MAR 6936902

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MAR 6936-902

• E-Commerce Marketing
• Fall 2002Tampa--MBA
• Digital Opportunities
• Rich Gonzalez
• October 31, 2002 (Week 10)

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URLs

• https//www.starbucks-express.com/info/allLocation
  s.aspx
• wsj.com
• www.moviemask.com

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Agenda October 31, 2002

• Pricing Innovation/Amplification
• WSJ.com Articles
• Strategy and the Internet, PorterWhy Porter Is
  Wrong
• Digital Based Innovation
• Class Exercise on DBI
• Due For November 7

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For November 7

• Chapter 6Customer Interface
• F2F to S2F
• How To Achieve Digital Nirvana, p28,
  BusinessWeek, November 4, 2002

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For Today October 31

• Prices Just Keep Plunging, p38, BusinessWeek,
  October 21, 2002
• The Power Optimal Pricing, p68, Business2.0,
  July, 2002
• WSJ Online Articles, E-Commerce   "What's a
  Check?," October 21, 2002   "Money Transfers,"
  October 21, 2002   "Advertising," October 21,
  2002

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BusinessWeek Prices

• Prices Rising?
• Increases Down, CPI Down
• Disinflation
• Profits Squeezed
• Southwest
• Decrease Costs
• Differentiation Pricing Power
• Any Prices Rising?

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The Power of Optimal PricingPrice Optimization
Software

• ObjectivesRevenues, Profit, Units, Share
• ContextStore, Region, Chain
• DemandTec---
• PriceAmountsFrequencies
• Cost-Plus Pricing Is Predominant
• Discrimination is Good? (Amazon.com)

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Big Concepts

• Information
• Amplification
• Asynchronicity

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• WSJ Online Articles, E-Commerce   "What's a
  Check?," October 21, 2002   Too User-Friendly,"
  October 21,

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3 Fundamental Business Shifts

• 1. Most transactionsB2C, B2B, C2C and G2C will
  become self-service digital transactions.
• 2. Customer service will become the primary
  value-added function in every business. Personal
  consultancy not routine services.
• 3. The pace of transactions and customer needs
  for customer service will force firms to adopt
  digital processes---for survival.

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Last Time

• Movie MaskDigital Control
• Chapter 5
• Porter

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Components of a Business Model
Developing a business model in the networked
economy requires four key choices on the part of
the senior management
Value Cluster

• Specify the value proposition or the value
  cluster for the business

Marketspace Offering

• Articulate the online product, service and
  information offer

Resource System

• Define how the company needs to align its
  resources to deliver the value proposition

• Define and select the most appropriate revenue
  model to pursue

Financial Model
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Ability to Deliver Capabilities
Assess whether the company has all the necessary
capabilities in-house or if it has to look
outside and select the most appropriate partners
to complete the missing capabilities.
1-800-Flowers.com would not be able to deliver
the capability wide reach to customers alone,
and therefore would need to create partnerships.
Companies like MSN, AOL and Snap are potential
partners.
Broad Assortment of Gifts
High Quality of Flowers
Popular Website
Multiple Contact Points
Starmedia
Widespread, Easy Access
Customer Service
MSN
Wide Reach to Customers
AOL
Snap
Core benefits
Strong Brand Name
Activities assets
Capabilities
Partners
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Revenue Models
Some used most frequently
Advertising

• Advertising revenues can be generated through
  the selling of ads, site sponsorships, event
  underwriting, etc. (e.g., Yahoo, AOL,
  Business2.com)

Product, Service, Information

• Revenues can be generated from the sales of
  goods and services (e.g., Amazon, CDNow, Google
  Answers)

Transaction

• Revenues can be accrued from charging a fee or
  taking a portion of the transaction sum for
  facilitating a customer-seller transaction (e.g.,
  eTrade, eBay)

Subscription

• Website can gain revenues by offering
  subscription services for information (e.g.,
  FT.com, NYTimes.com)

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Strategy

• The essence of strategy is choosing to perform
  activities differently than rivals do.
• Must be flexible to respond rapidly to
  competitive and market changes. Michael E.
  Porter
• What Is Strategy?, Nov-Dec 1996, HBR

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Strategy and the InternetThe Internet...

• Doesnt like the new economy
• Rarely nullifies the most important competitive
  advantages

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Porter Value

• Economic value is created PROFITS
• The metric is
• Price minus costs
• How does an industry create value?What are the
  factors?
• Industry Structure
• Sustainable Competitive Advantage

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Strategy and the InternetThe Internet...

• Tends to weaken industry profitability
• Should be viewed as a complement to traditional
  ways of competing
• Doesnt change everything
• Not a blessing
• Has a leveling effect on industry

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Porters Most Interesting Question

• Will all the values end up going to customers, or
  will companies be able to reap a share of it?

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Porter Conclusion

• The Internet will rarely be a competitive
  advantage.

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Weekly Analysis Paper 5

• Subject Strategy and the Internet
• The Internet per se will rarely be a competitive
  advantage.-- Michael Porter
• Requirements (use bolded headings)
• Based on discussion, slides and article,
  disagree with Portera) Stating whyb) Cite an
  example firm/business model to support your
  positionc) State some developments that Porter
  has missed or assumptions he got wrong
• If you wish to AGREE with Porter, let me know.

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Reasons To Disagree With Michael Porter

• Doesnt recognize the real consumer need
• Fails to realize value Metcalfs LawCritical
  mass from consumer perspective
• Doesnt adequately realize the critical mass must
  be reached to pursue pricing goals.---Temporary
  price promotions are often necessary to reach
  critical mass.
• Lower barriers to entry are not really low vis a
  vis scale
• There IS a new economy. Profits are not a right
  because innovation is continuously necessary.
• In a way, there is no such think as an
  sustainable SCA anymorethe half-life of an SCA
  has greatly been reduced
• Porter focuses to much on the Advertising model
  criticismuses as primary focus

In Class Exercise
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Assumptions/Developments Michael Porter Missed

• CommunityMore powerful than he realizes
• Power of customers to transform content
• Power of customers to share content and
  information
• Amount of information that industry can get from
  customersUtility of this is great
• He assumes that current supply chain
  infrastructure is optimal. But a new
  infrastructure can be changed to be similar to
  more biologically methaphor based

In Class Exercise
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Example Supporting Your Position vs. Porter

• Yahoo giving service for free to get into its
  index then charging
• Computer hardware and software industriesPrice
  competition and distribution requirements were
  big problemsyet still much industry success
• Direct Supplies Inc. personalized product for
  new suppliers. New platform for buyers and
  suppliers. Suppliers pay to be included, buyers
  choose who is on platform.

In Class Exercise
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Criticism of Porter

• Companies can compete on both differentiation and
  low-cost.
• Companies are not limited online to one industry
  domain.
• Very Industry Focused

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Ontain Ordering System

• 10 Minutes In Line Is Way Too Long
• Starbucks, Boston Market, etc.

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Why Wait For Your Morning Latté?

• Starbucks Express
• 60 Stores TestDenver Boulder, CO
• Register Online
• Charge 20Prepaid Balance
• Create Profile
• Order 1 tall half-decaf, extra hot, vanilla
  latte, blueberry scone.
• Order 2 small regular coffee.

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Why Wait For Your Morning Latté? contd

• Cell phone callwith menu item select (up to 5
  menu items)
• Website orders, too
• 25 Charge
• Why Denver? Like Technology, Innovation
• Online OrderingBoost Sales?
• Next McDonalds, Subway

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Starbucks Express

• https//www.starbucks-express.com/info/allLocation
  s.aspx
• Demo

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(No Transcript)
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2 TeamsDiscuss Develop
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Marketing Strategy Digital Opportunities

• Goal Develop Potential Strategic Marketing Idea
  Digitally-Based
• What digitally-based idea can you identify that
  would give a business/industry an SCA?
• Other than music.

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Deliverable

• 1 Page ReportHandwritten(Neat)
• On backNames of Team Members
• On Front of Report
• 1. Industry/Service/Product (Pick Only Two)
• 2. Basic Idea (Rough Description)
• 3. User Benefits
• 4. Why Might It Succeed?
• Cite idea(s) From Porter, Textbook, Discussions,
  Starbucks, etc.

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Results 1

• 1. Home Security
• 2. Use Internet to View Home or Business
  Online---Alarm phones in report
• 3. Monitor kids, pets, cable man.. Peace of mind
• Remote control of activities in home
• 4. High bandwith, low cost, people now worry
  about this technology available now

In Class Exercise
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Results 2

• 1. Automated Checkout
• 2. No checkout, just leave the retail
  storeautomatic payment
• 3. Waits eliminated, EZ payment, accuracy,
  reduces shoplifting, laziness rewarded
• 4. Impatient consumers, time demands always
  present, people dont balk, reduces store costs

In Class Exercise
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Results 3

• 1. Industry/Service/Product (Two)
• 2. Basic Idea (Rough Description)
• 3. User Benefits
• 4. Why Might It Succeed?

In Class Exercise
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Results 4

• 1. Industry/Service/Product (Two)
• 2. Basic Idea (Rough Description)
• 3. User Benefits
• 4. Why Might It Succeed?

In Class Exercise
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For November 7

• Chapter 6Customer Interface
• F2F to S2F
• How To Achieve Digital Nirvana, p28,
  BusinessWeek, November 4, 2002

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End Here