COMP7880: E-Business Strategies

Strategy options in e-business market

Dickson K.W. Chiu

PhD, SMIEEE, SMACM, Life MHKCS
Jelassi & Enders: Chapter 5

1
 Our Roadmap
Mobile e-commerce strategy
12
E-business strategy
Strategic Strategy formulation Strategy
analysis implementation
3 External
analysis 5 9
Strategy Internal
options organisation

Opportunities/
threats

6 7 10 13
Strengths/ Sustaining Exploring Interaction with
weaknesses competitive new market suppliers Implementation
advantage spaces

4
Internal
analysis
8 11
Creating and
capturing Interaction with
value users/customers

COMP7880-SO-2
Differentiation & Price Strategies

COMP7880-SO-3
 The strategic triangle –
Main drivers of competitive advantage
2
Customer

1 Price/
Price/ benefit
benefit

4
Company Competitors
3
Cost Cost
Source: Adapted from H. Hungenberg (2006), p. 185.
COMP7880-SO-4
 Strategic triangle decision

Is the price/benefit ratio (also called value for money) that

1 we offer better than the price/benefit ratio of our best
competitor?
•
Is the value that we offer to our customers perceivable and
2 important to them?
•
Are our costs for making the product (or service) lower
•3 than the costs that we incur?
•

4 Is this advantageous position sustainable into the future?

Source: See H. Hungenberg (2006).

 Impact of threshold features and critical
success factors on consumer benefit

Consumer benefit
Critical success factors:
Customer’s expectation

Supplier offered threshold features

Supplier Performance

Source: Adapted from H. Hungenberg (2006), p. 185.

 2 generic approaches of
competitive advantage

Unique product
with price
premium Goal of the companyBusiness strategy

Performance Provide something

Differentiation
advantage unique that is valuable
to buyers

Competitive
advantage
Provide a product Cost leadership
Price with lowest price
advantage (Cost/price leadership)
Become the cost
leader in the industry
Similar product
with lower
price
Source: Adapted from H. Hungenberg (2006), p. 189.
COMP7880-SO-7
 Achieving cost leadership position

The basic concept of economies of scale is that as a firm

Economies of
scale increases its product output, it decreases its unit production
cost.

While economies of scale can be realized by increasing the

Economies of production of one product type, economies of scope result from
scope expanding the variety of products sold using the same assets.

Factor costs represent a crucial cost driver, especially for

Factor costs retailing companies that act as intermediaries. The ability to
bargain down input prices, for instance, through bulk
purchasing can be an effective lever for lowering costs.

Learning Learning effects can lower costs as a firm improves its

effects efficiency over time, thereby reducing slack and wasteful
activities.

Discuss this for our running case: SME Computer …

 Economies of scale
As the cumulated Eventually, costs go up
production quantity again when production
Price increases, costs per capacities reach their
unit decrease. constraints
per unit

Average costs

Economies of Dis-economies of
scale scale

Quantity
COMP7880-SO-9
 Tangible and intangible
sources of differentiation
Quality

Customisation

Tangible Convenience
sources
Speed of delivery
Sources of
differentiation Product range

Brand
Intangible
sources
Reputation
COMP7880-SO-10
 Perceived performance and relative price
position determine a firm’s strategy
To achieve both:
 New technologies
 Scale economies
High  Better management
Differentiation Outpacing  Eliminate wastage
performance

 Optimization
Perceived

 Learning effects
 BPR

Low cost/
low price
Low
More expensive Cheaper
Relative price
Source: Adapted from H. Hungenberg (2006), p. 194.
COMP7880-SO-11
 Strategic gameboard for formulating
consistent business strategies
Where do we
2 want to achieve Market segment (niche)
the competitive
advantage? Whole market
New 3
game How do we
want to
achieve the
Old
Performance Cost/
price game competitive
advantage?

1 Which competitive
advantage do we aim for?

Source: Adapted from H. Hungenberg (2006), p. 251.

COMP7880-SO-12
 Chosen strategy fitting value chain
 Consistency between activities
 Activities throughout the value chain
 Image and reputation – also related to sustainability
 Strategy implementation
 Reinforcement of activities
 Optimization of efforts

COMP7880-SO-13
E-business models

COMP7880-SO-14
What is a Business Model?
 Six key questions
 How do we create value?
 For whom do we create value?
 What is our source of competence/ advantage?
 How do we differentiate ourselves?
 How do we make money (revenue model)?
 What are our time, scope, and size ambitions?

15
 Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)

16
 Atomic Business Models (2)

(Based on Weill and Vitale 2001, Straub 2004)

17
 Typical Business Models in EC
 Online direct marketing
 Electronic tendering
systems (e.g., reverse
auction)
 Name your own price
 Affiliate marketing
 Viral marketing
 Group purchasing
 Online auctions
 Product and service
customization
 Electronic marketplaces
and exchanges
 Value-chain integrators
 Value-chain service
providers
 Information brokers
 Bartering
 Deep discounting
 Membership
 Supply chain improvers
18
Typical revenue models
 Tangible goods
 Web catalog revenue model
 Taking mail order catalog model to the Web
 Digital Content Revenue Models
 Advertising-Supported Revenue Models
 Subscription Revenue Models
 Advertising-Subscription Mixed Revenue Models
 Agency and Services
 Fee-for-Transaction Models
 Fee-for-Service Models

COMP7880-SO-19
 Revenue Strategy Issues
 Channel conflict (or cannibalization)
 Sales activities on a company’s Web site interfere with existing
sales outlets (e.g., Levi Strauss)

 Channel cooperation
 Giving customers access to the company’s products through a
coordinated presence in all distribution channels (e.g., Staples,
Eddie Bauer)
 Strategic alliance: when two or more companies join
forces to undertake an activity over a long period of time
 Account aggregation services
 Channel distribution managers (i.e., fulfillment
managers): firms that take over the responsibility for a
particular product line within a retail context

20