Virtual Value Chain Internet Marketing Dr. Mary Wolfinbarger
Virtual Value Chain
Internet MarketingDr. Mary Wolfinbarger
Value Chain
The series of value-adding activities connecting a company’s supply side (raw materials, inbound logistics and production processes) with its demand side (outbound logistics, marketing and sales).
The process can be mapped via a flow diagram and then “re-engineered” to increase value or reduce costs
Idea developed by Michael Porter to analyze sources of competitive advantage
Fundamental core concept of business strategy
The Value Chain Concept
The chain consists of a series of activities that create and build value.
They culminate in the total value delivered by an organization.
Value Chain Concept
By analyzing stages of a value chain, can redesign internal and external processes to improve efficiency and effectiveness Improve the value of what you do And/or do it cheaper
VirtualVirtual Value Chain
Original VC model treats info only as a supporting element
But info itself can be a source of value Example: FedEx online tracking
DHL now can notify you via email when package is delivered at your home
Example: Amazon recommendations Idea is to look for ways to create value
using info Info includes just about anything you can
digitize
Virtual Value Chain
Rayport and Sviokla suggest businesses operate in two worlds:
A physical world (marketplace) A virtual world (marketspace)
The two spaces are “two interacting value-adding processes”
Virtual Value Chain
Example: A phone answering machine is in the
marketplace (it’s physical) Electronic answering services are in
(virtual) marketspace Most businesses now operate in both
types of spaces –e.g. e-commerce; newspapers
Anything that can be digitized can be done in the “marketspace”
Creating Value in the VVC
“Just as someone takes raw material and refines it into something useful – as in the sequence of tasks involved in assembling an automobile on a production line – so a manager today collects raw information and adds value through these steps.”--Rayport and Sviokla
Three stages of value-adding informational processes
1. Visibility: improve the ability to track physical operations more effectively
2. Mirroring capability: substitute virtual activities for physical ones
3. Create new customer relationships: use info to deliver value to customers in new way
Improving Visibility
Info technology allows managers to “see” or “track” operations more effectively Example: Frito-Lay’s “info revolution”
initiative Managers can visualize the entire chain from
ordering corn to planning local promos
Improving Visibility How does Frito-Lay do it?
Employees in field collect info on sales of products daily and feed it to co.
Field employees collect store info about sales and promo of competing and new products
Frito-Lay continuously optimizes, reducing inventory and supplier risk, planning truck routing
Still – technology and info are playing a support role only when visibility is improved
Mirroring Capability
“When companies move activities from the place to the space, they begin to create a virtual value chain that parallels but improves on the physical value chain.”
-- Rayport and Sviokla
Mirroring Capability
Goes beyond simply using info in a support role
Central issue: How can activities be moved from the marketplace to the marketspace to become faster, better, more flexible, cheaper? Or, how do we digitize what we already
do?
Mirroring Capability
Example: Ford’s “virtual design team” testing of prototypes in simulated
environments with colleagues over a computer network around the world
Suppliers are drawn into the design process
Mirroring Capabilities
“Every manager knows that staying competitive today depends on achieving higher levels of performance for customers while incurring lower costs in R & D and production…On the VVC, companies may find dramatic low-cost approaches to delivering extraordinarily high-value results to customers.”
--Rayport and Sviokla
Mirroring Capabilities Mirroring may move customers from the
“place” to the “space” The question is: what do we do offline that
we can do online (or otherwise digitally)? Example: eCommerce Example: Online customer service Example: Email marketing Example: Online course registration Example: Online surveys
New Customer Relationships
Not just creating values in “the space,” but extracting new value from it
New Customer Relationships
You are at this new level whenever some new functionality is offered or when going digital magnifies mirroring greatly Online maps: Are they simply a “mirror” of offline
maps? Amazon’s recommendation system (built on
collaborative filtering) Package tracking Personalized topic notification systems Brand or product communities through listservs or
blogs (e.g. Prius, Engadget.com) An example of magnifying – customer
communities on steroids
New Customer Relationships
More Examples: Customer as insider (e.g. sitting in on
artist recording sessions or replaying them; watching a video of a commercial being filmed)
Personalized content and product pages (for B2C & B2B)
Affiliate programs (Customer as salesperson) (MOTL)
Your idea here….
Implications
“In the marketspace, many of the business axioms that have guided managers don’t apply.”
--Rayport and Sviokla
Five principles:
1. The Law of Digital Assets Digital assets not used up
when consumed Music, content, entertainment,
pictures…. Can price aggressively
Five principles:
2. New Economies of Scale Personalized services that rely on
info can efficiently be utilized Example: Musicmatch allows users to
customize styles of music or artists on your personalized “radio station”
Zappos notifies you when new styles of a brand are added
Notify when your size comes back in stock
Five principles:
3. New Economies of Scope Can expand scope of
operations by using present customer info
Amazon’s strategy, right?
Five principles:
4. Transaction-Cost Compression The “transaction cost” of collecting
info about customers is lower than ever
(More about transaction costs later) (Dynamic Attitude Analysis – scanning
and collating attitudes about products written all over the web on a daily basis – MOTL)
Five principles:
5. Rebalancing supply and demand Combines previous 4 principles –
focus is shifting from supply-side to demand-side thinking
More opportunities to “sense and respond” to customer desires
Example: Amazon sends email when an author I’ve previously purchased releases a new book – they know I want it before I do!
Sending “sweeteners” to customers who abandon shopping carts
Assignment: (in class)
How does and how could CSULB and/or the Marketing department (or any department on campus) use the Internet in order to
1. Increase visibility of operations (hint: think in terms of moving students through their educations efficiently and effectively)?
2. Mirror activities currently carried on in the marketplace (physical world) in the marketspace (virtual world)?
3. Create new customer (student) relationships?
Brainstorm as many ideas as possible. List them and turn them in.