For use with Strategic Electronic Marketing: Managing ...

For use with Strategic Electronic Marketing: Managing E-Business 2e

Copyright 2003 South-Western College Publishing

Chapter 5 Slide: 1

Chapter 5: E-Business Value Strategies



Chapter 5 Slide: 2

LEARNING OBJECTIVES(1):1. Explain the seven strategies e-businesses are using

to create value for customers.2. Be able to perform a benefit analysis of alternative

sales channels.3. Discuss how digital communication adds value to

a business.4. Analyze the impact of each of the intellectual

property areas on e-business.5. Describe how the delivery of services is changing

because of new technologies.



Chapter 5 Slide: 3

LEARNING OBJECTIVES(2):6. Outline how relationships can be

enhanced through strong customer service.

7. Explain how business process strategies are providing value.

8. Discuss how a market-of-one strategy will affect businesses.

9. Show how auctions are used to facilitate commerce.

10. Describe the impact of e-business strategies on pricing.



Chapter 5 Slide: 4

Vignette: Online Travel – The Sky’s the Limit

• Thinking Strategically– Consider the future of brick-and-mortar airline ticket

sales. Determine how an offline agent can provide the value needed to compete against online companies.

– Visit Travelocity and Expedia. Determine how these companies provide value to their customers.

– What advantages do these companies have over their brick-and-mortar counterparts?

– Evaluate the agent model in Figure 5.1. What other types of agencies (real estate, insurance, etc.) could be affected the same way as the travel industry?

– Determine how these intermediaries can stay in the distribution channel.

http://www.travelocity.com/

http://www.expedia.com/



Chapter 5 Slide: 5

Database Contacted

Figure 5.1: Travel Agent Model

Customer Inquiry

Agent Search

CustomerInformed &

Ticket Delivered



Chapter 5 Slide: 6

Creating Value• Businesses create value for their customers by

providing quality goods and services at acceptable prices.

• A business model that provides more benefits to its customers and/or sells at a lower the price will take market share away from competitors. – A commerce or business model is the basic process by

which a business obtains its inventory, produces the good or service, and how they deliver that to the customer.



Chapter 5 Slide: 7

Seven Value Creation Strategies• Online purchasing strategy: allows for buying and selling of

products and information on the Internet and other online services.

• Digital communication strategy: allows for delivery of digital information, products, services, or payments online.

• Service strategy: allows for the cutting of costs, improving of the quality of goods, and increasing the speed of service.

• Business process strategy: allows automation of business transactions and work flows.

• Market-of-one strategy: allows for developing products for a single customer with close to the same costs as mass production.

• Auction based strategy: allows automation of bidding for products or customers online.

• Pricing Strategy: Allows businesses to pursue market share by selling at low prices or giving away products and services for free.

www.amazon.com

http://www.amazon.com/



Chapter 5 Slide: 8

Figure 5.2 Model of E-Business Value Creation

DeliveredValue

DeliveredValue Pricing

Strategy

Auction Strategy

Service Strategy

Digital Communication Strategy

Market -of -OneStrategy

OnlinePurchasing Strategy Business Process Strategy



Chapter 5 Slide: 9

Creating ValueOnline Purchasing

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Digital Communication and Service

Business Process

Market-of- One

Auctions

Pricing



Chapter 5 Slide: 10

Online Purchasing Strategy

• E-commerce is the process of allowing Web based technologies to facilitate commerce or trade. – E-commerce can be retail, between an e-

business and an end user, or it can be used for business-to-business transactions.



Chapter 5 Slide: 11

Digital Communication Strategy• Digital products are information-based products,

such as multimedia entertainment, programs, online information services, published information, music, video, or any other digital content can be transferred over the Internet. – Advertising supported:

• Some sites follow radio and broadcast television models and obtain revenue through advertising. They also play a role in supporting and enhancing the associated traditional media.

– Subscription Based:• Pay content sites are generally targeted toward individuals

who have a high need for information.



Chapter 5 Slide: 12

Digital Communication Strategy

• Advantages of Digital Products – Online content is the lower cost involved in transfer

and delivery.

– Electronic content allows for a publish-once, read many time environment.

– Existing content developers can reach a wider audience.

– Smaller firms that are able to provide content at low startup costs.

– If sold, digital content is usually purchased on a per-time-period subscription basis or per-use basis.



Chapter 5 Slide: 13

Intellectual Capital• Intellectual Capital refers to the ownership

of a company's knowledge, the results of ideas and creativity, and the symbols that represent products, companies or brands.

• Includes• Copyrights• Trademarks• Trade Secrets Laws• Patents



Chapter 5 Slide: 14

Copyrights (1)

• A copyright protects “original works of authorship” including literary, dramatic, musical, artistic, and certain other intellectual works. This protection is available to both published and unpublished works.– Internet content such as pictures and graphic

files, sound files, text, or programs are likely copyrighted by other companies or individuals.

– The ability to copy and transfer digital information makes copyright violations relatively simple.



Chapter 5 Slide: 15

Copyrights (2)

• Businesses that develop Web sites must be sure that they are not violating copyrights when they develop content.– There are numerous sources of copyright free

material on the Internet or material can be purchased on CDs.

– They should also be concerned that they do not develop links to third party sites that engage in copyright violations.



Chapter 5 Slide: 16

Table 5.1: Technology Copyright Protection

Table 5.1: Technological Copyright Protections Technology Description

Digital Watermarks

This technology allows images to be sent over the Internet with visible watermarks over a page, or with watermarks that will show up only after an image is copied.

Secure Containers

The publisher can encrypt a file, stipulate conditions for use, and then send the content to a user. The user can then send payment and receive a key to unlock the product. If the data is sent on to others, they must also have a key to unlock the file.

Information Metering

Provides an auditing trail, allowing determination of who forwarded the protected material.

Hardware Solutions

Government-mandated hardware solutions could prevent the copying of protected digital media products.



Chapter 5 Slide: 17

Trademarks• A trademark or service mark refers to any word,

name, symbol or device which is used to indicate the source or origin of goods or services and which distinguishes one company, goods, or services from others. – Trademark rights cover such practices as preventing

others from using a confusingly similar mark, dilution of the trademark, and unfair use of the trademark.

– Using non-owned trademarked names in meta tags is a trademark violation and could result in a cease-and- desist order or a lawsuit



Chapter 5 Slide: 18

Protecting Intellectual Property

• Obtain copyright releases from all independent contractors and sub-contractors.

• Place a copyright notice on the Web page such as: © 2000, South-Western Publishing. This serves as notice.

• For extra protection, register the site with the Copyright Office.

• Use a legal page so users see the rules for using the site. This should include notices about downloading material from the site, especially material owned by third parties.

• Obtain written permission before using any other Web site's material or when developing links to those sites



Chapter 5 Slide: 19

Patents• Patents allow for individuals or firms to monopolize

or gain exclusive rights to the use of an invention. – Software patents have grown from 1,300 issued in

1990 to almost 12,000 by 1997.

• Patenting of business methods: (Case: State Street Bank & Trust Co. vs. Signature Financial Group)– Priceline (www.priceline.com) controls the process

where consumers submit prices they are willing to pay to a business, and where the business can then accept or reject online bids.

http://www.priceline.com/



Chapter 5 Slide: 20

Case 5.1: The Market Still Wants Its MP3.

• Thinking Strategically– Determine the advantages and disadvantages of using

MP3 for the consumer.

– Consider the advantages and disadvantages of this format for the music industry.

– Compare and contrast those advantages and disadvantages and speculate on the future of MP3.

– It is projected that within the next five years an entire movie will be downloadable in 20 minutes or less. Speculate on how this will effect the movie and video rental industries. www.mp3.com

http://www.mp3.com/



Chapter 5 Slide: 21

Market-Of-One Strategy

• Digital factory use digital manufacturing process is combined with the human worker resulting in a "soft manufacturing process" brings flexibility to production and allows manufacturers to produce individualized products at mass production speeds.– This “mass customization” and a “market-of-

one” process allows marketers to develop tight customer relationships.



Chapter 5 Slide: 22

Service Strategy• The service strategy impacts two areas:

– Supporting businesses that specialize in providing services to the customer.

• Includes educational institutions, physicians, banks, realtors, insurance agents, and many others.

– Enhancing the service component of a businesses by meeting customer service needs before, during, and after the sale.

• Answering questions about a product, how it is used, or how it fits a specific purpose, and handling any problems that may occur after the sale.



Chapter 5 Slide: 23

Table 5.3: Technology’s Impact on Service (1)

• Intangibility: The Internet is allowing buyers to directly compare products and services offered online allowing them to search for the greatest value.

• HSH Associates (www.hsh.com) offers information on mortgage rates. Quotesmith (www.quotesmith.com) allows individuals to obtain quotes from multiple carriers.

• Perishability: Digital information can be stored and delivered as needed. Online services need not perish, they can be created as needed by the user. Online sales systems also can fill unused capacity for transport companies such as airlines.

• National Public Radio (www.npr.org) stores its radio programs for individuals to download and play at their leisure.

http://www.hsh.com:/

http://www.quotesmith.com/

http://www.npr.org/



Chapter 5 Slide: 24

Table 5.3: Technology’s Impact on Service (2)

• Inseparability: Real estate buyers can use the Web to view homes and take virtual walkthroughs. The medical industry is using the Web to deliver services directly to the user’s home computer. Retailers are providing shopping services online.

• WebMD (www.webmd.com) provides information on medical issues. Nordstrom (www.nordstrom.com) has a personal shopper that suggests products for customers.

• Variability: Databases and standardized procedures can remove the variability of service delivery.

• Amazon.com, Dell, and many other companies use email, FAQs, and other technology to standardize services.

http://www.webmd.com/

http://www.nordstrom.com/



Chapter 5 Slide: 25

Case 5.2: How Quickly Can Business Models Change?

• Thinking Strategically– Speculate on the future of the traditional stock

brokerage system. – Specify the value a broker brings to the

investment process. – How can e-business be used by a broker or

brokerage company to enhance the value delivered to the customer?

– What other industries could be affected in the same way as the stock market industry?



Chapter 5 Slide: 26

An Example of Changing Business Models: Stock Brokerage (1)

Figure 5.4: Traditional Brokerage System

Issuing Company

Issuing Company

Underwriting Company

Underwriting Company

Stock ExchangeStock Exchange

Stock Investor

Stock Investor

Stock Broker

Stock Broker



Chapter 5 Slide: 27

An Example of Changing Business Models: Stock Brokerage (2)

Online Systems

Issuing Company

Issuing Company

Web Stock Exchange

Web Stock Exchange

Stock Investor

Stock InvestorAlternative:

Direct Issue

Alternative: Direct Issue



Chapter 5 Slide: 28

Table 5.3: Benefit Analysis for OnlineBenefits Traditional Brokers Online BrokersCost ForTransaction

Depends upon broker andamount of stock.

One-third to one-tenth oftraditional brokers.

Informationon Companiesand quotes.

Broker acts as agatekeeper betweencorporate information andcustomer.Broker required toreceive quotes.

Customer can use onlineinformation to obtaininformation immediately.Stock quotes availableimmediately.

Speed andConvenience

Customer needs interfaceof broker for informationand trades.

Customer can obtain immediateinformation at their convenienceand place trades immediately.

Expertise ofAdvice.

Depends on broker. Depends on the buyer.



Chapter 5 Slide: 29

Figure 5.5: Online Brokerage Prices and Volume

Prices VolumePer Trade 150,000 a dayFull Service Average $116.90 Growth rate 44%Discount Average $66.09

DLJ Direct $20 Fidelity $28.95

Ameritrade $8 Suretrade $7.95

Lowest profit limit $5

Web Street $0 Jan. 1997 July Aug. Sept. Oct. Nov. Dec. 199715 Number of Online Brokers 6015 Schwab % of trades online 40



Chapter 5 Slide: 30

Customer Relationship Management

• Customer Relationship Management systems combine software and management practices to serve the customer from order, through delivery, and after sales service. – Enhancing customer service is rated by IT

managers as the number one method to gain competitive advantages followed by improving internal business processes.



Chapter 5 Slide: 31

Table 5.4: Providing Service Online (1)

Best Practice Goal Technology LeverageRespondQuickly

Be able to respond tocustomers within 6 hours ifpossible, but defiantlywithin 24 hours.

Knowledge bases andintelligence agents can provideinstant feedback.

Link toInventory

Be sure products areavailable for delivery.

Use Extranets and inventorydatabases linked to e-commercesoftware.

AutomaticOrderConfirmation

Automatically sendconfirmations through emailto customers givingconfirmation numbers androuting numbers.

This can be sent from databasesthrough automated emailsystems.

ProvideInformation

Provide product, security,and shipping information.

This can be designed into theWeb site. The use of FAQs orfrequently asked questionsallows for self-service.



Chapter 5 Slide: 32

Table 5.4: Providing Service Online (1)

Best Practice Goal Technology LeverageProvidealternativemeans ofcontact

800 number phone linesallow customers to placeorders, inquire about orders,or receive serviceinformation as an alternativeto Internet use.

Chat systems can be a lowercost alternative to phonesystems. IP telephony can alsobe used is the customerpossesses the technology.

Avoid extrafees

If off-line businesses do notcharge for service support orgift wrapping, these shouldnot by charged online.

Lower costs available throughthe Internet should allow forservices to be delivered at lowor no costs.

Customerresponsespecialists

Use “live” individuals tosupport automated servicetransactions.

This can be facilitated with chator through the use ofintelligence agents or wizards.



Chapter 5 Slide: 33

Figure 5.7: Automating the Service Function.

THE INTERNET

Customer Ordering:Automated Activities: confirmation, order tracking, etc.

Human Marketing Interface

Personal Service Interface

Customer Problem: Automated Service Activities: Web based, chat, email, etc.

Human Interface Barrier



Chapter 5 Slide: 34

Business Process Strategy

• Businesses engage in transactions with other businesses using the same techniques as business-to-consumer e-businesses. – Business-to-Business E-Commerce– Supply Chain Management and Extranets

• The supply chain is the network of suppliers and customers for goods, services, or information used from the point of origin to final consumption.



Chapter 5 Slide: 35

Auction Strategy• Sales auction sites allow individuals and businesses

to sell products online and have potential customers bid for the price of the product.

• Reverse auctions allow individuals and companies to have sellers bid for the purchase.

• Dutch Auction works by having the seller lower the price continuously until a buyer decides to purchase at the stated price.

• Buyer-driven commerce sites allow the customer to specify how much they are willing to pay for a product or service and then let the providers bid for the customer.



Chapter 5 Slide: 36

Pricing Strategies• Greater efficiency allows for selling at a

lower overall costs.• Cost saving can be found in lower fixed

costs because of minimized use of brick and mortar assets and lower variable costs in reduced staffing requirements. – Dynamic pricing implies that products will sell for

something other than list prices. Prices are set dynamically based on market demand for that product, which can lead to higher or lower prices depending on how the market bids for the product.



Chapter 5 Slide: 37

Table 5.6: Transaction Cost Comparisons

Traditional Method AverageAmount

Internet AverageAmount

Telephone transactioncost plus relatedcustomer servicecharges

$ 5.00 AutomatedInternettransaction cost

$ 0.01

Bank transaction cost $ 1.07 Bank transactionon the web

$ 0.01

Airline ticket cost forprocessing

$ 8.00 Airline tickettransaction on theweb

$ 1.00



Chapter 5 Slide: 38

Obtaining Product Pricing Information

• Intelligent shopping agents are software based search systems that return product and pricing information from multiple vendors. – The customer specifies the product or they use

other criteria, such as a price range for a product category.

– The agent then returns information on sales outlets, prices, and availability.



Chapter 5 Slide: 39

Pricing Strategies• Skimming pricing sets high initial prices to

“skim” off payments from individuals who are willing to purchase products when they first come to market.

• Penetration pricing sets prices lower in an attempt to capture market share for a product. – E-businesses may attempt to capture market share by

selling at very low prices or even below costs.

– If a firm has an overriding goal of attaining market share, they may even give products away for free.



Chapter 5 Slide: 40

Exercise 5.1: Business Model Strategies

• Use the Web to evaluate different business models.

• Determine how many of the strategies outlined in this chapter are used at the Web sites you visit.

• How are these strategies are used to create value for the business?



Chapter 5 Slide: 41

Exercise 5.2: Evaluating Business Models

• Use the following table to compare e-business models against traditional business models.

• Determine the benefits a business provides to its customers.

• Are these benefits delivered more efficiently with an online model or a traditional model?

• Determine what the business would need to do to get you to purchase online.

• What would the business need to do to keep you buying at its traditional site?

Benefits Online Model Traditional Model



Chapter 5 Slide: 42

Exercise 5.3 Evaluating Service ModelsReal Estate Agent Business Model

BuyerAgent

Price information

control

Location information

control

Information controller and Negotiation Intermediary

Owner

HomePrice

Mortgage company

recommendations



Chapter 5 Slide: 43

Exercise 5.3: Evaluating Service Models

• What impact could e-business have on this model? • Evaluate current real estate Web sites. How do

they perform these functions online? • Outline alternative real estate sales models, such

as the seller working directly with the buyer.• Explain the role of perceived risk in purchasing a

home under an e-business model. • What impact could perceived risk have on other

agent-based models, such as insurance?



Chapter 5 Slide: 44

Competitive Exercise 5.4: Business Model Building

• You are going to present an e-business-based value strategy to your boss. Pick a business-to-consumer or business-to-business industry where you would be interested in working. – Use the concepts in this chapter to determine the best

e-business model for meeting your customers’ needs. – Which of the strategies outlined in this chapter would

be beneficial in providing value to customers? – If this business has a brick-and-mortar counterpart,

determine the advantages your business model would have over the traditional model.

For use with Strategic Electronic Marketing: Managing ...

Documents

digital communication

capture market

online purchasing

changing business

providing

business process

digital content

stock brokerage