 2011, financial help came from Steve Anderson and his one-man venture capital firm, Baseline Ventures. Anderson is famous for massive returns from early investments in Instagram and Twitter. Anderson invested $750,000 in the company, buying 28.1% of Stitch Fix (shares that are worth about $500 million as of April 2018). He was also offered a seat on the Board. The capital enabled Lake to officially launch Stitch Fix in February 2011. 8 Four months later, Stitch Fix moved to a small office in San Francisco and launched its website. At that time, all five employees helped with packing and shipping boxes of clothing every Monday. 9 They celebrated their 100th order in June 2011. 10 Lake initially relied on word-of-mouth to grow Stitch Fix. She had no marketing budget and didn’t hire a dedicated marketer until June 2013. 11 In an interview with CNN, she explained: “"All of our growth was organic. It was just people telling other people." 12 This strategy worked: Stitch Fix was adopted right from its start by fashion bloggers and the influential ‘mommyblogger’ sphere (which in 2010 exceeded 4 million American women). 13 14 Hundreds of women shared their exciting Stitch Fix experience with selfies detailing what they received and asking followers what should be kept or what should be returned. They were quickly hooked on the service by the surprise effect Stitch Fix delivers. And it was a win-win: blogging increased Stitch Fix’s brand awareness while the bloggers saw much more engagement with a Stitch Fix blog post than any other topic. 15 7 8 9 10 11 12 13 14 15 Berman, N. (2018, December 18). 20 Things You Didn't Know About Stitch Fix. Retrieved January 11, 2019, from https://moneyinc.com/stitch-fix/ Taylor, C. (2013, February 28). Stitch Fix Gets $4.75M Series A to Scale Out Its Tech-Enabled Personal Shopping Service. Retrieved April 18, 2019, from https://techcrunch.com/2013/02/28/stitch-fix-funding-series-a/ Lien, T. (2017, June 18). Stitch Fix founder built one of the few successful e-commerce subscription services. Retrieved January 14, 2019, from https://www.seattletimes.com/business/stitch-fix-founder-built-one-of-the-few-successful-ecommerce-subscription-services/ One Fix at a Time: How Stitch Fix Got Its Start. (2017, December 10). Retrieved April 18, 2019, from https://www.stitchfix.com/women/blog/inside-stitchfix/how-stitch-fix-started/ DeAmicis, C. (2013, December 26). Confessions of a Stitch Fix addict: The key to subscription e-commerce. Retrieved February 24, 2019, from https://pando.com/2013/12/26/confessions-of-a-stitchfix-addict/ "There haven't been a lot of founder CEOs that look like me, ". L. (n.d.). How Stitch Fix CEO Katrina Lake turned a business school project into a $3 billion company. Retrieved from https://money.cnn.com/2018/07/31/news/stitch-fixfounder-ceo-katrina-lake-interview/index.html Casserly, M. (2013, May 06). Stitch Fix CEO Bets on Styling Mommy and Brags Record Growth In 2013. Retrieved February 18, 2019, from https://www.forbes.com/sites/meghancasserly/2013/05/06/stitch-fix-ceo-bets-on-stylingmommy-and-brags-record-growth-in-2013/#52ba7a8748ba Joshi, P. (2011, March 14). Advertisers Seek to Harness the Power of the Mom Blogger. Retrieved April 18, 2019, from https://www.nytimes.com/2011/03/15/business/media/15adco.html Casserly, M. (2013, May 06). Stitch Fix CEO Bets on Styling Mommy and Brags Record Growth In 2013. Retrieved February 18, 2019, from https://www.forbes.com/sites/meghancasserly/2013/05/06/stitch-fix-ceo-bets-on-stylingmommy-and-brags-record-growth-in-2013/#52ba7a8748ba Copyright © INSEAD 3 This document is authorized for use only by Almutasemvellah Alkhateeb in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) PM taught by Kannan Ramaswamy, Thunderbird School of Global Management from Jan 2021 to Apr 2021. For the exclusive use of A. Alkhateeb, 2021. To surround herself with experienced people, in 2012 Lake hired Mike Smith, former COO of the then $5 billion Walmart.com as Chief Operating Officer and former data scientist at Netflix, Eric Colson, as Chief Algorithms Officer. By February 2013, Stitch Fix had more than 10,000 customers, 16 and in Q3 2013, revenue was 2.5 times higher than in Q3 2012. 17 Funding the Future To face the growing demand – a two-year wait list at one point 18 – Lake needed expansion capital. But raising money was one of the most challenging tasks for Lake 19 as venture capitalists didn’t buy into the concept of Stitch Fix. During her pitches, Lake would come with a box of clothes and a personalized card from the stylist in her hands to show what Stitch Fix was about. But there was an emotional disconnect from investors. One of them told her: “I think you’re amazing, but I have to pick one or two board seats a year where I feel really passionate about the business, and I don’t think I can be passionate about women’s dresses and retail.” Others thought the company was too small 20 and they didn’t like the hourly-paid human stylists at a time when everything is about automation and apps, and they didn’t like that Stitch Fix took ownership of inventory, which they considered capital-intensive and risky, preferring instead to buy on consignment. But Lake believed that owning all the inventory was the key to deeply understand each item and turn it into a structured data, with the help of the merchandize team that takes detailed information on each item. And this data was crucial for Stitch Fix as it allows the company to better understand what people want and therefore turn over inventory faster than many traditional retailers do: six times a year for Stitch Fix, against four times a year for a department store. 21 After facing repeated refusals from venture capitalists, Anderson, the initial investor, invested $4.75M in a Series A funding round with two other venture capitalists in February 2013. The capital infusion enabled Stitch Fix to continue growing. 22 23 Using its expansion funding, Stitch Fix opened warehouses to manage inventory and grew to 49 employees. By October 2013, its customer base and revenue grew five times and its staff had grown to nearly 200. 24 To meet the demand, Lake needed to raise capital again, but this time it was easier 16 17 18 19 20 21 22 23 24 Taylor, C. (2013, February 28). Stitch Fix Gets $4.75M Series A to Scale Out Its Tech-Enabled Personal Shopping Service. Retrieved April 18, 2019, from https://techcrunch.com/2013/02/28/stitch-fix-funding-series-a/ Casserly, M. (2013, May 06). Stitch Fix CEO Bets on Styling Mommy and Brags Record Growth In 2013. Retrieved February 18, 2019, from https://www.forbes.com/sites/meghancasserly/2013/05/06/stitch-fix-ceo-bets-on-stylingmommy-and-brags-record-growth-in-2013/#52ba7a8748ba Lien, T. (2017, June 18). Stitch Fix founder built one of the few successful e-commerce subscription services. Retrieved January 14, 2019, from https://www.seattletimes.com/business/stitch-fix-founder-built-one-of-the-few-successful-ecommerce-subscription-services/ Forbes, M. (2018, August 09). How Stitch Fix's Katrina Lake Built A $3 Billion Business. Retrieved March 14, 2019, from https://www.forbes.com/sites/moiraforbes/2018/08/09/katrina-lake-billion-dollar-business/#1a36c495727f Turner, C. (2019, March 20). Why We Need More Women Investing in Women-Owned Businesses. Retrieved April 18, 2019, from https://www.myasbn.com/small-business/finance/why-we-need-more-women-investing-in-women-ownedbusinesses/ Smiley, L. (2019, February 19). Stitch Fix's radical data-driven way to sell clothes–$1.2 billion last year–is reinventing retail. Retrieved April 18, 2019, from https://www.fastcompany.com/90298900/stitch-fix-most-innovative-companies2019 Rudulph, H. W. (2018, March 16). Get That Life: How I Founded an Online Personal Shopping Company. Retrieved April 18, 2019, from https://www.cosmopolitan.com/career/a59033/katrina-lake-stitch-fix-get-that-life/ List of Stitch Fix's 6 Funding Rounds totaling $122.4M. (n.d.). Retrieved February 2019, from https://www.crunchbase.com/search/funding_rounds/field/organizations/funding_total/stitch-fix Taylor, C. (2013, October 17). Stitch Fix, The Online Personal Shopping Startup, Sews Up $12 Million Series B Led by Benchmark. Retrieved December 15, 2018, from https://techcrunch.com/2013/10/17/stitch-fix-funding-series-b/ Copyright © INSEAD 4 This document is authorized for use only by Almutasemvellah Alkhateeb in TGM 545 Global Leadership and Strategy/Ramaswamy (MGM SP21) PM taught by Kannan Ramaswamy, Thunderbird School of Global Management from Jan 2021 to Apr 2021. For the exclusive use of A. Alkhateeb, 2021. thanks to the results of the company. Benchmark Capital led the next funding round, investing $12M in October 2013 and $25M in June 2014 in exchange for 26% of the company. Legendary venture capitalist Bill Gurley joined the board of directors. 25 26 In addition to raising capital, Lake also brought in some heavyweight recruits including former Gap and Walmart executives Marka Hansen and John Fleming as board members. Three new executives joined the company, former Nike executive Lisa Bougie as Chief Merchandising Officer, Jennifer Olson, an e-commerce expert who had formed a high-profile alliance with Crate and Barrel joined as CMO, and Stella & Dot’s Meredith Dunn as VP of Styling. 27 Fast forward to May 2017, Stitch Fix brand awareness was 41% among US women age 21-65 with incomes over $50K, up from 28% just six months prior. 28 In November 2017, Stitch Fix went public at an initial public offering price of $15 per share, with just $42 million in venture capital funding, making Lake, at the age of 34, the youngest female ever to launch an IPO. 29 30 A photo of Lake standing at the Nasdaq podium with her then 14-month-old son on her hip went viral on social media. Lake became a model for women, and especially working mothers. 31 One year later, Stitch Fix shares more than doubled to a market capitalization of more than $4.3 billion. 32 In February 2019, the company had more than 6,600 employees, 33 with a majority females both within the board and the workforce 34 35, including over 3,900 stylists 36 – mostly parttime employees who work from home – over 1,500 warehouse employees spread across their 5 warehouses, 37 200 client experience employees, 95 engineers and 100 data scientists. 38 In short, it was a company...
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Explanation & Answer

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1



Outline

Question One
o When Katrina's Lake (KL) was required to grow her company, she struggled to
raise the amount needed.
o The only finances secured amounted to $42 million, while the competitor secured
$2 billion.
o One of the reasons why Katrina raised a low amount is having fewer people to
fund her company.
o The company could hardly raise high amounts of money within a short period.
o Lake also experienced challenges expanding her company because not most
people bought into her idea
o Other people also thought the business was too small and could not grow beyond
its current position.



Question Two
o The four Actions framework is one of the models that Katrina Lake has utilized to
decide the three businesses he is interested in. T
o he three businesses include; Subscription services, personal stylists, and clothing
retail business.
o KL considers doing clothing retail because she is passionate and good at it. KL
has noticed that technology is becoming a massive part of the clothing business.
Infusing technology in retail would bring in new concepts that customers would
like.
o Katrina also thought of becoming a personal stylist. She drew the experience from
her sister, who helped people find the right clothes that matched their attitudes.

2
o Katrina wanted to be a personal stylist has and help women find their dressing
style.


Question Three
o The industry configuration for stitch Company holds much growth potential. The
clothing company has tremendously grown in the past.
o The women's dressing and retail industry has slowly grown to be liked and
admired by many.
o The company deals with personal stylists, and the public has gradually embraced
the culture.
o One of the reasons Stitch fix grew is understanding what the customers want and
delivering exactly that.
o The industry has a growth trajectory in that many retail stores deal with personal
styling. Katrina Lake hired some board members from Wal-Mart and Gap to lead
her company
o Stitch Fix is working hard to carve a niche in the market by having its products
differentiated.
o Katrina Lake clothes ...


Anonymous
Very useful material for studying!

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