Transcript E-Business Strategies

E-Business Strategies
E-Commerce: Impacting the Way We do Business
October 1-2, 2001, Nashville TN
Bob Smith
Associate Professor/Extension Specialist
Dept. of Wood Science and Forest Products
Virginia Tech
Outline
Why
the Internet
E-business Strategy ???
Determining Competitive Advantage
Implementing Strategy
Why the Internet?
“When history is written, the creation of the
Internet may be ranked alongside Johann
Gutenberg’s printing press and Marconi’s
radio as among the major advancements in
human communication.”
Roanoke Times, March 1, 1997
What do these technologies have in
common with the Internet?
 Printing
press
 Telephone
 Automobile
 Airplane
 Television
 Over-night
delivery
 Facsimile machine
 Cellular phone
 Personal computer
Printed Material
 Mass
reproduction
 Unknown audience
 Wider geographical area
 One-way communication
Telephone
 Immediate
communication
 Interactive two-way
communication
 Customer prospecting
 Wider geographical area
Planes, Trains & Automobiles
 Personal
communication
 Wider geographical base
 Two-way communication
 Perception of aboveaverage service
Television
 Wide,
mass audience
 One-way communication
 60 second sound bite
 First visual electronic
medium
Over-night Delivery
 Provide
immediate service
 Create perception of customer care
 JIT management systems
Federal Express
FAX - iT
 Immediate
transfer of
written information
 Above average service
 One-way promotion
 Closer to the customer
Cellular Phone
 Mobility
 Instant
access to
customers
 Above average service
 24 hour contact
Personal Computer
 Faster
service
 Customer information
 Data bases
 Instant communication
What do they have in Common?






Wider distribution of information
Uniform information
Assist in marketing function of
company
Many were interactive
Allow for impression of above
average service
They all have become standards
in the industry
Internet
Definitions
 Electronic
Commerce (EC) is where business transactions take
place via telecommunications networks, especially the Internet.
 Electronic
commerce describes the buying and selling of products,
services, and information via computer networks including the Internet.
 The infrastructure for EC is a networked computing environment in
business, home, and government.
 E-Business describes the broadest definition of EC. It includes customer
service and intrabusiness tasks. It is frequently used interchangeably
with EC.
Electronic Commerce, 2000
What is an Intranet?
 When
internet technology
is used to create a private
network within a company
an intranet is formed.


Allows for immediate
transfer of technology
between locations.
Provides information
such as product pricing,
inventory lists,
production schedules,
and data bases for
remote employees.
What is an Extranet?
 An
extranet is formed
when the company allows
outsiders into the intranet
pages.






Customers can order on
line.
Reduces paperwork
Minimizes errors
Provides better customer
services
Shortens delivery times
Support distributors
What’s Needed
Designated computer
Software to
communicate with Internet
A connection into a network that accesses the
Internet
Or
* Hire a commercial service and
have a connection to the network
Cost
$1500
computer
$300 Software
Home page design - $100/hr - ?
Commercial Internet access - >$100/month
Current Users
 Average
age is 40
 45% female
 45% married
 1/3 computer field, 1/4
educational & 20%
professional
 >40% have made
purchase over $100
Source:
www.gvu.gatech.edu/user_surveys/survey-1999
What’s Being Sold








Computer software
Computer hardware
Books
Music
Gifts
Travel
Clothes
>$100 billion sold in 1999
What’s Being Sold?
Gifts
6%
Other
26%
Books/Music
7%
Source: Forester Research Inc. 1998
Computer Products
35%
Travel
26%
Technology Update
(It took this many years to reach 50 million users)
Radio
- 38 years
Television - 13 years
Internet - 4 years
Why an E-Commerce Strategy
The Benefits of
Electronic Commerce
Benefits to
Expands
Organizations
the marketplace to national and international
markets
Decreases the cost of creating, processing, distributing,
storing and retrieving paper-based information
Allows reduced inventories and overhead by facilitating
“pull” type supply chain management
The pull type processing allows for customization of
products and services which provides competitive
advantage to its implementers
Electronic Commerce, 2000
Benefits to Organizations
Reduces
the time between the outlay of capital and
the receipt of products and services
Supports business processes reengineering (BPR)
efforts
Lowers telecommunications cost - the Internet is
much cheaper than value-added networks (VANs)
Electronic Commerce, 2000
Benefits to Customers
Enables
customers to shop or do other transactions
24 hours a day, all year round from almost any
location
Provides customers with more choices
Provides customers with less expensive products and
services by allowing them to shop in many places and
conduct quick comparisons
Allows quick delivery of products and services in
some cases, especially with digitized products
Electronic Commerce, 2000
Benefits to Customers
Customers
can receive relevant and detailed
information in seconds, rather than in days or weeks
Makes it possible to participate in virtual auctions
Allows customers to interact with other customers in
electronic communities and exchange ideas as well
as compare experiences
Electronic commerce facilitates competition, which
results in substantial discounts.
Electronic Commerce, 2000
Benefits to Society
 Enables
more individuals to work at home, and to do less
traveling for shopping, resulting in less traffic on the roads,
and lower air pollution
 Allows some merchandise to be sold at lower prices benefiting
the poor ones
 Enables people in Third World countries and rural areas to
enjoy products and services which otherwise are not available
to them
 Facilitates delivery of public services at a reduced cost,
increases effectiveness, and/or improves quality
Electronic Commerce, 2000
Why?
Works 24
hours a day
Offers 2 way communication
Unlimited access
Interactive advertising
Supports current business efforts
Electronic Markets
A market
is a network of interactions and relationships
where information, products, services, and payments are
exchanged. The market handles all the necessary
transactions.
An electronic market is a place where shoppers and
sellers meet electronically.
In electronic markets, sellers and buyers negotiate,
submit bids, agree on an order, and finish the execution
on- or off-line.
Electronic Commerce, 2000
Electronic Commerce is
Interdisciplinary
Marketing
Management
Computer
information systems
Accounting and auditing
Management
Business law and ethics
sciences
Consumer behavior and
psychology
Finance
Economic
Production/Logistic
Electronic Commerce, 2000
Major Business Pressures
Market and
economic pressures
Strong competition
Global economy
Regional trade agreements (e.g. NAFTA)
Extremely low labor cost in some countries
Frequent and significant changes in markets
Increased power of consumers
Societal and
environmental pressures
Changing nature of workforce
Government deregulation of banking and other services
Shrinking government budgets subsides
Increased importance of ethical and legal issues
Increased social responsibility of organizations
Rapid political changes
Technological pressures
Rapid technological obsolescence
Increase innovations and new technologies
Information overload
Rapid decline in technology cost vs. performance ratio
Electronic Commerce, 2000
Competition in Electronic Commerce
Impacts
on competition
Lower
buyers’ search cost
Speedy comparisons
Differentiation
Lower price
Customer service
Digital products lack normal wear and tear
Electronic Commerce, 2000
Competition in Electronic Commerce
 Perfect
competition
 Enable
many buyers and sellers to enter the market at little or
no cost (no barriers to entry)
 Not allowing any buyers and sellers to individually influence
the market
 Make certain products homogeneous (no product
differentiation)
 Supply buyers and sellers with perfect information about the
products and the market participants and conditions
Electronic Commerce, 2000
Competition in Electronic Commerce
Observations regarding competitiveness
There
will be many new entrants
The bargaining power of buyers is likely to increase
There will be more substitute products and services
The bargaining power of suppliers may decrease
The number of industry competitors in one location will
increase
Electronic Commerce, 2000
What is Strategy
Strategy is
the roadmap to success.
Strategy answers the question what business are
you in?
Strategy determines how you compete within the
market you are in.
Strategy focuses the company in a unified
direction.
The goal is to develop a
sustainable competitive
advantage. There are generally
two forms of competition,
Operating effectiveness
(production) or Competitive
position (marketing)
Competitive Advantage Can Be
Achieved By:
Concentrating on
particular market segments
(niche markets)
Offering products which differ from the
competition (product differentiation)
Using alternative distribution channels and
manufacturing processes
Employing selective pricing and fundamentally
different cost structures
Generic Strategies
Porter gives us a little more help in strategy
formulation by providing three generic
strategies which, if successfully implemented,
can allow a firm to stake out a defended
position in the marketplace. These strategies
are:
 Overall cost leadership
 Differentiation
 Focus
Overall Cost Leadership
Efficient scale facilities
Vigorous cost reductions
 Cost
control
 Overhead control
 Avoid marginal accounts
 Minimize R&D
 Minimize service
 Minimize advertising
Differentiation
Key idea: Create something about your product that is
perceived industry wide as being unique
Bases for Differentiation:
 Quality
 Delivery
 Credit
and Terms
 Service
 Training
 Reputation
/ Brand Image
 Tech. Information
 The Actual Product
 Price
 Etc.
Differentiation can provide
insulation against competitors
because of brand loyalty by
customers and a resulting lower
sensitivity to price
Focus
Key Idea: Focus on a particular
buyer group, segment of the product
line, or geographic market
This strategy is built around serving a
particular target market very well. The
premise is that a firm is able to serve its
narrow strategic target more effectively or
efficiently than competitors who are
competing more broadly
By effectively implementing this strategy a
firm can achieve differentiation by better
meeting the market needs or lower costs
through specialization, or both
Focus your message
Pick your theme to say something special/unique
about your firm, and stick to it.
 Unique
product
 Speedy Delivery
 Super Service
?
?
 Stay Committed!
Generic Strategies Summary
For Successful Strategic Competition, Select
Arenas That Are:
 Sheltered
from changes
in the business
environment
 Advantaged to provide
protection from intense
global competition
Electronic Commerce, 2000
Determining Competitive
Advantage
Strategic Planning
Industry and
competitive
analysis
Strategy
formulation
Implementation
plan
Strategy
reassessment
Electronic Commerce, 2000
Company and Competitive Analysis
Monitoring, evaluating, disseminating of
information from the external and internal
environments
SWOT Analysis
Strengths
Opportunities
Weaknesses
Threats
Electronic Commerce, 2000
SWOT
 Strengths
– those factors of the company that provide for its
success. A good reputation, quality products or low cost producer.
 Weaknesses – those factors that are a disadvantage for the
company. A high cost producer, a high employee turnover, or
much competition.
 Opportunities – those factors that are outside the company’s
control, but are areas in which they could capitalize. A changing
demographic profile, competition closing plants or e-business
allowing for wider distribution of products.
 Threats – those items outside the control of the company and that
may hinder it. Items such as new laws, a recession or increased
competition.
Company Analysis
INTERNAL
FACTORS
Strengths (S)
Weaknesses (W)
Production
Marketing
Electronic Commerce, 2000
Competitive Analysis
EXTERNAL
FACTORS
Production
Marketing
Opportunities (O)
Threats (T)
Electronic Commerce, 2000
Company and Competitive Analysis
INTERNAL
EXTERNAL FACTORS
FACTORS
Strengths (S)
Weaknesses (W)
Opportunities (O)
SO Strategies
Generate strategies
here that use
strengths to take
advantages of
opportunities
WO Strategies
Generate strategies
here that take
advantage of
opportunities by
overcoming
weaknesses
Threats (T)
ST Strategies
Generate strategies
here that use
strengths to avoid
threats
WT Strategies
Generate strategies
here that minimize
weaknesses and avoid
threats
Electronic Commerce, 2000
Strategic Questions
The Company
What
is your uniqueness?
Where are you vulnerable?
Why are you losing existing customers?
Where is the greatest value created in the company?
What are the most common objections you hear from
customers?
Electronic Commerce, 2000
Strategic Questions

The competition





Who are the top 3
competitors?
What are their strengths?
Where are they
vulnerable?
Where can you attack?
How do you compare on
price, service, quality,
etc?

The market





What are 3 important
trends?
How is the industry
changing?
How many market
segments do you serve?
Where is the greatest
growth potential?
Which of your customers
are doing well and why?
Electronic Commerce, 2000
Competitive Strategies

Offensive strategy— usually takes place in an established competitor’s
market
 Frontal Assault— attacker must have superior resources and
willingness to persevere
 Flanking Maneuver— attack a part of the market where the
competitor is weak
 Bypass Attack— cut the market out from under an established
defender by offering a new type of product that makes the
competitor’s product unnecessary
 Encirclement— greater product variety and/or serves more
markets
 Guerrilla Warfare— use of small, intermittent assaults on different
market segments held by the competitor
Electronic Commerce, 2000
Competitive Strategies

Defensive strategies— takes place in the firm’s own
current market position as a defense against possible
attack by a rival

Lower the probability of attack

Divert attacks to less threatening avenues

Lessen the intensity of an attack

Make competitive advantage more sustainable
Electronic Commerce, 2000
Competitive Strategies
Cooperative Strategies




Collusion— active cooperation of firms within an industry to reduce output
and increase prices in order to get around the normal economic law of
supply and demand (illegal)
Strategic Alliance— partnership of two or more corporations or business
units to achieve strategically significant objectives that are mutually
beneficial
Joint Venture— a way to temporarily combine the different strengths of
partners to achieve an outcome of value to both
Value-Chain Partnership— a strong and close alliance in which one
company or unit forms a long-term arrangement with a key supplier or
distributor for mutual advantage
Electronic Commerce, 2000
Strategic Summary
Focus your
efforts!
Define your competitive advantage!
Have a clear strategy!
Do it!
Implementing Strategy
Questions
 Objectives
 Benefits
to customers
 Current business
 Savings
 Competitive
advantage
 Presentation
Questions
What are
you producing and selling?
How are you unique?
Why should the customer buy from you?
How are you going to reach the customer?
What’s success?
Objectives
 Introduce new
product or service
Advertising existing business
Supplement existing business program
Reach broader customer base
Provide better service
Information exchange
Reduce transaction costs
Current Customers
 Benefits
Easier
access to
information
Shipping schedules
Discounts
Invoicing
Inventories
Marketing Mix
Promotional Tool
Ads, publicity, sales tool
Pricing
Product Information
Distribution
Savings
 Support
time
 Order entry
 Promotion response
 E-mail
 Shipping and invoicing
information
 Customer lists
$
Home Page
 KISS
 Keep
it simple, stupid
1. Decide what information you want to share
2. Grab their attention quickly
3. Present information in simple, logical fashion
4. Do not put lots of graphics on first page
5. Should be pleasant to the eye
6. Each page should have company name, logo, email address and toll-free phone number
Promoting Your E-business
Why Do You Need Promotion?
Just because you
build it, doesn’t mean they will
come.
You are competing against not only your market
area, but the entire world.
Your current and future customers need to be
able to find you.
HOW?
 List
homepage address
on all current advertising.
 Put on all publicity
 newsletters
 letterhead
 business
cards
 billing statements
 fax cover sheets
 Register
with search
engines.
 Link to other sites and
your association sites.
 Advertise on the web.
Link to?
Your
trade associations
Suppliers
Customers
Complementary products
Advertising on the Web
 To
build awareness
 Develop prospects
 Meet customer needs
 Generate orders
 Build customer relations
 Test market
Good Internet Advertising Includes:
Clear message and identification on 1st page.
 Facilitates easy access to further information.
 The advertisement downloads quickly.
 Provides the right information.


Product description, payment options, and contact
information.
Common Search Engines
Submit
it - www.submit-it.com
Yahoo - www.yahoo.com
Webcrawler - www.webcrawler.com
Infoseek - www.infoseek.go.com
Lycos - www.lycos.com
Google - http://www.google.com/
The Advantage for Small Businesses





Inexpensive source of information
Inexpensive way of advertising
Inexpensive way of conducting market research
Inexpensive way to build (or rent) a storefront
Lower transaction cost
Electronic Commerce, 2000
The Advantage for Small Businesses
Niche
market, specialty products (cigars, wines,
sauces) are the best
Image and public recognition can be
accumulated fast
Inexpensive way of providing catalogs
Inexpensive way to reach worldwide customers
Electronic Commerce, 2000
The Risks and Disadvantages for
Small Businesses
Disadvantage when
a commodity is the product
(for example, CDs)
No more personal contact which is a strong point
of a small business
No advantage being in a local community
Electronic Commerce, 2000
The Risks and Disadvantages for
Small Businesses



Lack of expertise in legal issues, advertisement
Lack of resources to fully exploit the Web
Less risk tolerance than a large company
Electronic Commerce, 2000
Success Factors for Small Businesses






Niche products
Small volume
Capital investment must be small
Inventory should be minimal or non-existent
Electronic payments schema exist
Payment methods must be flexible
Electronic Commerce, 2000
Success Factors for Small
Businesses
 Logistical services
must be quick and reliable
 The Web site should be submitted to directory-based
search engine services like Yahoo in a correct way
 Join an online service or mall and do banner
exchange
 Design a Web site that is functional and provides all
needed services to consumers
Electronic Commerce, 2000
Summary
Successful firms will integrate the E-business
into their company’s strategy.
 Used properly, E-business will be one more
method of increasing income and profits.
 It is just a matter of time before it will be as
common as the fax, cell-phone and digital
camera.

References
 Electronic
Commerce: A Managerial Perspective. 2000.
By Efraim Turban, Jae Lee, David King, and H. Michael
Chung. Prentice Hall, Upper Saddle Rivern New Jersey.
(slides are marketed).
 E-Business Revolution. 2000. By Daniel Amor. Prentice
Hall,Upper Saddle Rivern New Jersey.
 Strategic Internet Marketing. 1996. Tom Vassos.
MacMillan Computer Publishing, Indianapolis, IN.
 E-Business Readiness. 2001. By James Craig and Dawn
Jutla. Anderson-Wesley. Upper Saddle Rivern New
Jersey.