Defining Strategy: Added value and building an E-C strategy

Transcription

1 Defining Strategy: Added value and building an E-C strategy MBA 8125 Information technology Management Professor Duane Truex III Learning Objectives Examine the Taxonomy of an e-business Model Ask: What is a model in terms of an e-strategy? Examine concepts of value determination 1

2 The Business Model Today The Internet Business Model Answers important questions: How the business will make money How it provides competitive advantage Who are the customers What value will be provided customers Who to charge How to price Strategies to provide and sustain that value What are the value drivers Will it be: a provider of services within the Internet infrastructure, supplier to the Internet or a user of the Internet 2

3 Taxonomy of a Business Model (Rappa and Timmers) Brokerage Company acts as a market maker; charges fee for the service Types: buy/sell, exchange, distributor, virtual mall, metamediary, auction broker, reverse auction, classifieds, search agent Advertising Content attracts visitors; advertisers pay for the exposure Types: generalized or personal portal, specialized portal, attention/incentive advertising, fee market and bargain discounter Infomediary Collects info on visitors and sells it Types: recommender vs registration model Manufacturer direct access to customer, by pass middleman Merchant or e-tailer Types: virtual, catalog, surf&turf, bit vendor Affiliate Click though relationships Community Capitalize on relationships Subscription Pay for high(er) quality or more timely content Utility Pay as you go for service 3

4 Customer Value Where does value come from/how is it made evident to your customer? Differentiation How do your products or services differ, what to they offer that others do not? Scope Properly identifying where and to whom to offer the product at the proper price Pricing Charging what the product is worth to the customer Charging exactly the right price Customer Value: Differentiation Product features Speed, specialized content, personalized product Timing First to market Location Ease of access In info goods: PDA, cell phone, telephone Service Help desk; repairs Product Mix Choice Mass customization and personalization Linkages Who endorses you Co-branding Brand Name it s the real thing Low Cost Perception of the best value 4

5 Before Pricing comes Scope And Scope is? Market segmentation By? Customer demographic Geography Customer lifestyle Customer ethnicity or cultural identity What are the key questions about Scope? Whom do we wish to serve? At what price can we/ should we serve them? 5

6 The Pricing Decision An important relationship: Price, market share and e-business growth How are these ideas related? In information goods there are high fixed (I.e., sunk costs ) and VERY low marginal costs In fact the marginal cost is near zero At the margin everyone can produce as near the same price (once in the business) Hence volume, market share and sustainability are EVERYTHING CAVEAT: Given the right price of course 6

7 Pricing Example given market share in a growing market Share is important because? Volume spreads the fixed cost across more units. Pricing (creative or aggressive pricing) Critical to acquiring and holding market share Hence critical to sustainability and profitibility Pricing choices until lock-in or share is acquired Free, deeply discounted, 7

8 Pricing types and choices Menu or fixed price Take it or leave it Strategic value or problems? One-to-one pricing Variable and negotiated prices, some more some less Auction Reverse auction Barter Cost structures of e-goods or info goods Information is costly to produce and cheap to reproduce The variable cost of additional units does not increase even with large numbers of copies Once the first is produced copies are almost cost free a great marketing opportunity and challenge Information goods can become commoditized A danger?? Yellow pages, (e.g., CD Phone book) music, Competition pushes prices to near zero!! 8

9 Market structures and strategy for information goods Differentiate the product Must add value to the raw product Achieve cost leadership If it is hard to differentiae at least sell a LOT of it! Make your average cost the lowest If you are dominant achieve cost leadership through economies of scale and of scope. Reduce average cost through volume sales!! E-biz Pricing Lessons!! 1 st know your cost of production and sales Your variable cost 2 nd If forced to compete in a commodity market be aggressive, but not greedy Grab market share (price aggressively) and exploit economies of scale 3 rd Differentiate by personalization and price 4 th Invest in collecting data about your market Coupons, focus groups, promotions, cookies and registration 5 th Use customer information to sell personalized products 6 th Analyze the profitability of selling to certain groups Determine price sensitivity, attractiveness of groups 9

10 Perfect Price Discrimination This is charging each customer just what he is willing to pay Personalized pricing E.g., Quicken, TurboTax, first releases of books and software Versioning Group Pricing Education, Sr. Citizen Sources of Revenue in E-biz Pure information goods Value is in the content Intangible service goods Value is provided by people with expertise and advice Agents, brokers, etc Tangible Hard goods Value is mostly in the product small amount in complementary information Q: So how do you make money and charge? And price? 10

11 P o r t a l M e t r I c s Finally, E-Strategy development 11

12 E-Strategy: Where does added value lie? Can the customer see it? Part of the strategy is adding value, making that evident in the process AV = product features x information enrichment What does this mean? What does it mean to THINK STRATEGICALLY? Internet Life Cycle 12

13 Value in Innovation 13