MIS625 Session #3
Outline Porter paper Information Economy pricing chapters Note process orientation via competitive forces and value chain Tie to Peter Keen slides Information Economy pricing chapters Lands End case
Why eCommerce is about Processes Retailing – winners characterized by repeat business and trusted relationships, losers by high customer acquisitions costs and late delivery and poor response Financial services – winners offer multiple channels, losers undifferentiated relationship and bare bones transaction
Process Blindness Survey – Conference Board and Pricewaterhouse-Coopers Most companies see e-commerce as detached from their mainstream business Most companies don’t see e-commerce as about process Reasons for process blindness Companies think of Internet business as “technology” Managers don’t understand how processes integral to web business impede or enhance customer relationships
Value Network The value network is all the resources behind the ‘click’ that the customer doesn’t see, but that creates the value in the customer-company relationship. The enterprise at the center makes some promise to the customer that is fulfilled via the value network
Information Customer Place Order Browse, select, specify, customize Shop Deliver Buy Ship Repeat Product info Make purchase recipient, profile, credit card Fulfill order pick & pack, on-demand ship parcels, track parcels Customer info Logistics info Information Payment info VAN Confirm Complete order inventory, privacy, security, receipt Pay authorize VAN capture
The Importance of Relationships Difficulty of building relationships Pure transactions = zero relationship The more specific the tailoring of content, the more the shift from commodity to relationship Compare an ATM with Lands End
Strategy and the Internet Distortion during the dot.com boom Business whether pre-Internet or post-Internet is about creating economic value Two factors determine profitability Industry structure Sustainable competitive advantage
Competitive Forces Model
How does the Internet affect Switching costs Network effects Complements and outsourcing Intermediaries
Principles of Strategic Positioning Start with the right goal – economic value added Value proposition Distinctive value chain Trade-offs Fit Continuity of direction
Process Capability Matrix (Keen) Type Asset Liability Identity Priority Background Mandated
eProcess Choices Embed process rules in the software interfaces Out-task processes and capabilities electronically In-source new capabilities electronically Be exceptional in handling exceptions
How to Price Information Cost of production – high fixed costs, low variable costs economies of scale Costs and competition Information as a commodity The importance of differentiation
Differentiation Personalization Collecting customer information Through registration Privacy backlash
Personalized Pricing Fare classes Auctions Special offers based on past behavior
Group Pricing Price sensitivity Network effects Lock-in Sharing
Versioning Versions tailored to the needs of different customers Versions to accentuate the needs of different groups of customers
Product dimensions used to create versions Delay User interface Convenience Image resolution Speed of operation Formatting Capability Features Comprehensiveness Annoyance Support
Versioning Choices How many versions? Depends on product and market Three is a magic number Customizing navigation and content Bundling
Rights Management Copyright law ‘Information wants to be free’ Digitalization reduces reproduction costs and distribution costs
Distribution Costs Giving away content Similar but not identical products – e.g. Playboy Complementary products
Cheap Copying The video industry IPod