Transcript MarketspaceU - Chapter 1 Enhanced Lecture Slides

Chapter 3
Business Models
Copyright © 2001 by Marketspace LLC
Business Models — Today’s Objective
To develop an understanding of business models for the networked
economy
Chapter 2
Where will the
business
compete?
Chapter 3
How will the
business win?
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–1: Components of a Business Model
Developing a business model in the networked economy requires four key choices on the part
of the senior management:
Value Cluster
Marketspace Offering
Resource System
Financial Model
• Specify the value proposition or
the value cluster for the business
• Articulate the online product,
service and information offer
• Define how the company needs to
align its resources to deliver the
value proposition
• Define and select the most
appropriate revenue model to
pursue
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–2: Shattering the Myth That Consumers Care Only
About Prices Online
Percentage of Customers Who Care About Attribute
Customer Support
65
Attribute
On-time Delivery
58
Product Shipping & Handling
49
Product Content
49
Privacy Policies
45
Ease of Ordering
24
Product Information
24
Web Site Navigation & Locks
23
Product Selection
22
Product Price
19
0
10
Source: JP Morgan Report: etailing and the five Cs
20
30
40
50
60
70
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–3: Value Proposition/Cluster
The first step in the articulation of the business model is clearly specifying the value
proposition or the value cluster for the business:
Defining the value proposition or the value
cluster requires managers to answer the
following questions:
Value Cluster
• Which target segments should the
company focus on?
• What is the combination of customer
benefits that is offered?
Marketspace Offering
• What makes the firm and its partners
better positioned to deliver the offering
than anybody else?
Resource System
Financial Model
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–4: Value Proposition/Cluster
The definition of the value proposition is the result of a combination of choices about the
customers, the benefits offered and the unique capabilities of the firm:
Target
Segments
PC Flowers
& Gift
FTD.com
+
Key Benefits
Offered
+
Unique
Capabilities
Value
Proposition
“The special occasion
segment”
• Fresh flowers
• Complementary gifts
• Low prices
• Online experience
• Unique, broad product
line of complementary
gifts
“PC Flowers & Gift serves
the special occasion
segment by providing fresh
flowers and unique
complementary gifts”
“Mid- to high-end
market”
• Easy delivery of
flowers
• Strong brand name
• Market
Communication
• Supplier network
“FTD.com provides the
mid- to high-end market
with the easiest way to
send flowers thanks to its
extended network of
suppliers”
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–5: Marketspace Offering
The next step is to articulate the online product, service and information offering:
Value Cluster
Defining the Marketspace offering requires
managers to complete the following
sequential tasks:
Marketspace Offering
• Identify the scope of the offering
• Identify the customer decision process
• Map the offering to the consumer
decision process
Resource System
Financial Model
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–6: Scope of the Offering
The scope of the offering refers to the number of categories of products and services offered
on the site:
Continuum of Scope
Category-Specific Dominance
Focus on one product category
Cross-Category Dominance
Focus on a large number of categories
• Secondspin.com (used CDs)
• Dealtime (electronics and other goods)
• PremiumOrchids.com (orchids)
• 1-800-Flowers (flowers)
• Peapod (online grocery)
• Streamline* (online grocery, dry
cleaning service, etc.)
* Streamline closed down in 2000
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–7: Metamarkets
The term ‘metamarkets’ refers to sites that group products and services that are closely
related in the mind of customers:
BabyCenter.com offers a good example
of a “goal-derived” metamarket. The site’s
products and information focus on one
goal: raising a healthy child.
• Shopping for baby and maternity products
• Support community for parents
• User personalization
• Reference information
• Support and help from experts
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–8: Customer Decision Process
The second step in the construction of the online offering is the articulation of the customer
decision process for the various product categories:
Flowers Example
Prepurchase
Problem Recognition

Need recognition, potentially triggered by a
holiday, anniversary or everyday events
Information Search

Search for ideas and offerings, including:
– Available online and offline stores
– Gift ideas and recommendations
– Advice on selection style and match

Evaluation of alternatives along a number of
dimensions, such as price, appeal, availability, etc.

Purchase decision
Message selection (medium and content)
Evaluation of Alternatives
Purchase
Purchase Decision

Satisfaction
Postpurchase
Loyalty

Post-sales support
– Order tracking
– Customer service

Education on flowers and decoration
Post-sale perks

Disposal
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–9: Mapping the Offering to the Decision Process
The last step in the construction of the online offering is mapping the products and services
onto the customer decision process:

What occasions trigger the need
for my product? What tactics can
be used to stimulate demand?
Need
Recognition

Search for
Ideas and
Offerings

What post-sale
services can the
website offer to
create loyalty?
Customer
Decision
Process
Post-Sale
Support and
Perks
Evaluation of
Alternatives
Purchas
e
Decision

What functionality should the
site present to communicate
privacy, trust and security?
What information would
the consumer need to
make a selection?

What are the key evaluation criteria
that the consumer will use to evaluate
my product/service? What information
should the website offer to make the
consumer comfortable with his or her
choice?
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–10: Egg Diagram for 1-800-Flowers.com





“Care and handling”
“Do it yourself”
Special events and
educational
workshops held at
stores
Product
Offering




Post-Sale Support
Order receipt e-mail
eQ&A online customer
service
FAQ
Customer service
inquiry form
Perks






Gift reminder service
Holiday specials
Ideas and Information
Everyday celebrations
 Floral ideas
 Garden ideas
suggestions
 Home ideas
Special occasion suggestions
 Gift ideas
 Gourmet ideas
Need
 Store locator
Recognition
 Recommendations by budget
 Bestsellers
Education on Flowers
and Decoration
Post-Sale Support
and Perks
Miles earned with
flower purchases
Free gifts
Discounts at AOL
& BN.com with
flower purchases
Member specials
Search for Ideas
and Offerings
Flower / Gift
Decision Process
Evaluation of
Alternatives
Gift Recommendations
 Gift guru
 Favorite gifts
 Gift frequency
 Gift impossible
 Gift baskets
 Corporate gift services





Message
Selection


Gizmo fully-animated
greeting cards
Physical cards in gifts
Product price
Product picture
Product description
Delivery information
Delivery availability
Purchase
Decision



Shopping basket
E-commerce transaction
Special shopping features
– Delivery outside US
– 1-800-lasfloras.com
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–11: Resource System
The third step is to define the resource system and how the company must align it to deliver
the benefits in the value proposition:
Value Cluster
Marketspace Offering
A series of activities is required to construct
a resource system:
1. Identify core benefits in the value
cluster.
Resource System
2. Identify capabilities that relate to each
benefit.
3. Link resources to each capability.
Financial Model
4. Identify to what degree the firm can
deliver each capability.
5. Identify partners who can complete
Last Updated: 09/12/01
capabilities.
Copyright  2001 by Marketspace LLC
Exhibit 3–12: Step No. 1 — Identify Core Benefits
The core benefits must be identified in the construction of the value cluster:
1-800-Flowers.com serves the “mid- to high-end market” with a broad gift assortment, fresh flowers,
reasonable prices and easy access because of its strong brand name, product and media partnerships
and bricks-and-mortar network of franchises.
Broad
Assortment
of Gifts
High Quality
of Flowers
Customer
Service
Widespread
, Easy
Access
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–13: Step No. 2 — Link Capabilities to Benefits
Managers need to identify which capabilities are required to deliver each benefit, regardless
(at this point) of the ability of the company to access or develop that capability:
For 1-800-Flowers.com, the benefit “widespread, easy access” is linked to four capabilities: strong brand
name, wide reach to customers, multiple points of contacts and a popular website.
Broad
Assortment
of Gifts
High Quality
of Flowers
Popular Website
Multiple Contact
Points
Customer
Service
Widespread
, Easy
Access
Wide Reach to
Customers
= Core benefits
= Capabilities
Strong Brand
Name
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–14: Step No. 3 — Link Resources to Capability
After the capabilities are identified, the firm should determined the resources necessary to
deliver each capability:
Broad
Assortment
of Gifts
High Quality
of Flowers
Popular Website
Telephone
3,000 Affiliates
Multiple Contact
Points
Online
Franchis
e Stores
Catalog
Customer
Service
= Core benefits
Widespread
, Easy
Access
Wide Reach to
Customers
Strong Brand
Name
= Activities & assets
= Capabilities
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–15: Steps No. 4 and 5 — Ability to Deliver
Capabilities
The next steps assess whether the company has all the necessary capabilities in-house or if it
has to look outside and select the most appropriate partners to complete the missing
capabilities.
1-800-Flowers.com would not be able to deliver the capability “wide reach to customers” alone, and
therefore would need to create partnerships. Companies like MSN, AOL and Snap are potential partners.
Broad
Assortment
of Gifts
High Quality
of Flowers
Popular Website
Multiple Contact
Points
Starmedia
Customer
Service
Widespread
, Easy
Access
MSN
Wide Reach to
Customers
AOL
Snap
= Core benefits
= Activities & assets
= Capabilities
= Partners
Strong Brand
Name
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–16: 1-800-flowers.com Resource System
BloomNet
Network
Address Book
Gift
Recommendations
Online Gift
Center
Gift Reminder
Third-Party
Contractors
Strong
Distribution
Network
Fulfillment
Center
Stores
Rich Content
Broad
Assortment
of Gifts
High Quality
of Flowers
Personalization
Capabilities
Popular Website
Garden Works
Integrated
Partner Offers
Telephone
3,000 Affiliates
Plow & Hearth
Online
Great Foods
Widespread
, Easy
Access
Customer
Service
Multiple Contact
Points
Franch
ise
Stores
Catalog
Technology
Custome
r Service
Centers
= Core Benefits
= Activities & assets
= Capabilities
Integrated
online
offline
Systems
Strong Brand
Name
Wide Reach to
Customers
Snap
Starmedia
MSN
AOL
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Supporting Slide 3–C: 1-800-Flowers.com Resource System
Online and Offline Integration
BloomNet
Network
Address Book
Gift
Recommendations
Gift Reminder
Strong
Distribution
Network
Fulfillment
Center
Third-Party
Contractors
Stores
Rich Content
Online Gift
Center
Broad
Assortment
of Gifts
High Quality
of Flowers
Personalization
Capabilities
Popular Website
Garden Works
Integrated
Partner Offers
Telephone
3,000 Affiliates
Plow & Hearth
Online
Great Foods
Widespread
, Easy
Access
Customer
Service
Multiple Contact
Points
Franch
ise
Stores
Catalog
Technology
Custome
r Service
Centers
= Online Activities & Assets
= Offline Activities & Assets
Integrated
Online and
Offline
Strong Brand
Name
Wide Reach to
Customers
Starmedi
a
Snap
MSN
AOL
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–17: 1-800-Flowers.com Egg Diagram
Online and Offline Integration



Special events and
educational workshops
held at stores




“Care and handling”
“Do it yourself”

Gift reminder service
Holiday specials
Everyday celebrations suggestions
Special occasion suggestions
Need
Recognition
Online
Product Offering
Prompts on
toll-free number
recording
 Suggestions from
CSRs* in-store and
via phone
 Brochure


Offline Product
Offering
Prompts on toll-free number recording
Suggestions from CSRs* in-store and via phone
Education on Flowers and
Decoration
Ideas and Information








Floral ideas
Garden ideas
Home ideas
Gift ideas
Gourmet ideas
Store locator
Recommendations by budget
Bestsellers
Gift Recommendations
 Gift guru
 Favorite gifts
 Gift frequency
 Gift impossible
 Gift baskets
 Corporate gift services
Search for Ideas
and Offerings
Post-Sale Support


In-store
customer service
Customer
service on tollfree number




Order receipt e-mail
eQ&A online customer
service
FAQ
Customer service inquiry
form
Evaluation of
Alternatives

Perks

In-store specials
Specials offered
via phone





Suggestions
from CSRs in
stores via
phone
Brochure
Flower / Gift Decision Process
Post-Sale Support
and Perks





Miles earned with
flower purchases
Free gifts
Discounts at AOL &
BN.com with flower
purchases
Member specials

Message
Selection




*CSR = Customer service representative
Gizmo fully-animated greeting
cards
Physical cards in gifts
Select card in-store
Select card via phone
Product price
Product picture
Product description
Delivery information
Delivery availability


Information
from CSRs
in-store and
via phone
Brochure
Purchase
Decision





Shopping basket
E-commerce transaction
Special shopping features
– Delivery outside US
– 1-800-lasfloras.com
Purchase in-store
Purchase via phone
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Supporting Slide 3–D: 1-800-flowers.com Partnerships

American Airlines Advantage, Delta Airlines SkyMiles, United Airlines Mileage Plus
– Earn frequent-flyer miles with 1-800-flowers.com purchases

MCI WorldCom
– Receive 1-800-flowers.com gift certificates with long distance sign-up
– Receive 10 percent off every 1-800-flowers.com purchase with MCI WorldCom membership

America Online
– First agreement signed in 1994
– Exclusive marketer of fresh-cut flowers across key AOL brands until 2003
– One-year exclusive agreement to market gardening products commenced November 1999

Microsoft Networks
– Premier floral partner and anchor in the MSN home and garden department
– Products, advertising and links featured on MSN shopping channel

Snap.com
– One of the 45 premier merchants in Snap shopping service (online e-superstore)
– Anchor tenant in Snap.com flower shop
– To be spotlighted in select Snap.com on-air promotions, scheduled to run on the NBC Television
Network during the Valentine’s Day and Mother’s Day periods
Source: 1-800-flowers.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Supporting Slide 3–D: 1-800-flowers.com Partnerships
(Cont.)

Excite@Home
– Markets flowers and other gifts through Excite.com and webcrawler.com web sites
– Products, advertisments and links featured in the Excite Shopping Channel
– Entered second year of marketing relationship in October 1999

Yahoo Inc.
– Will run banner advertisements throughout the Yahoo Network, with additional presence in shopping area

StarMedia Network
– Developing Spanish and Portuguese language versions of 1-800-flowers.com website

People PC
– Signed one-year agreement to become key floral and gift-provider for PeoplePC as of October 1999

Zapa.com
– Offers selection of online greeting cards on 1-800-flowers.com website
– Greeting cards never deleted by Zapa.com
– Users will be able to personalize greetings with their own photos, clip art or other multimedia creations

Sears, Roebuck and Co.
– Licensing relationship which enables Sears customers to use their store charge cards when shopping with
1-800-flowers.com
Source: 1-800-flowers.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Chapter 3:
Business Models

Components of a business model

Defining the value proposition

Articulating the Marketspace offering

Aligning the resource system

Selecting the financial model

Best taxonomies for the networked economy
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC
Exhibit 3–19: Type of Financial Models
A variety of financial models can be used to assess the value of the business model that
follows from the resource system. Three examples are:
Revenues
Models
• Identify the flow
of cash into the
organization
Shareholder
Value Models
• Assess how the
company intends
to generate cash
flow or
shareholder value
Growth
Models
• Assess how the
company will be
able to drive
revenue growth
Last Updated: 09/12/01
Copyright  2001 by Marketspace LLC