Week 4 Ie 2033-PLUMS
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Week 4 Ie 2033-PLUMS

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PLUMS

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Week 4 Ie 2033-PLUMS Week 4 Ie 2033-PLUMS Presentation Transcript

  • CHAPTER 4
    • COMPONENTS OF A BUSINESS MODEL
    • We will discuss the components of an Internet business model &
    • the linkages between its componen ts
  • 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
  • COMPONENTS & LINKAGES
    • Rationale for Components
    • To make money ,a firm must offer its customers something the customers value & the competitors cannot offer
    • Must find ways to retain its competitive advantage
  • BUSINESS MODEL COMPONENTS
      • PROFIT SITE
      • CUSTOMER VALUE
      • SCOPE
      • PRICE
      • REVENUE SOURCES
      • CONNECTED ACTIVITIES
      • IMPLEMENTATION
      • CAPABILITIES
      • SUSTAINABILITY
      • COST STRUCTURE
  • PROFIT SITE
    • It’s a location in a value configuration
    • Determines the competitive pressures from rivals, suppliers, customers, potential new entrants, complementors & substitutes
    • Attractive or useful if demands used by competitive forces is low
    • Chapter 2. pg 19 table 2.1
        • 1.e-commerce
        • 2.Content aggregators
        • 3. Brokers agents
        • 4. market-makers
        • 5. Service provider
        • 6.Backbone operators.
        • 7.isp/osps
  • CUSTOMER VALUE
    • Customers buy product from a firm only if the product offers them something that competitor’s products do not.
      • Differentiation
      • Low cost products/services
  • 1. Differentiation
    • Differentiation = customers think “ it has something of a value that other products don’t have” .
    • * 7 different ways can differentiate a product:
        • Product features
        • Timing
        • Location
        • Service
        • Product mix
        • Linkage between functions /Linkage with other firm
        • Reputation
    • 1.Product features
      • Offer features that competitor’s products do not have
      • E.g. emphasize the speed of a chip for a microprocessor manufacturer
      • Customization of an internet website
      • Localization of services & product offers
  •  
  •  
  •  
      • 2.Timing
      • Be the first to introduce the product
  •  
  •  
    • 3. Location
      • Products with identical features can still be differentiated by virtue of their location
      • How?
      • E.g. ease of access to the product
      • ISP example Michigan VS New York
      • Service of both are different
    • 4. Service
      • How fast is the response of a product be attained by its sellers
      • E.g. after sales service of a certain product after it is broken
    • 5. Product Mix
      • One stop shopping for variety of goods are convenient for customers
      • E.g. Amazon. COM=16million items for sell
      • Use data to personalized their presentation of the store
    • 6. Linkages
      • Association with another firm
      • Larger web community
      • E.g.
    • 7.Brand name Reputation
      • Branding is always a winner
      • Internet offers a no other channel to established brand name reputations
      • Branding can be world wide, internet reaches more people
  • 2. Low cost products/services
    • Firm’s product & services cost customers less than those of its competitors
    • Cost less for the firm to offer the customers of the product & services-the cost saving were passed on to the customers
    • Sell on the internet saves operating cost, distribution cost & transportation cost
    • Better coordination of activities = lower cost for producers
  •  
  •  
  • BUSINESS MODEL COMPONENTS
      • PROFIT SITE
      • CUSTOMER VALUE
      • SCOPE
      • PRICE
      • REVENUE SOURCES
      • CONNECTED ACTIVITIES
      • IMPLEMENTATION
      • CAPABILITIES
      • SUSTAINABILITY
      • COST STRUCTURE
  • SCOPE
    • Market segments or geographic areas to which the value should be offered
    • How much of the needs of the segment that it can make profit
    • E.g. a firm must decide how much demand of its teens segment needed that the firm needs to fulfill
    • Universality of the internet breaks the scope barrier.
  • PRICE
    • Price your value properly/accurately to gain profit
    • Must have pricing strategy to avoid killing a product
    • We are in a “knowledge based economy”
    • Our product must provide complete information before entering the market
  • ( Price e.g.) * To illustrate basis of pricing strategies for “knowledge based” products & services: p.g 58 text book.
    • PROFITS = ( P - V ) Q – F
    • P price per Unit of the Product
    • V price per Unit Variable Cost
    • Q total number unit sold
    • F fixed cost
    C C C C
  • * 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
  • Market Share & margin are important!!
    • Firm with more market share make more profit for that year
    • Controlling of market share , involves in the early of introducing the product example
        • Giving away product C but charging product D
        • Pricing low to penetrate the market
    Example: Netscape Giving away for free the browser Netscape, but charging corporate customers for its servers Example: Most software companies Sells cheap software
  • Growth are Revenues
    • Develop the market
    • Sell more units, you will increase the market
  • Types of Pricing & the Influence of the Internet
    • MENU: Fixed pricing, seller sets price buyer buys it or leave it
    • ONE-TO-ONE: seller negotiates which price both accepts-
    • AUCTION: seller solicits bids from many buyer& sells to the highest bidder
    • RESERVE AUCTION: seller decides order of potential buyer
    • BARTER: swapping of goods for goods
  • REVENUE SOURCES
    • Revenue sources: from products sold
    • Critical part in business model analysis
    • E.g. online stockbrokerage firm gain revenue sources from 3 areas:
        • Sales commission
        • Interest charge to clients
        • Spread of bid & ask price of stock
  • CONNECTED ACTIVITIES
    • To offer outstanding products & charge premium price to the customers, a firm must perform connected activities for the basis of producing the product
    • Choose which activity to perform & when to perform it
  • Which activity to perform
    • The activities should be consistent with the value that the firm offering
    • Take advantage of industry success drivers
    • Consistent with any capabilities that firm wants to build
    • Make industry more attractive for the firm
  • When to perform activities
    • What are the characteristics of the industry at that stage of the life cycle & what will they be down the line
    • What are existing competitors doing & what are potential ones likely do
    • Are the activities consistence?
  • IMPLEMENTATION
    • Means ‘ carrying out’/executing/performing the decision
    • The role of implementation, the relationship between
    1.structure 2.systems 3.people
  • 1. structure
    • Who is supposed to report to whom & who is responsible for what so that the task in that organization are carried out
    • Functional organizational
    • Structure
    • People are grouped &
    • perform their task
    • according to traditional
    • functions
    • Enable to learn from each
    • other
    • Project Organizational
    • structure
    • People are organized not
    • by functional area
  • 2. systems
    • How to keep people motivated as they carried out their task & responsibilities
    • Management must monitor performance & reward & punish individuals, workers, ect
    • Incentives, ideas, comments ect
  • 3. people
    • To what extent do employees share a common goal?
    • Money, recognition, ideas, seeing as a person…does all this matter.
    • Organizational culture
    • Kaizen
    • The ‘F$%&’ you attitude ect.
    • UMS corporate culture?
  • CAPABILITIES
    • RESOURCES
    • COMPETENCIES
    • COMPETITIVE ADVANTAGE
    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.
  • SUSTAINABILITY
    • The ability of the firm to sustain its competitive advantage from its competitor.
    • How the firm uses its resources & strategies to stop competitors from gaining market share.
    • Uses 3 strategies:
        • Block strategy
        • Run strategy
        • Team-Up strategy
  • 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’
  • COST STRUCTURE
    • All process of executing business plan cost money.
    • Cost structure expresses the relationship between its revenues & the underlying cost of generating those revenues
    • To keep cost low firm must first determine its cost/identify its cost.
    • Lower its cost drivers .
    • Book example pg 73