E-Business Strategies

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E-Business Strategies
E-Commerce Impacting the Way We do
Business October 1-2, 2001, Nashville TN

• Bob Smith
• Associate Professor/Extension Specialist
• Dept. of Wood Science and Forest Products
• Virginia Tech

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Outline

• Why the Internet
• E-business Strategy ???
• Determining Competitive Advantage
• Implementing Strategy

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Why the Internet?
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• When history is written, the creation of the
  Internet may be ranked alongside Johann
  Gutenbergs printing press and Marconis radio as
  among the major advancements in human
  communication.
• Roanoke Times, March 1, 1997

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What do these technologies have in common with
the Internet?

• Printing press
• Telephone
• Automobile
• Airplane
• Television

• Over-night delivery
• Facsimile machine
• Cellular phone
• Personal computer

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Printed Material

• Mass reproduction
• Unknown audience
• Wider geographical area
• One-way communication

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Telephone

• Immediate communication
• Interactive two-way communication
• Customer prospecting
• Wider geographical area

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Planes, Trains Automobiles

• Personal communication
• Wider geographical base
• Two-way communication
• Perception of above- average service

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Television

• Wide, mass audience
• One-way communication
• 60 second sound bite
• First visual electronic medium

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Over-night Delivery

• Provide immediate service
• Create perception of customer care
• JIT management systems

Federal Express
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FAX - iT

• Immediate transfer of written information
• Above average service
• One-way promotion
• Closer to the customer

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Cellular Phone

• Mobility
• Instant access to customers
• Above average service
• 24 hour contact

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Personal Computer

• Faster service
• Customer information
• Data bases
• Instant communication

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What do they have in Common?

• Wider distribution of information
• Uniform information
• Assist in marketing function of company
• Many were interactive
• Allow for impression of above average service
• They all have become standards in the industry

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Internet
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Definitions

• Electronic Commerce (EC) is where business
  transactions take place via telecommunications
  networks, especially the Internet.
• Electronic commerce describes the buying and
  selling of products, services, and information
  via computer networks including the Internet.
• The infrastructure for EC is a networked
  computing environment in business, home, and
  government.
• E-Business describes the broadest definition of
  EC. It includes customer service and
  intrabusiness tasks. It is frequently used
  interchangeably with EC.

Electronic Commerce, 2000
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What is an Intranet?

• When internet technology is used to create a
  private network within a company an intranet is
  formed.

• Allows for immediate transfer of technology
  between locations.
• Provides information such as product pricing,
  inventory lists, production schedules, and data
  bases for remote employees.

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What is an Extranet?

• An extranet is formed when the company allows
  outsiders into the intranet pages.

• Customers can order on line.
• Reduces paperwork
• Minimizes errors
• Provides better customer services
• Shortens delivery times
• Support distributors

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Whats Needed

• Designated computer
• Software to communicate with Internet
• A connection into a network that accesses the
  Internet

Or Hire a commercial service and have a
connection to the network
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Cost

• 1500 computer
• 300 Software
• Home page design - 100/hr - ?
• Commercial Internet access - gt100/month

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Current Users

• Average age is 40
• 45 female
• 45 married
• 1/3 computer field, 1/4 educational 20
  professional
• gt40 have made purchase over 100

Source www.gvu.gatech.edu/user_surveys/survey-199
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Whats Being Sold

• Computer software
• Computer hardware
• Books
• Music
• Gifts
• Travel
• Clothes
• gt100 billion sold in 1999

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Whats Being Sold?
Source Forester Research Inc. 1998
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Technology Update(It took this many years to
reach 50 million users)

• Radio - 38 years
• Television - 13 years
• Internet - 4 years

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Why an E-Commerce Strategy
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The Benefits ofElectronic Commerce

• Benefits to Organizations

• Expands the marketplace to national and
  international markets
• Decreases the cost of creating, processing,
  distributing, storing and retrieving paper-based
  information
• Allows reduced inventories and overhead by
  facilitating pull type supply chain management
• The pull type processing allows for customization
  of products and services which provides
  competitive advantage to its implementers

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Benefits to Organizations

• Reduces the time between the outlay of capital
  and the receipt of products and services
• Supports business processes reengineering (BPR)
  efforts
• Lowers telecommunications cost - the Internet is
  much cheaper than value-added networks (VANs)

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Benefits to Customers

• Enables customers to shop or do other
  transactions 24 hours a day, all year round from
  almost any location
• Provides customers with more choices
• Provides customers with less expensive products
  and services by allowing them to shop in many
  places and conduct quick comparisons
• Allows quick delivery of products and services in
  some cases, especially with digitized products

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Benefits to Customers

• Customers can receive relevant and detailed
  information in seconds, rather than in days or
  weeks
• Makes it possible to participate in virtual
  auctions
• Allows customers to interact with other customers
  in electronic communities and exchange ideas as
  well as compare experiences
• Electronic commerce facilitates competition,
  which results in substantial discounts.

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Benefits to Society

• Enables more individuals to work at home, and to
  do less traveling for shopping, resulting in less
  traffic on the roads, and lower air pollution
• Allows some merchandise to be sold at lower
  prices benefiting the poor ones
• Enables people in Third World countries and rural
  areas to enjoy products and services which
  otherwise are not available to them
• Facilitates delivery of public services at a
  reduced cost, increases effectiveness, and/or
  improves quality

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Why?

• Works 24 hours a day
• Offers 2 way communication
• Unlimited access
• Interactive advertising
• Supports current business efforts

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Electronic Markets

• A market is a network of interactions and
  relationships where information, products,
  services, and payments are exchanged. The market
  handles all the necessary transactions.
• An electronic market is a place where shoppers
  and sellers meet electronically.
• In electronic markets, sellers and buyers
  negotiate, submit bids, agree on an order, and
  finish the execution on- or off-line.

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Electronic Commerce is Interdisciplinary

• Marketing
• Computer sciences
• Consumer behavior and psychology
• Finance
• Economic
• Production/Logistic

• Management information systems
• Accounting and auditing
• Management
• Business law and ethics

Electronic Commerce, 2000
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• Major Business Pressures

Market and economic pressures
Strong competition Global economy Regional trade
agreements (e.g. NAFTA) Extremely low labor cost
in some countries Frequent and significant
changes in markets Increased power of consumers
Societal and environmental pressures
Changing nature of workforce Government
deregulation of banking and other
services Shrinking government budgets
subsides Increased importance of ethical and
legal issues Increased social responsibility of
organizations Rapid political changes
Rapid technological obsolescence Increase
innovations and new technologies Information
overload Rapid decline in technology cost vs.
performance ratio
Technological pressures
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Competition in Electronic Commerce

• Impacts on competition
• Lower buyers search cost
• Speedy comparisons
• Differentiation
• Lower price
• Customer service
• Digital products lack normal wear and tear

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Competition in Electronic Commerce

• Perfect competition
• Enable many buyers and sellers to enter the
  market at little or no cost (no barriers to
  entry)
• Not allowing any buyers and sellers to
  individually influence the market
• Make certain products homogeneous (no product
  differentiation)
• Supply buyers and sellers with perfect
  information about the products and the market
  participants and conditions

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Competition in Electronic Commerce

• Observations regarding competitiveness
• There will be many new entrants
• The bargaining power of buyers is likely to
  increase
• There will be more substitute products and
  services
• The bargaining power of suppliers may decrease
• The number of industry competitors in one
  location will increase

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What is Strategy
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• Strategy is the roadmap to success.
• Strategy answers the question what business are
  you in?
• Strategy determines how you compete within the
  market you are in.
• Strategy focuses the company in a unified
  direction.

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The goal is to develop a sustainable competitive
advantage. There are generally two forms of
competition, Operating effectiveness (production)
or Competitive position (marketing)
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Competitive Advantage Can Be Achieved By

• Concentrating on particular market segments
  (niche markets)
• Offering products which differ from the
  competition (product differentiation)
• Using alternative distribution channels and
  manufacturing processes
• Employing selective pricing and fundamentally
  different cost structures

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Generic StrategiesPorter gives us a little more
help in strategy formulation by providing three
generic strategies which, if successfully
implemented, can allow a firm to stake out a
defended position in the marketplace. These
strategies are

• Overall cost leadership
• Differentiation
• Focus

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Overall Cost LeadershipEfficient scale
facilitiesVigorous cost reductions

• Cost control
• Overhead control
• Avoid marginal accounts
• Minimize RD
• Minimize service
• Minimize advertising

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DifferentiationKey idea Create something
about your product that is perceived industry
wide as being uniqueBases for Differentiation

• Quality
• Delivery
• Credit and Terms
• Service
• Training

• Reputation / Brand Image
• Tech. Information
• The Actual Product
• Price
• Etc.

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Differentiation can provide insulation against
competitors because of brand loyalty by customers
and a resulting lower sensitivity to price
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FocusKey Idea Focus on a particular buyer
group, segment of the product line, or geographic
market
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This strategy is built around serving a
particular target market very well. The premise
is that a firm is able to serve its narrow
strategic target more effectively or efficiently
than competitors who are competing more
broadlyBy effectively implementing this
strategy a firm can achieve differentiation by
better meeting the market needs or lower costs
through specialization, or both
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Focus your messagePick your theme to say
something special/unique about your firm, and
stick to it.

• Unique product
• Speedy Delivery
• Super Service
• ?
• ?
• Stay Committed!

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Generic Strategies Summary
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(No Transcript)
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For Successful Strategic Competition, Select
Arenas That Are

• Sheltered from changes in the business
  environment
• Advantaged to provide protection from intense
  global competition

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Determining Competitive Advantage
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Strategic Planning
Industry and competitive analysis
Electronic Commerce, 2000
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Company and Competitive Analysis

• Monitoring, evaluating, disseminating of
  information from the external and internal
  environments
• SWOT Analysis

Weaknesses
Strengths
Threats
Opportunities
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SWOT

• Strengths those factors of the company that
  provide for its success. A good reputation,
  quality products or low cost producer.
• Weaknesses those factors that are a
  disadvantage for the company. A high cost
  producer, a high employee turnover, or much
  competition.
• Opportunities those factors that are outside
  the companys control, but are areas in which
  they could capitalize. A changing demographic
  profile, competition closing plants or e-business
  allowing for wider distribution of products.
• Threats those items outside the control of the
  company and that may hinder it. Items such as
  new laws, a recession or increased competition.

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Company Analysis
INTERNAL FACTORS
Strengths (S)
Weaknesses (W)
Production
Marketing
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Competitive Analysis
EXTERNAL FACTORS
Production
Marketing
Opportunities (O)
Threats (T)
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Company and Competitive Analysis
INTERNAL FACTORS
Strengths (S)
Weaknesses (W)
EXTERNAL FACTORS
WO Strategies Generate strategies here that take
advantage of opportunities by overcoming
weaknesses
SO Strategies Generate strategies here that use
strengths to take advantages of opportunities
Opportunities (O)
ST Strategies Generate strategies here that use
strengths to avoid threats
WT Strategies Generate strategies here that
minimize weaknesses and avoid threats
Threats (T)
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Strategic Questions

• The Company
• What is your uniqueness?
• Where are you vulnerable?
• Why are you losing existing customers?
• Where is the greatest value created in the
  company?
• What are the most common objections you hear from
  customers?

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Strategic Questions

• The competition
• Who are the top 3 competitors?
• What are their strengths?
• Where are they vulnerable?
• Where can you attack?
• How do you compare on price, service, quality,
  etc?

• The market
• What are 3 important trends?
• How is the industry changing?
• How many market segments do you serve?
• Where is the greatest growth potential?
• Which of your customers are doing well and why?

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Competitive Strategies

• Offensive strategy usually takes place in an
  established competitors market
• Frontal Assault attacker must have superior
  resources and willingness to persevere
• Flanking Maneuver attack a part of the market
  where the competitor is weak
• Bypass Attack cut the market out from under an
  established defender by offering a new type of
  product that makes the competitors product
  unnecessary
• Encirclement greater product variety and/or
  serves more markets
• Guerrilla Warfare use of small, intermittent
  assaults on different market segments held by the
  competitor

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Competitive Strategies

• Defensive strategies takes place in the firms
  own current market position as a defense against
  possible attack by a rival
• Lower the probability of attack
• Divert attacks to less threatening avenues
• Lessen the intensity of an attack
• Make competitive advantage more sustainable

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Cooperative Strategies
Competitive Strategies

• Collusion active cooperation of firms within an
  industry to reduce output and increase prices in
  order to get around the normal economic law of
  supply and demand (illegal)
• Strategic Alliance partnership of two or more
  corporations or business units to achieve
  strategically significant objectives that are
  mutually beneficial
• Joint Venture a way to temporarily combine the
  different strengths of partners to achieve an
  outcome of value to both
• Value-Chain Partnership a strong and close
  alliance in which one company or unit forms a
  long-term arrangement with a key supplier or
  distributor for mutual advantage

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Strategic Summary

• Focus your efforts!
• Define your competitive advantage!
• Have a clear strategy!
• Do it!

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Implementing Strategy
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Questions

• Savings
• Competitive advantage
• Presentation

• Objectives
• Benefits to customers
• Current business

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Questions

• What are you producing and selling?
• How are you unique?
• Why should the customer buy from you?
• How are you going to reach the customer?
• Whats success?

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Objectives

• Introduce new product or service
• Advertising existing business
• Supplement existing business program
• Reach broader customer base
• Provide better service
• Information exchange
• Reduce transaction costs

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Current Customers

• Benefits
• Easier access to information
• Shipping schedules
• Discounts
• Invoicing
• Inventories

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Marketing Mix

• Promotional Tool
• Ads, publicity, sales tool
• Pricing
• Product Information
• Distribution

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Savings

• Support time
• Order entry
• Promotion response
• E-mail
• Shipping and invoicing information
• Customer lists

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Home Page

• KISS
• Keep it simple, stupid

1. Decide what information you want to share 2.
Grab their attention quickly 3. Present
information in simple, logical fashion 4. Do not
put lots of graphics on first page 5. Should be
pleasant to the eye 6. Each page should have
company name, logo, e- mail address and
toll-free phone number
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Promoting Your E-business
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Why Do You Need Promotion?

• Just because you build it, doesnt mean they will
  come.
• You are competing against not only your market
  area, but the entire world.
• Your current and future customers need to be able
  to find you.

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HOW?

• List homepage address on all current advertising.
• Put on all publicity
• newsletters
• letterhead
• business cards
• billing statements
• fax cover sheets

• Register with search engines.
• Link to other sites and your association sites.
• Advertise on the web.

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Link to?

• Your trade associations
• Suppliers
• Customers
• Complementary products

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Advertising on the Web

• To build awareness
• Develop prospects
• Meet customer needs
• Generate orders
• Build customer relations
• Test market

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Good Internet Advertising Includes

• Clear message and identification on 1st page.
• Facilitates easy access to further information.
• The advertisement downloads quickly.
• Provides the right information.
• Product description, payment options, and contact
  information.

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Common Search Engines

• Submit it - www.submit-it.com
• Yahoo - www.yahoo.com
• Webcrawler - www.webcrawler.com
• Infoseek - www.infoseek.go.com
• Lycos - www.lycos.com
• Google - http//www.google.com/

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The Advantage for Small Businesses

• Inexpensive source of information
• Inexpensive way of advertising
• Inexpensive way of conducting market research
• Inexpensive way to build (or rent) a storefront
• Lower transaction cost

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The Advantage for Small Businesses

• Niche market, specialty products (cigars, wines,
  sauces) are the best
• Image and public recognition can be accumulated
  fast
• Inexpensive way of providing catalogs
• Inexpensive way to reach worldwide customers

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The Risks and Disadvantages for Small Businesses

• Disadvantage when a commodity is the product (for
  example, CDs)
• No more personal contact which is a strong point
  of a small business
• No advantage being in a local community

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The Risks and Disadvantages for Small Businesses

• Lack of expertise in legal issues, advertisement
• Lack of resources to fully exploit the Web
• Less risk tolerance than a large company

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Success Factors for Small Businesses

• Niche products
• Small volume
• Capital investment must be small
• Inventory should be minimal or non-existent
• Electronic payments schema exist
• Payment methods must be flexible

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Success Factors for Small Businesses

• Logistical services must be quick and reliable
• The Web site should be submitted to
  directory-based search engine services like Yahoo
  in a correct way
• Join an online service or mall and do banner
  exchange
• Design a Web site that is functional and provides
  all needed services to consumers

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Summary

• Successful firms will integrate the E-business
  into their companys strategy.
• Used properly, E-business will be one more method
  of increasing income and profits.
• It is just a matter of time before it will be as
  common as the fax, cell-phone and digital camera.

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References

• Electronic Commerce A Managerial Perspective.
  2000. By Efraim Turban, Jae Lee, David King, and
  H. Michael Chung. Prentice Hall, Upper Saddle
  Rivern New Jersey. (slides are marketed).
• E-Business Revolution. 2000. By Daniel Amor.
  Prentice Hall,Upper Saddle Rivern New Jersey.
• Strategic Internet Marketing. 1996. Tom Vassos.
  MacMillan Computer Publishing, Indianapolis, IN.
• E-Business Readiness. 2001. By James Craig and
  Dawn Jutla. Anderson-Wesley. Upper Saddle Rivern
  New Jersey.