E-C Strategies
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Transcript of E-C Strategies
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E-C Strategies
• Value Realization
• Changing Industry Structures
• Conclusion
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Value Creation vs. Value Realization
• Who captures the value? Buyer or the Seller?
• Example: ATM case in Banking
• Competitive advantage or necessity?
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Buyer’s Strategies
3. Control Transaction
6. Induce commoditization
5. Cost transparency
1. Transaction cost reduction
2. Dictate price
4. One-to-one Negotiation
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Bargaining Costs
Enforcement Costs
Decision Costs
Policing Costs
Reduction of Buyer’s
Transaction Costs
Search Costs
Information Costs
1. Buyer’s Transaction Costs
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2. Buyer Dictates Price
• Priceline.com started this tactic
Its stock price is down
It abandoned grocery and gas businesses
But it created an idea
• Shop2gether.com for small businesses
• Can buyers band together like never before?
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3. Buyer Controls Transactions
• FreeMarkets example
Select and train suppliers
Select lot size
Design bid event
Increase competitive intensity
• Reverse auction has become popular!
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4. Return to 1-1 Negotiation
- Bargaining was common before the industrial era.
- Mass markets led to fixed-price trades.
- Cost of negotiation was deemed too high!
- That may be changing, thanks to agent technology.
- Automate part or all of the negotiation process?
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5. Cost transparency
The Internet equips the buyer with lot more information!
Why is cost transparency bad for seller?
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6. Commoditization
– Buyer posts product requirements on the web
– Two sellers meet requirements by modifying existing products
– Buyer sees no difference between vendors
– Buyer wants to pick the lower cost vendor
– So, customization may lead to commoditization!
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Supplier’s Strategies
3. Customer retention
6. Reconfigure channel
5. Value Proposition
1. Pricing alternatives
2. Buyer’s total costs
4. Lock-in strategies
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1. Pricing Alternatives
Differentiated pricing • Not uniform pricing• FordDirect.com to practice regional pricing
Dynamic Pricing• Price changes with time• Airline industry as the prime example
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Workflow Cost
Fulfillment Cost
Carrying Cost
Product Cost
Transaction Cost
Customer incurs
multiple costs
2. Consider Buyer’s Total Costs
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Increasing customer retention by 5% increases profit by more than 25% (Bain & Company)!
How can we retain customers on the Web?
• What are the drivers? (e.g., on-time delivery, product performance, and service)
• How can the Web help?
• How may the Web hurt?
3. Customer Retention
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4. Seller’s Lock-in StrategiesPrinciples:
- Use extranets to create lock-in
- Create custom content
Customer Benefits:
- Reduce cycle time
- Reduce errors
- Increase control
Examples:
- Dell’s Premier Page
- OfficeDepot.com
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5. Value Proposition
• Redefine product by adding new value
• Create new product combination thru bundling and versioning
• Reduce buyer’s risks
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6. Reconfigure Channel
• Provide on-line customer service
• Supplant intermediaries
• Find new customers
• Generate new revenue
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E-C Strategies
• Value Realization
• Changing Industry Structures
• Conclusion
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Industrial Revolution:
• Mass Production
• Economy of Scale
Transportation Revolution:
• Rail & Road
• Air and Sea
Market Revolution:
• Geographical Reach
• Trade Regulations
Origins of Current Distribution Systems
Right products at right place at the
right time
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The New Landscape of Distribution
Distribution Functions
– Reassortment and sorting
– Routinization
– Searching
Internet Impact
– Death of distance
– Homogenization of time
– Irrelevance of location
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Distribution Functions
• Reassortment and sorting Producers: Few goods of large quantities Customers: Many goods of small quantities
• Routinization Standardize size, delivery, payment Automate ordering
• Searching Search buyers for seller Search sellers for buyer
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Internet Distribution Grid
Reassortment and sorting Routinization Searching
Death of distance
Homogenization of time
Irrelevance of location
Music Maker: Customer
selects songs
Product Catalog On
Web
Direct selling to customers
Sell anytime on the Web
Supplier/Buyer location not
limited Bidding on the
Web
Search from
anywhere
Routine updates vs. Web access
Job sites with links to
companies
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Reach: How many can you reach?
Ric
hnes
s (B
andw
idth
, cu
stom
izat
ion,
inte
ract
ivity
)Changing Economics of Information
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Hierarchy: Rich information exchange, rigid
Hyperarchy: Amorphous, permeable boundaries, alliances
Changing Organization Structure
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Old Model
Browser
Search Engine
Investment Database
Fund Manager
Your Bank Competitor
Back officeTellerCustomer
New Model
Transformation of Retail Banking
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Sellers Buyers
Buyers
Buyers
Buyers
Sellers
Sellers
Sellers
Current Value Chain
Shrinking It
New Intermediaries
Virtual Marketplace
Transforming the Value Chain
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E-C Strategies
• Value Realization
• Changing Industry Structures
• Conclusion
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What did we learn?
• E-Commerce may begin with buying and selling. But its not just e-procurement or e-marketing. It changes customer expectations, encourages new entrants, and changes the dynamics of competition.
• E-Commerce leads to the reconfiguration of the industry value chain requiring strategic rethinking. While the dot-coms struggle to find their strategic bearing, incumbents face managing Web led changes.
• Ultimately, E-Commerce may change industry structure. Retailers may use the Internet as a channel. Exchanges may redefine buyer-supplier relations. Buyers may attempt to grab more power. Supply chains may or may not support the e-commerce strategy.
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What challenges lie ahead?
Dot-coms Incumbents
Strategic
Sales/Marketing
Supply chain
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Conclusion
Create and sustain the advantage!
Value Value CreationCreation
Value Value RealizatioRealizatio
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CompetitivCompetitive e AdvantageAdvantage
+
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• What is the value proposition?
• How much can we capture?
• Can we execute the strategy?
• Can we sustain the advantage?
Conclusion: Four Questions