slide 5.1 dave chaffey, e-business and e-commerce management, 3 rd edition © marketing insights ltd...

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Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition © Marketing Insights Ltd 2007

Chapter 5E-business strategy

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Learning outcomes

• Follow an appropriate strategy process model for e-business;

• Apply tools to generate and select e-business strategies;

• Outline alternative strategic approaches to achieve e-business.

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Management issues

• How does e-business strategy differ from traditional business strategy?

• How should we integrate e-business strategy with existing business and IS strategy?

• How should we evaluate our investment priorities and returns from e-business?

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Michael Porter on the Internet

‘The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it.’

Porter, M. (2001) Strategy and the Internet, Harvard Business Review, March 2001, 62–78.

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Alternative definitions of strategy

What is strategy?– “Defines how we will meet our objectives”

– “Sets allocation of resources to meet goals”

– “Selects preferred strategic options to compete within a market”

– “Provides a long-term plan for the development of the organization”.

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Figure 5.1 Different forms of organizational strategy

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e-Business development e-Business development Going ForwardGoing Forward

Environment Support Levels Enterprise Development Levels

Taxation & Finance

Legal & RegulatorySecurity &

Trust

Research &Development

NationalInfrastructure

Support Services

Skills

Education

ICT adoption& use Investment in

e-Business Growth in numbers of e-Businesses

Numbers employed

NationalStrategy

E-BusinessMarket Size

E-BusinessExport growth

E-business Development

Number of e-Commercetranscations

Electronic BusinessProcesses

E-Government

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Key Technology Trendsand Strategies Going Forward

eBu

sin

ess

evo

luti

on

an

d

bu

sin

ess

ben

efit

Intranet /Web-mail

Web page

Order taking, making

and tracking

eBusiness functionality implemented

Supplier Integration

Full supply chain

integration

INFORM INTERACT TRANSACT INTEGRATE

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What is working?

• Pornography• Travel / Tourism• Retail - items that don’t need personal touch - objectivity in

product quality and performance

– music, books, gifts, Computers, electronic items– Auctions

• Real Estate - houses and investment properties.• Customer support services• More efficient and effective processes between businesses (B 2

B)

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What is not working?

• Items which require “touch and trial”– Luxury goods– Clothes - beyond Tshirts

• Groceries - it works for some people but market is restricted

Note: Many OFF line factors determine success of Online service. Eg. Transport network, customer profiles,

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Sell-side E-commerce strategy (Chapters 8 & 9)or E-marketing/E-CRM Strategy

• Sell-side e-commerce is a channel strategy

• Objectives for online contribution percentage should drive our strategy

• Our e-commerce strategy defines how we should:• Hit our channel leads & sales targets

– Acquisition, Conversion, Retention, Service, Profitability

• Communicate benefits of using this channel• Prioritise products available through channel• Prioritise audiences targeted through channel• Select partners for this channel

• Channel strategy thrives on differentials

• BUT, need to manage channel integration.

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Buy-side E-commerce strategy (Chapters 6 & 7)or E-supply chain management strategy

• Buy-side e-commerce strategy is about maximizing operational efficiencies while improving customer service quality

• Operational efficiency KPIs should drive our strategy

• Our buy-side e-commerce strategy defines how we should:

• Automate internal processes• Link internal resource management systems with external

purchasing systems • Prioritize suppliers/partners collaborating using this channel• Prioritize applications for E-SCM – create a roadmap

• Involves selection of appropriate strategic partners.

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E-business strategy

• For me, an IS strategy or change management strategy (Chapter 10) which ensures resources are managed effectively to achieve opportunities from Buy-side and Sell-side e-commerce. Also involves deploying IS to manage administrative internal process and employee knowledge

• Involves management of information systems resources (e-business applications, infrastructure/hardware and people/change/ knowledge management).

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Figure 5.2 Relationship between e-business strategy and other strategies

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Business and E-commerce Strategy

•E-commerce has changed business strategy.•A strategy is a broad-based formula for how a business is going to compete, what its goals should be, and what plans and policies will be needed to carry out those goals.1

1Michael Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.

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E-commerce Strategy

• An e-commerce strategy is a …

• To build an e-commerce strategy requires two view of an organization’s strategy: what is wants to do (conceptual) and how it will do it (technology strategy).

• One strategy being used by many companies is customer relationship management which enables them to create to one-to-one marketing experience for their customers.

• Other e-commerce strategies include virtual showrooms, increased channel choices, wider component choice, and use of mobile technology.

• Mobile commerce is …

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E-commerce Business Models (cont.)1

1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

Business Model

Description Examples Comments

Brokerage Brokers bring buyers and sellers together for a fee.

There are many types of brokerage models in all types of e-commerce.

Advertising An extension of the traditional media broadcasting model in which ads appear on Web sites.

There are many different types of advertising, but all depend on a large volume of viewer traffic.

Merchant Sell products, both physical and electronic, to consumers

Commonly referred to as e-tailers, merchants can use pure e-commerce or a combination (click and mortar).

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Business Model Description Examples Comments

Manufacturer Direct

Make and sell products directly to customer

Products can be purchased (PCs), leased (servers), or licensed (software).

Affiliate Affiliate Web sites are paid a fee when purchases come through them.

Can also include banner ad exchange between affiliated sites as well as revenue-sharing.

Community Based on user loyalty because of high investment of time and emotion.

Revenue is generated through sale of ancillary products or voluntary contributions

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Business Model

Description Examples Comments

Subscription Users are charged fee to subscribe to service to service or information source

Subscription may be for premium services; advertising model may be combined with this model

Infomediary Provides data on consumers and consumption habits

Usually aimed at helping businesses rather than consumers

Coopetitive Enable competitors to cooperate on a Web site

Usually aimed at individuals or small businesses that cannot attract customers to their own Web site.

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Web Sites Classified By Purpose

Web Site Type Purpose Example Business Model

Portal A gateway to many other Web sites

Advertising, Affiliate

Search Engine Finds Web sites that contain a word or phrase

Advertising, Affiliate, Infomediary

Browse or search and buy

Sell goods and services

Merchant, Infomediary, Manufacturer Direct, Coopetitive

Sales Support To provide information on a product before or after the sale

Community, Infomediary

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Web Sites Classified By Purpose (Cont.)

Web Site Type Purpose Example Business Model

Information Service

To provide news, information, commentary, and so on.

Subscription, Community, Affiliate

Auction Facilitate sales between third parties

Brokerage

Travel Sell travel tickets and tours

Merchant, Brokerage, Coopetitive

Special Interest or Services

Provide information, product sales and support, and contacts between visitors

Community, Merchant, Affiliate, Infomediary, Advertising

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B2B Business Models

• Strategic sourcing is often carried out through a one-to-one business model, but company-centric and exchange models are also used.

• In the one-to-one business model …

• In the company-centric business model …

• The single company dominates the market and controls the

information systems that supports the transactions. Electronic data interchange (EDI) or an extranet is often used to link trading partners.

• E-procurement is often the name for B2B e-commerce in the many-to-one business model.

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Company Centric Business Model

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Exchange Model

• In the exchange business model, many companies use an exchange to buy and sell from each other through spot-buying transactions.

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Mobile Commerce

• Mobile commerce (m-commerce) relies on the use of wireless devices, such as personal digital assistants, cell phones, and smart phones, to place orders and conduct business

• Issues confronting m-commerce

– User-friendliness of the wireless device

– Network speed

– Security

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What happens where there is no e-business strategy?

• Missed opportunities for additional sales on the sell-side and more efficient purchasing on the buy-side

• Fall-behind competitors in delivering online services – may become difficult to catch-up, e.g. Tesco, Dell

• Poor customer experience from poorly integrated channels.

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Electronic Payment Systems

• Digital certificate: an attachment to an e-mail message or data embedded in a Web page that verifies the identity of a sender or a Web site

• Certificate authority (CA): a trusted third party that issues digital certificates

• Secure Sockets Layer (SSL): a communications protocol used to secure sensitive data

• Electronic cash: an amount of money that is computerized, stored, and used as cash for e-commerce transactions

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Figure 5.3 BA communicates their online value proposition (www.britishairways.com)Source: Based on Revolution (2005)

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Figure 5.4 A generic strategy process model

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Figure 5.5 Dynamic e-business strategy modelSource: Adapted from description in Kalakota and Robinson (2000)

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Figure 5.6 Elements of strategic situation analysis for the e-business

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Figure 5.7 Summary applications of a portfolio analysis for The B2B Company

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Figure 5.8 SWOT analysis for The B2B Company

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Figure 5.9 Customer demand for e-marketing services for The B2B Company

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Figure 5.10 Competitive threats acting on the e-business

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Porter’s five forces

Power ofsuppliers

Bargainingpowers ofcustomers

Extent of rivalrybetween

competitors

Threat ofsubstitutes

Threat of newentrants

The business

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Activity – impact of Internet

• For one of the industries below, assess how the Internet has changed the competitive forces, e.g. has it increased or decreased power of suppliers and customers

• Industries:– Banking– Supermarkets– Oil industry– Rail industry

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Figure 5.11 Elements of strategic objective setting for the e-business

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Figure 5.12 An evaluation tool relating information to business value. An organization’s use of information on each axis can be assessed from 1 (low useof information) to 10 (high use of information)Source: Marchand et al. eds (1999)

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Figure 5.13 Capital One web site (www.capitalone.co.uk)

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Figure 5.14 Direct and indirect Internet contributions for fast-growth companies inthe USASource: PricewaterhouseCoopers (2000)

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Figure 5.15 Grid of product suitability against market adoption for transactionale-commerce (online purchases)

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Table 5.5 Vision of online revenue contribution for The B2B Company

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Figure 5.16 Elements of strategy definition for the e-business

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Figure 5.17 Strategic options for a company in relation to the importance of the Internet as a channel

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Right Channelling

• Right channelling can be summarized as:– Reaching the right customer

– Using the right channel– With the right message or offering

– At the right time

• Examples:– B2B serve SMEs through e-channels and larger clients

through personal service– Encourage consumers to buy and serve through lower

cost electronic channels– Encourage offline fulfillment/conversion as appropriate– Different levels of service/promotion for different

customers.

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Figure 5.18 Liveperson – an example of a service to assist with ‘right-channelling’Source: www.liveperson.com

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Figure 5.19 Using the Internet to support different growth strategies

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Figure 5.20 smile (www.smile.co.uk)Source: Reprinted by permission of The Co-operative Bank

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Figure 5.21 Dabs.com (www.dabs.com)

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Figure 5.22 Elements of strategy implementation for the e-business

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