CHAPTER 4 <ul><li>COMPONENTS OF A BUSINESS MODEL </li></ul><ul><li>We will discuss the components of an Internet business ...
CHAPTER 4 COMPONENTS &  LINKAGES BUSINESS  MODEL PROFIT SITE PRICE SCOPE CUSTOMER  VALUE REVENUE  SOURCE CAPABILITIES IMPL...
COMPONENTS & LINKAGES <ul><li>Rationale for Components </li></ul><ul><li>To make money ,a firm must offer its customers so...
BUSINESS MODEL COMPONENTS <ul><ul><li>PROFIT SITE </li></ul></ul><ul><ul><li>CUSTOMER VALUE </li></ul></ul><ul><ul><li>SCO...
PROFIT SITE <ul><li>It’s a  location  in a  value configuration </li></ul><ul><li>Determines the competitive pressures fro...
CUSTOMER VALUE <ul><li>Customers buy product from a firm only if the product offers them something that competitor’s produ...
1. Differentiation <ul><li>Differentiation = customers think  “ it has something of a value that other products don’t have...
<ul><li>1.Product features </li></ul><ul><ul><li>Offer features that competitor’s products do not have </li></ul></ul><ul>...
 
 
 
<ul><ul><li>2.Timing </li></ul></ul><ul><ul><li>Be the first to introduce the product </li></ul></ul>
 
 
<ul><li>3. Location </li></ul><ul><ul><li>Products with identical features can still be differentiated by virtue of their ...
<ul><li>4. Service </li></ul><ul><ul><li>How fast is the response of a product be attained by its sellers </li></ul></ul><...
<ul><li>5. Product Mix </li></ul><ul><ul><li>One stop shopping for variety of goods are convenient for customers </li></ul...
<ul><li>6. Linkages </li></ul><ul><ul><li>Association with another firm </li></ul></ul><ul><ul><li>Larger web community </...
<ul><li>7.Brand name Reputation </li></ul><ul><ul><li>Branding is always a winner </li></ul></ul><ul><ul><li>Internet offe...
2. Low cost products/services <ul><li>Firm’s product & services  cost customers less  than those of its competitors </li><...
 
 
BUSINESS MODEL COMPONENTS <ul><ul><li>PROFIT SITE </li></ul></ul><ul><ul><li>CUSTOMER VALUE </li></ul></ul><ul><ul><li>SCO...
SCOPE <ul><li>Market segments or geographic areas to which the value should be offered </li></ul><ul><li>How much of the n...
PRICE <ul><li>Price your value properly/accurately to gain profit </li></ul><ul><li>Must have  pricing strategy  to avoid ...
( Price e.g.)  * To illustrate basis of pricing strategies for “knowledge based” products & services: p.g 58 text book. <u...
* To illustrate basis of pricing strategies for  “knowledge based ” products & services:  p.g 58 text book . FIRM A FRIM B...
Market Share & margin are important!! <ul><li>Firm with more  market share  make more profit for that year </li></ul><ul><...
Growth are Revenues <ul><li>Develop the market </li></ul><ul><li>Sell more units, you will increase the market </li></ul>
Types of Pricing & the Influence of the Internet <ul><li>MENU:  Fixed pricing, seller sets price buyer buys it or leave it...
REVENUE SOURCES <ul><li>Revenue sources: from  products sold </li></ul><ul><li>Critical part in business model analysis </...
CONNECTED ACTIVITIES <ul><li>To offer outstanding products & charge  premium price  to the customers, a firm must perform ...
Which activity to perform <ul><li>The activities should be consistent with the value that the firm offering </li></ul><ul>...
When to perform activities <ul><li>What are the characteristics of the industry at that stage of the life cycle & what wil...
IMPLEMENTATION <ul><li>Means ‘ carrying out’/executing/performing  the decision </li></ul><ul><li>The role of implementati...
1. structure <ul><li>Who is supposed to report to whom & who is responsible for what so that the task in that organization...
2. systems <ul><li>How to keep people motivated as they carried out their task & responsibilities </li></ul><ul><li>Manage...
3. people <ul><li>To what extent do employees share a common goal? </li></ul><ul><li>Money, recognition, ideas, seeing as ...
CAPABILITIES <ul><li>RESOURCES </li></ul><ul><li>COMPETENCIES </li></ul><ul><li>COMPETITIVE ADVANTAGE </li></ul>Assets und...
SUSTAINABILITY <ul><li>The ability of the firm to sustain its competitive advantage from its competitor. </li></ul><ul><li...
Sustainability strategies BLOCK STRATEGY -Firm puts barriers around its  product market space. -Uses Intellectual properti...
COST STRUCTURE <ul><li>All process of executing business plan cost money. </li></ul><ul><li>Cost structure expresses the r...
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Week 4 Ie 2033-PLUMS

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Week 4 Ie 2033-PLUMS

  1. 1. CHAPTER 4 <ul><li>COMPONENTS OF A BUSINESS MODEL </li></ul><ul><li>We will discuss the components of an Internet business model & </li></ul><ul><li>the linkages between its componen ts </li></ul>
  2. 2. CHAPTER 4 COMPONENTS & LINKAGES BUSINESS MODEL PROFIT SITE PRICE SCOPE CUSTOMER VALUE REVENUE SOURCE CAPABILITIES IMPLEMENTATION CONNECTED ACTIVITIES SUSTAINABILITY COST STRUCTURE 1.DIFFERENTIATION 2.LOW COST 1.MARKET SHARE 2.GROWTH 3.TYPES OF PRICING MENU ONE-TO-ONE AUCTION REVERSE AUCTION BARTER PRODUCT FEATURES TIMING LOCATIONS SERVICE PRODUCT MIX REPUTATION 1.ACTIVITIES TO PERFORM 2.WHEN TO PERFORM 1.STRUCTURE,SYSTEMS PEOPLE 1.BLOCK STRATEGY 2.RUN STRATEGY 3.TEAM-UP STRATEGY 1.RESOURCES 2.COMPETENCIES 3.COMPETITIVE ADVANTAGE
  3. 3. COMPONENTS & LINKAGES <ul><li>Rationale for Components </li></ul><ul><li>To make money ,a firm must offer its customers something the customers value & the competitors cannot offer </li></ul><ul><li>Must find ways to retain its competitive advantage </li></ul>
  4. 4. BUSINESS MODEL COMPONENTS <ul><ul><li>PROFIT SITE </li></ul></ul><ul><ul><li>CUSTOMER VALUE </li></ul></ul><ul><ul><li>SCOPE </li></ul></ul><ul><ul><li>PRICE </li></ul></ul><ul><ul><li>REVENUE SOURCES </li></ul></ul><ul><ul><li>CONNECTED ACTIVITIES </li></ul></ul><ul><ul><li>IMPLEMENTATION </li></ul></ul><ul><ul><li>CAPABILITIES </li></ul></ul><ul><ul><li>SUSTAINABILITY </li></ul></ul><ul><ul><li>COST STRUCTURE </li></ul></ul>
  5. 5. PROFIT SITE <ul><li>It’s a location in a value configuration </li></ul><ul><li>Determines the competitive pressures from rivals, suppliers, customers, potential new entrants, complementors & substitutes </li></ul><ul><li>Attractive or useful if demands used by competitive forces is low </li></ul><ul><li>Chapter 2. pg 19 table 2.1 </li></ul><ul><ul><ul><li>1.e-commerce </li></ul></ul></ul><ul><ul><ul><li>2.Content aggregators </li></ul></ul></ul><ul><ul><ul><li>3. Brokers agents </li></ul></ul></ul><ul><ul><ul><li>4. market-makers </li></ul></ul></ul><ul><ul><ul><li>5. Service provider </li></ul></ul></ul><ul><ul><ul><li>6.Backbone operators. </li></ul></ul></ul><ul><ul><ul><li>7.isp/osps </li></ul></ul></ul>
  6. 6. CUSTOMER VALUE <ul><li>Customers buy product from a firm only if the product offers them something that competitor’s products do not. </li></ul><ul><ul><li>Differentiation </li></ul></ul><ul><ul><li>Low cost products/services </li></ul></ul>
  7. 7. 1. Differentiation <ul><li>Differentiation = customers think “ it has something of a value that other products don’t have” . </li></ul><ul><li>* 7 different ways can differentiate a product: </li></ul><ul><ul><ul><li>Product features </li></ul></ul></ul><ul><ul><ul><li>Timing </li></ul></ul></ul><ul><ul><ul><li>Location </li></ul></ul></ul><ul><ul><ul><li>Service </li></ul></ul></ul><ul><ul><ul><li>Product mix </li></ul></ul></ul><ul><ul><ul><li>Linkage between functions /Linkage with other firm </li></ul></ul></ul><ul><ul><ul><li>Reputation </li></ul></ul></ul>
  8. 8. <ul><li>1.Product features </li></ul><ul><ul><li>Offer features that competitor’s products do not have </li></ul></ul><ul><ul><li>E.g. emphasize the speed of a chip for a microprocessor manufacturer </li></ul></ul><ul><ul><li>Customization of an internet website </li></ul></ul><ul><ul><li>Localization of services & product offers </li></ul></ul>
  9. 12. <ul><ul><li>2.Timing </li></ul></ul><ul><ul><li>Be the first to introduce the product </li></ul></ul>
  10. 15. <ul><li>3. Location </li></ul><ul><ul><li>Products with identical features can still be differentiated by virtue of their location </li></ul></ul><ul><ul><li>How? </li></ul></ul><ul><ul><li>E.g. ease of access to the product </li></ul></ul><ul><ul><li>ISP example Michigan VS New York </li></ul></ul><ul><ul><li>Service of both are different </li></ul></ul>
  11. 16. <ul><li>4. Service </li></ul><ul><ul><li>How fast is the response of a product be attained by its sellers </li></ul></ul><ul><ul><li>E.g. after sales service of a certain product after it is broken </li></ul></ul>
  12. 17. <ul><li>5. Product Mix </li></ul><ul><ul><li>One stop shopping for variety of goods are convenient for customers </li></ul></ul><ul><ul><li>E.g. Amazon. COM=16million items for sell </li></ul></ul><ul><ul><li>Use data to personalized their presentation of the store </li></ul></ul>
  13. 18. <ul><li>6. Linkages </li></ul><ul><ul><li>Association with another firm </li></ul></ul><ul><ul><li>Larger web community </li></ul></ul><ul><ul><li>E.g. </li></ul></ul>
  14. 19. <ul><li>7.Brand name Reputation </li></ul><ul><ul><li>Branding is always a winner </li></ul></ul><ul><ul><li>Internet offers a no other channel to established brand name reputations </li></ul></ul><ul><ul><li>Branding can be world wide, internet reaches more people </li></ul></ul>
  15. 20. 2. Low cost products/services <ul><li>Firm’s product & services cost customers less than those of its competitors </li></ul><ul><li>Cost less for the firm to offer the customers of the product & services-the cost saving were passed on to the customers </li></ul><ul><li>Sell on the internet saves operating cost, distribution cost & transportation cost </li></ul><ul><li>Better coordination of activities = lower cost for producers </li></ul>
  16. 23. BUSINESS MODEL COMPONENTS <ul><ul><li>PROFIT SITE </li></ul></ul><ul><ul><li>CUSTOMER VALUE </li></ul></ul><ul><ul><li>SCOPE </li></ul></ul><ul><ul><li>PRICE </li></ul></ul><ul><ul><li>REVENUE SOURCES </li></ul></ul><ul><ul><li>CONNECTED ACTIVITIES </li></ul></ul><ul><ul><li>IMPLEMENTATION </li></ul></ul><ul><ul><li>CAPABILITIES </li></ul></ul><ul><ul><li>SUSTAINABILITY </li></ul></ul><ul><ul><li>COST STRUCTURE </li></ul></ul>
  17. 24. SCOPE <ul><li>Market segments or geographic areas to which the value should be offered </li></ul><ul><li>How much of the needs of the segment that it can make profit </li></ul><ul><li>E.g. a firm must decide how much demand of its teens segment needed that the firm needs to fulfill </li></ul><ul><li>Universality of the internet breaks the scope barrier. </li></ul>
  18. 25. PRICE <ul><li>Price your value properly/accurately to gain profit </li></ul><ul><li>Must have pricing strategy to avoid killing a product </li></ul><ul><li>We are in a “knowledge based economy” </li></ul><ul><li>Our product must provide complete information before entering the market </li></ul>
  19. 26. ( Price e.g.) * To illustrate basis of pricing strategies for “knowledge based” products & services: p.g 58 text book. <ul><li>PROFITS = ( P - V ) Q – F </li></ul><ul><li>P price per Unit of the Product </li></ul><ul><li>V price per Unit Variable Cost </li></ul><ul><li>Q total number unit sold </li></ul><ul><li>F fixed cost </li></ul>C C C C
  20. 27. * To illustrate basis of pricing strategies for “knowledge based ” products & services: p.g 58 text book . FIRM A FRIM B R & D (Fixed Cost) $500 million $500 million Variable Cost $5 $5 Price per Unit $200 $200 Market Share 80% Market Share 20% Knowledge based - software – IT - content
  21. 28. Market Share & margin are important!! <ul><li>Firm with more market share make more profit for that year </li></ul><ul><li>Controlling of market share , involves in the early of introducing the product example </li></ul><ul><ul><ul><li>Giving away product C but charging product D </li></ul></ul></ul><ul><ul><ul><li>Pricing low to penetrate the market </li></ul></ul></ul>Example: Netscape Giving away for free the browser Netscape, but charging corporate customers for its servers Example: Most software companies Sells cheap software
  22. 29. Growth are Revenues <ul><li>Develop the market </li></ul><ul><li>Sell more units, you will increase the market </li></ul>
  23. 30. Types of Pricing & the Influence of the Internet <ul><li>MENU: Fixed pricing, seller sets price buyer buys it or leave it </li></ul><ul><li>ONE-TO-ONE: seller negotiates which price both accepts- </li></ul><ul><li>AUCTION: seller solicits bids from many buyer& sells to the highest bidder </li></ul><ul><li>RESERVE AUCTION: seller decides order of potential buyer </li></ul><ul><li>BARTER: swapping of goods for goods </li></ul>
  24. 31. REVENUE SOURCES <ul><li>Revenue sources: from products sold </li></ul><ul><li>Critical part in business model analysis </li></ul><ul><li>E.g. online stockbrokerage firm gain revenue sources from 3 areas: </li></ul><ul><ul><ul><li>Sales commission </li></ul></ul></ul><ul><ul><ul><li>Interest charge to clients </li></ul></ul></ul><ul><ul><ul><li>Spread of bid & ask price of stock </li></ul></ul></ul>
  25. 32. CONNECTED ACTIVITIES <ul><li>To offer outstanding products & charge premium price to the customers, a firm must perform connected activities for the basis of producing the product </li></ul><ul><li>Choose which activity to perform & when to perform it </li></ul>
  26. 33. Which activity to perform <ul><li>The activities should be consistent with the value that the firm offering </li></ul><ul><li>Take advantage of industry success drivers </li></ul><ul><li>Consistent with any capabilities that firm wants to build </li></ul><ul><li>Make industry more attractive for the firm </li></ul>
  27. 34. When to perform activities <ul><li>What are the characteristics of the industry at that stage of the life cycle & what will they be down the line </li></ul><ul><li>What are existing competitors doing & what are potential ones likely do </li></ul><ul><li>Are the activities consistence? </li></ul>
  28. 35. IMPLEMENTATION <ul><li>Means ‘ carrying out’/executing/performing the decision </li></ul><ul><li>The role of implementation, the relationship between </li></ul>1.structure 2.systems 3.people
  29. 36. 1. structure <ul><li>Who is supposed to report to whom & who is responsible for what so that the task in that organization are carried out </li></ul><ul><li>Functional organizational </li></ul><ul><li>Structure </li></ul><ul><li>People are grouped & </li></ul><ul><li>perform their task </li></ul><ul><li>according to traditional </li></ul><ul><li>functions </li></ul><ul><li>Enable to learn from each </li></ul><ul><li>other </li></ul><ul><li>Project Organizational </li></ul><ul><li>structure </li></ul><ul><li>People are organized not </li></ul><ul><li>by functional area </li></ul>
  30. 37. 2. systems <ul><li>How to keep people motivated as they carried out their task & responsibilities </li></ul><ul><li>Management must monitor performance & reward & punish individuals, workers, ect </li></ul><ul><li>Incentives, ideas, comments ect </li></ul>
  31. 38. 3. people <ul><li>To what extent do employees share a common goal? </li></ul><ul><li>Money, recognition, ideas, seeing as a person…does all this matter. </li></ul><ul><li>Organizational culture </li></ul><ul><li>Kaizen </li></ul><ul><li>The ‘F$%&’ you attitude ect. </li></ul><ul><li>UMS corporate culture? </li></ul>
  32. 39. CAPABILITIES <ul><li>RESOURCES </li></ul><ul><li>COMPETENCIES </li></ul><ul><li>COMPETITIVE ADVANTAGE </li></ul>Assets under financial statement Tangible - plants, equipment, cash reserves, PC, servers Intangible - patents, copyrights, reputation, brands, programmers. Ability of firm to turn its resources to a customer values & profits. Integration of more than one resources.e.g. APPLE experience. Core competencies: firm able to offer better value than other competitors . Advantage to the firm. Honda offers outstanding engines.
  33. 40. SUSTAINABILITY <ul><li>The ability of the firm to sustain its competitive advantage from its competitor. </li></ul><ul><li>How the firm uses its resources & strategies to stop competitors from gaining market share. </li></ul><ul><li>Uses 3 strategies: </li></ul><ul><ul><ul><li>Block strategy </li></ul></ul></ul><ul><ul><ul><li>Run strategy </li></ul></ul></ul><ul><ul><ul><li>Team-Up strategy </li></ul></ul></ul>
  34. 41. Sustainability strategies BLOCK STRATEGY -Firm puts barriers around its product market space. -Uses Intellectual properties rights. -This strategy works only if, company has unique capabilities - Easier in the internet era uses reverse engineering. RUN STRATEGY -Thinks that blocking strategy fails. therefore, this strategy must change some of its components & linkages /b-model or maybe sometimes create a new business model to offer customer better value. -Gives first mover advantage -Example DELL TEAM-UP STRATEGY -If you can’t beat em’. Join em’ -nothing else works. -thro’ strategic alliances, joint venture acquisition, equity position. -allows sharing of resources it does have. - promotes knowledge transfer -creates ‘win-win situation’
  35. 42. COST STRUCTURE <ul><li>All process of executing business plan cost money. </li></ul><ul><li>Cost structure expresses the relationship between its revenues & the underlying cost of generating those revenues </li></ul><ul><li>To keep cost low firm must first determine its cost/identify its cost. </li></ul><ul><li>Lower its cost drivers . </li></ul><ul><li>Book example pg 73 </li></ul>
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