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Global Innovation Management
Internet Marketing in Context
Global Innovation Management
Markets & Customers: The Sales Cycle
• Target the market
• Create an awareness of the company's product or service– Q: What substitutes exist in the market?
• Develop a customer's interest in the product (or service) – Q: How do you motivate customer purchases?
• Educate the market about the product– Q:How it is used, how the customer will benefit?
• Close: Make the sale• Fulfill: Deliver the product• After-Market Service: Service, technical support,
warranty service and follow-up
Global Innovation Management
disintermediation
Computer dealers
Automobile dealers
Yellow pages
Newspapers
Realtors
Manufacturers &
Merchants
Consumers
Global Innovation Management
disintermediation
Computer dealers
Automobile dealers
Yellow pages
Newspapers
Manufacturers &
Merchants
Consumers
Global Innovation Management
disintermediation
Computer dealers
Automobile dealers
Yellow pagesManufacturers
& Merchants
Consumers
Global Innovation Management
disintermediation
Computer dealers
Automobile dealers
Manufacturers &
Merchants
Consumers
Global Innovation Management
disintermediation
Computer dealers
Manufacturers &
Merchants
Consumers
Global Innovation Management
disintermediation
Manufacturers &
Merchants
Consumers
Global Innovation Management
disintermediation
ConsumersManufacturers
& Merchants
Web Sites
Global Innovation Management
Re-intermediationism
ConsumersManufacturers
& Merchants
Web Sites
Integrator Sites
Price Search
Affiliate Programs
Networks
Global Innovation Management
Market Models
• What market models from existing industries can provide guidance in investment in electronic markets, pricing of services, and delivery of "products"?
• At least three groups have an interest in market structure
– The market owner-managers– The buyers, and – The sellers
Global Innovation Management
Matching Producers with Consumers
• Retail markets with consumer "price-taking"– The "retail" format is not optimal for electronic
commerce
• English (or progressive) auction market • Second-price sealed-bid auction market • First-price sealed-bid auction market • Dutch auction market
Global Innovation Management
Matching Producers with Consumers
• Matching a buyer and a seller at a market price is complex
• Markets do not mystically clear at an equilibrium price under the guidance of an invisible hand
• ...matching buyer and seller at suitable transaction terms requires specific market mechanisms
• Each of these mechanisms has distinct
advantages
Global Innovation Management
Matching Producers with Consumers
• Retail markets with consumer "price-taking"• In grocery stores, discount chains and so
forth, non-negotiable prices are marked on the goods for sale
• ...and consumers have the option of either taking the price as given, or not buying the product.
• Obviously, these prices cannot be set at random, since customers often have the choice of buying the same or similar products at a competitors
Global Innovation Management
Auction Matching Mechanisms
• English (or progressive) auction market • Bids are freely made and announced publicly
until no purchaser wishes to make any further bid
• A utility maximizing bidder participates if and only if he can win the auction
• ...with a bid that is less than his reservation value for the good
• ... and thus drops out only if the bid "on the floor" equals or exceeds his reservation value
Global Innovation Management
Second-price sealed-bid auction market
• Bids are not public, but sealed• The good is awarded to the highest bidder• ... but on the basis of the price set by the
second highest bidder
Global Innovation Management
Matching Mechanisms
• First-price sealed-bid auction market • Bids are not public, but sealed• The good is awarded to the highest bidder at
the highest bid price.
Global Innovation Management
Seven Main e-Marketing Models
Where competition takes place today
Global Innovation Management
Value and Structure of e-Marketing(summary is posted to Blackboard)
P o te ntia l P ro fita b ility
Self-Organizing H
ierarchical
D is trib u tio nN e tw o rk
e -C a ta lo g
W e b 2 .0A llia nc e
O p e n S o u rc eA go ra
(M a rk e t)
e -T a ilo rA ggre ga to r
V a lu e C ha inInte gra to r
Global Innovation Management
Online Catalogue
• Online catalogues – originally called Internet shopping malls– first Internet business models to gain widespread
attention; – they are also the simplest to implement.
• Post information in traditional mail-order catalogues to Web pages, – adding some provision for completing the purchase on-
line, such as a shopping cart, and checkout. • The primary value provided by an online
catalogue – the enormous potential selection of inventory that is
available. – This selection is often several orders of magnitude larger
than in physical stores, – a prospect made possible by low inventory acquisition
and carrying costs.
Global Innovation Management
e-Tailer• e-tailers are value-adding intermediaries between producers
and customers, – taking responsibility for value selection and fulfillment,
pricing, and market segmentation.
• The major value proposition of this model is the vast reduction in inventory carrying costs, – in theory, e-tailers can often simply take an order, and
let someone else fulfill that order by shipping the inventory.
– Even payments processing may be outsourced to a bank.
• The primary value provided by an e-tailer is customer management – this is translated into much more efficient inventory
selection and display than can be achieved by ‘bricks and mortar’ retailers.
• As with online catalogues, the inventory selection is often several orders of magnitude larger than in physical stores, a prospect made possible by low inventory carrying costs.
Global Innovation Management
Business Models Aggregator (e-Tailor)
P ro d u cer
P ro d u cer
P ro d u cer
A ggregat o r
C u s to m er
C u s to m er
C u s to m er
Ag o r a Allian c e
Ag g r eg a tio n Valu e C h ain
D is tr ib u tiv eN etw o r k
Hier ar c h ic a l
S e lf -O r g an iz in g
C o n tr o l
v a lu e in teg r a tio nL o w Hig h
Global Innovation Management
Exchange
• An exchange facilitates the trading of information, goods, and services between buyers and sellers.
• Prices are "discovered" through real-time, on-the-spot negotiations,
• whether through one-to-one haggling or through multi-party auctions and exchanges.
• Internet exchanges are typically modeled on physical auctions • either open outcry, pit auctions with one seller and many
buyers, similar to those used in the trade of commodities; or • double auction markets, with many buyers and sellers, such as
those used for higher transaction volume markets for corporate stocks. Where pit auctions are often used to sell commodities.
• Rising price bids will be used in most cases; – but where goods are perishable such as fish or flowers, a declining price
‘Dutch’ auction (after the Holland flower markets) is used to speed up bidding.
Global Innovation Management
Value Chain Integrator • Manages a large number of separately
owned businesses to create the cost savings and purchasing power of a traditional vertically integrated industrial firm, – but with the scalability, flexibility and
speed of response to new market challenges that are the hallmark of much smaller firms.
• Primary assets are – a large customer base – developed marketing channels
(especially Internet based), – good reputation and brand awareness.
Global Innovation Management
Value Chain Integrator
• Compete on two value propositions:• Customer relationship management:
– Integrators generally need a dominant position in whichever market they intend to compete, because the assurance of sales will be necessary to encourage suppliers and developers to work with the integrator to meet their objectives at the lowest possible cost.
• Vendor management: – Integrators need sophisticated management systems to
lay out objectives, budgets and time schedules, and keep them updated for a variety of outside vendors.
– Often these involve very highly automated supply-chain logistics system, enterprise relationship management systems and customer relationship management systems operating on a common Integrator defined
Global Innovation Management
Business ModelsValue Chain Integrator
Uses both Electronic and Logistic Networks
I n teg r a to r
P r o d u c er s
C u s to m er s
Ag o r a Allian c e
Ag g r eg a tio n Valu e C h ain
D is tr ib u tiv eN etw o r k
Hier ar c h ic a l
S e lf -O r g an iz in g
C o n tr o l
v a lu e in teg r a tio nL o w Hig h
Global Innovation Management
Open Source Alliance• Open Source business models are perhaps the most puzzling of
Internet enabled business models, • because of the difficulty in articulating the model’s value
proposition (which varies with the business) and • its revenue stream (which need not exist at all).
• Open Source projects are virtual networks of prosumers (individuals or firms that are both consumers and producers) centered on a particular project mission.
• Open Source businesses offer four value propositions:– Reputation building for the contributors– Market size is assured because the producers will be the
consumers.– 'Organic' contribution of producer services to the achievement
of a common goal (often a product). Customization of a complex product for the price of a small contribution (the customized services or code)
– Control (at the margin) over design of the product. Because the producers are the consumers, their contributions determine their own satisfaction.
Global Innovation Management
Agora & Alliance
Bu y er
Bu y er
Bu y er
Bu y er
S e lle r
S e lle r
S e lle rS e lle r
P r ic e D isc o v e r yM e c h a n ism
Prosumer
Prosumer
Prosumer
Prosumer
Value Space
Ag o r a Allian c e
Ag g r eg a tio n Valu e C h ain
D is tr ib u tiv eN etw o r k
Hier ar c h ic a l
S e lf -O r g an iz in g
C o n tr o l
v a lu e in teg r a tio nL o w Hig h
Global Innovation Management
Infrastructure (Distributive Network)
• Distributive Network Infrastructure models are not really new, but have grown in sophistication and variety with the rise in use of the Internet. – Railroads, electric power and canals in the past were network
infrastructure industries that facilitated transport between a huge and variable set of geographical locations.
• The value generated by Distributive Network Infrastructure depends on whether traffic flows one way or two. – One-way traffic implies the delivery of a product, like cable TV,
electricity or gas– Two-way traffic implies communication between locations on
the network• Distributive Network Infrastructure models offer two value
propositions:– Network effects: Economies of production scale as the network
size grows.– Search, access and communication for people, data, and
services as the network size grows.
Global Innovation Management
Social Network Platform (Web 2.0)
• Social network platforms provide a data-centric platform where stakeholder interactions generates content that is actively distributed, managed and analyzed by the business. – The key competence in social network platforms applications is
the management of databases updated from many disparate sources.
– Social network platforms as an emerging business model were promoted from 2005 onward by O'Reilly Media under the banner of Web 2.0, and have comprised the most important developments in Internet business models over the past two years. .
• Some of the business models enhance their value by embracing social networking. – eBay's adds value through the collective activity of all its
users, as they rate the social activity of others that they trade with, and as they put up for sale many items that wouldn’t be seen elsewhere on the Internet.
– Amazon sells the same products as competitors, but engages their customers to write an unparalleled number of user reviews – aftermarket feedback on the precise reasons that I might or might not like a product.
Global Innovation Management
Sources of Competitive Advantage in e-Markets
Global Innovation Management
Two Questions
• How do low-cost and differentiated products come about?
• Why is it that some firms can offer them better than others?
W h at?
How?
When?
Where?
Who
?
W h y ?
Global Innovation Management
The Value Map
• Firms create that deliver low-cost or differentiated products– By performing the activities – Of their value configuration
– (i.e., value chain, value network, value shop, profit chain)
• To perform these activities– A firm needs resources (assets):
• Manpower, money, machines, methods, materials
• Plants, equipment, patents, scientists, brand name recognition, geographic location, client relations, distribution channels, trade secrets
Global Innovation Management
Competences
• You best • (perhaps your only) • opportunities to compete are
– Where Product Market Needs– Cross with Competences
Y o u rC o m p eten ces
P ro d u ct M a rk etO p p o r tu n ities
C o m pe ti to r A'sC o m pe te nc e s
C o m pe ti to r B 'sC o m pe te nc e s
C o m pe ti to r C 'sC o m pe te nc e s
Yo u r C o m p eten c e
Global Innovation Management
You Convince Competitors and Financiers By …
• Proving that your ideas can perform on Key Metrics (e.g., Profit)» Show me the money!
• This raises the question:– “What are the important Metrics?”
• The answer is complex … and is not necessarily “Profit”• Accounting metrics like Profit
– Measure the Past• Competitors and Financiers are interested in your future!
– Future Profits, Revenues, etc. are Unknown
• Thus Other Measures both needed and More Important than Profit!