1. 1 E-C Strategies Value Realization Changing Industry Structures Conclusion

2. 2 Value Creation vs. Value Realization Who captures the value? Buyer or the Seller? Example: ATM case in Banking Competitive advantage or necessity?

3. 3 Buyer’s Strategies 3. Control Transaction 6. Induce commoditization 5. Cost transparency 1. Transaction cost reduction 2. Dictate price 4. One-to-one Negotiation

4. 4 Bargaining Costs Enforcement Costs Decision Costs Policing Costs Reduction of Buyer’s Transaction Costs Search Costs Information Costs 1. Buyer’s Transaction Costs

5. 5 2. Buyer Dictates Price Priceline.com started this tactic  Its stock price is down  It abandoned grocery and gas businesses  But it created an idea Shop2gether.com for small businesses Can buyers band together like never before?

6. 6 3. Buyer Controls Transactions FreeMarkets example  Select and train suppliers  Select lot size  Design bid event  Increase competitive intensity Reverse auction has become popular!

7. 7 4. Return to 1-1 Negotiation - Bargaining was common before the industrial era. - Mass markets led to fixed-price trades. - Cost of negotiation was deemed too high! - That may be changing, thanks to agent technology. - Automate part or all of the negotiation process?

8. 8 5. Cost transparency The Internet equips the buyer with lot more information! Why is cost transparency bad for seller? -

9. 9 6. Commoditization – Buyer posts product requirements on the web – Two sellers meet requirements by modifying existing products – Buyer sees no difference between vendors – Buyer wants to pick the lower cost vendor – So, customization may lead to commoditization!

10. 10 Supplier’s Strategies 3. Customer retention 6. Reconfigure channel 5. Value Proposition 1. Pricing alternatives 2. Buyer’s total costs 4. Lock-in strategies

11. 11 1. Pricing Alternatives Differentiated pricing Not uniform pricing FordDirect.com to practice regional pricing Dynamic Pricing Price changes with time Airline industry as the prime example

12. 12 Workflow Cost Fulfillment Cost Carrying Cost Product Cost Transaction Cost Customer incurs multiple costs 2. Consider Buyer’s Total Costs

13. 13 Increasing customer retention by 5% increases profit by more than 25% (Bain & Company)! How can we retain customers on the Web? What are the drivers? (e.g., on-time delivery, product performance, and service) How can the Web help? How may the Web hurt? 3. Customer Retention

14. 14 4. Seller’s Lock-in Strategies Principles: - Use extranets to create lock-in - Create custom content Customer Benefits: - Reduce cycle time - Reduce errors - Increase control Examples: - Dell’s Premier Page - OfficeDepot.com

15. 15 5. Value Proposition Redefine product by adding new value Create new product combination thru bundling and versioning Reduce buyer’s risks

16. 16 6. Reconfigure Channel Provide on-line customer service Supplant intermediaries Find new customers Generate new revenue

17. 17 E-C Strategies Value Realization Changing Industry Structures Conclusion

18. 18 Industrial Revolution: Mass Production Economy of Scale Transportation Revolution: Rail & Road Air and Sea Market Revolution: Geographical Reach Trade Regulations Origins of Current Distribution Systems Right products at right place at the right time

19. 19 The New Landscape of Distribution Distribution Functions –Reassortment and sorting –Routinization –Searching Internet Impact –Death of distance –Homogenization of time –Irrelevance of location

20. 20 Distribution Functions Reassortment and sorting  Producers: Few goods of large quantities  Customers: Many goods of small quantities Routinization  Standardize size, delivery, payment  Automate ordering Searching  Search buyers for seller  Search sellers for buyer

21. 21 Internet Distribution Grid Reassortment and sorting RoutinizationSearching Death of distance Homogenization of time Irrelevance of location Music Maker: Customer selects songs Product Catalog On Web Direct selling to customers Sell anytime on the Web Supplier/Buyer location not limited Bidding on the Web Search from anywhere Routine updates vs. Web access Job sites with links to companies

22. 22 Reach: How many can you reach? Richness (Bandwidth, customization, interactivity) Changing Economics of Information

23. 23 Hierarchy: Rich information exchange, rigid Hyperarchy: Amorphous, permeable boundaries, alliances Changing Organization Structure

24. 24 Old Model Browser Search Engine Investment Database Fund Manager Your Bank Competitor Back office TellerCustomer New Model Transformation of Retail Banking

25. 25 Sellers Buyers Sellers Current Value Chain Shrinking It New Intermediaries Virtual Marketplace Transforming the Value Chain

26. 26 E-C Strategies Value Realization Changing Industry Structures Conclusion

27. 27 What did we learn? E-Commerce may begin with buying and selling. But its not just e-procurement or e-marketing. It changes customer expectations, encourages new entrants, and changes the dynamics of competition. E-Commerce leads to the reconfiguration of the industry value chain requiring strategic rethinking. While the dot-coms struggle to find their strategic bearing, incumbents face managing Web led changes. Ultimately, E-Commerce may change industry structure. Retailers may use the Internet as a channel. Exchanges may redefine buyer-supplier relations. Buyers may attempt to grab more power. Supply chains may or may not support the e-commerce strategy.

28. 28 What challenges lie ahead? Dot-comsIncumbents Strategic Sales/Marketing Supply chain

29. 29 Conclusion Create and sustain the advantage! Value Creation Value Realization Competitive Advantage +

30. 30 What is the value proposition? How much can we capture? Can we execute the strategy? Can we sustain the advantage? Conclusion: Four Questions