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
E-business strategy
Strategy
Strategy formulation
implementation
12
Strategic
analysis
3
External
analysis
9
5
Internal
organisation
Strategy
options
Opportunities/
threats
Strengths/
weaknesses
4
Internal
analysis
6
Sustaining
competitive
advantage
8
7
Exploring
new market
spaces
Creating and
capturing
value
10
13
Interaction with
suppliers
Implementation
11
Interaction with
users/customers
COMP7880-SO-2
Differentiation & Price Strategies
COMP7880-SO-3
The strategic triangle –
Main drivers of competitive advantage
2
Customer
1
3
Price/
benefit
Company
Cost
Price/
benefit
Competitors
4
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
something
Performance Provide
that is valuable
advantage unique
to buyers
Differentiation
Competitive
advantage
Price
advantage
Similar product
with lower
price
Provide a product
with lowest price
Cost leadership
(Cost/price leadership)
Become the cost
leader in the industry
Source: Adapted from H. Hungenberg (2006), p. 189.
COMP7880-SO-7
Achieving cost leadership position
Economies of
scale
The basic concept of economies of scale is that as a firm
increases its product output, it decreases its unit production
cost.
Economies of
scope
While economies of scale can be realized by increasing the
production of one product type, economies of scope result from
expanding the variety of products sold using the same assets.
Factor costs
Learning
effects
Factor costs represent a crucial cost driver, especially for
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 effects can lower costs as a firm improves its
efficiency over time, thereby reducing slack and wasteful
activities.
Discuss this for our running case: SME Computer …
Economies of scale
Price
per unit
As the cumulated
production quantity
increases, costs per
unit decrease.
Eventually, costs go up
again when production
capacities reach their
constraints
Average costs
Economies of
scale
Dis-economies of
scale
Quantity
COMP7880-SO-9
Tangible and intangible
sources of differentiation
Quality
Customisation
Tangible
sources
Convenience
Speed of delivery
Sources of
differentiation
Product range
Intangible
sources
Brand
Reputation
COMP7880-SO-10
Perceived performance and relative price
position determine a firm’s strategy
Perceived
performance
High
Differentiation
Outpacing
To achieve both:

New technologies

Scale economies

Better management

Eliminate wastage

Optimization

Learning effects

BPR
Low cost/
low price
Low
More expensive
Cheaper
Relative price
urce: Adapted from H. Hungenberg (2006), p. 194.
COMP7880-SO-11
Strategic gameboard for formulating
consistent business strategies
Where do we
2 want to achieve
the competitive
advantage?
Market segment (niche)
Whole market
Performance
Cost/
price
New
game
Old
game
3
How do we
want to
achieve the
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







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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

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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)


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


Sales activities on a company’s Web site interfere with existing
sales outlets (e.g., Levi Strauss)
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