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E-commerce Business Models

and Concepts

Copyright © 2010 Pearson Education, Inc. Slide 1-1


E-commerce Business Models
 Business model
 Set of planned activities designed to result in a
profit in a marketplace

 Business plan
 Describes a firm’s business model

 E-commerce business model


 Uses/leverages unique qualities of Internet and
Web
8 Key Elements of a Business Model
Value proposition
Revenue model
Market opportunity
Competitive environment
Competitive advantage
Market strategy
Organizational development
Management team
1. Value Proposition

 Why should the customer buy from you?


 Successful e-commerce value
propositions:
Personalization/customization
Reduction of product search, price
discovery costs
Facilitation of transactions by managing
product delivery
CASE STUDY ON VALUE
PREPOSITION
It’s hard to imagine a more iconic product than the
Apple iPhone. Take a look at the copy. Apple states
that it believes a phone “should be more than a
collection of features” – yet this is precisely what a
smartphone is. We could sit here and poke fun at
Apple’s lofty design aesthetic for days (the
#freejonyive hashtag on Twitter, which jokes that
Apple’s lead designer has been trapped in a white
room for several years, is a prime example), but it’s
a remarkably effective approach that has helped
Apple remain at the forefront of a brutally
competitive market for almost a decade.
2. Revenue Model
 How will the firm earn revenue, generate
profits, and produce a superior return on
invested capital?
 Major types:
 Advertising revenue model
 Subscription revenue model
 Transaction fee revenue model

 Sales revenue model

 Affiliate revenue model


CASE STUDY
Peter Noll, chief of the Diagnostics division at the Frankfurt-
based Scherr Pharmaceuticals, felt it was time to address a
nagging issue: The combined entity had no overarching
revenue model.

This deficiency had been weighing on him for a year, ever


since the merger had been approved by the CEO, the
executive team, and the board. Although the two units had
similar products, they relied on different strategies to earn
their money. Their sales forces sometimes even called on the
same customers, leaving potential buyers confused by the
reps’ differing offers. “How does it make any sense?” he
frequently asked. The only real issue seemed to be which
legacy revenue model he should allow to prevail and which he
should gracefully kill. But he couldn’t deny that the flexible,
inventive models the two units had followed for years had
served them well.
3. Market Opportunity

 What marketspace do you intend to


serve and what is its size?
 Marketspace: Area of actual or potential commercial value
in which company intends to operate
 Realistic market opportunity: Defined by revenue
potential in each of market niches in which company
hopes to compete
 Market opportunity typically divided into
smaller niches
CASE STUDY (Market opportunity)

Global Traffic Measurement In the UK,


“Movember” is hugely important, while in
Germany “three day stubble” is a popular look.
Meanwhile, in the US, YouTube is more
prominent in searches, particularly with
regards to humorous content. Mavens worked
closely with the client to develop a digital
strategy that delivered a globally aligned
message, while still making allowances for
locally important trends.
4. Competitive Environment
 Who else occupies your intended marketspace?
 Other companies selling similar products in the same
marketspace
 Includes both direct and indirect competitors

 Influenced by:
 Number and size of active competitors
 Each competitor’s market share
 Competitors’ profitability
 Competitors’ pricing
CASE STUDY
Wal-Mart’s competitive environment is quite unique. Although Wal-
Mart’s primary competition comes from general merchandise retailers,
warehouse clubs and supermarket retailers also present competitive
pressure. The discount retail industry is substantial in size and is
constantly experiencing growth and change. The top competitors
compete both nationally and internationally. There is extensive
competition on pricing, location, store size, layout and environment,
merchandise mix, technology and innovation, and overall image. The
market is definitely characterized by economies of scale. Top retailers
vertically integrate many functions, such as purchasing,
manufacturing, advertising, and shipping. Large scale functions such
as these give the top competitors a significant cost advantage over
small-scale competition.
In general merchandise retailing, Wal-Mart’s primary competitors are
Target and Kmart. Retail superstores such as Circuit City and Bed,
Bath, and Beyond, also provide retail competition. A survey found that
the majority of respondents favored Wal-Mart over stores like Target
and Kmart. Respondents claimed Wal-Mart offered lower prices, better
variety and selection, and good quality.
5. Competitive Advantage
 What special advantages does your firm bring to the
marketspace?
 Achieved when firm produces superior product or
can bring product to market at lower price than
competitors

 Important concepts:
 Asymmetries
 First-mover advantage
 Unfair competitive advantage
CASE STUDY
In this case, Apple Inc has a net advantage over its
competitors such as Blackberry, Google Android,
Palm pre and HTC.Their success lies in its
competitive advantages including the firm's cost
structure, product offerings and customer service.
Furthermore, Apple are able to differentiate
themselves from its competitors and have been able
to gain successful customer satisfaction, in the same
way they can charged a premium price. But using its
competitive advantage does not mean that the
company should ignore other competitors, simply
because the trend of technology continuously keeps
progressing with new products and innovations.
6. Market Strategy
 How do you plan to promote your
products or services to attract your target
audience?
 Details how a company intends to enter market
and attract customers
 Best business concepts will fail if not properly
marketed to potential customers
CASE STUDY:
Marketing Strategy By Nestle Post Ban:
In today’s world of citizen journalism, news goes viral in a flash. And if it is bad news, it
acquires a spin and speed that is virtually impossible to stop. Brands, therefore, are more
susceptible to a tarnished image today, than in any other day and age. The cocktail of the
online and offline world, consumer and shareholder activism, random decisions by
government bodies, volatile social groups, and hatchet jobs by competing firms make it all too
easy to fall from grace. And the loss of goodwill can play out in the form of decreased
revenue, loss of clients or suppliers and loss of market share. Maggi re-launched with a digital
media campaign “WeMissYouToo” and they have been promoting it forcefully on all brand’s
social media channels. This as well as the brand has turned to a great degree brief in
answering to their fan’s post. Be it loving their presents or answering on them, Maggi is trying
to include an individual touch in their correspondence. In an interview, Narayanan said the
organization is taking a look at setting up 24×7 sans toll customer services too keeping in
mind the end goal to “get the connect, and network with the product consumer. Suresh
Narayanan, chairman and managing director, Nestle India, said, “Our promotional strategy will
be across three platforms. We will use traditional media to reassure our consumers regarding
the safety of our product. We will connect digitally with our target group. Besides, there will be
a lot of events tor brand activation.” The Swiss food major has also partnered with online
marketplace Snap deal for selling Maggi.
7. Organizational Development
 What types of organizational structures within the firm
are necessary to carry out the business plan?

 Describes how firm will organize work


 Typically divided into functional departments

 Hiring moves from generalists to specialists as company


grows
CASE STUDY

Leaders at Qualcomm recognize 360-degree


feedback as a key component of their career
progression. They also know that the process
is conducted confidentially and they can trust
the results. Because of its success, the 360
feedback process is seen as a privilege.
Individuals appreciate the opportunity to
understand their positive contributions,
receive coaching, and explore additional
development opportunities. DecisionWise
acts as a true partner to deliver customized
and flexible solutions that meets Qualcomm’s
complex needs.
8. Management Team
 What kinds of experiences and background are
important for the company’s leaders to have?
 Employees are responsible for making the business model
work
 Strong management team gives instant credibility to
outside investors
 Strong management team may not be able to salvage a
weak business model, but should be able to change the
model and redefine the business as it becomes necessary
Categorizing E-commerce
Business Models
 No one correct way
 We categorize business models according to:
 E-commerce sector (B2C, B2B, C2C)
 Type of e-commerce technology; i.e., m-commerce
 Similar business models appear in more than one sector
 Some companies use multiple business models; example, eBay
Insight on Technology
Can Bing Bong Google?
Class Discussion

 How many of you use Google, Yahoo, or Microsoft’s


Bing? Does the class differ from the overall Web
population?
 Why do you use a particular search engine?
 Why is Google moving beyond search and advertising
into applications?
How the Internet and the Web
Change Business
 E-commerce changes industry structure by
changing:
 Basis of competition among rivals
 Barriers to entry
 Threat of new substitute products
 Strength of suppliers
 Bargaining power of buyers