Transcript 5 - Higher Education

Chapter 5:
E-Business Value Strategies
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 1
LEARNING OBJECTIVES(1):
1. Explain the seven strategies e-businesses are using
to create value for customers.
2. Be able to perform a benefit analysis of alternative
sales channels.
3. Discuss how digital communication adds value to
a business.
4. Analyze the impact of each of the intellectual
property areas on e-business.
5. Describe how the delivery of services is changing
because of new technologies.
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 2
LEARNING OBJECTIVES(2):
6. Outline how relationships can be
enhanced through strong customer service.
7. Explain how business process strategies
are providing value.
8. Discuss how a market-of-one strategy will
affect businesses.
9. Show how auctions are used to facilitate
commerce.
10. Describe the impact of e-business
strategies on pricing.
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 3
Vignette: Online Travel –
The Sky’s the Limit
• Thinking Strategically
– Consider the future of brick-and-mortar airline ticket
sales. Determine how an offline agent can provide the
value needed to compete against online companies.
– Visit Travelocity and Expedia. Determine how these
companies provide value to their customers.
– What advantages do these companies have over their
brick-and-mortar counterparts?
– Evaluate the agent model in Figure 5.1. What other
types of agencies (real estate, insurance, etc.) could be
affected the same way as the travel industry?
– Determine how these intermediaries can stay in the
distribution channel.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 4
Figure 5.1: Travel Agent Model
Customer
Inquiry
Customer
Informed &
Ticket
Delivered
Agent Search
Database
Contacted
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 5
Creating Value
• Businesses create value for their customers by
providing quality goods and services at acceptable
prices.
• A business model that provides more benefits to
its customers and/or sells at a lower the price will
take market share away from competitors.
– A commerce or business model is the basic process by
which a business obtains its inventory, produces the
good or service, and how they deliver that to the
customer.
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 6
Seven Value Creation Strategies
• Online purchasing strategy: allows for buying and selling of
products and information on the Internet and other online services.
• Digital communication strategy: allows for delivery of digital
information, products, services, or payments online.
• Service strategy: allows for the cutting of costs, improving of the
quality of goods, and increasing the speed of service.
• Business process strategy: allows automation of business
transactions and work flows.
• Market-of-one strategy: allows for developing products for a single
customer with close to the same costs as mass production.
• Auction based strategy: allows automation of bidding for products
or customers online.
www.amazon.com
• Pricing Strategy: Allows businesses to pursue market share by
selling at low prices or giving away products and services for free.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 7
Figure 5.2 Model of E-Business
Value Creation
Online
Purchasing
Strategy
Auction
Strategy
Delivered
Value
Pricing
Strategy
Business Process Strategy
Market
-of -One
Strategy
Digital Communication Strategy
Service Strategy
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 8
Creating Value
Online Purchasing
Market-of- One
Digital
Communication
and Service
Business
Process
Pricing
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Chapter 5 Slide: 9
Online Purchasing Strategy
• E-commerce is the process of allowing
Web based technologies to facilitate
commerce or trade.
– E-commerce can be retail, between an ebusiness and an end user, or it can be
used for business-to-business
transactions.
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 10
Digital Communication Strategy
• Digital products are information-based products,
such as multimedia entertainment, programs,
online information services, published
information, music, video, or any other digital
content can be transferred over the Internet.
– Advertising supported:
• Some sites follow radio and broadcast television models and
obtain revenue through advertising. They also play a role in
supporting and enhancing the associated traditional media.
– Subscription Based:
• Pay content sites are generally targeted toward individuals who
have a high need for information.
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Chapter 5 Slide: 11
Digital Communication Strategy
• Advantages of Digital Products
– Online content is the lower cost involved in transfer and
delivery.
– Electronic content allows for a publish-once, read many
time environment.
– Existing content developers can reach a wider audience.
– Smaller firms that are able to provide content at low
startup costs.
– If sold, digital content is usually purchased on a pertime-period subscription basis or per-use basis.
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 12
Intellectual Capital
• Intellectual Capital refers to the ownership
of a company's knowledge, the results of ideas
and creativity, and the symbols that represent
products, companies or brands.
• Includes
• Copyrights
• Trademarks
• Trade Secrets Laws
• Patents
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 13
Copyrights (1)
• A copyright protects “original works of
authorship” including literary, dramatic, musical,
artistic, and certain other intellectual works. This
protection is available to both published and
unpublished works.
– Internet content such as pictures and graphic
files, sound files, text, or programs are likely
copyrighted by other companies or individuals.
– The ability to copy and transfer digital
information makes copyright violations
relatively simple.
Chapter 5 Slide: 14
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Copyrights (2)
• Businesses that develop Web sites must be
sure that they are not violating copyrights
when they develop content.
– There are numerous sources of copyright free
material on the Internet or material can be
purchased on CDs.
– They should also be concerned that they do not
develop links to third party sites that engage in
copyright violations.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 15
Table 5.1: Technology Copyright
Protection
Table 5.1: Technological Copyright Protections
Technology
Description
Digital
This technology allows images to be sent over the
Watermarks Internet with visible watermarks over a page, or
with watermarks that will show up only after an
image is copied.
Secure
The publisher can encrypt a file, stipulate
Containers
conditions for use, and then send the content to a
user. The user can then send payment and receive a
key to unlock the product. If the data is sent on to
others, they must also have a key to unlock the file.
Information Provides an auditing trail, allowing determination
Metering
of who forwarded the protected material.
Hardware
Government-mandated hardware solutions could
Solutions
prevent the copying of protected digital
media products.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 16
Trademarks
• A trademark or service mark refers to any word,
name, symbol or device which is used to indicate the
source or origin of goods or services and which
distinguishes one company, goods, or services from
others.
– Trademark rights cover such practices as preventing
others from using a confusingly similar mark, dilution
of the trademark, and unfair use of the trademark.
– Using non-owned trademarked names in meta tags is a
trademark violation and could result in a cease-anddesist order or a lawsuit
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 17
Protecting Intellectual Property
• Obtain copyright releases from all independent contractors
and sub-contractors.
• Place a copyright notice on the Web page such as: © 2000,
South-Western Publishing. This serves as notice.
• For extra protection, register the site with the Copyright
Office.
• Use a legal page so users see the rules for using the site.
This should include notices about downloading material
from the site, especially material owned by third parties.
• Obtain written permission before using any other Web
site's material or when developing links to those sites
For use with Strategic Electronic Marketing:
Managing E-Business 2e
Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 18
Patents
• Patents allow for individuals or firms to monopolize
or gain exclusive rights to the use of an invention.
– Software patents have grown from 1,300 issued in
1990 to almost 12,000 by 1997.
• Patenting of business methods: (Case: State Street
Bank & Trust Co. vs. Signature Financial Group)
– Priceline (www.priceline.com) controls the process
where consumers submit prices they are willing to pay
to a business, and where the business can then accept
or reject online bids.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 19
Case 5.1: The Market Still Wants Its MP3.
• Thinking Strategically
– Determine the advantages and disadvantages of using
MP3 for the consumer.
– Consider the advantages and disadvantages of this
format for the music industry.
– Compare and contrast those advantages and
disadvantages and speculate on the future of MP3.
– It is projected that within the next five years an entire
movie will be downloadable in 20 minutes or less.
Speculate on how this will effect the movie and video
rental industries. www.mp3.com
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 20
Market-Of-One Strategy
• Digital factory use digital manufacturing
process is combined with the human worker
resulting in a "soft manufacturing process"
brings flexibility to production and allows
manufacturers to produce individualized
products at mass production speeds.
– This “mass customization” and a “market-ofone” process allows marketers to develop tight
customer relationships.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 21
Service Strategy
• The service strategy impacts two areas:
– Supporting businesses that specialize in providing
services to the customer.
• Includes educational institutions, physicians, banks,
realtors, insurance agents, and many others.
– Enhancing the service component of a businesses by
meeting customer service needs before, during, and
after the sale.
• Answering questions about a product, how it is
used, or how it fits a specific purpose, and handling
any problems that may occur after the sale.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 22
Table 5.3: Technology’s Impact on
Service (1)
• Intangibility: The Internet is allowing buyers to directly
compare products and services offered online allowing
them to search for the greatest value.
• HSH Associates (www.hsh.com) offers information on
mortgage rates. Quotesmith (www.quotesmith.com) allows
individuals to obtain quotes from multiple carriers.
• Perishability: Digital information can be stored and
delivered as needed. Online services need not perish, they
can be created as needed by the user. Online sales systems
also can fill unused capacity for transport companies such
as airlines.
• National Public Radio (www.npr.org) stores its radio programs
for individuals to download and play at their leisure.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 23
Table 5.3: Technology’s Impact on
Service (2)
• Inseparability: Real estate buyers can use the Web to
view homes and take virtual walkthroughs. The medical
industry is using the Web to deliver services directly to the
user’s home computer. Retailers are providing shopping
services online.
• WebMD (www.webmd.com) provides information on medical
issues. Nordstrom (www.nordstrom.com) has a personal
shopper that suggests products for customers.
• Variability: Databases and standardized procedures can
remove the variability of service delivery.
• Amazon.com, Dell, and many other companies use email,
FAQs, and other technology to standardize services.
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 24
Case 5.2: How Quickly Can
Business Models Change?
• Thinking Strategically
– Speculate on the future of the traditional stock
brokerage system.
– Specify the value a broker brings to the
investment process.
– How can e-business be used by a broker or
brokerage company to enhance the value
delivered to the customer?
– What other industries could be affected in the
same way as the stock market industry?
For use with Strategic Electronic Marketing:
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 25
An Example of Changing Business
Models: Stock Brokerage (1)
Figure 5.4: Traditional Brokerage System
Issuing
Company
Underwriting
Company
Stock Exchange
Stock
Broker
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Stock
Investor
Chapter 5 Slide: 26
An Example of Changing Business
Models: Stock Brokerage (2)
Online Systems
Issuing
Company
Web Stock
Exchange
Alternative:
Direct Issue
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Stock
Investor
Chapter 5 Slide: 27
Table 5.3: Benefit Analysis for Online
Benefits
Cost For
Transaction
Information
on Companies
and quotes.
Speed and
Convenience
Expertise of
Advice.
Traditional Brokers
Depends upon broker and
amount of stock.
Broker acts as a
gatekeeper between
corporate information and
customer.
Broker required to
receive quotes.
Customer needs interface
of broker for information
and trades.
Depends on broker.
Online Brokers
One-third to one-tenth of
traditional brokers.
Customer can use online
information to obtain
information immediately.
Stock quotes available
immediately.
Customer can obtain immediate
information at their convenience
and place trades immediately.
Depends on the buyer.
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Chapter 5 Slide: 28
Figure 5.5: Online Brokerage
Prices and Volume
Prices
Per Trade
Full Service Average $116.90
Discount Average $66.09
Volume
150,000 a day
Growth rate 44%
DLJ Direct $20
Fidelity $28.95
Ameritrade $8 Suretrade $7.95
Lowest profit limit $5
Web Street $0
Jan. 1997
15
15
July
Aug.
Sept.
Number of Online Brokers
Schwab % of trades online
Oct.
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Nov.
Dec. 1997
60
40
Chapter 5 Slide: 29
Customer Relationship
Management
• Customer Relationship Management
systems combine software and management
practices to serve the customer from order,
through delivery, and after sales service.
– Enhancing customer service is rated by IT
managers as the number one method to gain
competitive advantages followed by improving
internal business processes.
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Copyright 2003 South-Western College Publishing
Chapter 5 Slide: 30
Table 5.4: Providing Service Online (1)
Best Practice Goal
Be able to respond to
Respond
customers within 6 hours if
Quickly
possible, but defiantly
within 24 hours.
Be sure products are
Link to
available for delivery.
Inventory
Technology Leverage
Knowledge bases and
intelligence agents can provide
instant feedback.
Use Extranets and inventory
databases linked to e-commerce
software.
Automatically send
This can be sent from databases
Automatic
confirmations through email through automated email
Order
systems.
Confirmation to customers giving
confirmation numbers and
routing numbers.
Provide product, security,
This can be designed into the
Provide
Web site. The use of FAQs or
Information and shipping information.
frequently asked questions
allows for self-service.
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Chapter 5 Slide: 31
Table 5.4: Providing Service Online (1)
Best Practice
Provide
alternative
means of
contact
Avoid extra
fees
Customer
response
specialists
Goal
800 number phone lines
allow customers to place
orders, inquire about orders,
or receive service
information as an alternative
to Internet use.
If off-line businesses do not
charge for service support or
gift wrapping, these should
not by charged online.
Use “live” individuals to
support automated service
transactions.
Technology Leverage
Chat systems can be a lower
cost alternative to phone
systems. IP telephony can also
be used is the customer
possesses the technology.
Lower costs available through
the Internet should allow for
services to be delivered at low
or no costs.
This can be facilitated with chat
or through the use of
intelligence agents or wizards.
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Chapter 5 Slide: 32
Figure 5.7: Automating the Service
Function.
Personal Service Interface
Customer Problem:
Automated Service Activities: Web based, chat, email, etc.
THE INTERNET
Customer Ordering:
Automated Activities: confirmation, order tracking, etc.
Human Interface Barrier
Human Marketing Interface
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Chapter 5 Slide: 33
Business Process Strategy
• Businesses engage in transactions with
other businesses using the same techniques
as business-to-consumer e-businesses.
– Business-to-Business E-Commerce
– Supply Chain Management and Extranets
• The supply chain is the network of
suppliers and customers for goods, services,
or information used from the point of origin
to final consumption.
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Chapter 5 Slide: 34
Auction Strategy
• Sales auction sites allow individuals and businesses
to sell products online and have potential customers
bid for the price of the product.
• Reverse auctions allow individuals and companies to
have sellers bid for the purchase.
• Dutch Auction works by having the seller lower the
price continuously until a buyer decides to purchase at
the stated price.
• Buyer-driven commerce sites allow the customer to
specify how much they are willing to pay for a
product or service and then let the providers bid for
the customer.
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Chapter 5 Slide: 35
Pricing Strategies
• Greater efficiency allows for selling at a
lower overall costs.
• Cost saving can be found in lower fixed
costs because of minimized use of brick and
mortar assets and lower variable costs in
reduced staffing requirements.
– Dynamic pricing implies that products will sell for
something other than list prices. Prices are set
dynamically based on market demand for that product,
which can lead to higher or lower prices depending on
how the market bids for the product.
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Chapter 5 Slide: 36
Table 5.6: Transaction Cost Comparisons
Traditional Method
Telephone transaction
cost plus related
customer service
charges
Bank transaction cost
Airline ticket cost for
processing
Average Internet
Amount
$ 5.00
Automated
Internet
transaction cost
$ 1.07
$ 8.00
Average
Amount
$ 0.01
Bank transaction $ 0.01
on the web
Airline ticket
$ 1.00
transaction on the
web
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Chapter 5 Slide: 37
Obtaining Product Pricing
Information
• Intelligent shopping agents are software
based search systems that return product
and pricing information from multiple
vendors.
– The customer specifies the product or they use
other criteria, such as a price range for a
product category.
– The agent then returns information on sales
outlets, prices, and availability.
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Chapter 5 Slide: 38
Pricing Strategies
• Skimming pricing sets high initial prices to
“skim” off payments from individuals who are
willing to purchase products when they first come
to market.
• Penetration pricing sets prices lower in an
attempt to capture market share for a product.
– E-businesses may attempt to capture market share by
selling at very low prices or even below costs.
– If a firm has an overriding goal of attaining market
share, they may even give products away for free.
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Chapter 5 Slide: 39
Exercise 5.1:
Business Model Strategies
• Use the Web to evaluate different business
models.
• Determine how many of the strategies
outlined in this chapter are used at the Web
sites you visit.
• How are these strategies are used to create
value for the business?
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Chapter 5 Slide: 40
Exercise 5.2:
Evaluating Business Models
• Use the following table to compare e-business
models against traditional business models.
• Determine the benefits a business provides to its
customers.
• Are these benefits delivered more efficiently with
an online model or a traditional model?
• Determine what the business would need to do to
get you to purchase online.
• What would the business need to do to keep you
buying at its traditional site?
Benefits
Online Model
Traditional Model
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Chapter 5 Slide: 41
Exercise 5.3 Evaluating Service Models
Real Estate Agent Business Model
Location
information
control
Owner
Home
Price
Agent
Price
information
control
Information
controller and
Negotiation
Intermediary
Buyer
Mortgage
company
recommendations
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Chapter 5 Slide: 42
Exercise 5.3: Evaluating Service
Models
• What impact could e-business have on this model?
• Evaluate current real estate Web sites. How do
they perform these functions online?
• Outline alternative real estate sales models, such
as the seller working directly with the buyer.
• Explain the role of perceived risk in purchasing a
home under an e-business model.
• What impact could perceived risk have on other
agent-based models, such as insurance?
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Chapter 5 Slide: 43
Competitive Exercise 5.4:
Business Model Building
• You are going to present an e-business-based
value strategy to your boss. Pick a business-toconsumer or business-to-business industry where
you would be interested in working.
– Use the concepts in this chapter to determine the best
e-business model for meeting your customers’ needs.
– Which of the strategies outlined in this chapter would
be beneficial in providing value to customers?
– If this business has a brick-and-mortar counterpart,
determine the advantages your business model would
have over the traditional model.
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Chapter 5 Slide: 44