1

Dickson K.W. ChiuPhD, SMIEEE, SMACM, Life MHKCS

Jelassi & Enders: Chapter 8

COMP7880: E-Business StrategiesCreating & capturing value

Strategyoptions

Externalanalysis

Internalanalysis

Sustaining competitive advantage

Internal organisation

Implementation

Exploring new

market spaces

Interaction with suppliers

Interaction with

users/customers

Creating and

capturing value

Strategic analysis

Strategy implementation

3

4

5

6 7

8

9

10

11

13

E-business strategyMobile e-commerce strategy12

Opportunities/ threats

Strengths/weaknesses

Our Roadmap

Strategy formulation

COMP7880-CV-2

Value creation

Value created

€

CostsPerceived use value

Value is created if the perceived use value exceeds costs

COMP7880-CV-3

Value captured (producer surplus)

Price

Consumer surplus

Value capturing

Value creation

CostsValue created

€

Perceived use value

The price indicates how the value created is distributed

COMP7880-CV-4

Value capturingValue creation

Value created

€

Producer surplus

Value created

Price = Willingness to pay

CostsPerceived use value =

Producers completely capture value created in a monopolistic environment

COMP7880-CV-5

1

Valuecapturing Value creation

Costs Value created

€

Perceived use value

Company AStrongest competitor

(Company B)

2

3

15

54

Price = 19Consumer

surplus 1

Value capturingValue creation

CostsValue created

€

Perceived use value

1

4

20

12

8

Competitive discount

7

Maximum value to be captured

20

Profit

Competitive discount = consumer surplus provided by the strongest competitor

COMP7880-CV-6

Value capturingValue creation

Valuecreated

€

Competitive discount

ProfitValue created

CostsPerceived use value

Producersurplus

1 2

3

Consumersurplus

To achieve profitability:create and capture value

Price

COMP7880-CV-7

Five forcesValue chain

1 2

3

Value Process Framework (VPF) integrates different strategy analysis

COMP7880-CV-8

Marketing &sales ProductionSourcingR&D Service

1

2

1

2 1 2 1 2 1 2 1 2

Value is created by the individual business activities of the value chain

COMP7880-CV-9

Entrants

Substitutes

Suppliers CustomersRivalry1 2

3

Porter’s five forces influence the cost lever and competitive discount

COMP7880-CV-10

Value drivers

Cost drivers

• Entrants• Rivalry

• Customer power • Substitutes

Supplier power

3

21

3

Porter’s strategy models can be used to analyze the levers of the VPF

COMP7880-CV-11

Handset purchasing

MNOservices

Content,productdesign

Marketing, branding

Sales, distribution

MVNE services

UMTS multimedia

handsetUMTS

technology

Concept design,

artist roster, applications,

features

Concept image, concept brand

Content distribution over the air

/

Wholesale costs

MNO service

feesAdvertising

costsMVNE service

feesRetail

margins

Value drivers

Cost drivers Royalties

Value chain analysis of MVNO project reveals numerous value/cost drivers

COMP7880-CV-12

MVNO – Mobile Value Network Operator project by Sony BMG GermanyMVNE - Mobile Virtual Network Enabler

Artist roster, content, applications, multimedia handset

UMTS technology, handset

Applications, community

Applications, features

Image (brand)

Image (brand)

UMTS technology, handset

UMTS technology, handset

Quality

Brand

Speed

Entertainment & fun

24/7 access

Interaction

Individualization

Emotional benefit

Individualization

24/7 access

Fast downloads

Value

Value drivers (step 1) Perceived use value (step 2)

Multiple value drivers create perceived use value mainly in 3 dimensions

COMP7880-CV-13

Handsets costs MNO service fees Royalties Advertising costs Retail commissions MVNE service fees

Quality

Value creation

Speed Brand

€

Supplier power

1 2

Perceived use value and costs for the Sony BMG MVNO would both be high

COMP7880-CV-14

Industry rivalry(moderate to high)

• Telco market is close to saturation• Player concentration depending on market definition• Low exit barriers for non MNOs• Product differentiation only via premium content

Bargaining power of suppliers (moderate to high)

• No input differentiation in terms of air traffic (this argument pplies only to resellers and MVNOs)• Moderate input differentiation in terms of handsets• Strong supplier concentration (only E-Plusin Germany)

Threat of new entrants(moderate to high)

• Low technical barriers, high barriers for brand and access to attractive content • Low switching costs for prepaid customers• Low exit barriers, only sunk costs for advertisement• Easy access to distribution channels

Threat of substitutes(relatively low)

• No devices in sight that could adequately fulfil the product’s major functions

Bargaining power of customers (relatively high)

• No considerable switching costs• Huge amount of prepaid offerings low differentiation parameters• Willingness to pay important for premium content providers• High market transparency

German wireless telecommunications industry: relatively low attractiveness

COMP7880-CV-15

€

Value capturing

New entrant

s

Substitutes

CustomerpowerRivalry

3

The five forces analysis indicates a high competitive discount

COMP7880-CV-16

Value capturingValue creation

Value drivers Handset UMTS Concept design, artist

roster Brand Over-the-air distribution

1

Cost drivers Wholesale costs Increased MNO service fees

(due to high supplier power) Royalties Advertising costs Retail margins MVNE fees 2

Industry forces (low entry barriers, relatively high rivalry, high customer power, low substitute threat)

Short-term uniqueness of resources (especially concept design), but imitable in the long run 3

Effects on competitive discount

Perceived use value has to be extremely high to achieve profitability

COMP7880-CV-17

For your project & exercise

Repeat the methodology in this chapter for your project case

study

COMP7880-CV-18