1. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-1 Competing on the ‘Net: Building Virtual Advantage by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Chapter 5

2. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-2 What you will learn… How the Internet is redefining the basis of competition in many industries The basic types of Internet-driven business platforms: –Business-to-business –Business-to-customer –Customer-to-customer Slide 1 of 2

3. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-3 What you will learn… Economic conditions that give rise to different Internet business applications The concepts of disintermediation, value compression, and network effects Critical success factors that underpin the notion of virtual advantage What established firms need to think about when migrating to the Internet Slide 2 of 2

4. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-4 Ex. 5-1. Major Types of Internet Commerce Platforms Business-to-Business (B2B) Designed to help firms streamline costs and effects to work with other firms, especially suppliers. Business-to-Customer (B2C) Provides new medium and channel to reach customers with greater emphasis on convenience, customization, and speed. Slide 1 of 3

5. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-5 Ex. 5-1. Major Types of Internet Commerce Platforms Customer-to-Customer (C2C) Provides new medium and channel too reach customers with greater emphasis on convenience, customization, and speed. Slide 2 of 3

6. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-6 Ex. 5-1. Major Types of Internet Commerce Platforms: Examples Business-to-Business Chemicals Automotive Aerospace Metals Plastics Business-to-Customer Books Music Toys Airline tickets Financial services Slide 3 of 3 Customer-to-Customer Auction sites Employment/job searches Hobby interests

7. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-7 Ex. 5-2. E-Business vs. Traditional E-Business –Always open an on-24/7 –No geographic boundaries –High pricing transparency –Decisions have fast impact –Immediate competitor response –Customer has more power Traditional –Limited by time constraints/schedules –Physical location important –Availability of pricing uncertain –Decisions take time to implement –Competitor response time lagging –Supplier usually has more power Slide 1 of 2

8. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-8 Ex. 5-2. E-Business vs. Traditional E-Business –Easier to compare rival offerings –Firm is part of larger value network –Convenience and cost are key – as defined by the customer Traditional –Effort required to compare offerings –High distance between firms with suppliers and customers –Convenience and cost defined by supplier in many cases Slide 2 of 2

9. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-9 Ex. 5-3. Key Drivers of Internet-Based Business Models High information intensity Wide product selection Customer understands the nature of product/service Customer values customization/ convenience Product pricing highly transparent Product availability fluctuates Customers able to compare offerings on product variations

10. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-10 Ex. 5-4. Impact of the Internet on Competitive Strategy Disintermediation Removal of distributors or middlemen that separate provider from consumer Value Chain Effects Redefinitions and shifts in what firms do to provide value to customers. Rise of Network Effects More profound in technology-driven products, less prevalent in retailing

11. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-11 More Value Chain Effects May involve more outsourcing and a greater focus on customer service May promote the rise of infomediaries – information providers that serve as industry sources of pricing, products, and suppliers

12. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-12 The Internet and Virtual Advantage Virtual Advantage A type of competitive advantage based on speed, fast turnaround, and deep knowledge of the customers’ needs to create value faster than what competitors can do, often by focusing on a few core value-adding activities.

13. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-13 Ex. 5-5. Emerging Generic Sources of Virtual Advantage Speed of response Fast turnaround Deep knowledge of customer Customization of offering High convenience to customer Consistency of customer service Customer controls the relationship

14. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-14 Amazon.com Partnerships Amazon.com UPS Circuit City Ingram’s Books Target Toys ‘R’ Us Publishers

15. Copyright ©2003 by south-Western, a division of Thomson Learning. All rights reserved. Slide 5-15 Internet and Established Firms Challenge: How to harness Internet without disrupting existing relationships Exposure of value chain to “competitive bidding” Changing role of distributors Reshaping of purchasing and logistics Highly standardized products vulnerable Technology to “bridge the gap”