Copyright © 2002 by Marketspace LLC Rayport, Jaworski e-Commerce Chapter 7 Enhanced Lecture Slides Metrics Exhibits and Tables.

Copyright © 2002 by Marketspace LLC

Rayport, Jaworski

e-Commerce

Chapter 7 Enhanced Lecture Slides

Metrics

Exhibits and Tables

Last Updated: 03/19/02Copyright 2002 by Marketspace LLC

Metrics — Today’s Objective

Develop an understanding of how to assess the financial and strategic performance of an e-business company.


Chapter 7:Metrics

Purposes of metrics Comprehensive measures of performance Implementing performance metrics Example of metrics development: MarketWatch.com Sources of metrics information Case study: Schwab Conclusion


Chapter 7:Metrics

Purposes of metrics

Comprehensive measures of performance

Implementing performance metrics

Example of metrics development: MarketWatch.com

Sources of metrics information

Case study: Schwab

Conclusion


Supporting Exhibit 7–A: Purposes of Metrics

Clarify strategic prioritiesSpecify value proposition

Outline specific goalsObtain employee buy-in

Receive feedbackModify tactics

Link to performance appraisal systemTie individual performance to metrics for the company, the

team and the individual.

Harmonize individual objectives, departmental goals and companywide strategy.

Define Business ModelDefine Business Model

Communicate StrategyCommunicate Strategy

Align ObjectivesAlign Objectives

Track PerformanceTrack Performance

Increase AccountabilityIncrease Accountability

Managers can use metrics to evaluate a business’s progress in the following areas:Examples


Supporting Exhibit 7–B: Challenges to Specifying Metrics for Online Businesses

Companies’ strategies change rapidly.

Online measurement is resource intensive.– Development of systems to capture data can require significant

capital investment and human resources.– Data mining is often needed to make data usable.– The amount of Information generated can overwhelm managers.

Online metrics are still evolving.– There is little agreement on which measures are appropriate.– Some metrics are ambiguous (e.g., amount of time spent at site).– Data capture is subject to manipulation.

“Hard” measures are needed for investment community, but “soft” measures are often the best early indicators of site performance.

Some reasons why many online businesses do not take a systematic approach to developing and applying metrics:


Chapter 7:Metrics

Purposes of metrics





Case study: Schwab

Conclusion


Exhibit 7–1: The Balanced-Scorecard Strategy In Operational Terms

Financial

To succeed financially, how should we appear to our

shareholders?

Internal Business Process

To satisfy our shareholders and customers, what businesses

must we excel at?

Customer

To achieve our vision, how should we appear to our

customers?

Learning and Growth

To achieve our vision, how will we sustain our ability to change

and improve?

Visionand

Strategy

Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February 1996): 76.

The “Balanced Scorecard” was developed in response to managers’ tendency to focus too heavily on short-term financial performance.


Supporting Exhibit 7–C: The Balanced Scorecard – Typical Measures

Internal Business Process

Innovation: perceived innovativeness, percent of sales from new products. Operations:

order processing, cycle time, delivery time, number of errors.

Post-sale service: returns, warranty processing, response

time, payment processing.

Customer

Market share, customer acquisition, customer satisfaction, customer

profitability.

Learning and Growth

Employee: selection, training, retention, satisfaction.

Information systems: timeliness, accuracy, data utility.

Motivation: personal and company goal alignment.

Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February 1996): 76.

Financial

Revenue, revenue growth, gross margins, operating

income, net margin, earnings per share, cash flow.


Overall Strengths Online Limitations

Balances managers’ tendency to focus on short-term financial performance by including metrics for internal business processes and customer responses

Provides managers with early-

warning system that enables corrective measures to be taken before financial measures weaken.

Starts with firm strategy to drive

metrics

Encompasses metrics in several

areas: financial, customer, internal business process, and learning and growth

No clear definition of strategy or business models

Unclear location of organizational

capabilities

Does not address partnerships

Supporting Exhibit 7–D: Strengths of Balanced Scorecard and Limitations for Online Businesses


Exhibit 7–2: The Performance Dashboard

Financialmetrics

Financialmetrics

Steps of Strategy

Customerinterface

Customerinterface

Branding andimplementationBranding and

implementation

Performance Dashboard

Marketopportunityassessment

Marketopportunityassessment

Businessmodel

Businessmodel

Branding andimplementation

metrics


metrics

Customerinterface and

outcomemetrics

Customerinterface and

outcomemetrics

Businessmodel metrics

Businessmodel metrics

Opportunitymetrics

Opportunitymetrics

EvaluationEvaluation

Like the Balanced Scorecard, the Performance Dashboard is intended to reflect a business’s health. The business strategy process drives metrics in this framework:


Supporting Exhibit 7–E: Introducing the Performance Dashboard

FinancialFinancial

Steps of Strategy:

Customer interfaceCustomer interface Branding andimplementation


Performance Dashboard:

Areas Addressed:Size of market

opportunity

Attractiveness of target segments

Competitive landscape

Customer lifetime value

Customer satisfaction

Site experience and usability

Branding

Delivery system

Innovation capabilities

Revenue

Profit

Cost

Balance sheet

Market opportunityMarket opportunity Business modelBusiness model


Branding andimplementation CustomerCustomerBusiness modelBusiness modelMarket opportunityMarket opportunity

Uniqueness of value proposition

Attractiveness of offering

Firm capabilities relative to competition

Relationship with suppliers, partners

EvaluationEvaluation


Exhibit 7–3: Life Cycle of a Company

Startup/BetaStartup/Beta CustomerAcquisitionCustomer

Acquisition MonetizationMonetization MaturityMaturity

Develop a platform for rapid growth by building a strong team and creating a flexible site

Build market share as quickly as possible by aggressively spending on partnerships and promotion

Increase revenues and customer lock-in by developing new revenue streams

Control costs and optimize marketing expenditures to achieve profitable growth

6 months - 1 year 1 - 2 years 2 - 5 years > 5 years

Strategy

Business.com Paypal.com Evite.com

Yahoo Amazon.com

Schwab AOL

Examples*

* At time of writing (March 2000)

Strategy changes throughout a company’s life cycle, increasing or decreasing the importance of each metric.


Chapter 7:Metrics

Purposes of metrics





Case study: Schwab

Conclusion


Exhibit 7–4: Blueprint to the Performance Dashboard

Step One: Articulate business strategy

Step One: Articulate business strategy

Step Two: Translate

strategy into desired

outcomes

Step Two: Translate

strategy into desired

outcomes

Step Three: Devise metrics

Step Three: Devise metrics

Step Four: Link metrics to leading

and lagging indicators

Step Four: Link metrics to leading

and lagging indicators

Step Five: Calculate

current and target

performance

Step Five: Calculate

current and target

performance

Def

ine

goal

s an

d va

lue

prop

ositi

onD

efin

e go

als

and

valu

e pr

opos

ition

Market Opportunity•Opportunity size?•Competitive environment?

Market Opportunity•Opportunity size?•Competitive environment?

Customer•How to acquire customers?•How will customers change?•The customer experience?

Customer•How to acquire customers?•How will customers change?•The customer experience?

Implementation and Branding

•How to develop brand?•How to go to market?


•How to develop brand?•How to go to market?

Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?

Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?

Market Opportunity•Market size and growth•Average age and income•Competitor concentration

Market Opportunity•Market size and growth•Average age and income•Competitor concentration

Customer•Market share•Purchases per year•Success rate•Number of service requests

Customer•Market share•Purchases per year•Success rate•Number of service requests

Implementation•Customer brand awareness•System uptime percentage•Number of IT staff members•Percent of inaccurate orders

Implementation•Customer brand awareness•System uptime percentage•Number of IT staff members•Percent of inaccurate orders

Financial•Revenue•Profit•Earnings per share•Debt to equity ratio

Financial•Revenue•Profit•Earnings per share•Debt to equity ratio

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step 2

•Ensure that targets are consistent with each other

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step 2

•Ensure that targets are consistent with each other

Business Model•Unique value proposition?•Capabilities vs. competition?

Business Model•Unique value proposition?•Capabilities vs. competition?

Business Model•Customer-perceived benefits•Exclusive partnerships•$ invested in technology vs. competition

Business Model•Customer-perceived benefits•Exclusive partnerships•$ invested in technology vs. competition


Chapter 7:Metrics

Purposes of metrics





Case study: Schwab

Conclusion


Personal Finance Process

Investor’s Primer IPO Basics Financial Glossary

Broker Decision Center

Datek Online Fidelity Investments National Discount Brokers Ameritrade DLJ Direct

Sharebuilder Payment Calculator Home Price Checker Best Credit Card Rates Insurance QuickQuote

Private Email People Watch Hot Discussions Weekly Poll

Market guide Hoover’s Online Multex Annual Reports Club INVESTools Over 250,000

Investment ResearchReports

Interactive Charting Historical Charts

Fund Profile Fund Charts

Market Monitor Major Indexes Dollar Volume

Leaders

BellwetherBonds Report

Futures Contracts After-Hours Futures

Key RateSnapshot

InternationalIndexes

Non-Us Stocks

Thom Calandra’s Stockwatch Bambi Francisco’s Net Sense Bezderick on Bonds eNewsletters

News Watch Email Alerts Real-time Headlines Marketwatch Live Esignal Hotstock Tracker

Contributions To:– CBS The Early Show– CBS Evening News– CBS Newspath

Contribution toWestwood RadioNetwork

LearnAbout

PersonalFinance

PlanInvestment

Strategy

Stay Updated onLatest News

DevelopInsight

PerformInvestment

TrackInvestments

Television Radio

Stocks

Funds

US Markets

Bonds

Global Markets

Futures and Options

Commentary

Third Party Sources

Tools

Community

Sponsorships by Online Brokerages

Online

Portfolio View Portfolio Analyzer Portfolio Allocation Portfolio Forecast

Breaking News

Market Figures

Supporting Exhibit 7–F: MarketWatch.com Strategy

“To be a leading provider of comprehensive, real-time business news, financial programming and

analytic tools”

“To be a leading provider of comprehensive, real-time business news, financial programming and

analytic tools”

1. Value Proposition1. Value Proposition3. Resource System3. Resource System

2. Marketspace Offering2. Marketspace Offering

Metrics development using the Performance Dashboard:Step 1: Articulate the business strategy (Customer Acquisition Stage)

Learn

Track Investments


User Interface and Outcomes


Market Opportunity Market Opportunity

Business Model Business Model



Financial Evaluation Financial Evaluation

Supporting Exhibit 7–G: MarketWatch.com Desired Outcome Summary

Significant opportunity Moderate degree of

competition

Significant opportunity Moderate degree of

competition

Revenue Profit Cost Balance sheet

Revenue Profit Cost Balance sheet

Brand awareness vs. competition

Best-in-class IT infrastructure

Brand awareness vs. competition

Best-in-class IT infrastructure

User acquisition User online behavior User satisfaction and

loyalty

User acquisition User online behavior User satisfaction and

loyalty

Value proposition vs. competition

Capabilities vs. competition Sustainability of value

proposition

Value proposition vs. competition

Capabilities vs. competition Sustainability of value

proposition

BusinessModel

BusinessModel

Step 2: Translate strategy into key outcomes (Customer Acquisition Stage)


Supporting Exhibit 7–H: MarketWatch.com Metrics

•Significant opportunity– Online advertising market size– Percent of of online advertising that is related to finance content– Online financial ads CPM (cost per thousand impressions)– Number and percent growth of online brokerage accounts

•Segment with moderate degree of competition– Site traffic vs. competitors (e.g., unique visitors, page views, time spent on site) – Rate of competitive entry/exit– Number of mergers/acquisitions – Competitor advertising expenditures

•Significant opportunity– Online advertising market size– Percent of of online advertising that is related to finance content– Online financial ads CPM (cost per thousand impressions)– Number and percent growth of online brokerage accounts

•Segment with moderate degree of competition– Site traffic vs. competitors (e.g., unique visitors, page views, time spent on site) – Rate of competitive entry/exit– Number of mergers/acquisitions – Competitor advertising expenditures

Market Opportunity

Step 3: Choose metrics to track outcomes (Customer Acquisition Stage)


Supporting Exhibit 7–H: MarketWatch.com Metrics (cont.)


Business Model

•Value proposition vs. competition– Perceptions of key benefits vs. competition

•Capabilities vs. competition– Relative number and experience of journalists on staff– Number of markets where company operates– Cumulative reach of distribution partnerships– Percent of content that is outsourced– Production capacity

•Sustainability of value proposition– Exclusivity and duration of partnerships vs. competition– Number and duration of patents on tools and services

Business Model

•Value proposition vs. competition– Perceptions of key benefits vs. competition

•Capabilities vs. competition– Relative number and experience of journalists on staff– Number of markets where company operates– Cumulative reach of distribution partnerships– Percent of content that is outsourced– Production capacity

•Sustainability of value proposition– Exclusivity and duration of partnerships vs. competition– Number and duration of patents on tools and services




Branding and Implementation

•Brand awareness vs. competition– Aided brand awareness– MarketWatch.com brand associations vs. competition– Percent of users that fall into target segment

•Best-in-class IT Infrastructure– System uptime– Average download time– Maximum percent of servers down at any point in time– Maximum response time– Maximum information volume– Number of articles produced each day– Percent of site updated each day


•Brand awareness vs. competition– Aided brand awareness– MarketWatch.com brand associations vs. competition– Percent of users that fall into target segment

•Best-in-class IT Infrastructure– System uptime– Average download time– Maximum percent of servers down at any point in time– Maximum response time– Maximum information volume– Number of articles produced each day– Percent of site updated each day





•User acquisition costs– Number of unique visitors vs. competition– Percent of users coming from other sites– Relative marketing expenditures (as percent of revenues)– Percent of site visitors who register– Percent of visitors who purchase– Percent of visitors who return to site– Frequency of visits

•User online experience– Customer evaluation on 7Cs vs. competition– Average minutes spent at site per user– Popularity of individual articles– Average time to complete a task– Number of negative feedback items per time period

•Customer satisfaction and loyalty– User loyalty– Satisfaction overall and by attribute vs. competition– User churn rate


•User acquisition costs– Number of unique visitors vs. competition– Percent of users coming from other sites– Relative marketing expenditures (as percent of revenues)– Percent of site visitors who register– Percent of visitors who purchase– Percent of visitors who return to site– Frequency of visits

•User online experience– Customer evaluation on 7Cs vs. competition– Average minutes spent at site per user– Popularity of individual articles– Average time to complete a task– Number of negative feedback items per time period

•Customer satisfaction and loyalty– User loyalty– Satisfaction overall and by attribute vs. competition– User churn rate




Financial Evaluation•Revenue

– Total revenue and revenue growth– Revenue breakdown by advertising, licensing, subscription, other– Total revenue per page view

•Profit– Total loss and percent decrease of loss over time– First expected profitable quarter

Cost– Total cost– Customer acquisition cost– Percent of revenues spent on marketing and sales

•Balance sheet– Stock price– Available funds in liquid assets– Cash burn rate– Average days receivables

Financial Evaluation•Revenue

– Total revenue and revenue growth– Revenue breakdown by advertising, licensing, subscription, other– Total revenue per page view

•Profit– Total loss and percent decrease of loss over time– First expected profitable quarter

Cost– Total cost– Customer acquisition cost– Percent of revenues spent on marketing and sales

•Balance sheet– Stock price– Available funds in liquid assets– Cash burn rate– Average days receivables


Supporting Exhibit 7–I: MarketWatch.com Linking Metrics

Market Opportunity

Market Opportunity

Business Model

Business Model



Customer Interface

Customer Interface FinancialFinancial

Competition underserving

market

Competition underserving

market

Unique value

proposition

Unique value

propositionBuild brandBuild brand Brand

awareness

Brand awareness

Attractive segments

that company can serve well

Attractive segments

that company can serve well

Attractive offering to

users

Attractive offering to

users

Develop improved offering to

users

Develop improved offering to

users

Satisfaction and loyalty

Satisfaction and loyalty

Leverage capabilities to deliver offering

Leverage capabilities to deliver offering

Invest in IT infrastructure

Invest in IT infrastructure

Optimized system costs

Optimized system costs

Ad revenueAd revenue

Other revenue sources

Other revenue sources

UsageUsage

ProfitProfit

System reliability

System reliability

Step 4: Map leading and lagging indicators (Customer Acquisition Stage)


Supporting Exhibit 7–J: MarketWatch.com Metrics at Two Time Points

Source: MarketWatch.com, Media Metrix

Step 5: Calculate current and target levels for select metrics (Customer Acquisition Stage)

MarketWatch.com tracks key metrics vs. competitors. Target performance is generally to become the best performer. Monthly fluctuations are important to track, because they can indicate trends and identify areas that need changes.

September 2000 October 2000 Metric

MarketWatch value

Market position

Best performer MarketWatch

value Market

position Best performer

Unique visitors (in thousands)

3,698 1 N/A 3,724 1 N/A

Reach 4.8% 1 N/A 4.7% 1 N/A

Average minutes spent per usage

8.8 9 35.6

(CNBC.com) 12.6 9

28.5 (CNBC.com)

Average unique pages per visitor

7.1 10 28.9

(CNBC.com) 10.4 7

23.0 (money

central.com)


Chapter 7:Metrics

Purposes of metrics





Case study: Schwab

Conclusion


Supporting Exhibit 7–K: Information Sources for MetricsData collected internally are important, but external data are also useful for benchmarking and performance tracking:

Data Type Sample Measures Sample Sources

Market research Site usability

Customer satisfaction

Site traffic

BizRate.com

Jupiter Media Metrix

AC Nielsen

Analyst reports Industry trends

Company or site ratings

Forrester

Aberdeen Group

Frost and Sullivan

IDC

Financial information Company profiles

Financials

Industry and market comparative data

Hoover’s Online

Edgar Online

DLJ Direct

SEC filings


Table 7–1: POV: Bill Gurley on the Power of Conversion Rates

Conversion Rate 2% 4% 8%

Advertising spend 10,000$ 10,000$ 10,000$

Visitors 5000 5000 5000

Transactions 100 200 400

Cost per transaction 100$ 50$ 25$

Revenue 10,000$ 20,000$ 40,000$

Marketing/revenue (%) 100% 50% 25%

Average transaction size = $100

Source: J. William Gurley, “The Most Powerful Metric of All,” CNET News.com, 21 February 2000.

A website’s conversion rate is a key metric of performance. Small increases in customer conversion can significantly impact marketing costs per transaction.


Table 7–2: US Top 25 Web and Digital Media Properties (March 2000)

Source: Media Metrix press release, 31 March 2000.

The number of unique visitors to a site is a key metric for the customer interface.Rank Digital Media/Web Unique Visitors

(000) 1 AOL Network 59,858 2 Yahoo Sites 48,336 3 Microsoft Sites 46,581 4 Lycos 32,899 5 Excite @ Home 28,571 6 Go Network 23,006 7 NBC Internet 17,169 8 Amazon 15,217 9 Time Warner Online 13,636 10 Real.com Network 13,482 11 Go2Net Network 13,041 12 AltaVista Network 12,557 13 About.com Sites 12,329 14 Ask Jeeves 12,269 15 eBay 11,155 16 LookSmart 10,557 17 ZDNet Sites 10,226 18 CNET Networks 10,023 19 eUniverse Network 9,198 20 JUNO/JUNO.COM 9,177 21 EarthLink 8,526 22 Infospace Impressions 8,305 23 Viacom Online 8,139 24 FortuneCity Network 7,809 25 CitySearch-TicketMaster

Online 7,689


Supporting Exhibit 7–L: US Top 25 Web and Digital Media Properties (December 2000 and November 2001)

Source: Media Metrix press releases, 16 January 2001 and 26 December 2001

2000 2001 Rank Web/Digital Media Unique Visitors

(in thousands) Rank Web/Digital Media Unique Visitors

(in thousands) 1 AOL Network 60,562 1 AOL Time Warner Network 83,843 2 Yahoo sites 54,626 2 MSN-Microsoft sites 74,782 3 Microsoft sites 53,809 3 Yahoo sites 71,976 4 Excite Network 30,819 4 Terra Lycos 38,299 5 Lycos 29,965 5 Vivendi-Universal sites 35,793 6 About the Human Internet 21,279 6 About/Primedia 30,974 7 Amazon 21,053 7 Amazon sites 30,326 8 Walt Disney Internet Group 20,469 8 eBay 28,364 9 CNET Networks Digital 19,953 9 American Greetings Property 25,540 10 eBay 19,536 10 CNET Networks 23,262 11 Alta Vista Network 18,718 11 eUniverse Network 23,054 12 Infospace Impressions 18,042 12 Google Sites 22,256 13 Time Warner Online 17,027 13 InfoSpace, Inc. 21,928 14 NBC Internet Site 15,921 14 Excite Network 20,723 15 eUniverse Network 15,134 15 Walt Disney Internet Group 20,123 16 Look Smart 13,647 16 Ask Jeeves 17,667 17 Grab.com 13,479 17 Viacom Online 17,366 18 Real.com Network 12,753 18 Classmates.com sites 15,080 19 The Weather Channel 12,461 19 Real.com Network 14,823 20 The Uproar Network 11,889 20 AT&T Properties 14,724 21 Ask Jeeves 11,853 21 Columbia House sites 14,508 22 Viacom Online 11,825 22 Gator Network 13,093 23 American Greetings 9,355 23 Ticketmaster sites 12,526 24 Network Commerce 9,150 24 Bizrate.com 12,092 25 AT&T Websites 9,121 25 United Airline, Inc 11,573


Exhibit 7–5: Market Research Source — BizRate.comBizRate asks consumers to rate the performance of an online store.

“Ten dimensions of service”


Exhibit 7–6: Analyst Source — ForresterForrester ratings are based on expert reviews and customer surveys.


Exhibit 7–7: Financial Information Source — Hoovers OnlineHoover’s Online provides industry information and profiles of individual companies.


Exhibit 7–8: Mapping Internet Research Onto the Performance Dashboard

Market

Implementation

Customer

Financial

Market Research AnalystFinancial

Information


Supporting Slide 7–M: Point-Counterpoint: Which is Better? User-Based or Expert-Based Research Content?

Point-Counterpoint

User-Based Research Content Expert-Based Research Content

Users buy, use and rate often, keeping reviews up to date

Extensive customer base reaches and rates a significantly larger number of sites than limited group of experts

Users tend to trust the opinion of other users more than the opinion of experts

Bias may be introduced because users are most likely to complete a survey if they have a strongly positive or negative opinion

Can analyze all aspects of interface experience, including features that users might be unaware of

Consistent rating scheme, ensuring that same criteria are enforced when comparing between websites


Supporting Slide 7–W: Point-Counterpoint:Which is Better? Offline or Online Data Sources?

Point-Counterpoint

Offline Research Online Research

Advantages Allows richer interactions, such as focus groups

and in-depth phone interviews Can address an unbiased group of respondents

- does not only address online respondents

Disadvantages Labor and time intensive - questions asked in

person by telephone or by filling out surveys Data collection is costly and not scalable - very

difficult to conduct extensive survey at the point of purchase

Data must be entered for analysis - resource intensive process, subject to human error

Cannot measure people’s behavior - only opinions

Only allows for low or highly costly interactivity - interactivity requires highly trained phone interviewers

Advantages Fixed cost with almost no variable cost and

hence is highly scalable Automatic data entry, eliminating unnecessary

labor, cost and potential for human error Easy-to-conduct point-of-purchase research Can ensure higher level of data completeness

and accuracy by performing automatic error and gap checks

Disadvantages Selection bias for people with Internet access Concerns over privacy, since many users are

not aware of how their data can or will be used


Exhibit 7–9: Metrics for Seamless Online/Offline Customer Purchase Process

Awareness of offline offer vs. awareness of online offer

Perceived benefits of online vs. offline offer

InformationAvailable offering information online vs. offlineCurrency of information online vs. offline

Security and privacy associated with purchasing

Customer serviceResponse time online vs. offline

Customer loyalty incentive programs online vs. offline

Exchange policies online vs. offline

AwarenessAwareness

KnowledgeKnowledge

Evaluation of alternatives

Evaluation of alternatives

PurchasePurchase

SatisfactionSatisfaction

LoyaltyLoyalty

DisposalDisposal

Pre

pur

chas

eP

ost-

purc

hase

Pur

chas

e

Well integrated online/offline businesses offer a seamless customer experience (front end).


Table 7–3: Metrics for Seamless Internal Business Processes and Operations

Ability to open accounts online and offline

Ability to access accounts online and offline

Integrated customer databases

InformationSharing

InformationSharing

FulfillmentSystems

FulfillmentSystems

Seamless order processing

Seamless order tracking

Integrated inventory keeping

Well integrated online/offline businesses offer a seamless set of internal business processes and operations (back end).


Chapter 7:Metrics

Purposes of metrics





Case study: Schwab

Conclusion


Exhibit 7–10: Charles Schwab — Customer Acquisition StageStep 1: Articulate the Business Strategy

“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”

Schwab Learning Center Live events Principles of investing Understanding market

cycles “Did you know” Q&A

Schwab signature services

Schwab AdvisorSource Options service Global investing service

Online chat with customer service representatives

Customer service via phone Customer service via e-mail Customer service at branch My Watch List

Margin loans Money transfers Automatic

investing Options service After-hours

trading Account

protection Bill payment

Overall General goal

planner Investor profile Sample

investment plansRetirement Retirement

planner IRA analyzer

Product Offering

Online Investment Process

Get educated about

investing

Plan investments

Decide on investment

Perform investment

Post-investment support

Perform research

Estate Estate tax and

probate calculator Alternatives

comparisonCollege College plannerTax Tax strategies IRS withholding

calculator

Overall Quotes and charts Analyst centerStocks and Options Stock analyzerBonds and Treasuries Schwab BondSource

servicesCDs and Money Markets SchwabOne

Annuities Schwab Select

annuityLife Insurance Insurance needs

calculator

Superior

service

Superior

service

Lower prices

Lower prices

Innovative

products

Innovative

products

1. Value Proposition

1. Value Proposition

2. Marketspace Offering

2. Marketspace Offering

3. Resource System

3. Resource System


Exhibit 7–11: Schwab Desired Outcome Summary Step 2: Translate strategy into key outcomes (Customer Acquisition Stage)

Market Opportunity

• Significant opportunity• Financially attractive segment• Competitively attractive segment

Business Model

• Value proposition vs. competition• Offer vs. competition• Capabilities vs. competition• Sustainability of value proposition

Customer Interface and Outcomes

• Lower customer acquisition costs• Transition customer base• Outperform competition on interface perceptions

• Customer satisfaction and loyalty


• Brand associations vs. competition• Best-in-class IT infrastructure• Ability to deliver brand promise

Financial Evaluation

• Revenue• Profit• Cost• Balance sheet

BusinessModel


Supporting Exhibit 7–O: Schwab Metrics Step 3: Choose metrics to track outcomes (Customer Acquisition Stage)

Market Opportunity

•Is the opportunity significant?– Discount brokerage share of total retail brokerage– Percent of growth rate of discount brokerage– Percent of customers in target segment

•Is the target segment financially attractive?– Number of individuals with medium or high net worth – Percent of target customers with Internet access

•How intense is competition in the target segment? – Relative market shares– Rate of competitive entry/exit

Market Opportunity

•Is the opportunity significant?– Discount brokerage share of total retail brokerage– Percent of growth rate of discount brokerage– Percent of customers in target segment

•Is the target segment financially attractive?– Number of individuals with medium or high net worth – Percent of target customers with Internet access

•How intense is competition in the target segment? – Relative market shares– Rate of competitive entry/exit


Supporting Exhibit 7–O: Schwab Metrics (cont.) Step 3: Choose metrics to track outcomes (Customer Acquisition Stage)

Business Model

•Value proposition vs. competition– Benefits offered by competitors– Relative perceived performance on key benefits

•Offer vs. competition– Importance of innovativeness, information, service, and low price to target customers– Superiority in moving customers through decision process– Superiority of products, service, information

•Capabilities vs. competition– Relative investment in technology– Relative brand awareness– Relative number of distribution channels– Relative number of strategic alliances

•Sustainability of value proposition– Exclusivity and duration of partnerships– Number and duration of patents– Average switching costs for customers

Business Model

•Value proposition vs. competition– Benefits offered by competitors– Relative perceived performance on key benefits

•Offer vs. competition– Importance of innovativeness, information, service, and low price to target customers– Superiority in moving customers through decision process– Superiority of products, service, information

•Capabilities vs. competition– Relative investment in technology– Relative brand awareness– Relative number of distribution channels– Relative number of strategic alliances

•Sustainability of value proposition– Exclusivity and duration of partnerships– Number and duration of patents– Average switching costs for customers




•Brand associations vs. competition– Unprompted brand awareness– Schwab brand associations– Schwab online investing associations

•Best-in-class IT Infrastructure– Trade capacity to volume ratio– Simultaneous users capacity– System uptime– Speed of routing information– Number of security breaches

•Ability to deliver brand promise– Number and staffing of branches– Salesperson training– Time to respond to and resolve problems– Percent of orders not filled or not filled accurately


•Brand associations vs. competition– Unprompted brand awareness– Schwab brand associations– Schwab online investing associations

•Best-in-class IT Infrastructure– Trade capacity to volume ratio– Simultaneous users capacity– System uptime– Speed of routing information– Number of security breaches

•Ability to deliver brand promise– Number and staffing of branches– Salesperson training– Time to respond to and resolve problems– Percent of orders not filled or not filled accurately




•Efficiency and effectiveness of customer acquisition– Customer acquisition cost– Online and offline marketing dollars– Number of new accounts– Churn rate

•Ability to transition customer base to website– Average user account balance– Number of trades per customer per year– Total assets in offline and online accounts– Percent of customers online and offline

•Outperform competition on interface perceptions– Customer evaluation on 7Cs– Site usability– Conversion rate– Failure incidence and service recovery– Completed service requests per user

•Customer satisfaction and loyalty– Customer satisfaction measures– Percent of users in frequent user programs


•Efficiency and effectiveness of customer acquisition– Customer acquisition cost– Online and offline marketing dollars– Number of new accounts– Churn rate

•Ability to transition customer base to website– Average user account balance– Number of trades per customer per year– Total assets in offline and online accounts– Percent of customers online and offline

•Outperform competition on interface perceptions– Customer evaluation on 7Cs– Site usability– Conversion rate– Failure incidence and service recovery– Completed service requests per user

•Customer satisfaction and loyalty– Customer satisfaction measures– Percent of users in frequent user programs



Financial Evaluation• Revenue

– Total revenue and revenue growth– Revenue breakdown by offering– Total transaction volume

• Profit– Total profit and profit growth– Profit breakdown– Earnings per share and growth

• Cost– Total cost– Cost breakdown by department– Cost per transaction

• Balance sheet– Debt to equity ratio– Corporate credit rating– Total margin loans– Margin loans spread

Financial Evaluation• Revenue

– Total revenue and revenue growth– Revenue breakdown by offering– Total transaction volume

• Profit– Total profit and profit growth– Profit breakdown– Earnings per share and growth

• Cost– Total cost– Cost breakdown by department– Cost per transaction

• Balance sheet– Debt to equity ratio– Corporate credit rating– Total margin loans– Margin loans spread


Exhibit 7–12: Charles Schwab – Customer Acquisition Stage Step 4: Map leading and lagging indicators

BusinessModel

BusinessModel

Implementationand Branding

Implementationand Branding CustomerCustomer FinancialFinancial

Build brand

Build brand

Increase system uptime

Increase system uptime

Train branch

staff

Train branch

staff

Improve customer service

Improve customer service

Increase customer

loyalty

Increase customer

loyalty

Increase profit

Increase profit

Optimize cost

Optimize cost

Increase revenue

Increase revenue

Investin

technology

Investin

technology

Increase number of

IT staff

Increase number of

IT staff

Increase customer satisfactio

n

Increase customer satisfactio

n

Increase usage

Increase usage

Acquire new

customers

Acquire new

customers

MarketOpportunity

MarketOpportunity

Avoid crowded markets

Avoid crowded markets

Play in attractive market

Play in attractive market

Target attractive segments

Target attractive segments

Leverage capabilitie

s to deliver offering

Leverage capabilitie

s to deliver offering

Provide unique

viewpoint

Provide unique

viewpoint

Provide attractive offering

Provide attractive offering


*Source: Nicole Tempest and Warren McFarlan, “Charles Schwab Corporation (B),” Case no. 9-300-507. Harvard Business School Publishing (13 September 1999).

Table 7–4: Charles Schwab – Customer Acquisition StageCurrent and Target Levels For Select MetricsStep 5: Calculate current and target levels for select metrics

Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$

Revenue growth 24% 10%

Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate

Revenue breakdownTrading 62%Non-Trading 38%

Trading 59%Non-Trading 41%

An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues

Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume

Average fee per trade 64.27$ $51.41

1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%

Profit

Post tax proft margin 19.50% 19.50%

Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs

Pre tax profit growth 14% 10%Profit breakdown

Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution

Earnings per share growth 14% 8%Non-Traditional Metrics * 13-Mar-00

Advice and Market Info 9.29Customer Service 9.84Features 8.83Transacting 10.81Usability 9.75Value 11.44Overall 59.95


Chapter 7:Metrics

Purposes of metrics Comprehensive measures of performance Implementing performance metrics Example of metrics development: MarketWatch.com Sources of metrics information Case study: Schwab Conclusion


Metrics — Conclusion

Why should senior managers be concerned with metrics? How does the Balanced Scorecard assess the performance of

firms? What are its strengths and weaknesses with respect to new-economy firms?

What are the steps to implement the Performance Dashboard? What types of data can firms use for metrics? What are the

strengths and limitations of each kind of data?

After today’s lesson, you should be able to answer the following questions:

Copyright © 2002 by Marketspace LLC Rayport, Jaworski e-Commerce Chapter 7 Enhanced Lecture Slides Metrics Exhibits and Tables.

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