1 Dickson K.W. Chiu PhD, SMIEEE, SMACM, Life MHKCS Jelassi & EndersJelassi & Enders: Chapter 5 COMP7880: E-Business Strategies Strategy options in e-business market

Strategy options External analysis Internal analysis Sustaining competitive advantage Internal organisation Implementation Exploring new market spaces Interaction with suppliers Interaction with users/customers Creating and capturing value Strategic analysis Strategy implementation E-business strategy Mobile e-commerce strategy 12 Opportunities/ threats Strengths/ weaknesses Our Roadmap Strategy formulation COMP7880-SO-2

Differentiation & Price Strategies COMP7880-SO-3

Customer Company Competitors Price/ benefit Cost Source: Adapted from H. Hungenberg (2006), p The strategic triangle – Main drivers of competitive advantage COMP7880-SO-4

Strategic triangle decision 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)

Supplier Performance Consumer benefit Supplier offered threshold features Critical success factors: Customer’s expectation Source: Adapted from H. Hungenberg (2006), p Impact of threshold features and critical success factors on consumer benefit

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 generic approaches of competitive advantage COMP7880-SO-7

Achieving cost leadership position Economies of scale Economies of scope Factor costs Learning effects While economies of scale can be realized 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. Discuss this for our running case: SME Computer …

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 Economies of scale COMP7880-SO-9

Sources of differentiation Tangible sources Speed of delivery Convenience Customisation Intangible sources Reputation Brand Product range Quality Tangible and intangible sources of differentiation COMP7880-SO-10

Perceived performance Relative price High Cheaper Low More expensive Differentiation Outpacing Low cost/ low price Perceived performance and relative price position determine a firm’s strategy Source: Adapted from H. Hungenberg (2006), p To achieve both: New technologies Scale economies Better management Eliminate wastage Optimization Learning effects BPR COMP7880-SO-11

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 Strategic gameboard for formulating consistent business strategies COMP7880-SO-12

Chosen strategy fitting value chain Consistency between activities Activities throughout the value chain Image and reputation – also related to sustainability Strategy implementation Reinforcement of activities Optimization of efforts COMP7880-SO-13

E-business models COMP7880-SO-14

15 What is a Business Model? Six key questions How do we create value? For whom do we create value? What is our source of competence/ advantage? How do we differentiate ourselves? How do we make money (revenue model)? What are our time, scope, and size ambitions?

16 (Based on Weill and Vitale 2001, Straub 2004) Atomic Business Models

17 (Based on Weill and Vitale 2001, Straub 2004) Atomic Business Models (2)

18 Typical Business Models in EC Online direct marketing Electronic tendering systems (e.g., reverse auction) Name your own price Affiliate marketing Viral marketing Group purchasing Online auctions Product and service customization Electronic marketplaces and exchanges Value-chain integrators Value-chain service providers Information brokers Bartering Deep discounting Membership Supply chain improvers

Typical revenue models Tangible goods Web catalog revenue model Taking mail order catalog model to the Web Digital Content Revenue Models Advertising-Supported Revenue Models Subscription Revenue Models Advertising-Subscription Mixed Revenue Models Agency and Services Fee-for-Transaction Models Fee-for-Service Models COMP7880-SO-19

20 Revenue Strategy Issues Channel conflict (or cannibalization) Sales activities on a company’s Web site interfere with existing sales outlets (e.g., Levi Strauss) Channel cooperation Giving customers access to the company’s products through a coordinated presence in all distribution channels (e.g., Staples, Eddie Bauer) Strategic alliance: when two or more companies join forces to undertake an activity over a long period of time Account aggregation services Channel distribution managers (i.e., fulfillment managers): firms that take over the responsibility for a particular product line within a retail context