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