First Mover Advantage?

Transcript First Mover Advantage?

First Mover Advantage?

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Ebay Ariba FreeMarkets Leader Explorer Google / Yahoo Hotmail Amazon Amazon CDNow, Amazon Ebay Ariba FreeMarkets

Is there pioneering advantage on internet? (Porter thinks not)

Unique assets accumulate  Number of members, member content Barriers to new allegiances get higher  Relationship and trust grows  Adapt to technology Factor costs increase  shortage of skilled hosts of bulletin boards and chat rooms Acquisition becomes expensive  High stock prices and deep pockets

Components of a Business Model

turn, has three parts:

VALUE PROPOSITION

The first decision is the specification of a value proposition. This value proposition, in 1. The choice of the target segment 2. The choice of a focal customer benefit (Volvo, Southwest Airlines (conv), Four Seasons) 3. The rationale for why the firm can deliver significantly better than competitors: core competencies, business strength, unique resources Unique capabilities: tangible assets – location, intangible– brand name, special skills

Marketspace Offering Need, search, evaluation, purchase, post-purchase Resource System Link resources to capabilities Financial Model Revenue models(adv, good, trans, subs), shareholder

Components of an ONLINE Business Model

VALUE CLUSTER

The choice of target SEGMENTS A focal COMBINATION of customer-driven benefits A rationale for why the firm and its PARTNERS can deliver the cluster significantly better than competitors

Online Offering Resource System Financial Model

Value proposition: 1. Target segment, 2. focal benefit, 3. Rationale Criteria to Use in Picking the Target Segments

1. Size of the market 2. Expected Growth: The size of the market may be small, but if growing … 3.

Unmet and unsatisfied customer needs 4.

Competitive position: Number and relative strengths of competitors: The less competition the better 5.

Cost of reaching the market: Is the market accessible to a firm’s marketing actions? 6.

Compatibility with the organization’s objectives and resources.

Value proposition: 1. Target segment, 2. focal benefit, 3. Rationale

Four value propositions for flower dot com competitors

PC Flowers and Gifts serves the “special occasions” segment (the target segment) with “fresh flowers, complementary gifts, and lower prices (the three key benefits) because of their accumulated online experience and knowledge since 1989 and their unique, broad product line of complementary gifts (the two key differentiating capabilities).

Proflowers serves the “price sensitive and convenience oriented customers” with the “freshest cut flowers at a competitive price” because of their unique sourcing and FedEx shipping arrangements. FTD.com serves “the mid- to high-end market” by providing the “easiest way to send flowers and gifts” because of their strong brand name, market communications, and supplier network.

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 their strong brand name, product and media partnership, and brick-and-mortar network of franchises (i.e., Blooment).

The Marketspace or Online Offering

The senior management team must complete three sequential tasks:  Identify the

scope of the offering

– Number of categories offered in the site – “Category killer” – Online: Extension from one category to others: Amazon – Amazon: Supply-side cross-category dominance– products that naturally group together from a logistics and distribution point of view. (1) physical goods, (2) can be stored in inventory, (3) cannot be digitized, (4) are consumer focused.

– Online Metamarkets: Clustering categories based on how consumers engage in activities: entertainments site, sports sites, dining, travel.

 Identify the

customer decision process



map the offering

(product, service, and information) to the consumer decision process

Consumer Decision Process

PRE-PURCHASE PURCHASE POST-PURCHASE

Problem - Recognition Information Search Evaluation of Alternatives Purchase Decision Satisfaction Loyalty Disposal

Consumer Decision Process — Flower Example

Problem - Recognition

Flowers

 Need recognition, potentially triggered by a holiday, anniversary or everyday events

Pre-Purchase Purchase

Information Search Evaluation of Alternatives Purchase Decision  Search for ideas and offerings, including: – Available on-line and off-line 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)

Post Purchase

Satisfaction Loyalty  Post-sales support – Order tracking – Customer service   Education on flowers and decoration Post sales perks Disposal

The Online Offering for 1-800-flowers.com

Product Offering

   

Post-Sales Support

Order receipt email eQ&A online customer service FAQ Customer service inquiry form

Perks

  

“Care and handling” “Do it yourself”

Special events and educational workshops held at stores Education on Flowers and Decoration     Gift reminder service Holiday specials Everyday celebrations suggestions Special occasion suggestions Need Recognition

Ideas and Information

        Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Best sellers Search For Ideas and Offerings

Gift Recommendations

      Gift guru Favorite gifts Gift frequency Gift impossible Gift baskets Corporate gift services

Flower / Gift Decision Process

Post Sales Support and Perks     Miles earned with flower purchases Free gifts Discounts at AOL & BN with flower purchases Member specials Message Selection   Gizmo fully-animated greeting cards Physical cards in gifts Purchase Decision Evaluation of Alternatives    Shopping basket E commerce transaction Special shopping features – Delivery outside U.S.

– 1-800-lasfloras.com

     Product price Product picture Product description Delivery information Delivery availability

Travel (Travelocity?)

Five steps Need Recognition – reminders of football games, events, approaching vacations Information Search – Ideas for vacations, information about places Evaluation of alternatives – Time, Price, Class, # of connections, restrictionss Purchase – Internet and phone secure transactions, combos with peripherals Post purchase – Order receipt email, Frequent flier miles, customer service, flight reminders

Schwab

1970s: Mission: To provide investors with the most useful and ethical brokerage services in America. Resolved to build the business around client needs. Over the next several years, Schwab became a resource for individual investors - a discount brokerage where investors could manage their assets, make decisions and transact business without the conflict of interest and high-pressure sales tactics of traditional brokerages. 1980s: Mutual funds began emerging as the primary investing vehicles for investors seeking convenience and portfolio diversification. In 1984 created the mutual fund supermarket concept: hundreds of funds available through The Schwab Mutual Fund MarketPlace®. By the end of the decade, it sold itself to Bank of America and then bought itself back, then took the company public. In 1992, Schwab introduced MutualFund OneSource® . In its first five years, OneSource assets grew from less than $2 billion to more than $50 billion. In the mid-1990s, Schwab anticipated the power the Internet would have for individual investors, and invested heavily in, and aggressively prepared for, online investing. Foresight in the mid-1990s earned Schwab an early and significant leadership position in online investing. From 1996 to 1998, online accounts grew to 2.2 million from 600,000, and online assets grew to $174 billion from $42 billion.

Schwab Online Offering

    

Product Offering

Online chat with Customer Service Representatives Customer Service via phone Customer Service via email Customer Service at Branch My Watch List Post Investment Support      Schwab Learning Center Live Events Principles of Investing Understanding Market Cycles “Did You Know” Q&A Get educated about investing Overall  General Goal   Planner Investor Profile Sample Investment Plans Retirement  Retirement  Planner IRA Analyzer Estate   Estate Tax and Probate Calculator Alternatives Comparison Plan investments College  College Planner Tax  Tax Strategies  IRS Withholding Calculator

On-Line Investment Process

       Margin Loans Money Transfers Automatic Investing Options Service After Hours Trading Account Protection Bill Payment Perform Investment Decide on Investment     Schwab Signature Services Schwab AdvisorSource Options Service Global Investing Service Perform Research Overall  Quotes and Charts  Analyst Center Stocks and Options  Stock Analyzer Bonds and Treasuries  Schwab BondSource  Services Annuities Schwab Select CDs and Money Markets  SchwabOne Annuity Life Insurance  Insurance Needs Calculator

The Resource System

Five steps in constructing a resource system: 1.

Identify core benefits in the value cluster.

Identify capabilities that relate to each benefit

Link resources to each capability

Identify to what degree that firm can deliver each capability.

Identify partners who can complete capabilities.

1-800-flowers.com Resource System

Gift Recommend ations Gift Reminder Garden Works Address Book Online Gift Center Integrated Partner Offers Plow & Hearth Great Foods Technology = Core Benefits = Activities & assets = Capabilities Integrated on-line off line systems Custome Centers BloomNet Network Fulfillment Center Broad Assortment of Gifts Customer Service r Service Strong Brand Name Strong Distribution Network High Quality of Flowers Widespread , Easy Access SNAP Third Party Contractors Stores Rich Content Personalization Capabilities Popular Web Site Telephone 3,000 Affiliates Multiple Contact Points Catalog On-line Franch ise Stores Wide Reach to Customers Starmedia AOL MSN

Schwab Resource System

Investm ent in R&D Learnin g Center Center of Knowledge and Innovation Onesource Innovative Products Train IT Staff Hire IT Staff Superior Service Cutting Edge Technology Investment in IT Optimize Staff in Branches Charge For Value Added Services Provide Lower Commission for Frequent Traders Streamlined Operations Competitive Commission Rates = Core Benefits = Capabilities = Resources Invest in CSR Trainin g Align CSR Compensation with Quality of Service Customer Service 24x7 Access System Reliability Lower Prices Partnerships with Content Providers Hoover s S&P Media General Online Multiple Points of Access Phone Branch

Financial Models – Revenue Models

Advertising

: A site can earn advertising revenue through banner ads and other forms of communication.

Good, service, or information sales :

Income is generated from straightforward sale of goods, services, or information.

Transaction

- Charging a fee for facilitating a seller-buyer transaction (Schwab, eBay)

Subscription

- charging a periodic fee for services or information.

Web-business models: Revenue-based business models. Provider-based: Content sponsorship, retail alliance, exclusive deals, banner ads, prospect fees, commissions. User based models: …

VALUE MODELS

Profit and high margins – provide better than competitors in marketspace.

Six value models that rely on key customer need or benefit:  Best information (zagat.com)      Widest Assortment (Secondspin.com) Lowest Prices – avoid competing directly – hotwire, priceline Broadest User Network – network externalities-- AOL Best experience – quality and perceived luxury-- Ashford.com Most personalized – customization – reflect.com, Amazon.com

Alternative Value Models

Alternative Models Description Examples Best Information

 Timely, high value-added information    Forrester Zagat NYTimes

Widest Assortment

 Widest as sortment within cate gory  ArtistDirect.com  Secondspn.com

Company Derived Lowest Prices

 Lowest prices within cate gory  Buy.com  Lowest fares.com

Broadest User Network

 Aggregation of users around standard   ICQ MP3

Best Experience

 Highest per ceived quality merchandise  Ashford.com

Most Personalized

 Highest cus tomization  Reflect.com  Amazon.com

Revenue Model Value Source

 Product Sales  Subscriptions  Premium pric ing based on perception of best informa tion

Key Success Factors Key Threat Factors

 Timeliness of information  Perceived quality of in formation  Competitors match market leaders  Cost of “fresh ness”  Product sales  Selective pre mium pricing  Reduce uncer tainty in offer ing  Quality of in formation and value-added services  Specialization within the category  Emergence of dominant brands       Product sales Unclear  Operational excellence  Supply-chain management Shopbots Lack of profit imperative Shifting inves tor confidence Niche markets     Varied  Users drive traffic  Standard emerges  Price premium follows Establish stan dard Grow network Network ext.  Alternate stan dard emerges  Technology shift  Backward or forward inte gration of complemen tary players  Product sales  Product sales  Level of Luxury  Premium drives prices  Level of cus tomization drives pre mium pricing   Ability to spot symbolic brands Ability to judge quantity  Subniche mar kets emerge by category  Symbolic brand loses appeal  Deep Cus tomer Knowl edge  Ability to “Mine” Cus tomer Data base  Customers wants control of personal ization

The Dell Direct Model

The Dell Direct Model

is a low-cost distribution system characterized by

direct customer relationships

market segments. ,

build-to-order manufacturing

, and

targeting

specific The Dell process became a model of efficiency for the industry. Entire process from order receipt to product shipping: 36 hours. Parts ordered on a just-in-time basis. Suppliers locating warehouses right next to Dell factory.

When a system is ready for shipping, the monitor supplier would ship monitor, scheduled for arrival same day as system.

1,300 technical support representatives to solve problem over phone – Maintenance agreements with service companies who send technicians.

PC DISTRIBUTION

Four fundamental means of distribution for PCs: Direct – Dell is only one to focus solely on direct Consumer Retail Indirect through VARS Indirect through national resellers

PC Distribution Channels

RETAIL Indirect through VARs Indirect through National Resellers

Dell Direct Model

Dell’s value cluster: 1. Target segments – Transactional 30%  Businesses with 2-400 employees  Catalogue sales – Relationship 40%   Companies with > 400 employees Less price sensitive 2. Focal customer benefits

Lower Prices Quick delivery Fully customized product High post purchase service quality

3. Rationale for why it can deliver better than competitors Just-in-time inventory and Built-to-order manufacturing – factory and agreements with suppliers, such as location of supplier warehouses, and vendors’ delivery schedules Direct customer relationship -- Cutting out the middleman Strong and coordinated sales and support staff

Can Dell really deliver better than competitors?

Direct customer relationship:

In July 1997, Compaq announced its new build to-order manufacturing process and established direct sales teams and telephone centers that would ship directly to customers. By September, it was not working for Compaq: Bill Ramsey, VP of manufacturing: “By no means is Compaq abandoning the channel, but if it is to fight back against Dell and other direct PC vendors it must have the same advantages and mirror their business practices. It is a calculated risk, because we must do so without upsetting the channel, because the Dell model for all its efficiencies can only cover so much of the market. You need the channel if you want to get them all.”

Mass customization:

IBM and HP were transferring more assembly to distributors and dealers, shipping them only “bare bones” systems.

How is the Dell Online Business Model Different?

Look at Dell’s Web Site Direct Extension Segmentation and Profiling Service Efficiencies Premier Pages for Relationship Customers Residential Customers (“dudes”) Diversification What are the risks in Dell’s expansion to other segments and product lines?

Grocery Online: Can it be Done?

What are some problems?

 Timely delivery and freshness of items  Cost of delivery   Quality of delivery and Delivery schedule convenience  Aisle browsing and Item selection

Shipping Rates

PEAPOD DELIVERY SCHEDULE-- CONVENIENCE

COST OF DELIVERY TO CONSUMER Delivery Fees

Peapod shopping and delivery costs just: For orders over $75.00 the delivery fee is $4.95. For orders less than $75.00 (min $50) the delivery fee is $9.95.

Delivery regions

: Limited: Eight metropolitan markets in the United States translating into 100,000 households.

How Peapod keeps cost of delivery low yet speedy:

Limited regions Royal Ahold alliance Order fulfillment technology and proprietary transportation routing system, which helps it achieve accuracy and efficiency in picking, packing and delivering.

Two distribution centers - one in Chicago and the other in the New York suburbs.

In other regions, workers pull products off supermarket shelves and deliver them same-day. Peapod also generates revenues by charging supermarkets to fulfill phone and Net orders. Peapod will not use its new warehouses to get into the national dry-goods shipping business. They argue that with the NetGrocer model, it costs more "to ship a box of Tide than it does to make a box of Tide. Dry-grocery products just don't have the margin that permits you to ship them at a profit.”

VIRTUAL GROCERY STORES

Can it be done?

Can it be profitable?

Will it ever become more popular than brick and mortar grocery stores? Why or why not?

STREAMLINE’S BUSINESS MODEL

VALUE CLUSTER

Target SEGMENTS A focal COMBINATION of customer-driven benefits A rationale for why can do better than competitors

Online Offering Resource System Financial Model

Streamline’s Value Proposition

Affluent busy suburban families Lifestyle solutions – assortment Simplicity

Rationale

Streamline’s unique ability to eliminate the requirement that customers be available to receive shipment Streamline’s wide assortment of expertises

Online Offering

Deliveries for groceries, dry cleaning, photo development, and video rental Payment and billing

Resources

Consumer Resource Center – fill orders A patented delivery receptacle - refrigerator Consumer Learning Center as an ongoing research lab for consumer-direct industry

Streamline

What aspects of the business are easily replicated?

What aspects represent key competitive advantages? What kinds of information is Streamline likely to collect on its subscriber households? How might Streamline use such information in serving customers? Given Peapod’s model, what is wrong with Streamline’s?