MIS625

Session #3

Outline

• Porter paper– Note process orientation via competitive

forces and value chain– Tie to Peter Keen slides

• Information Economy pricing chapters

• Lands End case

Why eCommerce is about Processes

• Retailing – winners characterized by repeat business and trusted relationships, losers by high customer acquisitions costs and late delivery and poor response

• Financial services – winners offer multiple channels, losers undifferentiated relationship and bare bones transaction

Process Blindness

• Survey – Conference Board and Pricewaterhouse-Coopers– Most companies see e-commerce as detached from

their mainstream business– Most companies don’t see e-commerce as about

process

• Reasons for process blindness– Companies think of Internet business as

“technology”– Managers don’t understand how processes integral

to web business impede or enhance customer relationships

Value Network

• The value network is all the resources behind the ‘click’ that the customer doesn’t see, but that creates the value in the customer-company relationship.

• The enterprise at the center makes some promise to the customer that is fulfilled via the value network

Information

Place Order

Browse, select, specify, customize

capture

authorize

VAN

VAN

Customer info

Product info

Payment info

Logistics info

Buy

PayConfirm

Ship

Deliver

Customer

Shop

Make purchase

recipient, profile, credit card

Complete order

inventory, privacy, security, receipt

Fulfill order

pick & pack, on-demand ship parcels, track parcels

Repeat

The Importance of Relationships

• Difficulty of building relationships• Pure transactions = zero relationship• The more specific the tailoring of

content, the more the shift from commodity to relationship

• Compare an ATM with Lands End

Strategy and the Internet

• Distortion during the dot.com boom• Business whether pre-Internet or

post-Internet is about creating economic value

• Two factors determine profitability– Industry structure– Sustainable competitive advantage

Competitive Forces Model

How does the Internet affect

• Switching costs• Network effects• Complements and outsourcing• Intermediaries

Principles of Strategic Positioning

• Start with the right goal – economic value added

• Value proposition• Distinctive value chain• Trade-offs• Fit• Continuity of direction

Process Capability Matrix (Keen)

Type Asset Liability

Identity

Priority

Background

Mandated

eProcess Choices

• Embed process rules in the software interfaces

• Out-task processes and capabilities electronically

• In-source new capabilities electronically

• Be exceptional in handling exceptions

How to Price Information

• Cost of production – high fixed costs, low variable costs economies of scale

• Costs and competition– Information as a commodity– The importance of differentiation

Differentiation

• Personalization• Collecting customer information

– Through registration– Privacy backlash

Personalized Pricing

• Fare classes• Auctions• Special offers based on past behavior

Group Pricing

• Price sensitivity• Network effects• Lock-in• Sharing

Versioning

• Versions tailored to the needs of different customers

• Versions to accentuate the needs of different groups of customers

Product dimensions used to create versions

• Delay• User interface• Convenience• Image resolution• Speed of operation• Formatting• Capability• Features• Comprehensiveness• Annoyance• Support

Versioning Choices

• How many versions?– Depends on product and market– Three is a magic number

• Customizing navigation and content• Bundling

Rights Management

• Copyright law– ‘Information wants to be free’

• Digitalization reduces reproduction costs and distribution costs

Distribution Costs

• Giving away content• Similar but not identical products –

e.g. Playboy• Complementary products

Cheap Copying

• The video industry• IPod