1. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 1 Chapter 8: E-Business Strategy

2. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 2 LEARNING OBJECTIVES (1) : Outline the steps involved in strategy development. Explain the major drivers of e-business strategy and their impact. Explain the importance of an e-business value chain. Discuss the roles of alliances and acquisitions to strategy development. Identify the major strategies e-businesses are using to differentiate themselves.

3. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 3 LEARNING OBJECTIVES (2) : List the advantages that a pioneering firm can gain. Explain the importance of brand names for e- businesses. Describe the strategic role of portals. Identify the alternative competitive arenas where e- businesses can find opportunities. Describe the measures that businesses can use to judge e-business success.

4. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 4 Vignette: Microsoft vs. The World (1) Thinking Strategically –Determine what environmental factors are influencing Microsoft. –Contrast Microsoft’s strengths and weaknesses. Decide which of Microsoft’s strengths allow it to gain an advantage over its competitors. –List environmental threats that Microsoft faces currently and could face in the future.

5. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 5 Microsoft's Internet Strategic Actions: Purchases/License/Alliances

6. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 6 Vignette: Microsoft vs. The World (3) Thinking Strategically –Determine what steps Microsoft could take to lower those threats. –Speculate on the future opportunities that Microsoft may have. –List the different competitive arenas in which Microsoft is competing. –Determine what steps Microsoft would need to take to take to pursue those opportunities.

7. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 7 What Is Strategy A strategy consists of a pattern of decisions that set the goals and objectives that lead to long run competitive advantages for a firm. –Undertake a SWOT analysis. –Determining distinctive competencies. Determining the competitive arena. –Develop a plan to reach the business goals.

8. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 8 Steps for Strategy Development (1) Undertake a SWOT analysis. –Evaluate the Strengths, Weaknesses, Opportunities, and Threats facing a business. Determining distinctive competencies. – Analyze a business’s value chain to help identify internal strengths and weaknesses that can help determine how a business can compete.

9. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 9 Definitions : A value chain is a way of envisioning the collection of activities that a business undertakes to design, produce, market, deliver, and support products or services. The Competitive Arena is the competitive environment in which a business competes. Distinctive Competencies are unique areas of advantage where a firm can differentiate itself from competitors.

10. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 10 Steps for Strategy Development (2) Determining the competitive arena. –Determine the competitive environment in which a business competes Helps set the mission Indicates the windows of opportunity to be pursued Identifies the competitive environment. Develop a plan to reach the business goals. –Outline the strategic actions and tactics a business must undertake to move from where and how it currently competes to where and how it needs to compete given its distinctive competencies.

11. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 11 Model of Strategy Development Value Chain (Strengths & Weaknesses) Window of Opportunity Strategy Competitive Threats Strategic Drivers Environmental Forces

12. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 12 Table 8.1: Drivers of Environmental Turbulence

13. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 13 E-Business Value Chain (1) E-business value chains view information technology as part of a business’ overall value chain adding to the competitive advantages of a business

14. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 14 E-Business Value Chain (2) Management Leadership: Intranets: Lower costs, better communication. Innovativeness: Speed, flexibility, new product ideas Management Leadership: Intranets: Lower costs, better communication. Innovativeness: Speed, flexibility, new product ideas Production ERP Software: Lowers costs Customized Production: Differential Advantage Production ERP Software: Lowers costs Customized Production: Differential Advantage Inbound Logistics Extranets: Lowers costs increase speed Inbound Logistics Extranets: Lowers costs increase speed

15. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 15 Competitive Advantage Through Stronger Customer Relationships E-Business Value Chain (2) Customer Support Internet: Lower costs, speeds service. Customer Support Internet: Lower costs, speeds service. Marketing/Sales E-commerce: Lower costs, new market entry. Databases: Meet market needs better, make better decisions. Marketing/Sales E-commerce: Lower costs, new market entry. Databases: Meet market needs better, make better decisions.

16. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 16 Figure 8.3: Coca-Cola E-Business Value Chain (1) Management Leadership: Intranets: Management willing to change and sell ideas. Intranets: Worldwide systems improves communication. Innovativeness: New approach in the soft-drink industry. Management Leadership: Intranets: Management willing to change and sell ideas. Intranets: Worldwide systems improves communication. Innovativeness: New approach in the soft-drink industry. Production ERP Software: Links Coke with its bottling partners. Provides interconnected management system. Production ERP Software: Links Coke with its bottling partners. Provides interconnected management system. Inbound Logistics Extranets: Links Coke with bottling partners and suppliers. Inbound Logistics Extranets: Links Coke with bottling partners and suppliers.

17. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 17 Competitive Advantage Through Stronger Customer Relationships Figure 8.3: Coca-Cola E-Business Value Chain (2) Customer Support Internet: Provide more timely delivery to trade customers. Customer Support Internet: Provide more timely delivery to trade customers. Marketing/Sales E-commerce: Cellular linked vending machines. Databases: Used with decision support systems. Can determine the effectiveness of marketing efforts. Marketing/Sales E-commerce: Cellular linked vending machines. Databases: Used with decision support systems. Can determine the effectiveness of marketing efforts.

18. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 18 Alliances & Acquisitions The creation of an e-business value chain may come from forming alliances or through the acquisition. –Alliances are formal or informal relationships between independent companies that work together for a common purpose. –An acquisition exists when one corporation purchases all or a controlling part of another company.

19. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 19 Portals A portal is an entranceway onto the Internet. They are often the preferred starting point for: –Searches –Entertainment –Information, –Email, –Or any other Internet based product.

20. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 20 E-BUSINESS STRATEGY Low cost and therefore low price competitor. –A "frictionless" Internet market implies that customers have almost perfect information and can compare prices around the world (by using intelligence agents to search out the best prices enhances this process). Differentiation strategy by finding a unique market position against competitors.

21. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 21 Table 8.2: Methods of Differentiation

22. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 22 Table 8.2: Methods of Differentiation

23. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 23 Case 8.1: CDNOW: Here for Now Thinking Strategically –Consider how a business that sells CDs could differentiate itself from other CD selling businesses. –Determine what components of the e-business value chain could be used to create value. –Visit the CDNOW web site (www.cdnow.com). Determine how this site is differentiated from other CD selling sites.www.cdnow.com –List a number of competitive threats that could impact CDNOW’s competitive position. –Suggest strategic actions that CDNOW can take to remain competitive into the future.

24. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 24 Speed and First Mover Advantages A pioneering firm has differentiated itself from competition because it is the first to enter a competitive arena or it is able help define the competitive arena. –Advantages: Lower Costs Meeting Current Needs Lower Consumer Risk Perception Charge Higher Prices

25. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 25 Costs Advantages May increase the business’ or product's time in a life cycle, spreading development costs over time and the number of products produced. Firms that follow have less time in the life cycle to recover all costs An early entry firm can gain cost advantages through experience curves and when greater market shares are obtained they obtain greater economies of scale.

26. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 26 Meeting Current Needs The faster a business can respond to the market, the more likely that information from areas such as marketing research will be valid resulting in actions that could lead to higher market share. First, movers have been shown to have a substantially higher market share than later entrants. A product that is six months late to market may miss out on one third of the potential profit over the product's lifetime.

27. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 27 Consumer Risk Perceptions First mover may become the comparison standard for all rival products by setting the standard for performance. Consumers may lower the risk involved in purchasing by choosing a product with an established image or brand. Innovators and early adopters may try first mover products first and influence others through the diffusion process. Advertising and publicity aids in consumer search, but given the lack of alternative products in many innovative markets, advertising may have the effect of setting relevant product attributes the consumer uses in the evaluation process.

28. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 28 Comparison Standard and Switching Cost A comparison standard is what the customer uses to judge a product. –For example, if a customer had first gained their online search experience with Yahoo!, they will evaluate all other search engines against Yahoo. A switching cost is the additional "costs" involved in learning something new. –The costs involved in adopting a new software package would include the software expense, support, training costs, and slowed productivity costs.

29. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 29 Prices Higher introductory prices can be charged for innovative buyers who is often more risk tolerant and may have higher disposable income. With greater amounts of information available to the later adopting consumer, backed by possible word of mouth about benefits, a higher price can be maintained. Later entering firms are seen as higher risk because of lack of information on their products, forcing them to charge lower prices. Remaining customers may be those who are more risk adverse driving the later entrants price even lower.

30. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 30 Case 8.2: EToys: First on the Block Thinking Strategically –Speculate on the importance of the first mover advantage for EToys. –List some of the advantages that EToys may have gained because they beat Toys R’Us to the market. –Consider if the order of entry was reversed, would EToys have been able to gain market share? Recommend a strategy that EToys could follow to maintain its competitive advantage.

31. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 31 First and Second Movers Being the first entrant into a market does not guarantee a long term competitive advantage. A firm must have: –Expertise, resources, and creativity necessary to exploit first mover opportunities. Pioneers must find ways to forestall or neutralize the efforts of later entrants or they will not gain first mover advantages.

32. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 32 Building Barriers Entry Into an Industry Can Be Limited by: –Gaining Economies of Scale –Cost Advantages –Developing High Switching Cost –Brand Names –Strong Customer Relationships Development of Portals

33. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 33 Brand Names A brand is a sign, symbol, design, term, name or combination that allows for easy recognition of a product or company. –Brand names often give assurance to the purchaser because they believe that the risk of using a brand name is lower. Build online brand names by: –Online and offline advertising –Ease of navigation and overall experience that a user has with the Web Site.

34. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 34 Portals Portals are the sites that users depend on to access other Internet services. http://www.mediametrix.com/TopRankings/TopRankings.html http://www.mediametrix.com/TopRankings/TopRankings.html

35. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 35 Case: AOL: Nobody’s Laughing Now Thinking Strategically –Speculate on the reasons for AOL’s portal success. –Determine why AOL was able to grow to dominate Internet access. –List some advantages that AOL’s size gives it in the competitive portal arena. –Compare and contrast AOL (www.aol.com) against other portal sites. Determine how differentiated these sites are from each other.www.aol.com –Justify AOL’s use of strategic alliances to maintain its advantages.

36. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 36 Niche Portals Niche portals target specific markets –The number one sport site targeted toward males 18- 34 is ESPN (www.espn.com).www.espn.com) –IVillage is a site targeted toward women (www.ivillage.com).www.ivillage.com –E*Trade (www.etrade.com) targets individuals interested in receiving financial information.www.etrade.com –Snap (www.snap.com) offers "rich-media”.www.snap.com International portals target international markets

37. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 37 International Portals International portals target national or ethnic markets –Yahoo have services for European, Asian, and other country specific markets. –StarMedia (www.starmedia.com) is a portal site specifically designed to serve the Spanish speaking markets of Central and South America as well as in the United States.www.starmedia.com –SurfChina.com (www.surfchina.com) is a search engine for Chinese Web sites.www.surfchina.com

38. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 38 Vertical Portals Vertical Portals are designed to serve narrow niches within specific industries. –Allow business users a one-stop site for all information and purchase needs, allowing businesses access to industry or trade information and to buy and sell online. VerticalNet (www.verticalnet.com) hosts vertical sites for technology, communications, food service, healthcare, and other firms.www.verticalnet.com Asay Publishing (www.asaypub.com) serves the used office equipment after-market.www.asaypub.com

39. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 39 Competitive Strategies

40. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 40 Strategies for Existing Businesses

41. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 41 ALE 8.1: Evaluating An E-Business Value Chain Develop a value chain model for an industry or business. –Identify the key e-business technologies needed to compete in the chosen industry. –Identify which of the value chain components would give a business in that industry a distinctive advantage. –Determine if it is possible to hold that advantage over time.

42. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 42 ALE 8.2: SWOT Box exercise Use the following matrix to undertake a SWOT analysis by identifying the strengths, weaknesses, opportunities and threats faced by a business or industry. Recommend an e-business strategy that could be pursued to reach the opportunity and limit future threats.

43. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 43 Exercise 8.3: Evaluating Differential Advantages Use the table below to indicate the types of services offered by portal sites. Determine what allows each to differentiate themselves from others. If you can not find any differences, determine what that means for the long-term survival for some of these portal sites.

44. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 8 Slide: 44 ALE 8.4: Strategy Analysis Matrix Identify strategic positions of a number of e- businesses. (Try to find at least one business for each cell in the matrix.) Identify the strategies these businesses are pursuing and the keys to their long-term success.