MAR 6936902

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MAR 6936-902

• E-Commerce Marketing
• Fall 2002Tampa--MBA
• Business Models Chapter 5
• Rich Gonzalez
• October 17, 2002 (Week 8)

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For Site/Model Evaluation

• Today Please peruse Nielsen Tahir book
  Homepage Usability
  
• Make a selection of a site if you wish
• We still have 2 weeks before you will have enough
  evaluation criteria for the business model and
  the web site

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URLs

• www.cdbaby.com
• www.pcflowers.com/
• wsj.com
• http//zdnet.com.com/2100-1107-944735.html
• Media Center PCs and Securityhttp//www.zdnet.com
  /anchordesk/stories/story/0,10738,2884933,00.html
  

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Agenda October 17, 2002

• Analysis Paper 4 Discussion
• Review Last Week
• Business Models Chapter 5
• Due For October 24

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For Today October 17

• Analysis Paper 4
• Chapter 5Business Models
• WSJ Online Find any article relating to a
  subject about e-commerce and post a comment or
  opinion to the listserv (mention the article
  title)
• BusinessWeek Dont Clamp Down Too Hard, p140,
  October 14, 2002
  

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For October 24

• AOL Is Relearning Its ABCs, p52, BusinessWeek,
  October 14, 2002
  
• Strategy and the Internet, Michael Porter,
  Harvard Business Review, March 2001 (Handout)
  
• Prices Just Keep Plunging, p38, BusinessWeek,
  October 21, 2002Hold for Later

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(No Transcript)
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Last Time

• ...we talked about the digital content
  industries.
  
• Change, Technology, Turbulence, Deconstruction,
  Reconstruction, Disintermediation
  
• Business Models Under Attack

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In Class Problem Resolution

• Some nice points, i.e.,

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Another View

• zdnet.com.com/2100-1107-944735.html
• Use this Janice Ian Interview for AP4
• Whatd YOU think?

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Strategic Competitive Advantage--Porter

• A competitive advantage is a super strength of a
  company, relative to competitors, that provides a
  distinctive value proposition to consumers, and
  is significantly valued by those consumers.
• It is sustainable.

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Strategy

• The essence of strategy is choosing to perform
  activities differently than rivals do.
  
• Must be flexible to respond rapidly to
  competitive and market changes. Michael E.
  Porter
  
• What Is Strategy?, Nov-Dec 1996, HBR

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BusinessWeek-- Dont Clamp Down Too Hard

• Read in Class

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Weekly Analysis Paper 4

• Subject Digital Content Business
  ModelsProspects and Strategy
  
• Requirements (use bolded headings)
• A. Analysis (Main Problems)
• B. Pathways To Solutions
• C. Ideal Innovation

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AP 4Main Problems

• The evil of digital content is also the
  beautyperfect copies, infinitely distributable,
  easily manipulable
  
• Customers/producers have created their own
  distribution channelpeer to peer networking
  
• Industry Inertia
• More Potential unintended duplication of creative
  contentlegal problems
  

In Class Exercise
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AP 4Solution Pathways

• Outlaw peer to peer software
• Find some way for customers to sample music
  without much risk
  
• Pricing
• Cross-licensing
• Security in hardware
• Give all content away

In Class Exercise
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AP 4Ideal Innovations

• Technology which controls copying
• Intelligent Internet that would intervene to
  control bits transmission
  
• File transmission linked to sender identity

In Class Exercise
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• Start here on Oct 17

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Business Model

• Value Proposition
• What you give and what you get
• Value and Revenues
• How will the business win?

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Business Model

• 1. Value Proposition or Target Cluster
• 2. A Marketspace Offering
• 3. Unique and Defensible Resource System
• 4. Financial Model

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Business Models

• Would you rather be a Dot-Com or a
  Bricks-and-Mortar business?

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Components of a Business Model
Developing a business model in the networked
economy requires four key choices on the part of
the senior management
Value Cluster

• Specify the value proposition or the value
  cluster for the business

Marketspace Offering

• Articulate the online product, service and
  information offer

Resource System

• Define how the company needs to align its
  resources to deliver the value proposition

• Define and select the most appropriate revenue
  model to pursue

Financial Model
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What Do Customers Care About?
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Myth Consumers Care Only About Prices Online
Percentage of Customers Who Care About Attribute
Attribute
Source JP Morgan Report etailing and the five
Cs
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Argument

• The Internet Leads to Commoditization of All
  Products, i.e., Palm VII
  
• True?

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Value Proposition/Cluster
The first step in the articulation of the
business model is clearly specifying the value
proposition or the value cluster for the
business

• Defining the value proposition or the value
  cluster requires answering the following
  questions
  
• Which target segments should the company focus
  on?
  
• What is the combination of customer benefits
  that is offered?
  
• What makes the firm and its partners better
  positioned to deliver the offering than anybody
  else?

Value Cluster
Marketspace Offering
Resource System
Financial Model
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Value Proposition/Cluster
The definition of the value proposition is the
result of a combination of choices about the
customers, the benefits offered and the unique
capabilities of the firm
Target Segments
Key Benefits Offered
Unique Capabilities
Value Proposition


The special occasion segment

• Online experience
• Unique, broad product line of complementary gifts

PC Flowers Gift

• Fresh flowers
• Complementary gifts
• Low prices

PC Flowers Gift serves the special occasion
segment by providing fresh flowers and unique
complementary gifts
Mid- to high-end market

• Strong brand name
• Market Communication
• Supplier network

• Easy delivery of flowers

FTD.com provides the mid- to high-end market
with the easiest way to send flowers thanks to
its extended network of suppliers
FTD.com
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Flowers Competitors p145

• PC Flowers Gifts
• Proflowers.com
• FTD.com
• 1-800-Flowers.com

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PC Flowers and Gifts

• "I had to do it. I had to do it. Everybody said
  it couldn't be done. Everybody said, It won't
  work.' " Bill Tobin 1998

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PC Flowers and Gifts

• October 17, 2002
• www.pcflowers.com/

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Component 1 Start
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Superior Value Proposition

• The value proposition is the total market
  offering to customers and is closely related to
  the Four-P marketing mix.
  
• A superior value proposition can be based on a
  superior product, price, distribution or
  promotion or a superior combination of these.

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Marketspace Offering
The next step is to articulate the online
product, service and information offering
Value Cluster

• Defining the Marketspace offering requires
  managers to complete the following sequential
  tasks
  
• Identify the scope of the offering
• Identify the customer decision process
• Map the offering to the consumer decision process

Marketspace Offering
Resource System
Financial Model
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Marketplace Offering

• 1. Scope of OfferingCategory Specific Dominance
  Single CategoryCross-Category Dominance Many
  related categories
  
• 2. Identify the Customer Decision Process (CDP)
• 3. Map the Offering to CDP

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Customer Decision Process
The second step in the construction of the online
offering is the articulation of the customer
decision process for the various product
categories
Flowers Example
Problem Recognition

• Need recognition, potentially triggered by a
  holiday, anniversary or everyday events
  

• Search for ideas and offerings, including
• Available online and offline stores
• Gift ideas and recommendations
• Advice on selection style and match

Prepurchase
Information Search
Evaluation of Alternatives

• Evaluation of alternatives along a number of
  dimensions, such as price, appeal, availability,
  etc.

Purchase
Purchase Decision

• Purchase decision
• Message selection (medium and content)

Satisfaction

• Post-sales support
• Order tracking
• Customer service

Postpurchase
Loyalty

• Education on flowers and decoration
• Post-sale perks

Disposal
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Mapping the Offering to CDP
The last step in the construction of the online
offering is mapping the products and services
onto the customer decision process

• What occasions trigger the need for my product?
  What tactics can be used to stimulate demand?

Customer Decision Process

• Need Recognition

• What information would the consumer need to make
  a selection?

• Search for Ideas and Offerings

• Post-Sale Support and Perks

• What post-sale services can the website offer to
  create loyalty?

• Evaluation of Alternatives

• What are the key evaluation criteria that the
  consumer will use to evaluate my product/service?
  What information should the website offer to make
  the consumer comfortable with his or her choice?

• Purchase Decision

• What functionality should the site present to
  communicate privacy, trust and security?

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Djangos

• Need Recognition
• Support
• Facilitation
• Post-Purchase

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Djangos Delivers From

• San Diego, CA
• Oak Park, IL
• Portland, OR
• Sherman Oaks

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Resource System
Define the resource system and how the company
must align it to deliver the benefits in the
value proposition
Value Cluster

• Identify core benefits in the value cluster.
• Identify capabilities that relate to each
  benefit.
  
• Link resources to each capability.
• Identify to what degree the firm can deliver
  each capability.
  
• Identify partners who can complete capabilities.

Marketspace Offering
Resource System
Financial Model
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Identify Core Benefits
1-800-Flowers.com serves the mid- to high-end
market. Strong brand name, product and media pa
rtnerships and bricks-and-mortar network of
franchises.
The core benefits must be identified in the
construction of the value cluster
Broad Assortment of Gifts
High Quality of Flowers
Customer Service
Widespread, Easy Access
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Link Capabilities to Benefits
Identify which capabilities are required to
deliver each benefit, regardless (at this point)
of the ability of the company to access or
develop that capability
For 1-800-Flowers.com, the benefit widespread,
easy access is linked to four capabilities
strong brand name, wide reach to customers,
multiple points of contacts and a popular
website.
Broad Assortment of Gifts
High Quality of Flowers
Popular Website
Multiple Contact Points
Widespread, Easy Access
Customer Service
Wide Reach to Customers
Strong Brand Name
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Link Resources to Capability
Firm should determined the resources necessary to
deliver each capability
Broad Assortment of Gifts
High Quality of Flowers
Popular Website
Telephone
3,000 Affiliates
Online
Franchise Stores
Multiple Contact Points
Widespread, Easy Access
Catalog
Customer Service
Wide Reach to Customers
Strong Brand Name
Core benefits
Activities assets
Capabilities
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Ability to Deliver Capabilities
Assess whether the company has all the necessary
capabilities in-house or if it has to look
outside and select the most appropriate partners
to complete the missing capabilities.
1-800-Flowers.com would not be able to deliver
the capability wide reach to customers alone,
and therefore would need to create partnerships.
Companies like MSN, AOL and Snap are potential
partners.
Broad Assortment of Gifts
High Quality of Flowers
Popular Website
Multiple Contact Points
Starmedia
Widespread, Easy Access
Customer Service
MSN
Wide Reach to Customers
AOL
Snap
Core benefits
Strong Brand Name
Activities assets
Capabilities
Partners
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This is where we stopped

• ...then skipped over to the Michael Porter
  material at the end of this slide file.

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Type of Financial Models
A variety of financial models can be used to
assess the value of the business model that
follows from the resource system. Three examples
are
Revenues Models
Shareholder Value Models
Growth Models

• Identify the flow of cash into the organization

• Assess how the company intends to generate cash
  flow or shareholder value

• Assess how the company will be able to drive
  revenue growth

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Revenue Models
Some used most frequently
Advertising

• Advertising revenues can be generated through
  the selling of ads, site sponsorships, event
  underwriting, etc. (e.g., Yahoo, AOL,
  Business2.com)

Product, Service, Information

• Revenues can be generated from the sales of
  goods and services (e.g., Amazon, CDNow, Google
  Answers)

Transaction

• Revenues can be accrued from charging a fee or
  taking a portion of the transaction sum for
  facilitating a customer-seller transaction (e.g.,
  eTrade, eBay)

Subscription

• Website can gain revenues by offering
  subscription services for information (e.g.,
  FT.com, NYTimes.com)

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Shareholder Value Models
Shareholder value models help identify how a
company plans to generate cash flow or
shareholder value. They can be grouped in two
broad categories, based on the source of value
creation
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Company- and User-Derived
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Company-Derived
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Does Profit Matter? Build Profit or Build User
Base?
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Would You Rather Be a Dot-Com or a
Bricks-and-Mortar Business?
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Porter Strategy Model
Three basic strategies, each implies different
business model
Only one strategy at the time
Possible Strategies
Differentiation
Cost
Niche

• Requires constant innovation and leadership on
  the benefits that matter most to the customer

• Focus on gaining competitive advantage on costs
  while maintaining parity level on differentiation

• Focus the business on a particular segment of
  the market and then pursue either differentiation
  or cost strategy

Business Model
Networked Economy Example

• Travelocity.com

• Lowestfare.com

• Lastminute.com

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Rayport, Jaworski and Siegal Model

• Key concepts
• 2x2 table to categorize businesses based on the
  Source of Content Origination and the Focus of
  Strategy
  
• Four pure-play approaches, and hybrid approaches

Source of Content Origination
Multiple Brand
Single Brand
Supply-Side
Demand-Side
Focus of Strategy
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Component 4 Finish
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Strategy

• Is about planning, direction, preparedness.

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Porter

• Doesnt like the new economy

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Porter

• Internet An Enabling Technologya Powerful Set
  of Tools For Almost Any Industry and Strategy
  

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Porter

• eBay vs. Buy.com
• First Mover Advantage
• Customer Switching Costs
• Winner-Take-All
• Internet Brands
• Partnerships
• Profitability

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End Here