md253 - e-commerce module 2: e-commerce & the undulating distribution channel spring 2002
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Issues Covered• Assessing the Marketplace
– Disruptive Technologies, Porter’s Five Forces
• Collapsing Channels– failures, successes, the role of value gaps
• Shifting Channels– marketplace to marketspace, channel pressure, innovation
• New Intermediaries– examples, impact, threats, market creation
• Auction Models– markets of first choice and last resort
HyperCompetition
Profits from a competitive advantage
launch
exploitation
counter-attack
Profits from a competitive advantage
Pro
du
ct
Pe
rfo
rma
nc
e
Time
Performance demanded at the high
end of the market
Performance demanded at the low
end of the market
Progre
ss due to
susta
ining tech
nologies
Disruptive technological
innovation Progre
ss due to
susta
ining tech
nologies
Existing profit, staffing, and customer pressures stall innovation
Traditional market & financial analysis cause blindness
Why Do Leaders Fail?
Creating the Killer-App• Blindness & Pressures
– marketing blindness: existing initially don’t want it– financial blindness: smaller market share & margins
• Identify Technologies– external conversations (VCs, academics, technologists)– internal conversations (engineering, mktg, planning)
• Managing an Options Portfolio of Innovations– investments in separate organizations– benefits: hedge financial risk, market focus, incentive
ICA: Industry & Competitive Analysis
(Porter’s Five Forces)
Industry Competitors
Potential New Entrants
Substitute products or services
Power of Suppliers
Power of Buyers
– from Benjamin & Wigand (1995)Price
Unit Sales
Producer Wholesaler Retailer Consumer
Producer Wholesaler Retailer Consumer
Producer Wholesaler Retailer Consumer
Price/Shirt Savings
$52.72
$41.34
$20.45
0%
28%
62%
Disintermediation
Value Gaps
customersretailerdistributorsource firm
Value Added = A,Expense = X
Value Added = B,Expense = Y
Expense Savings = (X+Y) - Cost of New EffortValue Gap = (A+B) - Value Added by New Effort
Channel Shifts
• Shifts from physical to virtual– human intermediaries replaced by interfaces to
back-end systems (internal disintermediation)– physical distribution replaced by virtual
distribution– physical stores replaced by virtual stores– physical content replaced by virtual content -
atoms to bits
Channel Pressure
supplier distributor retailer customermanufacturer
Traditional Channels
Online Channels
supplier customermanufacturer
suppliermanufacturer customernew intermediaries
“We recognize that a vendor has the right to sell through whatever distribution channels it desires. However, we too have the right to be selective in regard to the vendors we select and we trust that you can understand that a company may be hesitant to do business with its competitors.”
HomeDepot memo to suppliers
Channel Extending Intermediaries
supplier customer
CEIsupplier
supplier
supplier
customer
customer
customer
Search for opportunities to add value: e.g. high customer search costs, switching costs, low customer satisfaction
Wield new power by consolidating traditional buyers & customers. Become the first-line interface with consumers.
Auction FormatsLiquidation Auctions: (e.g. Priceline, OnSale)
suppliers customersauction
Market Efficiency Auctions: (e.g. eBay)
Seek lowest price on widely available goods and services
auction
disincentives to use auction shrink supply over time
Seek first to maximize existing
channels & reduce inventory
suppliers customersSeek access to unique / rare products or services
incentives to use auction increase supply over time
Auction format is favored over the
inefficiency of existing channels
Network Externalities(a.k.a. Network Effects, Metcalfe’s Law)
• A product or service becomes more valuable as its installed base expands• Why do consumers care about installed base?
– Exchange opportunities– Stability– Extrinsic, complementary benefits
More Exchange Opportunities
More Members
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