E Business Strategy 5

E-Business Strategies

Bob SmithAssociate Professor/Extension Specialist

Dept. of Wood Science and Forest ProductsVirginia Tech

E-Commerce: Impacting the Way We do Business

October 1-2, 2001, Nashville TN

OutlineOutline

Why the InternetE-business Strategy ???Determining Competitive AdvantageImplementing 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 pressTelephoneAutomobileAirplaneTelevision

Over-night deliveryFacsimile machineCellular phonePersonal computer

Printed Material

Mass reproductionUnknown audienceWider geographical areaOne-way communication

Telephone

Immediate communicationInteractive two-way

communicationCustomer prospectingWider geographical area

Planes, Trains & Automobiles

Personal communicationWider geographical baseTwo-way communicationPerception of above-

average service

Television

Wide, mass audienceOne-way communication60 second sound biteFirst visual electronic

medium

Over-night Delivery

Provide immediate serviceCreate perception of customer careJIT management systems

Federal ExpressFederal Express

FAX - iT

Immediate transfer of written information

Above average serviceOne-way promotionCloser to the customer

Cellular Phone

MobilityInstant access to

customersAbove average service24 hour contact

Personal Computer

Faster serviceCustomer informationData basesInstant 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

InternetInternet

DefinitionsDefinitions

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?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?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 NeededDesignated computerSoftware to communicate with InternetA connection into a network that accesses the

Internet

OrOr* Hire a commercial service and* Hire a commercial service andhave a connection to the networkhave a connection to the network

Cost

$1500 computer$300 SoftwareHome page design - $100/hr - ?Commercial Internet access - >$100/month

Current UsersCurrent UsersAverage age is 4045% female45% married1/3 computer field, 1/4

educational & 20% professional

>40% have made purchase over $100

Source:Source:

www.gvu.gatech.edu/user_surveys/survey-1999www.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?What’s Being Sold?

Source: Forester Research Inc. 1998Source: Forester Research Inc. 1998

Travel26%

Gifts6%

Books/Music7%

Other26%

Computer Products35%

Technology Update(It took this many years to reach 50

million users)

Technology Update(It took this many years to reach 50

million users)

Radio - 38 yearsTelevision - 13 yearsInternet - 4 years

Why an E-Commerce Strategy

The Benefits ofElectronic Commerce

The Benefits ofElectronic Commerce

Expands 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

Benefits to Organizations


Benefits to Organizations 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)


Benefits to CustomersBenefits 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 choicesProvides 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


Benefits to CustomersBenefits to Customers

Customers can receive relevant and detailed information in seconds, rather than in days or weeks

Makes it possible to participate in virtual auctionsAllows 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.


Benefits to SocietyBenefits 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


Why?Why?

Works 24 hours a dayOffers 2 way communicationUnlimited accessInteractive advertisingSupports current business efforts

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 Markets


MarketingComputer sciencesConsumer behavior and

psychologyFinanceEconomicProduction/Logistic

Management information systems

Accounting and auditing

ManagementBusiness law and

ethics

Electronic Commerce is Interdisciplinary

Electronic Commerce is Interdisciplinary


Major Business PressuresMarket 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


Competition in Electronic Commerce


Impacts on competitionLower buyers’ search costSpeedy comparisonsDifferentiationLower priceCustomer serviceDigital products lack normal wear and tear




Perfect competitionEnable 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 marketMake certain products homogeneous (no product

differentiation)Supply buyers and sellers with perfect information about the

products and the market participants and conditions




Observations regarding competitivenessThere will be many new entrantsThe bargaining power of buyers is likely to increaseThere will be more substitute products and servicesThe bargaining power of suppliers may decreaseThe number of industry competitors in one location will

increase


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)

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: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 processesEmploying 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:

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

DifferentiationFocus

Overall Cost Leadership

Efficient scale facilities

Vigorous cost reductions

Overall Cost Leadership

Efficient scale facilities

Vigorous cost reductions

Cost controlOverhead controlAvoid marginal accountsMinimize R&DMinimize serviceMinimize advertising

Differentiation

Key idea: Create something about your product that is perceived industry wide as being unique

Bases for Differentiation:

Differentiation

Key idea: Create something about your product that is perceived industry wide as being unique

Bases for Differentiation:QualityDeliveryCredit and TermsServiceTraining

Reputation / Brand ImageTech. InformationThe Actual ProductPriceEtc.

Differentiation can provide insulation against competitors because of brand loyalty by customers and a resulting lower sensitivity to price

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

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

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.

Focus your message

Pick your theme to say something special/unique about your firm, and stick to it.

Unique productSpeedy DeliverySuper Service??Stay Committed!

Generic Strategies Summary

Generic Strategies Summary

For Successful Strategic Competition, Select Arenas That Are:

For Successful Strategic Competition, Select Arenas That Are:

Sheltered from changes in the business environment

Advantaged to provide protection from intense global competition


Determining Competitive Advantage

Strategic PlanningStrategic Planning

Industry and competitive

analysis

Strategy formulation

Strategy reassessment

Implement-ationplan


Company and Competitive AnalysisCompany and Competitive Analysis

Monitoring, evaluating, disseminating of information from the external and internal environments

SWOT Analysis

Strengths Weaknesses

OpportunitiesThreats


SWOTSWOT

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.

Strengths (S) Weaknesses (W)INTERNAL FACTORS

Company Analysis

Production

Marketing


Opportunities (O)

Threats (T)

EXTERNAL FACTORS

Competitive Analysis

Production Marketing


Strengths (S) Weaknesses (W)

Opportunities (O)

Threats (T)

INTERNAL FACTORSEXTERNAL

FACTORSSO 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

ST Strategies Generate strategies

here that use strengths to avoid

threats

WT Strategies Generate strategies here that minimize

weaknesses and avoid threats

Company and Competitive Analysis


Strategic QuestionsStrategic Questions

The CompanyWhat 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?


Strategic QuestionsStrategic 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?


Competitive StrategiesCompetitive 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


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 attackDivert attacks to less threatening avenuesLessen the intensity of an attackMake competitive advantage more sustainable

Competitive StrategiesCompetitive Strategies


Cooperative StrategiesCooperative 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

Competitive Strategies


Strategic SummaryStrategic Summary

Focus your efforts!Define your competitive advantage!Have a clear strategy!Do it!

Implementing Strategy

Questions

ObjectivesBenefits to customersCurrent business

SavingsCompetitive advantagePresentation

QuestionsQuestions

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 serviceAdvertising existing businessSupplement existing business programReach broader customer baseProvide better serviceInformation exchangeReduce transaction costs

Current Customers

BenefitsEasier access to

informationShipping schedulesDiscountsInvoicingInventories

Marketing Mix

Promotional ToolAds, publicity, sales tool

PricingProduct InformationDistribution

Savings

Support timeOrder entryPromotion responseE-mailShipping and invoicing

informationCustomer lists

$$

Home PageKISS

Keep it simple, stupid

1. Decide what information you want to share1. Decide what information you want to share

2. Grab their attention quickly2. Grab their attention quickly

3. Present information in simple, logical fashion3. Present information in simple, logical fashion

4. Do not put lots of graphics on first page4. Do not put lots of graphics on first page

5. Should be pleasant to the eye5. Should be pleasant to the eye

6. Each page should have company name, logo, e- 6. Each page should have company name, logo, e- mail address and toll-free phone numbermail address and toll-free phone number

Promoting Your E-businessPromoting Your E-business

Why Do You Need Promotion?

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?HOW?

List homepage address on all current advertising.

Put on all publicitynewslettersletterheadbusiness cardsbilling statementsfax cover sheets

Register with search engines.

Link to other sites and your association sites.

Advertise on the web.

Link to?Link to?

Your trade associationsSuppliersCustomersComplementary products

Advertising on the WebAdvertising on the Web

To build awarenessDevelop prospectsMeet customer needsGenerate ordersBuild customer relationsTest market

Good Internet Advertising Includes:

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 EnginesCommon Search Engines

Submit it - www.submit-it.comYahoo - www.yahoo.comWebcrawler - www.webcrawler.comInfoseek - www.infoseek.go.comLycos - www.lycos.comGoogle - 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




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


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




Lack of expertise in legal issues, advertisement Lack of resources to fully exploit the Web Less risk tolerance than a large company


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




Logistical services must be quick and reliableThe 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


SummarySummary

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.

ReferencesReferencesElectronic 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.

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