Chapter 7: Exploiting opportunities of new market spaces in e-business

1. Chapter 7: Exploiting opportunities of new market spaces ine-business After this session you should be able to: • Explain how firms can open up new market spaces and thereby create completely new types of value • Understand how to draw a value curve and gain insights through it • Explain the six paths framework and be able to use it for value creation in e-business • Appreciate the importance of finding the right time to enter a market • Recognise the advantages and disadvantages of being an early mover in e-business

2. Book RetailingExhibit 7.1 The value curve provides insights into new market spaces High Low Value curve of traditional bookstores Performance Value curve of Amazon.com Price Selection range Speed Face-to-face interaction Convenience Dimensions of benefit Source: Adapted from C. Kim and R. Mauborgne, (1999).

3. Objective Draw the value curve of a specific offering and compare it with competitors The first step leading to value innovations is the ‘visual awakening’ • Assignment for team exercise Activities • Pick a specific company offering • Each team member writes down what he/she considers to be the key product/service elements • As a group discuss and reach consensus on the key elements • Rate the offering's level on each key element against the main competitors • Do you see other competitors with radically different value curves?

4. Display the current situation of the offering selected • Value curve of . . . . . . . . . . . Very high High Offering level Average Low Very low Non existent Key elements

5. Value innovations focus on customers rather than competitors Characteristics of conventional and value innovation logic Conventional logic Value innovation logic Assumption Strategic focus Customers Resources Offerings An industry's value curvesfollow one basic shape. Build a competitive advantageand beat the competition. Retain and expand customerbase through segmentation andcustomisation. Focus on thedifferences. Utilise existing assets andcapabilities. Offer the products and servicesof your industry. New value curves can be shapedthat solve traditional trade-offs. Pursue a quantum leap in custo-mer value. Competition is nobenchmark. Target the mass of buyers. Letsome existing customers willing-ly go. Focus on key commonali-ties in what customers value. Ask what we would do if we werestarting anew? Offer the total customer solutionexceeding industry boundaries.

6. Objective Create a new value curve for a specific offering The second step leading to value innovations is the ‘visual exploration’ • Assignment for team exercise Activities • Adopt the perspective of a new industry entrant and reconsider the existing value curves • Use one or two of the paths to experiment with the creations of a new value curve • Industry: Ask which elements of substitute industries are un/importants to target buyers? • Strategic groups: Ask which key elements of the offer compel buyers to buy up or buy down? • Buyers: Ask who are the decision makers and how would changing buyer focus affect the key elements? • Scope: Ask how is the offer currently used and what activities/services might be valuably incorporated? • Appeal: Ask how we can change the polarity of appeal? • Time: Ask what trends are impacting our industry and how do the key elements match • Plot a new value curve. Indicate which key elements are eliminated, reduced, raised or created

7. Display possible changes to the existing value curves • Value curve of . . . . . . . . . . . Very high High Offering level Average Low Very low Non existent Key elements

8. Exhibit 7.2 The six paths framework suggests different starting points for creating value innovations in e-business 1 6 Looking across substitutive industries Looking across time/trends Factors to bereduced? 2 5 Looking across functional or emotional appeal Looking across strategic groups Factorsto be eliminated? Factors to be created? Factors to beraised? 4 3 Looking across comple-mentary offerings Looking across the chain of buyers Source: Based on C. Kim and R. Mauborgne (1999), pp. 83–93.

9. Pinpointing possibilities for new value creation Does what we do really create consumer benefit? If not, which components or features of our product or service should we eliminate? Where can we reduce our range of offerings? What costs us a lot of money but does not create benefit? 2 1 Reduce Eliminate 4 3 Create Raise Where should we raise the standard of products or services? Where can we increase benefit by expanding our existing offering? What can we do that has not been done so far? Source: See also W. C. Kim and R. Mauborgne (1997), pp. 103–112, and (1999), pp. 83–93.

10. Value innovation shifts the focus of strategy from head-to-head competition to creating new market space Six path framework to create value innovations Head-to-head competition Creating new market space Industry Strategicgroup Buyer group Product scope Appeal Time/trends Focuses on rivals in its industry Focuses on competitive posi-tion within strategic group Focuses on better serving theown buyer group Focuses on maximising valueof the industry's products/services Focuses on improving thegiven appeal Focuses on adapting to trendsas they occur Looks across substitute industries Looks across strategic groupswithin its industry Redefines the buyer group Looks across complementaryofferings beyond the boundsof its industry Rethinks the functional/emo-tional orientation Adopts the results of futuretrends today

11. Finding the right timing for market entry in e-business is critical Early-mover advantages Early-mover disadvantages • Learning effects • Brand and reputation • Switching costs • Network effects • Market uncertainty • Technological uncertainty • Free-rider effects