COMP 7880 E-Business Strategies Creating capturing value

COMP 7880: E-Business Strategies Creating & capturing value Dickson K. W. Chiu Ph. D, SMIEEE, SMACM, Life MHKCS Jelassi & Enders: Chapter 8 1

Our Roadmap Mobile e-commerce strategy E-business strategy Strategy implementatio Strategy formulation n 12 Strategic analysis 3 External analysis 9 5 Internal organisation Strategy options Opportunities/ threats Strengths/ weaknesses 4 Internal analysis 6 Sustaining competitive advantage 8 7 Exploring new market spaces Creating and capturing value 10 13 Interaction with suppliers Implementation 11 Interaction with users/customers COMP 7880 -CV-2

Value is created if the perceived use value exceeds costs Value creation € Perceived use value Value created Costs COMP 7880 -CV-3

The price indicates how the value created is distributed Value creation € Value capturing Consumer surplus Price Value captured (producer surplus) Perceived Value Costs use value created COMP 7880 -CV-4

Producers completely capture value created in a monopolistic environment Value creation Value capturing € Price = Willingness to pay Perceived use value Value created Costs Value created = Producer surplus COMP 7880 -CV-5

Competitive discount = consumer surplus provided by the strongest competitor € 4 Consumer surplus 1 8 7 3 € Price = 19 1 5 4 20 20 12 15 Profit Costs Value Perceived Value Costs. Competitiv. Maximum e discount value to create ed use value created be d value captured Value capturing Value creation capturing 1 2 Company A Strongest competitor (Company B) COMP 7880 -CV-6

To achieve profitability: create and capture value Value creation Value capturing € Consumer surplus 3 Price Producer surplus 1 Perceived Value use value created 2 Costs Value Competitive created discount Profit COMP 7880 -CV-7

Value Process Framework (VPF) integrates different strategy analysis 3 1 Value chain 2 Five forces COMP 7880 -CV-8

Value is created by the individual business activities of the value chain R&D 1 Marketing Sourcing Production sales & Service 1 2 1 2 1 2 2 COMP 7880 -CV-9

Porter’s five forces influence the cost lever and competitive discount Entrants Suppliers Rivalry Customers 3 1 2 Substitutes COMP 7880 -CV-10

Porter’s strategy models can be used to analyze the levers of the VPF 3 1 2 Value drivers Cost drivers • Entrants • Rivalry • Customer power • Substitutes Supplier power COMP 7880 -CV-11

Value chain analysis of MVNO project reveals numerous value/cost drivers Handset MNO purchasing services Content, Marketing, Sales, MVNE product branding distribution services design UMTS multimed Value drivers ia handset UMTS technolo gy Concept design, artist roster, applicatio ns, features Cost drivers Wholesal e costs MNO service fees Royalties Concept image, concept brand Content distributi on over the air / Advertisi ng costs Retail margins MVNE service fees MVNO – Mobile Value Network Operator project by Sony BMG Germany MVNE - Mobile Virtual Network Enabler COMP 7880 -CV-12

Multiple value drivers create perceived use value mainly in 3 dimensions Value drivers (step 1) § Artist roster, content, applications, multimedia handset Perceived use value (step 2) Entertainment & fun § UMTS technology, handset 24/7 access § Applications, community Interaction § Applications, features Individualization § Image (brand) Emotional benefit § Image (brand) Individualization § UMTS technology, handset 24/7 access § UMTS technology, handset Fast downloads Quality Brand Value Speed COMP 7880 -CV-13

Perceived use value and costs for the Sony BMG MVNO would both be high Value creation € § Quality § Brand § Speed 1 § Handsets costs § MNO service fees § Royalties § Advertising costs § Retail commissions § MVNE service fees 2 Supplier power COMP 7880 -CV-14

German wireless telecommunications industry: relatively low attractiveness Threat of new entrants (moderate to high) • Low technical barriers, high barriers for brand access to attractive content • Low switching costs for prepaid customers • Low exit barriers, only sunk costs for advertisement • Easy access to distribution channels Bargaining power of suppliers (moderate to high) • No input differentiation in terms of air traffic (this argument pplies only to resellers and MVNOs) • Moderate input differentiation in terms of handsets • Strong supplier concentration (only E-Plusin Germany) Industry rivalry (moderate to high) • Telco market is close to saturation • Player concentration depending on market definition • Low exit barriers for non MNOs • Product differentiation only via premium content Bargaining power of customers (relatively high) • No considerable switching costs • Huge amount of prepaid offerings low differentiation parameters • Willingness to pay important for premium content providers • High market transparency Threat of substitutes (relatively low) • No devices in sight that could adequately fulfil the product’s major functions COMP 7880 -CV-15

The five forces analysis indicates a high competitive discount Value capturing € New entrants 3 Rivalry Customer power Substitutes COMP 7880 -CV-16

Perceived use value has to be extremely high to achieve profitability Value creation Value capturing Effects on competitive discount § Industry forces (low entry barriers, relatively high rivalry, high customer power, low substitute threat) § Short-term uniqueness of 3 resources (especially concept design), but imitable in the long run Value drivers § Handset § UMTS § Concept design, artist roster § Brand § Over-the-air distribution 1 Cost drivers § Wholesale costs § Increased MNO service fees (due to high supplier power) § Royalties § Advertising costs 2 § Retail margins § MVNE fees COMP 7880 -CV-17

For your project & exercise Repeat the methodology in this chapter for your project case study COMP 7880 -CV-18