1. Review Session 1

2. Value Chains (1) Introduced by Michael Porter (1985) Value Chain
A way of organising activities undertaken by each Strategic Business Unit (SBU)
An SBU is a
Unit of the company
Has a separate mission and objectives
That can be planned independently from the other businesses
It can be a company division, a product line or even individual brands

3. Value Chains (2) Each SBU undertakes Primary Activities
Design
Production
Promotion
Marketing
Delivery
Product/Services Support
Secondary / Supporting Activities
Human Resources Management
Purchasing

4. Industry Value Chains Value system
Larger stream of activities into which a particular business unit’s value chain is embedded
Also referred to as industry value chain

5. Examining the Value Chain
Each business unit has its own value chain
logger, sawmill, lumberyard, chair factory, retailer, consumer, and recycler
The sawmill purchases logs from the tree harvester and combines them in its manufacturing process with inputs, such as labor and saw blades, from other sources.
Among the sawmill customers are the chair factory and other users of cut lumber
Examining this industry value chain could be useful
for the sawmill that is considering entering the tree harvesting business
the furniture retailer who is thinking about partnering with a trucking line
The industry value chain identifies opportunities up and down the product’s life cycle for increasing the efficiency or quality of the product

6. Value Chain for a SBU

7. Primary Activities (1) Identify customers Design
Activities that help the firm find new customers and new ways to serve existing customers
Market research and Customer satisfaction surveys
Design
Activities that take a product from concept to manufacturing
Concept research, Engineering, and Test marketing
Purchase materials and supplies
Procurement activities
Vendor selection, Vendor qualification, Negotiating long-term supply contracts, and Monitoring quality and timeliness of delivery

8. Primary Activities (2) Manufacture product or create service
Activities that transform materials and labor into finished products
Fabricating, Assembling, Finishing, Testing and Packaging
Market and sell
Activities that give buyers a way to purchase and that provide inducements for them to do so
Advertising, Promoting, Managing salespersons, Pricing, and Identifying and Monitoring sales and Distribution channels
Deliver
Activities that store, distribute, and ship the final product
Warehousing, Handling materials, Consolidating freight, Selecting shippers, and Monitoring timeliness of delivery

9. Primary Activities (3) Provide after-sale service and support
activities that promote a continuing relationship with the customer
Installing, Testing, Maintaining, Repairing, Fulfilling warranties, and Replacing parts

10. Secondary/Support Activities
Finance and administration
Activities that provide the firm’s basic infrastructure
Accounting, Paying bills, Borrowing funds, Reporting to government regulators, and ensuring Compliance with relevant laws
Human resources
Activities that coordinate the management of employees
Including recruiting, Hiring and Training
Technology development
Activities that help improve the product or service that the firm is selling and that help improve the business processes in every primary activity
Basic research, Applied research and Development, Process improvement studies, and Field tests of maintenance procedures

11. Value Chain in E-Commerce
E-commerce and Internet technologies can be used to
reduce costs
improve product quality
reach new customers or suppliers
create new ways of selling existing products Eg
A software developer who releases annual updates to programs might consider removing the software retailer from the distribution channel for software updates by offering to send the updates through the Internet directly to the consumer.
This change would
modify the software developer’s industry value chain
provide an opportunity for increasing sales revenue
(the software developer could retain the margin a retailer would have added to the price of the update)

12. Exercise What is the Value Chain of a company selling
Banking Services
Books
Software
Hardware
How was the process in the past?
Perform a SWOT analysis
Plan how you would do the process in the future by applying the SWOT analysis

13. Example Value Chain
Web sites like Amazon.com, Barnes & Noble, Books-A-Million, eCampus, Internet Bookshop, and Powell’s Books.
Author writes book
Publishing company manufactures and releases book
Publisher partners with Amazon.com to advertise on Amazon’s website
Reader / student is asked to find said book
Reader / student goes online to Amazon.com to make purchase
Reader / student no longer needs book and sells it back to Amazon at used price

14. Web catalog revenue model (1)
Mail order or catalog model
Proven to be successful for a wide variety of consumer items
Web catalog revenue model
Taking the catalog model to the Web
What are the advantages?
What are the disadvantages?

15. Web catalog revenue model (2)
Apple, Dell, Gateway, and Sun Microsystems have had great success selling on the Web
Dell created value by designing its entire business around offering a high degree of configuration flexibility to its customers

16. Web catalog revenue model (3)
Retailers use the Web catalog model to sell books, music, and videos
Among the most visible examples of electronic commerce
Jeff Bezos
Formed Amazon.com
Jason and Matthew Olim
Formed an online music store they called CDnow

17. Luxury Goods
People are still reluctant to buy luxury goods through a Web site
Web sites of Vera Wang and Versace
Constructed to provide information to shoppers, not to generate revenue
Web site of Evian
Designed for a select, affluent group of customers

18. Clothing Retailers Lands’ End Personal shopper Virtual model
Pioneered the idea of online Web shopping assistance with its Lands’ End Live feature in 1999
Personal shopper
Intelligent agent program that learns customer’s preferences and makes suggestions
Virtual model
Graphic image built from customer measurements

19. Flowers and Gifts 1-800-Flowers Chocolatier Godiva
Created an online extension to its telephone order business
Chocolatier Godiva
Offers business gift plans on its site

20. Digital Content Revenue Models
Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism
Lexis.com
Provides full-text search of court cases, laws, patent databases, and tax regulations
ProQuest
Sells digital copies of published documents

21. Advertising-Supported Revenue Models
Broadcasters provide free programming to an audience along with advertising messages
Success of Web advertising is hampered by
No consensus on how to measure and charge for site visitor views
Stickiness of a Web site: the ability to keep visitors and attract repeat visitors
Very few Web sites have sufficient visitors to interest large advertisers

22. Web Portal Revenue Models (1)
Web portals are so named because the goal is to be every Web surfer’s doorway to the Web
One rough measure of stickiness is how long each user spends at the site
Nielsen//NetRatings determine site popularity by measuring the number of unique visitors

23. Web Portal Revenue Models (2)
Web portals
High visitor counts can yield high advertising rates
Companies that run Web portals add sticky features such as chat rooms, , and calendar functions

24. Stickiness of Popular Web Sites

25. Advertising-Subscription Mixed Revenue Models (1)
Subscribers
Pay a fee and accept some level of advertising
Typically are subjected to much less advertising
Used by
The New York Times and The Wall Street Journal

26. Advertising-Subscription Mixed Revenue Models (2)
Business Week
Offers some free content at its Business Week online site
Requires visitors to buy a subscription to the Business Week print magazine

27. Advertising-Subscription Mixed Revenue Models (3)
Time Warner’s AOL unit
One of the most successful Web portals
Charges a fee to users and has always run advertising on its site
Yahoo!
Now charges for the Internet phone service originally offered at no cost

28. Fee-for-Transaction Revenue Models
Businesses offer services and charge a fee based on the number or size of transactions processed
Disintermediation
Removal of an intermediary from a value chain
Reintermediation
Introduction of a new intermediary

29. Fee-for-Service Revenue Models (1)
Fee based on the value of a service provided
Services range from games and entertainment to financial advice
Online games
Growing number of sites include premium games in their offerings
Site visitors must pay to play these premium games

30. Fee-for-Service Revenue Models (2)
Concerts and films
As more households obtain broadband access to the Internet, companies are providing streaming video of concerts and films to paying subscribers
Professional Services
State laws are one of the main forces preventing U.S. professionals from extending their practices to the Web

31. Revenue Models in Transition
Subscription to advertising-supported model
Microsoft founded its Slate magazine Web site
An upscale news and current events publication
Charged an annual subscription fee after a limited free introductory period
Was unable to draw sufficient number of paid subscribers
Now operated as an advertising-supported site

32. Advertising-Supported to Advertising-Subscription Mixed Model
Salon.com
Operated for several years as an advertising-supported site
Now offers an optional subscription version of its site
Subscription offering was motivated by the company’s inability to raise additional money from investors

33. Advertising-Supported to Fee-for-Services Model
Xdrive Technologies
Opened its original advertising-supported Web site in 1999
Offered free disk storage space online to users
After two years, it was unable to pay the costs of providing the service with the advertising revenue generated
Later switched to a subscription-supported model

34. Advertising-Supported to Subscription Model
Northern Light
Founded in August 1997 as a search engine with a twist
Revenue model
Combination of advertising-supported model plus a fee-based information access service
January 2002
Converted to a new revenue model that was primarily subscription supported

35. Multiple Transitions Encyclopædia Britannica Original offerings 1999
The Britannica Internet Guide
Free Web navigation aid
Encyclopædia Britannica Online
Available for a subscription fee or as part of a CD package
1999
Converted to a free, advertiser-supported site
2001
Returned to a mixed model

36. Revenue Strategy Issues
Channel conflict
Occurs whenever sales activities on a company’s Web site interfere with existing sales outlets
Also called cannibalization
Channel cooperation
Giving customers access to the company’s products through a coordinated presence in all distribution channels

37. Exercise
Choose a revenue model and give examples of 2 businesses which use that model. Describe how they work.
Which of the goods they sell are
Appropriate to sell online and say why
Not appropriate to sell online and say why
Which additional new products do you think they should sell online?

38. Factors effecting performance
Web server hardware
Server computer must have enough memory and disk space
Factors that affect Web server performance
Operating system
Connection speed
User capacity

39. Web Hosting Alternatives
Self-hosting
sharing of company bandwidth with website visitors
Commerce Service Providers (CSPs)
ISPs offering Web Hosting
Ease of Update (FTP, HTTP)
Data redundancy (Mirroring, Backup Servers)

40. Disadvantages of E-Commerce
Some business processes are difficult to be implemented through electronic commerce
Return-on-investment is difficult to apply to electronic commerce
Businesses face cultural and legal obstacles to conducting electronic commerce

41. General Welfare of Society
Electronic commerce benefits the general welfare of society because
Electronic payments of tax refunds and welfare cost less to issue and arrive securely
Electronic payments can be audited easily
Electronic commerce enables people to work from home
Electronic commerce makes products and services available in remote areas

42. Usability Testing (1)
Firms are now starting to perform usability testing to their Web sites
As the usability testing becomes more common, more Web sites will meet their goals
Eastman Kodak, T. Rowe Price, and Maytag have found that a series of Web site test designs help them a lot

43. Usability Testing (2) Companies that have done usability tests
Conduct focus groups
Watch how different customers navigate through a series of Web site test designs
Cost of usability testing is low compared to the total cost of a Web site design or overhaul

44. Review Questions … What business are suited for E-Commerce?
Combination of traditional + E-Commerce?
Traditional Commerce Only?

45. Amazon.com Case Study
What are the benefits and limitations of Amazon's online retail model?
How does Amazon.com change the market for books?
Amazon has a huge catalog of products for sale. How does the design of Amazon's web site facilitate the user's effort to locate a particular product?
What is collaborative filtering? How does Amazon use this technique to encourage sales?
Amazon lets its customers sell used books along side the new versions. Is this a reasonable business practice, of does it unfairly undermine the market for new books?