E-Business Strategies

1. 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

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

3. Why the Internet?

4. “When history is written, the creation of the Internet may be ranked alongside Johann Gutenberg’s printing press and Marconi’s radio as among the major advancements in human communication.” Roanoke Times, March 1, 1997

5. Printing press Telephone Automobile Airplane Television Over-night delivery Facsimile machine Cellular phone Personal computer What do these technologies have in common with the Internet?

6. Printed Material • Mass reproduction • Unknown audience • Wider geographical area • One-way communication

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

8. Planes, Trains & Automobiles • Personal communication • Wider geographical base • Two-way communication • Perception of above- average service

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

10. Over-night Delivery • Provide immediate service • Create perception of customer care • JIT management systems Federal Express

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

12. Cellular Phone • Mobility • Instant access to customers • Above average service • 24 hour contact

13. Personal Computer • Faster service • Customer information • Data bases • Instant communication

14. 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

15. Internet

16. 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

17. 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. What is an Intranet?

18. 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 What is an Extranet?

19. What’s 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

20. Cost • $1500 computer • $300 Software • Home page design - $100/hr - ? • Commercial Internet access - >$100/month

21. Current Users • Average age is 40 • 45% female • 45% married • 1/3 computer field, 1/4 educational & 20% professional • >40% have made purchase over $100 Source: www.gvu.gatech.edu/user_surveys/survey-1999

22. What’s Being Sold • Computer software • Computer hardware • Books • Music • Gifts • Travel • Clothes • >$100 billion sold in 1999

23. What’s Being Sold? Source: Forester Research Inc. 1998

24. Technology Update(It took this many years to reach 50 million users) • Radio - 38 years • Television - 13 years • Internet - 4 years

25. Why an E-Commerce Strategy

26. 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 Electronic Commerce, 2000

27. 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) Electronic Commerce, 2000

28. 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 Electronic Commerce, 2000

29. 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. Electronic Commerce, 2000

30. 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 Electronic Commerce, 2000

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

32. 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. Electronic Commerce, 2000

33. Management information systems Accounting and auditing Management Business law and ethics Electronic Commerce is Interdisciplinary • Marketing • Computer sciences • Consumer behavior and psychology • Finance • Economic • Production/Logistic Electronic Commerce, 2000

34. 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 Major Business Pressures 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 Electronic Commerce, 2000

35. 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 Electronic Commerce, 2000

36. 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 Electronic Commerce, 2000

37. 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 Electronic Commerce, 2000

38. What is Strategy

39. 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.

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

41. 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

42. 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

43. Overall Cost LeadershipEfficient scale facilitiesVigorous cost reductions • Cost control • Overhead control • Avoid marginal accounts • Minimize R&D • Minimize service • Minimize advertising

44. Quality Delivery Credit and Terms Service Training Reputation / Brand Image Tech. Information The Actual Product Price Etc. DifferentiationKey idea: Create something about your product that is perceived industry wide as being uniqueBases for Differentiation:

45. Differentiation can provide insulation against competitors because of brand loyalty by customers and a resulting lower sensitivity to price

46. FocusKey Idea: Focus on a particular buyer group, segment of the product line, or geographic market

47. 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

48. 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!

49. Generic Strategies Summary