MKTG 1420 - DIGITAL BUSINESS DEVELOPMENT

Week 2 – Digital Leadership Framework

Last updated: January, 2023

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 Learning Objectives

• Digital Leadership Framework

1. The Business
• Scope, Business model, Platform & Ecosystem

2. The Value Chain

• Research & Development, Operational Excellence, Omnichannel

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 The Digital Leadership Framework

1. Reimagine your Business

2. Evaluate your Value Chain

3. Reconnect with your Customers

4. Rebuild your Organization

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1. REIMAGINE YOUR BUSINESS
1.1 Business Scope
1.2 Business Model
1.3 Platform & Ecosystem

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 The Core Essence of Business

• As competition becomes more intense, firm needs to redefine the

scope of the business – a balance of broadening the business scope
while staying within the core competencies.
• Firm also needs to re-think the business model – how to create and
capture value.
• As new competition from different industries starts affecting the
business, firm may need to evolve into a platform.

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1.1 Business Scope

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 How businesses can stay competitive
What do firms need to do to stay within the core competencies and stay
competitive in the digital age?
• Most companies define their business by the products or the
competitors. Competition is no longer defined by traditional product or
industry boundaries.
• To stay competitive, the company should broaden the scope of
business while focusing on consumer needs.

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 Business Scope – Amazon’s products and services
• 1995: opened an online bookstore to replace brick-and-mortal stores
• 2000: opened the site to 3rd party sellers; charging service fees; moved from online retailer to online
platform

• 2001: launched Amazon Instant Video, a video-on-demand service

• 2006: Amazon Web Services (AWS) began offering IT infrastructure services to businesses in the
form of web services

• 2007: released the Kindle to sell digital goods; razor and blades business model (selling Kindle at a
low or break-even price in order to make money on eBooks)

• 2011: launched Amazon Studio, in partnership with Warner Bros.

• 2014: Echo, a voice-activated virtual assistance to stream music, get information, order products;
advertising network

• 2015: Dash buttons that let users order products

(Gupta 2018)

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 Business Scope - Amazon’s Subsidiaries

(Gupta 2018)
Look at the stock price

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Business Scope - Amazon’s Competitors
Online retailer
- compete with Barnes & Noble, Best Buy, Walmart
Online platform
- compete with eBay
In cloud computing
- compete with IBM, Google, and Microsoft
Streaming service
- compete with Netflix, Hulu
Content producer
- compete with Disney, NBC Universal Studio
Mobile phone producer
- compete with Apple, HTC, Samsung
Ads network
(Gupta 2018) - compete with Google
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1.2 Business Model

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 Business Model

Business model defines the way a firm A business model is an architecture

creates, delivers, and captures (and with which an organization creates value
defends) value. for customers and how it delivers and
captures that value.

Innovations lead to changes in

consumer behavior and with the
emergence of new competitors 
company must transform its business
model.

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Business models in various industries
What are the recent innovations in business models and best practices
across industries?

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Source: Lund University, VisionMobile
Business Model - Apple

Source: Lund University, VisionMobile

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Business Model - Amazon

Source: Lund University, VisionMobile

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CREATE VALUE through Experiences
Read the article:
The Fall of the Mall and how to make them rise again
https://www.forbes.com/sites/pamdanziger/2018/10/14/the-fall-of-the-mall-and-t
hree-ways-to-make-them-rise-again/?sh=677ad2dc2a26

The future of the entire retailing industry is

uncertain.
• Quicksilver (surf-wear retailer) and
American Apparel (clothing retailer)
declared bankruptcy in 2015
 Retailing and brick-and-mortar
establishments must shift from selling
products to selling experiences
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 CREATE VALUE – Alibaba’s New Retail Store

Watch the Youtube video:

Alibaba’s New Retail Store
https://www.youtube.com/watch?v=UDIvWdwVZ
Mg&t=278s

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CREATE VALUE - Nike’s Experience-Driven Retail

- entire basketball half-court with

adjustable hoops and digital video
screens
- an enclosed soccer trial area
- a treadmill in front of a jumbotron
that simulates outdoor runs,
- a customisation shoe bar where
shoppers can fully personalise a pair
of Nike Air Force 1s
- touchscreens embedded into walls
everywhere you look,
- dedicated coaches on hand to put
customers through their paces as
they test out new

Read the article:

Nike's New Flagship Store is a Powerhouse of Experience-Driven Retail
https://www.forbes.com/sites/pamdanziger/2018/10/14/the-fall-of-the-mall-and-three-
ways-to-make-them-rise-again/?sh=677ad2dc2a26
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 CREATE VALUE - Nike’s Experience-Driven Retail

Watch the Youtube video:

Nike- Digital Retail Experience
https://www.youtube.com/watch?v=xD5e-aFYDK
U

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 DELIVER VALUE – Grab’s SuperApp
Read the article:
Understanding the Rise of
the Grab Superapp and its
Future
https://500.co/theglobalvc/underst
anding-the-rise-of-the-grab-super
app-and-its-future

Source: 500.co
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DELIVER VALUE – Amazon’s App store

Source: Amazon.com
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 CAPTURE VALUE - Porsche Passport (Product-as-a-Service)

$2,000 per month

subscription service
that allows drivers to flip
between Porsche
Cayman, Boxster,
Macan and Cayenne

Source: porschepassport.com
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 CAPTURE VALUE Schiphol Airport (Lighting as a service)

Amsterdam’s Schiphol Airport made an agreement with Philips.

Watch the Youtube video:
Schiphol Airport opts for
Philips Circular lighting
https://www.youtube.com/watch?v=SATO
9fyDfRw

• Schiphol pays for

the light it uses
• Philips owes all
light fixtures, and
is responsible for
maintenance and
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upgrade
CAPTURE VALUE – Netflix’s Subscription plans

Pricing (Vietnamese
Dong)
• Mobile: 70,000
VND/month
• Basic: 180,000
VND/month
• Standard: 220,000
VND/month
• Premium: 260,000
VND/month

Source: Netflix.com

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 CAPTURE VALUE – Airline’s dynamic pricing
PRICE DECISIONS consider the following factors :
• Supply
• Stock levels
• Current cost
• Future cost predictions
• Demand
• Product page views on e-commerce platforms
• Seasonality of products
• Data about specific customer
• Demographic data
• Device-specific data like device brand and model. For
example, iPhone users tend to spend more than
Android users
• Behavioral data, including
Read the article: • Customer’s spending habits
Dynamic Pricing in 2023: How It Works & How it’s Implemented
https://research.aimultiple.com/dynamic-pricing/
• Customer’s willingness to search for good
prices
• Competitor’s prices
• Substitute products’ prices, including products sold by both
company and its competitors

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 DEFEND VALUE - Competitive Advantages
• Two potential strategies for competitive advantage (Porter 1979)
‒ Cheaper – a low-cost producer: requires scale and operation
efficiency
‒ Different – with differentiated products that command higher
prices: needs to create innovative products and services
• However, as the scope of the business expands, a company needs to
re-think its core competencies and competitive advantage
• Competitive advantage no longer comes from low cost or product differentiation

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DEFEND VALUE – Real value creation

Differentiate competitive advantages

from digital defensibilities.
• A business with good Exponential
growth
competitive advantages -
the value grows linearly
• But if a company can move Linear
growth
past competitive advantages to
true defensibility — the value
grows exponentially.

Source: nfx.com
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 DEFEND VALUE – Defensibilities in the digital world

“Competitive
advantages” help your
company become
successful.  

“Defensibility” helps
you stay there.

Both add value to your

business. 

Source: nfx.com

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 DEFEND VALUE – Four key digital defensibilities

Read the articles:

Defensibility adds the most value for founders
https://www.nfx.com/post/defensibility-most-value-for-founders

Platform vs. Linear: Business Models 101

https://www.applicoinc.com/blog/platform-vs-linear-business-mo
dels-101/

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Source: nfx.com
DEFEND VALUE – Economies of scale
Economies of Scale - More users means more volume, means you can get
cheaper prices from suppliers, means lower prices for customers, means higher
conversion rates, etc.

Near-zero marginal cost

To create a mobile app, it might cost $500,000 to produce
the original version, but creating a copy of that app for
user #2 will cost next to nothing

Near-zero marginal cost of

distribution
The cost to serve one additional customer is basically
zero. Each customer visits a website (no rent!) or
downloads the app from the cloud or a remote server (no
shipping fees for catalogs or CDs)

Source: Applicoinc.com
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DEFEND VALUE – Brand
Top of Mind Awareness (TOMA)

• You think booking.com when you need a

hotel room
• You think Grab app when you need a taxi
• You think Lazada.com when buying a shirt Source: medium.com

People identify/associate themselves with brands.

31 Source: mbaskool.com
DEFEND VALUE – Embed
Embedding works when you integrate your
software into another software or app.

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 DEFEND VALUE – Network Effects
• Network effects have
emerged as the native
defense and the most
powerful defensibility in
the digital world.
• nfx
are responsible for 70
% of the value created
by tech companies
• Viral effects are not
network effects

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 DEFEND VALUE – Fb Network Effects
Watch the Youtube video:
The Network Effects of Facebook
https://www.youtube.com/watch?v=BhRZ8-IzgZc

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 Core Competency: Amazon’s data-driven platform

• Deep knowledge of customers

• Back-end logistics for warehousing and shipping
• Ability to manage technology infrastructure
Amazon’s cash conversion cycle is -14 days, compared with Walmart’s 10
days or Target’s 27 days. The company accurately forecasts customer
demand by pre-stocking the right products at the right warehouse for 2-
hour delivery.
Cash conversion cycle = inventory days + account receivable days –
account payable days

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 Utilizing customers’ data
• Data and customers become critical assets of a company
- Value of data increases as more data is collected
- Customers create a powerful network effect, they also provide an
opportunity for introducing complementary services
• Broader business scope requires building new capabilities. How far
should firms extend their business?
• Firms must consider consumers’ points of view and how core
competencies can help serve those consumer needs. They should
define your business and scope around the customers.

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 Competitive Advantages
Complementary Products + Network Effects

Strong competitive advantage

comes from complementary
products and network
effects
• Offer a system of connected
and complementary products
• Create a platform with strong
network effects that increase
consumers’ switching cost

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 Competitive Advantages
Complementary Products + Network Effects
Platform connects buyers and sellers
• Direct network effect: the value of the
product increases as more consumers
use it
• Indirect network effect: as buyers join
the platform in increasing numbers, more
sellers have an incentive to be part of it
[The value of your product or service increases due to complementary
products or services that add to your platform/business.]

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 Competitive Advantages - Economies of Complement

A complement is a good that depends on or

requires the use of other products.
Economics of Complements – when we reduce
the value of the complement, the demand for the
product increases.
When the complement is commoditised, the
demand for the product is increased.

Source: Lund University, VisionMobile

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 Driving Demand Through Network Effects
Apple and Amazon drive demand through network effects

How to create network effects for your business?

o Identify complements to your product (e.g. apps)
o Combine complements with the usage of the product (e.g. bundle)
o Identify complementors (e.g. developers)
o Boost supply and demand for complements (e.g. app store)

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 Asymmetric Business Models

• Asymmetric business
models are based on the
economics of complements
• A company identifies a
complement in different
industry
• Value is created by
commoditising that
complement
• The complement is bundled
with the core product of the
company, where profits are
generated.

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In-class Activity: Oral-B’s business model
• Form teams of 3-4 members
• Read and discuss the article:
Vakulenko, M. (2016) What can a toothbrush teach us about IOT business models?,
TechCrunch. Techcrunch.com. Available at:
https://techcrunch.com/2016/04/12/what-can-a-toothbrush-teach-us-about-iot-business-models/ (Accessed: January
30, 2023).
• Complete the table below:

Create Deliver Capture Defend

Traditional

Digital

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1.3 Platform and Ecosystem

How can a company manage a platform, and an

ecosystem of players?

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Digital Platform

“Built on a shared and

interoperable infrastructure, fuelled
by data and characterized by multi-
stakeholder interactions, platforms
bring together people, processes,
policies, and networked technology
to enable value exchanges
throughout an ecosystem”
(World Economic Forum)
Source: innovationtactics.com

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Linear vs Platform business models

Source: innovationtactics.com

Platforms do not directly create and control inventory via a supply chain as linear
businesses do. They do not own the means of production – instead, they create
the means of connection.
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 Digital Platform Businesses
• Amazon is a platform in which
consumers can purchase almost
anything.
• Facebook is a platform in which
users generate and share content
with other users.
• Uber is a platform where clients
easily access transportation
almost anywhere.
• AirBnB is a platform where
guests can rent rooms from
private hosts.
• WhatsApp is a platform in
which users send instant
messages to each other.
• YouTube is a platform where
users can share videos with their
followers.
• PayPal is a platform that enables
eCommerce websites to receive
user payments quickly.

(Makabee 2021) Source: innovationtactics.com

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 Advantages of a Platform
• Greater access to sellers: aggregate dispersed supply and demand.
E.g., Alibaba – sells goods from millions of third-party suppliers
• Better value to consumers: offer convenience and a greater variety of
products and services at competitive prices
• Market growth: drive demand and supply by lowering transaction costs.
E.g., Uber – creates a new supply of cars and drivers
• Asset-light: facilitate transactions without owning many assets
• Scalability: helps businesses to scale quickly due to network effects
• Innovation: create an incentive for sellers and developers to innovate
and improve their products and service to remain competitive

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 Case Study: Uber Digital Platform
Read the article: How come that Uber can provide generally cheaper rides than taxis?
The Complete Guide to the
Revolutionary Platform Business
Models [2022]
https://innovationtactics.com/platform-
business-model-complete-guide/

48 Source: innovationtactics.com
 Case Study: Uber Digital Platform
Read the article:
The Complete Guide to the
Revolutionary Platform Business
Models [2022]
https://innovationtactics.com/platform-
business-model-complete-guide/

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 Case Study: Uber Digital Platform
Read the article:
The Complete Guide to the
Revolutionary Platform Business
Models [2022]
https://innovationtactics.com/platform-
business-model-complete-guide/

Source: innovationtactics.com
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 Case Study: Uber Digital Platform

Source: innovationtactics.com

Read the article:

The Complete Guide to the Revolutionary Platform Business Models [2022]
https://innovationtactics.com/platform-business-model-complete-guide/
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Platform Business – Supply side vs Demand side

Source: innovationtactics.com

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Platform Business – Supply side vs Demand side

Source: innovationtactics.com
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Data-driven digital platform
COMPETITIVE ADVANTAGES

BEFORE: Unique products, cheaper prices, big promotion (Supply & Demand)

NOW: Having access to consumer data (Demand & Supply) - Understand the
customers better, redesign business strategy, improve the decision-making process

Digital platforms enable a data-driven world rather than a process-driven

world. The digital platform handles an end-to-end business process necessary
to improve customer, employee, and partner experience.

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Asset-light businesses
They do not own or
control assets and
resources (asset-
light business).

They facilitate
transactions
between users who
own assets and
resources.

Source: compassmag.3ds.com
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 Build an Asset-Light Business
• Business model of car dealers: dealerships stock hundreds of cars on a large
lot, and consumers drive several miles to these lots to see and test-drive cars
and negotiate prices. Tesla does not have traditional dealers, only showrooms
Read the article:
Tesla to ditch dealerships and move car sales online
https://www.abc.net.au/news/2019-03-02/tesla-ditches-the-dealership-by-moving-its-car-sales-online/10864878

• Consumer buying behaviour has changed: start their search online and know
everything before coming to the dealers. They find the experience boring,
confrontational, and time-consuming.
 Dealers don’t need to follow a capital- and asset-intensive model anymore.

The demand-based economy is about access, not ownership.

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 Ecosystems
• Ecosystem is a network of organisations and individuals exchanging
information and goods to create a certain value
• With failing transaction costs, ecosystems are more integrated and link
different layers of the value chain

 Companies leverage this diversity to create more value (horizontal

partnering, vertical partnering, cross-industry partnering)

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Apple iOS & Amazon ecosystems

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Evaluate your Value Chain

• Research and Development

• Operations

• Omnichannel

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 Highlights of the Value Chain

• Digital technology has significantly improved the efficiency and

effectiveness of various parts of the value chain
• New models of R&D and innovation have emerged – open innovation
• New technologies enable firms to improve productivity, reduce the
failure rate, and create competitive advantage  operational
excellence
• Firm has to think about omnichannel strategy, which creates a
synergy between its online and offline channels

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2.1 R&D INNOVATION

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 Innovation Models

• Producer-led/ company-led innovation model: companies spend a

lot of money in creating innovative products that give them sustainable
competitive advantage
• User-led innovation model: emphasize the important role of users in
developing and modifying the products
• Open innovation is preferred as product lifecycles become shorter
and R&D costs continue to increase.

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 Examples of Open Innovation

• In 2013, NASA, in partnership with Harvard University, hosted a public

contest to solve a problem for the International Space Station (ISS)
- Price of $30,000
- 459 competitors from a wide range of backgrounds submitted 2,185
solutions
• Harvard Medical School run a contest to recruit the best scientist
- Price of $6,000
- 122 people from 89 countries submitted 650 entries

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 Benefits of Open Innovation

• Diverse approaches: participants with various areas of expertise

• Extreme values: people that are likely to generate valuable idea
• Better customer insight: users are the most important source of
knowledge for innovations
• Self-selection: participants choose to work on the problem they are
most passionate about

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 Implementing Open Innovation

• Define the problem: well-defined problem

• Create a clear metric for evaluation
• Design the challenge
• Address organizational challenges

Limitation of open innovation: less effective for broad and conceptual

questions

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2.2 OPERATIONAL EXCELLENCE

What are the new technologies that drive

operational excellence?

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 Technology for Operational Excellence
• Industry 4.0
- Smart factory
- Industrial internet and predictive maintenance
• Digital supply chains
- Demand-driven supply chain
- Warehousing, logistics and fulfilment
• Augmented and virtual reality
- Design
- Assembly
- Training
• Operational excellence in service industries
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 Amazon Smart Warehouse
Watch the Youtube video:
Inside Amazon’s Smart Warehouse
https://www.youtube.com/watch?v=IMPbKVb8y8s
&list=RDCMUCHAK6CyegY22Zj2GWrcaIxg&start
_radio=1

Identify the
technologies and
strategies used by
Amazon in their
Smart Warehouse.

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 Amazon Go – Advanced Shopping Technology

Watch the Youtube video:

Introducing Amazon Go
https://youtu.be/NrmMk1Myrxc

Identify the
technologies and
strategies used in
the Amazon Go
store.

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 Amazon Prime Air – Drone Tech
Watch the Youtube video:
Amazon Prime Air
https://www.youtube.com/watch?v=HLofyzMarLA

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 Technology for Operational Excellence

Watch the Youtube video:

What is additive manufacturing
https://www.youtube.com/watch?v=EHvO-Mlz
AIM

Additive manufacturing (3D printing)

• Ability to produce more complex
and better products
• Customization; on-demand
production
• Reduce the cost of inventory and
logistics
• Design platforms
• Intellectual property
• Impact on the workforce

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2.3 OMNICHANNEL STRATEGY

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Modern Shopper’s Omnichannel Journey

Customers don’t think in terms

of communications
channels. They simply want an
answer to their question or a
solution to their issue.

The aim is to make the customer

experience as seamless as
possible, where customers can
choose to use any of the available
channels during any phase of their
buying process, depending on their
needs.
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Multichannel vs Omnichannel
How to create an omnichannel strategy that synthesizes online and offline channels?

The omnichannel strategy reduces

pain points and removes
inconsistencies in customer
journeys.

Customers need to connect with the

brand via all of your
communications channels and have
the ability to pick up where they left
Source: identic.be off on one channel and continue the
conversation or buying process on
another.

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 Are Channels Substitutes?
Assumption: different channels compete with each other as substitutes.
However, the key to omnichannel transition is to think of different
channels as complements, not as substitutes
• Complementarity across products: firms must think about the role of
each channel might play for different products. Online channel 
variety, customization
• Complementarity across customers: firms can offer new services to
new customer segment.
• Complementarity across customer lifecycle: different channels may
serve customers at different stages of their decision journey

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 Different Channels at Kiehl’s

Role of different channels for Kiehl’s (which L’Oreal acquired in 2000)

• Company-owned stores to intrigue & entice new customers  acquisition
• Department stores and retail partners to generate traffic and extend the reach
• E-commerce for existing customers to find new products or order supplies 
retention

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 Physical and Digital Diffusion
Firms should not start with technologies right away. Instead
 What are the consumer problems?
 How can technology help you solve those?
Finding things, Trying things, Paying for things, Returning things

E.g. Amazon’s omnichannel experiment: new product categories, amazon

devices, prime membership, reinventing retail

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 Why Amazon opened physical stores?
Testing its omnichannel strategy
• New product categories: for some categories, consumers still prefer
to shop in person
• Amazon devices: razor-blade model, increase the visibility of these
devices in pop-up stores and retailers
• Prime membership: physical stores can become a customer
acquisition channel for Prime membership and online commerce
• Reinventing retail: with Amazon Go
 Re-imagine the synergies between physical and digital channels

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 Reference Books
• Chaffey, Dave, Author, and Ellis-Chadwick, Fiona. Digital Marketing. Seventh
ed. Harlow, England: Pearson, 2019.
• Charlesworth, Alan. Digital Marketing. 3rd ed. Vol. 1. Milton: Routledge, 2018.
• Duong, Véronique. SEO Management. 1st ed. Wiley-ISTE, 2020.
• Gupta, Sunil. Driving Digital Strategy : A Guide to Reimagining Your Business.
Boston, MA: Harvard Business Review, 2018.
• Clarke, Adam. SEO 2020: Learn search engine optimization with smart
internet marketing strategies. Simple Effectiveness Publishing, 2020.

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Copyright © 2017 RMIT University Vietnam
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