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Chapter Five Web Business Models

Chapter Five Web Business Models. A good business model begins with an insight into human motivations and ends in a rich stream of profits. ~ Joan Magretta. The Value of Customer Contact. Web-based business models fundamentally change the way businesses interact with customers.

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Chapter Five Web Business Models

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  1. Chapter FiveWeb Business Models A good business model begins with an insight into human motivations and ends in a rich stream of profits. ~ Joan Magretta

  2. The Value of Customer Contact • Web-based business models fundamentally change the way businesses interact with customers

  3. The Value of Customer Contact • Web-based business models fundamentally change the way businesses interact with customers • Shift from occasional transaction to continuous analysis of customer behavior

  4. The Value of Customer Contact • Web-based business models fundamentally change the way businesses interact with customers • Shift from occasional transaction to continuous analysis of customer behavior • Shift from value distribution to value creation and co-creation

  5. Closed Loop Marketing • Tracking customers from ad click to page views to purchase or exit • Learning from and responding to customer interaction at each level • Expanded accountability • Accelerated learning curve on pricing, product quality and other variables

  6. Closed Loop Marketing

  7. Evaluating Customer Contact • Online customer contact comes in many forms • Website visits • Banner advertising • Even if simply generating “mere exposure” • Email promotions • “Abandoned carts” • Cell phone price checks • Cost efficiency is central though…

  8. Evaluating Customer Contact • Web Chain Analysis calculates the effectiveness of online strategies

  9. Web Chain Analysis Example E1: Views Page with a Paid Link No Notice Rate (NNR) (1-NNR)(1-CTR) (1-NNR) x Click-trough Rate (CTR) R1: Doesn’t Notice Ad = $0** **Mere Effect = Branding Value R2: Notices Ad but no click = Ad Brand Impact E2: Clicks through to site = PROSPECT E4: Visits site and converts E3: Visits site but no conversion etc. etc. Reference Figure 5.7 for Full Detail

  10. Evaluating Customer Contact • Web Chain Analysis calculates the effectiveness of online strategies • Expected value of a contact: the unified contact value

  11. Evaluating Customer Contact • Web Chain Analysis calculates the effectiveness of online strategies • Expected value of a contact: the unified contact value • Expected value of a prospect: the unified visit value

  12. Evaluating Customer Contact • Web Chain Analysis calculates the effectiveness of online strategies • Expected value of a contact: the unified contact value • Expected value of a prospect: the unified visit value • Expected value of a new customer

  13. Evaluating Customer Contact • Web Chain Analysis calculates the effectiveness of online strategies • Expected value of a contact: the unified contact value • Expected value of a prospect: the unified visit value • Expected value of a new customer • Expected value of a repeat buyer

  14. Customer Lifetime Value • The ability to track, store and analyze individual behavior online allows firms to calculate the present value of the future cash flow attributed to the relationship with any one customer

  15. Customer Lifetime Value • The ability to track, store and analyze individual behavior online allows firms to calculate the present value of the future cash flow attributed to the relationship with any one customer • Not every customer is created equal; high support costs can drive some customer relationship below zero value

  16. Customer Lifetime Value

  17. Web Benefits to Business • Online strategies can bring direct and indirect benefits to firms • Not every online tactic is profitable • No formula for successful online business model • Scale matters Investment online now requires justification

  18. Web Benefits to Businesses– Improved Processes – • Cost reduction • In banking, the switch from teller windows to ATMs to online transactions • Supply chain coordination • At Dell Computers, reduced inventory and faster response to changes in the market • Also: improved customer knowledge, enhanced product quality and advanced branding

  19. Web Benefits to Businesses– Revenue Benefits – • Online capabilities create new revenue opportunities

  20. Web Benefits to Businesses– Revenue Benefits – • Online capabilities create new revenue opportunities • Incremental benefits • Advertising last-minute tee times for a reduced price (lastminutegolfer.com)

  21. Web Benefits to Businesses– Revenue Benefits – • Online capabilities create new revenue opportunities • Incremental benefits • Advertising last-minute tee times for a reduced price (lastminutegolfer.com) • Entirely new streams of revenue • Selling music by the song at iTunes

  22. Web Benefits to Businesses– Revenue Benefits – • Online capabilities create new revenue opportunities • Incremental benefits • Advertising last-minute tee times for a reduced price (lastminutegolfer.com) • Entirely new streams of revenue • Selling music by the song at iTunes • Enhanced products drive revenue • At Science, online content helps drive the magazine’s print sales

  23. Channel Pays– Revenue Models – • Permission sponsorship • Banner advertising • Prospect fees • Sales commissions

  24. Channel Pays– Revenue Models – • Factors in selecting payment structure: • Attitude toward risk • Ability to monitor performance • Current market emphasis • Impression-based vs. Performance-ba • Negotiating power

  25. Selecting a Payment Structure Risk for Advertiser Risk for Ad Network Sponsorship Fixed Payment Banner Ads Impressions Prospect Fees Click through Commissions Purchase Increasingly Performance Based and Higher Rise for Web Site

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