1. MIS625
Session #3

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. Competitive Forces Model

10. How does the Internet affect
Switching costs
Network effects
Complements and outsourcing
Intermediaries

12. Principles of Strategic Positioning
Start with the right goal – economic value added
Value proposition
Distinctive value chain
Trade-offs
Fit
Continuity of direction

13. Process Capability Matrix (Keen)
Type
Asset
Liability
Identity
Priority
Background
Mandated

14. 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

15. 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

16. Differentiation Personalization Collecting customer information
Through registration
Privacy backlash

17. Personalized Pricing Fare classes Auctions
Special offers based on past behavior

18. Group Pricing
Price sensitivity
Network effects
Lock-in
Sharing

19. Versioning Versions tailored to the needs of different customers
Versions to accentuate the needs of different groups of customers

20. Product dimensions used to create versions
Delay
User interface
Convenience
Image resolution
Speed of operation
Formatting
Capability
Features
Comprehensiveness
Annoyance
Support

21. Versioning Choices How many versions?
Depends on product and market
Three is a magic number
Customizing navigation and content
Bundling

22. Rights Management Copyright law
‘Information wants to be free’
Digitalization reduces reproduction costs and distribution costs

23. Distribution Costs Giving away content
Similar but not identical products – e.g. Playboy
Complementary products

24. Cheap Copying
The video industry
IPod