1. Slide 3.1 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Strategies for e - Business CONCEPTS and CASES Creating Value through Electronic and Mobile Commerce Chapter 3: External analysis: The impact of the web on the macro-environment and on the industry structure of e-business companies

2. Slide 3.2 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 3.1 Examining trends in the macro-environment 3.1.1 The political and legal environment 3.1.2 The economic environment 3.1.3 The social environment 3.1.4 The natural environment 3.1.5 The technological environment Chapter at a glance 3.2 Examining industry structure with the five forces framework 3.2.1 Industry rivalry 3.2.2 Barriers to entry 3.2.3 Substitute products 3.2.4 Bargaining powers of buyers and suppliers 3.3 Complementing the five forces framework with the co-opetition framework 3.4 Defining industries, segmenting markets and targeting markets in e-business 3.4.1 Defining an industry 3.4.2 Segmenting markets in an industry 3.4.3 Targeting specific markets in an industry

3. Slide 3.3 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 After this session you should be able to address the following topics:  Analyse trends in the macro-environment and explain their implications for e-business ventures.  Understand the value of the five forces industry framework for the analysis of industry attractiveness.  Explain the key characteristics of the co-opetition framework and show how it expands the five forces industry framework.  Define industries, segment and target markets for e-business applications. Learning outcomes

4. Slide 3.4 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Remote Macro environment Social environment Techno- logical environment Economic environment Legal & political environment Natural environ- ment Company Customers Industry environment Competitors Exhibit 3.1 E-business companies are impacted by their industry and macro-environment Source: Adapted from H. Hungenberg (2006), p. 90. 3.1 Examining trends in the macro-environment

5. Slide 3.5 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Industry competition Potential entrants SuppliersBuyers Substitutes Threat of new entrants Bargaining power of suppliers Threat of substitutes Bargaining power of buyers Rivalry among existing firms Exhibit 3.2 Five forces influence the attractiveness of an industry Source: Adapted from M. Porter (1998), p. 4. 3.2 Examining industry structure with the five forces Framework

6. Slide 3.6 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 3.2 Examining industry structure with the five forces Framework Porter’s five forces framework Industry rivalry : Large number of competitors, High fixed costs, High strategic relevance, Little differentiation between products, Low growth rate of the industry, Excess capacity Barriers to entry : High fixed costs, Trust and brand loyalty, A steep learning curve, High switching costs and strong network, Strong intellectual property protection Substitute products : Similar products Bargaining powers of buyers and suppliers : High concentration of buyer, Strong fragmentation of suppliers, A high degree of market transparency, Products are increasingly becoming commodities, Low switching costs and weak network effect.

7. Slide 3.7 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Rivalry among existing competitors Bargaining power of suppliers Bargaining power of channels and end users Threat of substitute products or services Barriers to entry (–) Reduces barriers to entry such as the need for a sales force, access to channels and physical assets. (–) Internet applications are difficult to keep proprietary from new entrants. (–) A flood of new entrants has come into many new industries. (+) Eliminates (–) Shifts powerful bargaining channels or power to improves consumers. bargaining (–) Reduces power over switching traditional costs. channels. (–) Reduces differences among competitors as offerings are difficult to keep proprietary. (–) Migrates competition to price. (–) Widens the geographic market, increasing the number of competitors. (–) Lowers variable cost relative to fixed cost, increasing pressure for price discounting. (+/–) Procurement using the Internet tends to raise bargaining power over suppliers, though it can also give suppliers access to more customers. (–) The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening companies. (–) Internet procurement and digital markets tend to give all companies equal access to suppliers, and gravitate procurement to standardised products that reduce differentiation. (–) Reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers. (+) By making the overall industry more efficient, the Internet can expand the size of the market. (–) The proliferation of Internet approaches creates new substitution threats. Source: Reprinted from M. Porter (2001) Exhibit 3.3 The Internet has a profound impact on the five forces that influence industry attractiveness 3.2 Examining industry structure with the five forces Framework

8. Slide 3.8 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 The value network model 3.3 Complementing the five forces framework with the co-opetition framework (1)Joint setting of technology and other industry standards (2)Joint developments (3)Joint lobbying

9. Slide 3.9 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Competitors Supplier Buyer Complementors Firm Source: Adapted from A. Brandenburger and B. Nalebuff (1998), p. 17 Exhibit 3.4 The value network outlines the main players in the co- opetition framework 3.3 Complementing the five forces framework with the co-opetition framework

10. Slide 3.10 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Business-to-consumer (e.g. Ducati.com) Consumer-to-consumer (e.g. ebay) Peer-to-peer (e.g. Napster) Citizen-to-citizen (French presidential election 2007) Consumer-to-business (e.g. Amazon.com) Business-to-busines (e.g. Covisint.com) Government-to- citizen (e.g. information about pension statements of citizens) Government-to-business (e.g. information about most recent legal regulations) Citizen -to-government (e.g. online tax return forms) Business-to-government (e.g. online filing of corporate tax returns) Government-to- government (e.g. exchange of diplomatic information) Supplier/ provider Buyer/recipient Consumer/peer/citizen Business Government Consumer/peer/citizenBusinessGovernment Exhibit 3.5 The e-business market segmentation matrix classifies different types of interaction between different actors 3.4 Defining industries, segmenting markets and targeting markets in e-business

11. Slide 3.11 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 In order to target a specific market segment efficiently, the segmentation needs to fulfil four requirements Measurable Substantial Differentiable Actionable A segment should be large enough to justify that it is addressed separately It should be possible to develop sales and marketing approaches to serve specific segments. The segments must be exclusive and react differently to a variety of marketing approaches It should be possible to measure the size of a defined segment in order to determine its purchasing power and its peculiar characteristics Source: Kotler, (2005). 3.4 Defining industries, segmenting markets and targeting markets in e-business

12. Slide 3.12 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Demographic segmentation Segmentation type Age, gender, income, life style Psychographic segmentationPersonality type and personal interests (e.g. cash-rich, time-poor) Behavioural segmentationPurchasing frequency, usage patterns, etc. Criteria to be considered Geographic segmentationGeographic regions (e.g. continents, countries, states) Exhibit 3.6 Segmentation variables are the basis for strategic customer analysis Source: Kotler (2005). 3.4 Defining industries, segmenting markets and targeting markets in e-business

13. Slide 3.13 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 Number of market segments served (scale) Number of different products and services offered (scope) FewMany Few Many Full market coverage (e.g. Nordea Bank, Amazon.com, Tesco.com) Product specialisation (e.g. Spreadshirt Selective specialisation, (e.g. Bertelsmann) Market specialisation (e.g. ING DIRECT) Single segment concentration (e.g. Ducati, Porsche) P = Product M = Market Source: Adapted from D. Abell (1977); “Strategy and Structure: Public Policy Implications” in Proceedings of Marketing and the Public Interest. Cambridge, Mass.: Marketing Science Institute. Exhibit 3.7 Target-market selection depends on the number of markets served and the number of different products and services offered 3.4 Defining industries, segmenting markets and targeting markets in e-business

14. Slide 3.14 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Summary ■This chapter addressed the question of where a firm should compete and offered frameworks for analysing the macro-environment, which includes political, legal, social and technological factors. ■Second, the chapter discussed Porter’s five forces as a guiding framework for determining the attractiveness of an industry. It also analysed impact of the Internet on industry rivalry, barriers to entry, threat of substitute products and the bargaining powers of buyers and suppliers. ■Third, the chapter introduced the concept of ‘co-opetition’, which refers to companies that co-operate and compete with each other. It illustrated how the Internet enables the implementation of such a concept and how it supports the underlying interactions between the companies involved. ■Finally, the chapter addressed the issues of how to define industries within which to compete and how to segment specific customer groups that a company should target through its e-business offering.