This paper looks into several aspects related to the acquisition of a data warehouse by Recreational Equipment Inc. (REI).
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REI’s Data Warehouse
The term ‘data warehouse’ has two components. The first component is the term ‘data’ which refers to the record. There have been little efforts among IT academic circles to distinguish the use of the word data from the use of the word information. In a broader sense, data refer to unprocessed records, while information is the product of data analysis.
The second component of the term ‘data warehouse’ is the word ‘warehouse’. In this case, warehouse is a store or a place used for storage. These two components bring about a special meaning used in IT circles.
A data warehouse is a physical or virtual storehouse of electronic information. In the past, organizations used physical warehouses to store files and folders used for their business activities. After the advent of IT tools for business, companies started building large storage facilities known as data warehouses to store electronic information.
REI is building a warehouse for the following reasons. First, the company’s data storage requirements have been on the rise because of the growth in its membership. In this regard, the quantity of records the company stores grows with time. The second reason is that the company wants to increase the accuracy of the information in its hands regarding the outdoor activities of its members.
The company needs this information for planning and for increasing its value for the members. Third, the company needs to increase the overall efficiency of its services using information-based approaches to business management.
A data warehouse will make it easy for the company to manage information in its hands and to execute data mining activities efficiently. Consequently, the company wants to build a data warehouse to increase its business efficiency.
Disadvantages of Consumer Cooperatives Compared to Traditional Firms
The disadvantages of consumer cooperatives in comparison to traditional firms are as follow. First, consumer cooperatives reduce the choices that an individual member enjoys. As opposed to them, traditional firms usually strive to give consumers the widest range of products. Their intention is to maximize the chances that all consumers who come to the store find what they want.
However, consumer cooperatives focus on giving their members the best value. This usually means that the members cannot access the full range of products within a specified category. Secondly, consumer cooperatives are driven by the need to give members the best value for their money.
The result is that they are not as efficient as traditional firms, which usually do their best to maximize profits. Companies that operate based on the profit motive tend to be more efficient because operational inefficiencies reduce their margins.
The third disadvantage of consumer cooperatives compared to traditional firms is that they depend on long-term supply contracts with suppliers. While these contracts guarantee the availability of products, it exposes the consumer cooperatives to dumping of the products.
A company holding a long-term supply contract with a consumer cooperative will tend to prioritize business from customers who do not have contracts to secure the income from these customers. Consumer cooperative can end up with poor quality goods and services from such suppliers. This increases the costs of quality control incurred by consumer cooperatives.
Marketing Strategies Made Possible by REI’s Data Warehouse
A data warehouse is a critical component of the IT infrastructure that every organization needs for the implementation of online marketing strategies. The types of marketing strategies that a data warehouse would support include the ones that follow.
Firstly, a data warehouse gives an organization the capacity to gather and understand tastes and preferences of individual customers. This allows the organization to implement target marketing activities. Online marketing companies such as Google use this approach.
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Secondly, the company can carry out email marketing based on the data contained in the data warehouse. Since all the customers register willingly, the company can expect a good reception of its email marketing campaigns. E-mail marketing includes sending newsletters, special offers and other marketing materials to all registered users.
The data warehouse will also be an essential tool for planning during the formulation of the company’s marketing strategy. The data warehouse will give the company the capacity to analyse information from a cross section of customers.
This will enable it to pick out trends in consumer preferences. It is very important to remain ahead of the curve when it comes to uncovering changes in consumer preferences.
The fourth aspect of marketing that the data warehouse will enable the company to handle is the development and management of loyalty programs. The company must do everything in its power to ensure that all its customers remain loyal. One of the ways of doing this is by running loyalty programs that reward customers based on the cost of purchases.
Finally, the company can use this data warehouse to keep track of its customer base. The data warehouse will make it possible to know whether its customer base is expanding or shrinking. At the same time, the database will make it possible for the company to develop targeted marketing campaigns for market segments that have the greatest growth potential.
Most of these marketing strategies would have been possible to implement regardless of the presence of the data warehouse. However, their scope would be very limited. In this regard, the data warehouse will make it possible for the company to carry out more effective marketing campaigns because of increased data processing and management capabilities.
Risks and Concerns Surrounding the Creation of a Data Warehouse
The risks associated with the creation of a data warehouse are as follows. First, data warehouses are prone to cyber attacks. For a data warehouse to be effective, it must be accessible online. However, the internet makes the data warehouse accessible to anyone with the skills needed to get around security barriers. This increases the potential for security breaches.
The second risk that the data warehouse must deal with is computer viruses, which, in this paper, account for all unwanted software. Viruses can corrupt the files stored in the warehouse, making them inaccessible or useless. Viruses can get to the warehouse through the internet, or via portable storage devices.
One of the most serious risks associated with the proposed data warehouse is identity theft. The data warehouse will host personal information from millions of the company’s customers.
Such information is very attractive to fraudsters. Online fraudsters work very hard to get access to people’s personal information stored online. Some of the fraudsters also sell this information to third parties who have criminal intentions.
The fourth risk that the data warehouse will have is the risk of physical damage. Many companies usually concentrate on dealing with cyber threats against their information systems but fail to take sufficient action to protect these facilities from physical damage. The entire system can malfunction if there is a physical damage to the data warehouse hardware.
The fifth risk associated with the proposed data warehouse relates to the handling of data by the company. Company employees can misuse the data by sending unsolicited emails, or by giving unauthorized persons access to the information in the warehouse.
Reasons for REI Decision to Acquire IBM’s Data Warehouse Technology
The choice of IBM as the provider of the warehouse technology is hardly surprising. Several reasons must have played a part in this decision. These reasons are as follows.
First, IBM is a very experienced company when it comes to providing IT-based solutions for businesses. The company specializes in providing technological tools for businesses. The decision to develop a data warehouse is a very significant one for any company. Therefore, it is understandable for a company to decide working with a reputed IT solutions supplier.
The second reason that must have informed the company’s decision to work with IBM is the desire to get technical support once the system is operational. IBM has the capacity to provide technical support to the company after the installation of the systems.
REI does not have the expertise needed to handle all the issues associated with the operations of a data warehouse. The association with IBM will ensure that REI gets the best skills needed to run its warehouse.
The third reason underlying the choice of IBM by REI is the need to create customer confidence. The data warehouse will store personal information given by the company’s customers. Therefore, the choice of IBM will give the customers confidence in that their information is in safe custody. This will make it easy for the company to acquire data from the customers.
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