Slide 5.1 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Chapter 5: Strategy options in e-business markets After this session you should be able to:  Understand the fundamentals of competitive advantage in e- business.  Explain the generic approaches to strategy formulation.  Appreciate the meaning of an ‘outpacing’ strategy.  Assess the risk for companies of being ‘stuck-in-the-middle’.  Understand the levers that improve the fit between the chosen strategy and the value chain activities.

Slide 5.2 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Customer CompanyCompetitors Price/ benefit Cost Source: Adapted from H. Hungenberg (2006), p Exhibit 5.1 The strategic triangle addresses the main drivers of competitive advantage

Slide 5.3 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 The goal of the strategic triangle is to address the following four questions regarding the drivers of competitive advantage Is the price/benefit ratio (also called value for money) that we offer better than the price/benefit ratio of our best competitor? Is the value that we offer to our customers perceivable and important to them? Are our costs for making the product (or service) lower than the costs that we incur? Is this advantageous position sustainable into the future? Source: See H. Hungenberg (2006)

Slide 5.4 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Performance Consumer benefit Threshold features Critical success factors Source: Adapted from H. Hungenberg (2006), p Exhibit 5.2 Impact of threshold features and critical success factors on consumer benefit

Slide 5.5 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Generic types of competitive advantage Goal of the companyBusiness strategy Provide something unique that is valuable to buyers Provide a product with lowest price Become the cost leader in the industry 'Differentiation‘ 'Cost leadership‘ (Cost/price leadership) Unique product with price premium Performance advantage Price advantage Similar product with lower price Competitive advantage Source: Adapted from H. Hungenberg (2006), p Exhibit 5.3 There are two generic approaches to achieve a competitive advantage

Slide 5.6 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Several levers help a firm to achieve a cost leadership position Economies of scale Economies of scope Factor costs Learning effects While economies of scale can be realised by increasing the production of one product type, economies of scope result from expanding the variety of products sold using the same assets. Learning effects can lower costs as a firm improves its efficiency over time, thereby reducing slack and wasteful activities. Factor costs represent a crucial cost driver, especially for retailing companies that act as intermediaries. The ability to bargain down input prices, for instance, through bulk purchasing can be an effective lever for lowering costs. The basic concept of economies of scale is that as a firm increases its product output, it decreases its unit production cost.

Slide 5.7 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Price per unit Quantity Average costs As the cumulated production quantity increases, costs per unit decrease. Economies of scale Dis-economies of scale Eventually, costs go up again when production capacities reach their constraints Exhibit 5.4 Economies of scale lead to a decrease in per-unit costs as output increases, whereas dis-economies of scale lead to an increase in per-unit costs

Slide 5.8 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Sources of differentiation Tangible sources Speed of delivery Convenience Customisation Intangible sources Reputation Brand Product range Quality Exhibit 5.5 Tangible and intangible sources of differentiation

Slide 5.9 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Perceived performance Relative price High Cheaper Low More expensive Differentiation Outpacing Low cost/ low price Exhibit 5.6 Perceived performance and relative price position determine a firm’s strategy Source: Adapted from H. Hungenberg (2006), p. 194.

Slide 5.10 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Whole market Market segment (niche) Cost/ price Performance New game Old game Which competitive advantage do we aim for? Where do we want to achieve the competitive advantage? How do we want to achieve the competitive advantage? Source: Adapted from H. Hungenberg (2006), p Exhibit 5.7 The strategic gameboard helps to formulate consistent business strategies