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2. Chapter 4 Business Models McGraw-Hill/Irwin Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Chapter 4: Business Models

• Questions answered in this chapter:

• • What are the four components of an online business model?

• • Do firms compete on value propositions or value clusters?

• • What are the approaches to developing an online offering, whether the business is providing a product, service, or information?

• • What is a successful, unique resource system? What are the characteristics of good resource systems?

• • What are the revenue sources available to firms?

4. Exhibit 4-1: Components of a Business Model Value Cluster Online Offering Resource System Financial Model

5. Value Propositions and Value Clusters

• Value Proposition- requires management to specify three things:

• • Target segment

• • Focal customer benefits

• • Key resource that give market advantage

• Value Cluster- value proposition consisting of a cluster of composed of three parts:

• • Choice of target customer segments

• • Particular focal combination of customer-driven benefits

• • Rationale for why this firm and its partners can deliver the value cluster in a significantly better way than competitors

6. Value Propositions and Value Clusters (contd)

• Choice of Segments

• • Market size and growth rates

• • Unmet or insufficiently met customer needs

• • Weak or nonexistent competitors

• Choice of Focal Customer Benefits

• • Single-benefit approach

• • Multiple-benefit approach

• Choice of Unique and Differentiating Capabilities

• • Tangible assets

• • Intangible assets

• • Capabilities of the organization

7. Quality of a Value Proposition or Cluster

• Customer Criteria .

• • Do target customers understand the proposition or cluster?

• • Is it relevant to their needs?

• • Is it believable?

• • Is it perceived as unique or indistinguishable from other propositions or clusters?

• • Will it provoke action on the part of the target customer?

8. Quality of a Value Proposition or Cluster

• Company Criteria .

• • Will the organization rally around the proposition or cluster?

• • Does the company have the resources or capabilities to own this cluster?

• • Will it block or facilitate the eventual move to additional vertical markets?

9. Quality of a Value Proposition or Cluster

• Competitive Criteria .

• • Are other competitors trying to hold a similar proposition or cluster?

• • Can current or future competitors match this cluster?

• • How easy is it for future competitors to match this cluster?

10. The Online Offering

• Scope of the Offering

• • Category-Specific Dominance - Companies that focus exclusively on one product category, such as flowers.

• • Cross-Category Dominance- The extension of product offerings from a single category to additional product categories, such as Amazon.com.

11. Exhibit 4-2: Customer Decision Process Flower Example Disposal Loyalty Satisfaction Purchase Decision Evaluation of Alternatives Information Search Problem Recognition PREPURCHASE PURCHASE POSTPURCHASE

12. Exhibit 4-3: Egg Diagram for 1-800-Flowers.com Flower / Gift Decision Process

• Need Recognition

• Search for Ideas and Offerings

• Purchase Decision

• Message Selection

• Post-Sales Support and Perks

• Education on Flowers and Decoration

• Gift reminder service

• Holiday specials

• Everyday celebration suggestions

• Special occasion suggestions

• Birthday Gift Central

• Gift by occasion

• Gift by price

• Monthly gift clubs

• Corporate gift services

Ideas and Information Post-Sales Support

• Product price

• Product picture

• Product description

• Delivery information

• Delivery availability

• Physical cards in gifts

• E-mail a bouquet

• Order receipt e-mail

• Q&A chat

• FAQ

• Customer service inquiry form

Perks

• Miles earned with flower purchases

• Free gifts

• Discounts at AOL & BN.com with flower purchases

• Member specials

• Care and handling

• Do it yourself

• Special events and educational workshops held at stores

• Floral ideas

• Garden ideas

• Home ideas

• Gift ideas

• Gourmet ideas

• Store locator

• Recommendations by budget

• Bestsellers

• Evaluation of Alternatives

Gift Recommendations

• Shopping basket

• E-commerce transaction

• Special shopping features

• • Delivery outside U.S.

• • 1-800-lasfloras.com

Product Offering Source: Adapted from Mohanbir Sawhney, Making New Markets, Business 2.0 (May 1999): 11621.

13.

• Modifications to the activity system logic for the online marketplace

• • Shift from physical world to virtual and back to physical world

• • Shift from a supply-side focus to a demand-side focus

• • Shift from resources to benefits

• • Shift from single to multifirm systems

What Is a Successful Resource System?

14.

• Step 1: Identify core benefits in the value cluster

• Step 2: Identify resources that relate to each benefit

• Step 3: Identify to what degree the firm can deliver each benefit

• Step 4: Identify partners who can complete resources

Specifying a Resource System

15. Exhibit 4-4: 1-800-Flowers.com Resource System Online Gift Center Integrated Partner Offers Broad Assortment of Gifts Customer Service Wide Reach to Customers Widespread Easy Access Multiple Contact Points Popular Website High Quality of Flowers Technology Strong Brand Name Strong Distribution Network =Resources = Core Benefits Core Benefits

16.

• Uniqueness of the system

• Links between resources and benefits

• Links among resources in the system

• Links among resources

• Links between virtual world and physical world business systems

• Sustainable advantage

Criteria to Assess the Quality of a Resource System

17. Exhibit 4-5 : Online/Offline Egg Diagram for 1-800-flowers.com Off-line Product Offering

• Special events and educational workshops held at stores

• Prompts on toll free number recording

• Suggestions from CSRs* in stores and via phone

• Prompts on toll free number recording

• Suggestions from CSRs* in stores and via phone

• Brochure

• Suggestions from CSRs in stores via phone

• Brochure

• Information from CSRs in store and via phone

• Brochure

• Purchase in-store

• Purchase via phone

• In-store specials

• Specials offered via phone

*CSR = Customer service representative Flower / Gift Decision Process

• Need Recognition

• Search For Ideas and Offerings

• Purchase Decision

• Message Selection

• Post Sales Support and Perks

• Education on Flowers and Decoration

• Gift reminder service

• Holiday specials

• Everyday celebrations suggestions

• Special occasion suggestions

• Gift guru

• Favorite gifts

• Gift frequency

• Gift impossible

• Gift baskets

• Corporate gift services

Ideas and Information Post-Sales Support

• Product price

• Product picture

• Product description

• Delivery information

• Delivery availability

• Gizmo fully-animated greeting cards

• Physical cards in gifts

• Order receipt email

• eQ&A online customer service

• FAQ

• Customer service inquiry form

Perks

• Miles earned with flower purchases

• Free gifts

• Discounts at AOL & BN with flower purchases

• Member specials

• Care and handling

• Do it yourself

• Floral ideas

• Garden ideas

• Home ideas

• Gift ideas

• Gourmet ideas

• Store locator

• Recommendations by budget

• Best sellers

• Evaluation of Alternatives

Gift Recommendations

• Shopping basket

• E commerce transaction

• Special shopping features

• • Delivery outside U.S.

• • 1-800-lasfloras.com

On-line Product Offering

• In-store customer service

• Customer servifce on toll-free number

• Select card in-store

• Select card via phone

18.

• Portal agreements (AOL, Yahoo, MSN, etc.)

• Anchor tenant agreements (exclusive partnerships)

• Promotion agreements (cross industry promotions such as frequent-flier miles, telephone discount rates, gift certificates, etc.)

The Role of Partnerships

19. Revenue Models

• Advertising - Earning revenue through the selling of ads (banner or interstitial), site sponsorships, event underwriting, or other forms of communication

• Product, Service, or Information Sales- Income generated from the sale of goods on the site

• Transaction- Revenue accrued from charging a fee or taking a portion of the transaction sum

• Subscription- Revenue generated through subscriber fees for magazines, newspapers, or other information/service businesses

• License Fees- Revenue generated from licensing of content

20. Online Business Models

• Metamarket Switchboard Model

• Traditional and Reverse Auction Models

• Freshest-Information Model

• Highest-Quality Model

• Widest-Assortment Model

• Lowest-Price Model

• Most-Personalized Model

21. Exhibit 4-6: Summary of Online Business Models

22.

• Value Cluster

• • Target segments (savvy investors, seekers, dabblers)

• • Key benefits (up-to-the-minute information; original, in-depth analysis; personal-finance tools; multiple points of access)

• • Supportive rationale (experienced editorial staff, multiple forms of media, CBS News and Financial Times brand names)

Marketwatch.com Business Model

23. Marketwatch.com Business Model (contd)

• Supportive Rationale

• • Experienced editorial staff with financial expertise

• • Infrastructure allowing access from multiple forms of media

• • Credibility through its association with CBS News

24. Exhibit 4-7: MarketWatch.com Egg Diagram

• Learn

• Getting Started

• Investors Primer

• IPO Basics

• Financial Term Glossary

• Invest

• Sponsorships by Online Brokerages

• Datek Online

• Fidelity Investments

• National Discount Brokers

• Ameritrade

• Cybertrader

• Scottrade

• Broker Decision Center

• Planning Tools

• Sharebuilder

• Payment Calculator

• Home Price Check

• Best Credit Card Rates

• Insurance QuickQuote

• Third-Party Sources

• Market Guide

• Hoovers Online

• Multex

• Annual Reports Club

• INVESTools

• Over 250,000 Investment Research Reports

• Community

• Private e-mail

• People Watch

• Hot Discussions

• Occasional Polls

• US Markets

• Market Monitor

• Major Indexes

• Dollar Volume Leaders

• Commentary

• Thom Calandras Stockwatch

• Bambi Franciscos Net Sense

• Bezderick on Bonds

• (Many other commentary columns)

• eNewsletters

• Online

• News Watch

• E-mail Alerts

• Real-time Headlines

• Hotstock Tracker

• Marketwatch Live

• eSignal

• Radio

• Contribution to Westwood One

• Global Markets

• Key Rate Snapshot

• International Indexes

• Non-Us Stocks

• Track Investments

• Portfolio View

• Portfolio Analyzer

• Portfolio Allocation

• Portfolio Tracker

Breaking News Market Figures

• Television

• CBS MarketWatch Weekend

• Contributions To:

• • CBS Early Show

• • CBS Evening News

• • CBS NewsPath

Develop Insight

• Futures and Options

• Futures Contracts

• After-Hours Futures

• Bonds

• Bellwether Bonds Report

• Funds

• Fund Profile

• Fund Charts

• Stocks

• Interactive Charting

• Historical Charts

Personal Finance Process Learn About Personal Finance Plan Investment Strategy Stay Updated on the Latest News and Figures Develop Insight Invest Track Investments

25.

• Resource System

• • CBS News

• • Financial Times

• • Marketwatch.com

• • BigCharts.com

• • Content partners (Hoovers, Zacks, INVESTools, etc.)

• • Distribution partners (Yahoo, AOL, Quicken, etc.)

Marketwatch.com Business Model (contd)

26. Exhibit 4-8: MarketWatch.com Resource System =Core Benefits =Resources Credible Analysis and Personal Finance Tools Up-to-the-Minute Information Multiple Points of Access Distribution Partnerships Association with CBS Experienced Editorial Staff Partnerships with Content Providers Available Infrastructure International Presence CORE BENEFITS

27.

• Revenue model

• • Advertising revenue (37% in 2001)

• • Licensing revenue (52% in 2001)

• • Other revenue, subscription, etc. (6% in 2001)

• Value model (best information)

• Growth model

• • Advanced portfolio-tracking tools

• • International markets

• • Services to address expanded trading hours

• • Expand reach to wireless devices

• • Expand TV and radio shows to more stations

Marketwatch.com Business Model (contd)

28. Exhibit 4-9: Partners Give / Get Matrix

29. Exhibit 4-10: MarketWatch.coms Revenue Distribution