1 Dickson K.W. Chiu PhD, SMIEEE, SMACM, Life MHKCS Jelassi & EndersJelassi & Enders: Chapter 8 COMP7880: E-Business Strategies Creating & capturing value

Strategy options External analysis Internal analysis Sustaining competitive advantage Internal organisation Implementation Exploring new market spaces Interaction with suppliers Interaction with users/customers Creating and capturing value Strategic analysis Strategy implementation E-business strategy Mobile e-commerce strategy 12 Opportunities/ threats Strengths/ weaknesses Our Roadmap Strategy formulation COMP7880-CV-2

Value creation Value created € Costs Perceived use value Value is created if the perceived use value exceeds costs COMP7880-CV-3

Value captured (producer surplus) Price Consumer surplus Value capturing Value creation Costs Value created € Perceived use value The price indicates how the value created is distributed COMP7880-CV-4

Value capturing Value creation Value created € Producer surplus Value created Price = Willingness to pay Costs Perceived use value = Producers completely capture value created in a monopolistic environment COMP7880-CV-5

1 Value capturing Value creation CostsValue created € Perceived use value Company A Strongest competitor (Company B) Price = 19 Consumer surplus 1 Value capturing Value creation CostsValue created € Perceived use value Competitive discount 7 Maximum value to be captured 20 Profit Competitive discount = consumer surplus provided by the strongest competitor COMP7880-CV-6

Value capturing Value creation Value created € Competitive discount Profit Value created Costs Perceived use value Producer surplus 12 3 Consumer surplus To achieve profitability: create and capture value Price COMP7880-CV-7

Five forces Value chain Value Process Framework (VPF) integrates different strategy analysis COMP7880-CV-8

Marketing & sales Production SourcingR&D Service Value is created by the individual business activities of the value chain COMP7880-CV-9

Entrants Substitutes Suppliers Customers Rivalry Porter’s five forces influence the cost lever and competitive discount COMP7880-CV-10

Value drivers Cost drivers Entrants Rivalry Customer power Substitutes Supplier power Porter’s strategy models can be used to analyze the levers of the VPF COMP7880-CV-11

Handset purchasing MNO services Content, product design Marketing, branding Sales, distribution MVNE services UMTS multimedia handset UMTS technology Concept design, artist roster, applications, features Concept image, concept brand Content distribution over the air / Wholesale costs MNO service fees Advertising costs MVNE service fees Retail margins Value drivers Cost drivers Royalties Value chain analysis of MVNO project reveals numerous value/cost drivers COMP7880-CV-12 MVNO – Mobile Value Network Operator project by Sony BMG Germany MVNE - Mobile Virtual Network Enabler

 Artist roster, content, applications, multimedia handset  UMTS technology, handset  Applications, community  Applications, features  Image (brand)  UMTS technology, handset Quality Brand Speed Entertainment & fun 24/7 access Interaction Individualization Emotional benefit Individualization 24/7 access Fast downloads Value Value drivers (step 1) Perceived use value (step 2) Multiple value drivers create perceived use value mainly in 3 dimensions COMP7880-CV-13

 Handsets costs  MNO service fees  Royalties  Advertising costs  Retail commissions  MVNE service fees  Quality Value creation  Speed  Brand € Supplier power 1 2 Perceived use value and costs for the Sony BMG MVNO would both be high COMP7880-CV-14

Industry rivalry (moderate to high) Telco market is close to saturation Player concentration depending on market definition Low exit barriers for non MNOs Product differentiation only via premium content Bargaining power of suppliers (moderate to high) No input differentiation in terms of air traffic (this argument pplies only to resellers and MVNOs) Moderate input differentiation in terms of handsets Strong supplier concentration (only E-Plusin Germany) Threat of new entrants (moderate to high) Low technical barriers, high barriers for brand and access to attractive content Low switching costs for prepaid customers Low exit barriers, only sunk costs for advertisement Easy access to distribution channels Threat of substitutes (relatively low) No devices in sight that could adequately fulfil the product’s major functions Bargaining power of customers (relatively high) No considerable switching costs Huge amount of prepaid offerings  low differentiation parameters Willingness to pay important for premium content providers High market transparency German wireless telecommunications industry: relatively low attractiveness COMP7880-CV-15

€ Value capturing New entrants Substitutes Customer power Rivalry 3 The five forces analysis indicates a high competitive discount COMP7880-CV-16

Value capturing Value creation Value drivers  Handset  UMTS  Concept design, artist roster  Brand  Over-the-air distribution 1 Cost drivers  Wholesale costs  Increased MNO service fees (due to high supplier power)  Royalties  Advertising costs  Retail margins  MVNE fees 2  Industry forces (low entry barriers, relatively high rivalry, high customer power, low substitute threat)  Short-term uniqueness of resources (especially concept design), but imitable in the long run 3 Effects on competitive discount Perceived use value has to be extremely high to achieve profitability COMP7880-CV-17

For your project & exercise Repeat the methodology in this chapter for your project case study COMP7880-CV-18