Internet Marketing (MM 3841)

Internet Marketing (MM 3841) Week 8 Business Model Development

Overview Business Models to E-Business Models E-Business Models Value and Revenue Strategic E-Business Models Performance Metrics The Balanced Scorecard

Business Models • Business model: a method by which the organization sustains itself in the long term, and includes its value proposition for partners and customers as well as its revenue streams. • A firm will select one or more business models as strategies to accomplish enterprise goals.

How does a firm select the best business models? • Critical components: • Customer value. Does the model create value through its product offerings that is differentiated in some way from that of competitors? • Scope. Which markets do the firm serve, and are they growing? Are these markets currently served by the firm, or will they be higher risk new markets? • Price. Are the firm’s products priced to appeal to markets and also achieve company share and profit objectives?

How does a firm select the best business models? • Revenue sources. Where is the money coming from? Is it plentiful enough to sustain growth and profit objectives over time? • Connected activities. What activities will the firm need to perform to create the value described in the model? Does the firm have these capabilities? • Implementation. The company must have the ability to actually make it happen. • Capabilities. Does the firm have the resources (financial, core competencies, and so on) to make the selected models work? • Sustainability. The e-business model is particularly appropriate if it will create a competitive advantage over time.

ESP: Environment, Strategy, and Performance 2-6 The e-marketing plan flows from the organization’s overall goals and strategies. The ESP framework illustrates the relationships among environment, strategy, and performance. A SWOT analysis of the business environment (E) leads to the development of strategy (S) and the measurement of performance (P).

ESP Framework 2-7

E-Business Models • The direct connection with information technology makes a business model an e-business model: • E-Business Model = Business Model • + Information Technology • E-business model:method by which the organization sustains itself in the long term using information technology, which includes its value proposition for partners and customers as well as its revenue streams.

E-Business Models • E-business models can capitalize on digital data collection and distribution techniques without using the Internet. • Remember that e-marketing and e-business models may operate outside the Internet. • The term e-business models to include both Internet and offline digital models throughout the rest of our discussion.

Value and Revenue • Whether online or offline, the value proposition involves knowing what is important to the customer or partner and delivering it better than other firms. • Value encompasses the customer's perceptions of the product’s benefits, specifically its attributes, brand name, and support services. • Subtracted from benefits are the costs involved in acquiring the product, such as monetary, time, energy, and psychic. • Value = Benefits - Costs

E-Marketing Contributes to the E-Business Model

Pure Pure dot - com Business transformation (Amazon) Play (competitive advantage, industry redefinition) Click and Mortar Level of business impact Enterprise (most retailers) Effectiveness C ustomer (customer Business Process Relationship retention) Management Efficiency Activity Brochureware (cost E - mail reduction) Source : Adapted from www.mohansawhney.com

E-Business Models at Various Levels of Commitment • Each level of the pyramid indicates a number of opportunities for the firm to provide stakeholder value and generate revenue streams using information technology.

Activity Level E-Business Models • Online purchasing. Firms can use the Web to place orders with suppliers, thus automating the activity. • Order processing. This occurs when online retailers automate Internet transactions created by customers. • E-mail. When organizations send e-mail communications to stakeholders, they save printing and mailing costs. • Content publisher. Companies create valuable content or services on their Web sites, draw lots of traffic, and sell advertising.Another type of content publishing, the firm posts information about its offerings on a Web site, thus saving printing costs = brochureware.

Activity Level E-Business Models • Business intelligence (BI). This refers to the gathering of secondary and primary information about competitors, markets, customers, and more. • Online advertising. As an activity, the firm buys advertising on someone else’s e-mail or Web site. • Online sales promotions. Companies use the Internet to send samples of digital products (e.g., music or software), or electronic coupons, among other tactics. • Pricing strategies. With dynamic pricing, a firm presents different prices to various groups of customers, even at the individual level.

Business Process Level E-Business Models • Customer relationship management (CRM) = retaining + growing business / individual customers through strategies that ensure their satisfaction with the firm and its products = keep customers for the long term + increase the number and frequency of their transactions. • Knowledge management (KM) = combination of a firm’s database contents + the technology used to create the system + the transformation of data into useful information and knowledge. • Supply chain management (SCM) = coordination of the distribution channel to deliver products more effectively and efficiently to customers. • With community building, firms build Web sites to draw groups of special-interest users. Firms invite users to chat / post e-mail on their Web sites to attract potential customers to the site.

Business Process Level E-Business Models • Affiliate programs = when firms put a link to someone else’s retail Web site and earn a commission on all purchases by referred customers. • Database marketing = collecting, analyzing, and disseminating electronic information about customers, prospects, and products to increase profits. • Enterprise resource planning (ERP) = a back-office system for order entry, purchasing, invoicing, and inventory control. • Mass customization = Internet’s unique ability to customize marketing mixes electronically and automatically to the individual level.

Enterprise Level E-Business Models • E-commerce refers to online transactions: selling goods and services on the Internet, either in one transaction or over time with an ongoing subscription. • Direct selling refers to a type of e-commerce in which manufacturers sell directly to consumers, eliminating intermediaries such as retailers. • Content sponsorship online is a form of e-commerce in which companies sell advertising either on their Web sites or in their e-mail.

Enterprise Level E-Business Models • A portal is point of entry to the Internet, such as the Yahoo! and AOL Web sites. They are portals because they provide many services in addition to search capabilities. • Online brokers are intermediaries that assist in the purchase negotiations without actually representing either buyers or sellers. The revenue stream in these models is commission or fee-based: • The brokerage model are E*Trade (online exchange), and eBay (online auction), • A B2B exchange is a special place because it allows buyers and sellers in a specific industry to quickly connect.

Enterprise Level E-Business Models • Online agents represent either the buyer or the seller and earn a commission for their work. • Selling agents help a seller move product. • Manufacturer’s agents represent manufacturing firms that sell complementary products to avoid conflicts of interest. • The catalog aggregator, brings together many catalog companies to create a new searchable database of products for buyers. • A special type of agent = the metamediary, it represents a cluster of manufacturers, online retailers, and content providers organized around a life event or major asset purchase.

Enterprise Level E-Business Models • Purchasing agents represent buyers. • Shopping agents help individual consumers find specific products and the best prices online (e.g., www.mysimon.com). • The reverse auction, allows individual buyers to enter the price they will pay for particular items at the purchasing agent’s Web site, and sellers can agree or not. • An online purchasing agent is called a buyer cooperative or a buyer aggregator. • A virtual mall is similar to a shopping mall in which multiple online merchants are hosted at a Web site.

Pure Play • Pure plays = businesses that began on the Internet, even if they subsequently added a brick-and-mortar presence. • E.g. E*Trade is a pure play, beginning with only online trading • Pure plays face significant challenges: They must compete as new brands and take customers away from established brick-and-mortar businesses. • One way to change the rules is to invent a new e-business model, as Yahoo! and eBay did.

An Optimized System of E-Business Models • E-business is the continuous optimization of a firm’s business activities through digital technology. Firms usually combine traditional business and e-business models. • The challenge: customers expect a high degree of coordination between online and offline operations. • The danger: the established corporate culture might squash e-commerce initiatives or slow them down. • The solution: Many businesses have spun off their e-commerce operations as wholly owned subsidiaries or pure plays so they can compete without the weight of the parent business.

An Optimized System of E-Business Models A fully optimized e-business that uses the Internet to sell is the sum of multiple e-business activities and processes: E-commerce, business intelligence, customer relationship management, supply chain management, and enterprise resource planning as represented in the following equation: EB = EC + BI + CRM + SCM + ERP

Performance Metrics • The only way to know whether a company has reached its objectives is to measure results. • Performance metrics = specific measures designed to evaluate the effectiveness and efficiency of an organization’s operations. • Armed with this information, the company can make corrections to be sure it accomplishes the goal. • Performance metrics should be defined along with the strategy formulation so the entire organization will know what results constitute successful.

Performance Metrics • Performance metrics used to measure strategy effectiveness: • Translate the vision, strategy, or e-business model into components that have measurable outcomes that various departments can use to create action plans, • Communicate to employees what results the firm values. • When employee evaluations are tied to the metrics, people will be motivated to make decisions that lead to the desired outcomes.

Performance Metrics Performance metrics are specific measures designed to evaluate the effectiveness and efficiency of operations. Performance metrics: Provide measurable outcomes. Must be easy to understand and use. Must be actionable. Can be utilized for employee evaluations. 2-31

The Balanced Scorecard BEFORE to measure success, firms used: • Financial performance, • Market share, • The bottom line (profits). BUT these approaches are narrowly focused and place more weight on short-term results rather than addressing the firm's long-term sustainability.

The Balanced Scorecard • NOW, they use: The Balanced Scorecard = enterprise performance management systems that measure many aspects of a firm’s achievements. • 50% of organizations worldwide have adopted the Balanced Scorecard with excellent results. • The scorecard approach links strategy to measurement by asking firms to consider their vision, critical success factors for accomplishing it, and subsequent performance metrics in four areas: Customer, internal, innovation and learning, and financial.

Four Perspectives • The customer perspective: • Uses measures of the value delivered to customers. • These metrics tend to fall into four areas: time, quality, performance and service, and cost. E.g. Time from order to delivery, customer satisfaction levels with product performance, amount of sales from new products, and industry-specific metrics such as equipment up-time percentage or number of service calls.

Applying the Balanced Scorecard to E-Business and E-Marketing Metrics for the Customer Perspective Customer Perspective Scorecard for E-Business Firm

Four Perspectives • The internal perspective: • Evaluates company success at meeting customer expectations through its internal processes. E.g.: cycle time (how long to make the product), manufacturing quality, and employee skills and productivity. Information systems are a critical component of the internal perspective for e-business firms.

Applying the Balanced Scorecard to E-Business and E-Marketing Metrics for the Internal Perspective Internal Perspective Scorecard for E-Business Firm

Four Perspectives • The innovation and learning perspective = the growth perspective: • Companies place value on continuous improvement to existing products and services as well as on innovation in new products. E.g. Number of new products and the percentage of sales attributable to each; penetration of new markets; and the improvement of processes such as CRM or SCM initiatives.

Applying the Balanced Scorecard to E-Business and E-Marketing Metrics for the Innovation and Learning Perspectives Innovation and Learning Scorecard for E-Business Firm

Four Perspectives • The financial perspective: = Income and expense metrics as well as return on investment, sales, and market share growth. The point is to understand what the company wants to accomplish and devise performance metrics to monitor the progress and see that the goals are reached.

Applying the Balanced Scorecard to E-Business and E-Marketing Metrics for the Financial Perspective Financial Perspective Scorecard for E-Business Firm

Scorecard Benefits • Obtain timely information to update its strategy. • Balance long-term and short-term measures and evaluate every part of the firm and how each contributes toward accomplishing selected goals. • It helps firms leverage their relationships with partners and supply chain members. • Go beyond financial metrics in measuring many different aspects that lead to effective and efficient performance. • Creates a long-term perspective for company sustainability.

Scorecard Benefits • Forces companies to decide what is important and translate those decisions into measurable outcomes that all employees can understand. • A great communication tool because employees can use the scorecard as a guide to coordinate their efforts. • Support employee evaluation in that individual performance can be tied to successful outcomes on the metrics. • A way to measure intangible as well as tangible assets. • The are flexible and allow firms to select appropriate metrics for their goals, strategies, industry, and specific vision.

Internet Marketing (MM 3841)