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Bob Smith Associate Professor/Extension Specialist Dept. of Wood Science and Forest Products Virginia Tech
Outline
Why
the Internet E-business Strategy ??? Determining Competitive Advantage Implementing Strategy
When history is written, the creation of the Internet may be ranked alongside Johann Gutenbergs printing press and Marconis radio as among the major advancements in human communication. Roanoke Times, March 1, 1997
Over-night
Printed Material
Mass
Telephone
Immediate
Television
Wide,
mass audience One-way communication 60 second sound bite First visual electronic medium
Over-night Delivery
Provide
FAX - iT
Immediate
transfer of written information Above average service One-way promotion Closer to the customer
Cellular Phone
Mobility
Instant
Personal Computer
Faster
Wider distribution of information Uniform information Assist in marketing function of company Many were interactive Allow for impression of above average service They all have become standards in the industry
Internet
Definitions
Electronic
Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet.
Electronic
commerce describes the buying and selling of products, services, and information via computer networks including the Internet. The infrastructure for EC is a networked computing environment in business, home, and government. E-Business describes the broadest definition of EC. It includes customer service and intrabusiness tasks. It is frequently used interchangeably with EC.
What is an Intranet?
When
internet technology is used to create a private network within a company an intranet is formed.
Allows for immediate transfer of technology between locations. Provides information such as product pricing, inventory lists, production schedules, and data bases for remote employees.
What is an Extranet?
An
extranet is formed when the company allows outsiders into the intranet pages.
Customers can order on line. Reduces paperwork Minimizes errors Provides better customer services Shortens delivery times Support distributors
Whats Needed
Designated computer Software to
communicate with Internet A connection into a network that accesses the Internet Or * Hire a commercial service and have a connection to the network
Cost
$1500
computer $300 Software Home page design - $100/hr - ? Commercial Internet access - >$100/month
Current Users
Average
age is 40 45% female 45% married 1/3 computer field, 1/4 educational & 20% professional >40% have made purchase over $100
Source: www.gvu.gatech.edu/user_surveys/survey-1999
Computer software Computer hardware Books Music Gifts Travel Clothes >$100 billion sold in 1999
Other 26%
Books/Music 7%
Travel 26%
Technology Update
(It took this many years to reach 50 million users)
Radio
markets Decreases the cost of creating, processing, distributing, storing and retrieving paper-based information Allows reduced inventories and overhead by facilitating pull type supply chain management The pull type processing allows for customization of products and services which provides competitive advantage to its implementers
Electronic Commerce, 2000
Organizations
Benefits to Organizations
Reduces
the time between the outlay of capital and the receipt of products and services Supports business processes reengineering (BPR) efforts Lowers telecommunications cost - the Internet is much cheaper than value-added networks (VANs)
Benefits to Customers
Enables
customers to shop or do other transactions 24 hours a day, all year round from almost any location Provides customers with more choices Provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons Allows quick delivery of products and services in some cases, especially with digitized products
Electronic Commerce, 2000
Benefits to Customers
Customers
can receive relevant and detailed information in seconds, rather than in days or weeks Makes it possible to participate in virtual auctions Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences Electronic commerce facilitates competition, which results in substantial discounts.
Electronic Commerce, 2000
Benefits to Society
Enables
more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution Allows some merchandise to be sold at lower prices benefiting the poor ones Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them Facilitates delivery of public services at a reduced cost, increases effectiveness, and/or improves quality
Electronic Commerce, 2000
Why?
Works 24
hours a day Offers 2 way communication Unlimited access Interactive advertising Supports current business efforts
Electronic Markets
A
market is a network of interactions and relationships where information, products, services, and payments are exchanged. The market handles all the necessary transactions. An electronic market is a place where shoppers and sellers meet electronically. In electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line.
Electronic Commerce, 2000
information systems Accounting and auditing Management Business law and ethics
Technological pressures
on competition
buyers search cost Speedy comparisons Differentiation Lower price Customer service Digital products lack normal wear and tear
competition
Enable
many buyers and sellers to enter the market at little or no cost (no barriers to entry) Not allowing any buyers and sellers to individually influence the market Make certain products homogeneous (no product differentiation) Supply buyers and sellers with perfect information about the products and the market participants and conditions
Electronic Commerce, 2000
will be many new entrants The bargaining power of buyers is likely to increase There will be more substitute products and services The bargaining power of suppliers may decrease The number of industry competitors in one location will increase
What is Strategy
Strategy is
the roadmap to success. Strategy answers the question what business are you in? Strategy determines how you compete within the market you are in. Strategy focuses the company in a unified direction.
The goal is to develop a sustainable competitive advantage. There are generally two forms of competition, Operating effectiveness (production) or Competitive position (marketing)
(niche markets) Offering products which differ from the competition (product differentiation) Using alternative distribution channels and manufacturing processes Employing selective pricing and fundamentally different cost structures
Generic Strategies
Porter gives us a little more help in strategy formulation by providing three generic strategies which, if successfully implemented, can allow a firm to stake out a defended position in the marketplace. These strategies are: Overall cost leadership
Differentiation
Focus
control Overhead control Avoid marginal accounts Minimize R&D Minimize service Minimize advertising
Differentiation
Key idea: Create something about your product that is perceived industry wide as being unique Bases for Differentiation:
Quality Delivery Credit Reputation
Differentiation can provide insulation against competitors because of brand loyalty by customers and a resulting lower sensitivity to price
Focus Key Idea: Focus on a particular buyer group, segment of the product line, or geographic market
This strategy is built around serving a particular target market very well. The premise is that a firm is able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly
By effectively implementing this strategy a firm can achieve differentiation by better meeting the market needs or lower costs through specialization, or both
from changes in the business environment Advantaged to provide protection from intense global competition
Strategic Planning
Industry and competitive analysis
Strategy formulation Implementation plan Strategy reassessment
Threats
Electronic Commerce, 2000
SWOT
Strengths
those factors of the company that provide for its success. A good reputation, quality products or low cost producer. Weaknesses those factors that are a disadvantage for the company. A high cost producer, a high employee turnover, or much competition. Opportunities those factors that are outside the companys control, but are areas in which they could capitalize. A changing demographic profile, competition closing plants or e-business allowing for wider distribution of products. Threats those items outside the control of the company and that may hinder it. Items such as new laws, a recession or increased competition.
Company Analysis
INTERNAL FACTORS
Strengths (S)
Weaknesses (W)
Production
Marketing
Electronic Commerce, 2000
Competitive Analysis
EXTERNAL FACTORS
Production
Marketing
Opportunities (O)
Threats (T)
Electronic Commerce, 2000
Strengths (S)
SO Strategies Generate strategies here that use strengths to take advantages of opportunities ST Strategies Generate strategies here that use strengths to avoid threats
Weaknesses (W)
WO Strategies Generate strategies here that take advantage of opportunities by overcoming weaknesses
Opportunities (O)
Threats (T)
WT Strategies Generate strategies here that minimize weaknesses and avoid threats
Electronic Commerce, 2000
Strategic Questions
The Company
What
is your uniqueness? Where are you vulnerable? Why are you losing existing customers? Where is the greatest value created in the company? What are the most common objections you hear from customers?
Strategic Questions
The competition
The market
Who are the top 3 competitors? What are their strengths? Where are they vulnerable? Where can you attack? How do you compare on price, service, quality, etc?
What are 3 important trends? How is the industry changing? How many market segments do you serve? Where is the greatest growth potential? Which of your customers are doing well and why?
Electronic Commerce, 2000
Competitive Strategies
Offensive strategy usually takes place in an established competitors market Frontal Assault attacker must have superior resources and willingness to persevere Flanking Maneuver attack a part of the market where the competitor is weak Bypass Attack cut the market out from under an established defender by offering a new type of product that makes the competitors product unnecessary Encirclement greater product variety and/or serves more markets Guerrilla Warfare use of small, intermittent assaults on different market segments held by the competitor
Electronic Commerce, 2000
Competitive Strategies
Defensive strategies takes place in the firms own current market position as a defense against possible attack by a rival
Competitive Strategies
Cooperative Strategies
Collusion active cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal) Strategic Alliance partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial Joint Venture a way to temporarily combine the different strengths of partners to achieve an outcome of value to both Value-Chain Partnership a strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage
Electronic Commerce, 2000
Strategic Summary
Focus your
Implementing Strategy
Questions
Objectives Benefits
Savings
Competitive
advantage Presentation
Questions
What are
you producing and selling? How are you unique? Why should the customer buy from you? How are you going to reach the customer? Whats success?
Objectives
Introduce new product or service Advertising existing business Supplement existing business program Reach broader customer base Provide better service Information exchange Reduce transaction costs
Current Customers
Benefits
Easier
Marketing Mix
Promotional Tool
Ads, publicity, sales tool
Savings
Support
time Order entry Promotion response E-mail Shipping and invoicing information Customer lists
Home Page
KISS
Keep
it simple, stupid
1. Decide what information you want to share 2. Grab their attention quickly 3. Present information in simple, logical fashion 4. Do not put lots of graphics on first page 5. Should be pleasant to the eye
6. Each page should have company name, logo, email address and toll-free phone number
come. You are competing against not only your market area, but the entire world. Your current and future customers need to be able to find you.
HOW?
List
Register
with search
engines. Link to other sites and your association sites. Advertise on the web.
Link to?
Your
build awareness Develop prospects Meet customer needs Generate orders Build customer relations Test market
it - www.submit-it.com Yahoo - www.yahoo.com Webcrawler - www.webcrawler.com Infoseek - www.infoseek.go.com Lycos - www.lycos.com Google - http://www.google.com/
Inexpensive source of information Inexpensive way of advertising Inexpensive way of conducting market research Inexpensive way to build (or rent) a storefront Lower transaction cost
market, specialty products (cigars, wines, sauces) are the best Image and public recognition can be accumulated fast Inexpensive way of providing catalogs Inexpensive way to reach worldwide customers
(for example, CDs) No more personal contact which is a strong point of a small business No advantage being in a local community
Lack of expertise in legal issues, advertisement Lack of resources to fully exploit the Web Less risk tolerance than a large company
Niche products Small volume Capital investment must be small Inventory should be minimal or non-existent Electronic payments schema exist Payment methods must be flexible
must be quick and reliable The Web site should be submitted to directory-based search engine services like Yahoo in a correct way Join an online service or mall and do banner exchange Design a Web site that is functional and provides all needed services to consumers
Electronic Commerce, 2000
Summary
Successful firms will integrate the E-business into their companys strategy. Used properly, E-business will be one more method of increasing income and profits. It is just a matter of time before it will be as common as the fax, cell-phone and digital camera.
References
Electronic
Commerce: A Managerial Perspective. 2000. By Efraim Turban, Jae Lee, David King, and H. Michael Chung. Prentice Hall, Upper Saddle Rivern New Jersey. (slides are marketed). E-Business Revolution. 2000. By Daniel Amor. Prentice Hall,Upper Saddle Rivern New Jersey. Strategic Internet Marketing. 1996. Tom Vassos. MacMillan Computer Publishing, Indianapolis, IN. E-Business Readiness. 2001. By James Craig and Dawn Jutla. Anderson-Wesley. Upper Saddle Rivern New Jersey.