BUSINESS MODELCHAPTER 4

LEARNING OBJECTIVES• What are the four components of an online

business model?• Do firms compete on value propositions or value

clusters?• What are the approaches to developing an online

offering, whether the business is providing a product, service and information?• What is a successful, unique resource system?

What are characteristics of good resource systems?• What are the revenue sources available to firms?

WHAT IS BUSINESS MODEL?

Business Model Canvas

ONLINE BUSINESS MODEL

COMPONENTS OF A ONLINE BUSINESS MODEL

VALUE PROPOSITION AND VALUE PROPOSITION AND VALUE CLUSTERVALUE CLUSTER

• Construction of a value propositions requires management to specify three things:Target segment,focal customer benefits and the key resources the business has that

can help it deliver the benefit package in a significantly better way than its competitors

CHOICE OF SEGMENT

1. Market attractiveness

Market size and growth rates

Unmet or insufficiently met customer needs

2. Firm’s ability

CHOICE OF FOCAL BENEFITS CHOICE OF UNIQUE AND

DIFFERENTIATION RESOURCES

THE SENIOR MANAGEMENT TEAM THE SENIOR MANAGEMENT TEAM MUST COMPLETE 3 SEQUENTIAL MUST COMPLETE 3 SEQUENTIAL TASKS: TASKS: 1. Identify the scope of the offering

2. Identify the customers decision process

3. Map the offering to the customer decision process.

THE SENIOR MANAGEMENT TEAM THE SENIOR MANAGEMENT TEAM MUST COMPLETE 3 SEQUENTIAL MUST COMPLETE 3 SEQUENTIAL TASKS: TASKS: 1.1. Identify the scope of the offeringIdentify the scope of the offering2. Identify the customers decision process

3. Map the offering to the customer decision process.

SCOPE OF OFFERINGSCOPE OF OFFERING

Two specific types of scope• Category-specific dominance• Cross-category dominance.

The term “Meta Market” refer to sites that group naturally clustering categories of goods & services which are grouped according to how customers engage in activities.

THE SENIOR MANAGEMENT TEAM THE SENIOR MANAGEMENT TEAM MUST COMPLETE 3 SEQUENTIAL MUST COMPLETE 3 SEQUENTIAL TASKS: TASKS: 1. Identify the scope of the offering

2.2. Identify the customers decision Identify the customers decision process process

3. Map the offering to the customer decision process.

CUSTOMER DECISION PROCESS

PREPURCHASE STAGE

PURCHASE

POSTPURCHASE STAGE

CUSTOMER DECISION CUSTOMER DECISION PROCESS — FLOWER EXAMPLEPROCESS — FLOWER EXAMPLE

THE SENIOR MANAGEMENT TEAM THE SENIOR MANAGEMENT TEAM MUST COMPLETE 3 SEQUENTIAL MUST COMPLETE 3 SEQUENTIAL TASKS: TASKS: 1. Identify the scope of the offering

2. Identify the customers decision process

3.Map the offering to the customer decision process.

RESOURCE SYSTEMRESOURCE SYSTEM

4 Modifications to the activity system logic for the online marketplace. • Shift from physical world to virtual and

back to physical world• Shift from a supply-side focus to a

demand-side focus• Shift from resources to benefits• Shift from single to multi-firm systems,

SPECIFYING A RESOURCE SPECIFYING A RESOURCE SYSTEMSYSTEM

Step 1: Step 1: Identify core benefits in the value cluster

Step 2: Step 2: Identify resources that relate to each benefit

Step 3: Step 3: Identify to what degree the firm can deliver each benefit

Step 4: Step 4: Identify partners who can complete resources

REVENUE MODELREVENUE MODEL• AdvertisingAdvertising- Earning revenue through the selling of ads

(banner or interstitial), site sponsorships, event underwriting, or other forms of communication• Product, Service, or Information Sales- Product, Service, or Information Sales- Income generated

from the sale of goods on the site• TransactionTransaction- Revenue accrued from charging a fee or

taking a portion of the transaction sum• Subscription- Revenue generated through subscriber fees

for magazines, newspapers, or other information/service businesses

License Fees- Revenue generated from licensing of content

Metamarket Switchboard modelTraditional and reverse auction modelsFreshest-Information Model Highest-Quality modelWidest- Assortment Model Lowest Prices Model Most Personalized Model

7 MODELS FOR E-BUSINESS7 MODELS FOR E-BUSINESS

METAMARKET SWITCHBOARD METAMARKET SWITCHBOARD MODELMODEL

brings together buyers and sellers based upon the activities the customer engage in to meet particular goals.

Example: Babycenter.com

BABYCENTER.COM

Core Benefit: providing a single point of access for all needs related to child development.Offering: products, services, community, News on child rearing, AdviceResources: A Large, active customer base and a significant brand nameRevenues: Transactions, product sales, affiliate deals and advertising

TRADITIONAL AND REVERSE TRADITIONAL AND REVERSE AUCTION MODELSAUCTION MODELSbring together large numbers of buyers and

sellersIn Traditional Model, the buyer with the

highest bid buys the item. In reverse model, the supplier with the lowest bids delivers the goods to the buyer.Example: ebay.com

EBAY.COMCore Benefit: Large and deep product line, large number of buyers and sellersOffering: Trustworthy and easy transactions of products and cashResources: large user community, brand name, credibility, technology and supportRevenues: Transaction Fees, in-house auction

FRESHEST-INFORMATION FRESHEST-INFORMATION MODEL MODEL

quickly and efficiently deliver information to users

Example: nytimes.com

NYTIMES.COMCore Benefit: Timeless, accuracy, quality, reporting and passion for newsOffering: Local, national & world news: exclusive and breaking newsResources: Best Personnel, freshest information, archives, etc.Revenues: Products, services, information and advertising revenue

HIGHEST QUALITY MODELHIGHEST QUALITY MODEL

High quality, premium-priced products, services or information

Across all consumer markets and categories, there is a room for high-quality offering

Example: fao.com

FAO.COMCore Benefit: High-quality products and their associated exclusivityOffering: Toys, Dolls, arts & crafts, collectibles, etc to a niche market Resources: Sourcing Ability, Brand exclusivity, an outstanding online experience that’s simply the bestRevenues: High Margins for premium products

WIDEST- ASSORTMENT MODEL breadth and depth of product assortment,

within and across product categories.

Example: secondspin.com

SECONDSPIN.COMCore Benefit: Large Inventory and best prices, so shop here firstOffering: Internet’s Largest buyer and seller of used CD’s, DVD’s, videos, games etc.Resources: very strong logistics, quality control, large user base and brand nameRevenues: Product sales, premium pricing of most desired products

LOWEST-PRICE MODELLOWEST-PRICE MODEL

Offers the customer the lowest prices available online

Example: buy.com

BUY.COM

Core Benefit: Lowest prices above anything elseOffering: Large variety of products across many categoriesResources: Outstanding supply chain management and procurement, strong back-office systems, Frugal cultureRevenue: Small percentage of product sales

MOST PERSONALIZED MODELMOST PERSONALIZED MODEL

Able to provide a highly personalized, truly unique, one-of-a-kind experience

Example: reflect.com

REFLECT.COM

Core Benefit: a unique experience or product or a personalized solution to a problemOffering: The offering is built on the demands of each customerResources: Exceptional customer knowledge, a good website, a combination of personnel and technologyRevenues: Premium prices for high cost services

CONCLUSIONCONCLUSION

• A Company can pursue more than one model at a time• Never blindly follow any business model• Companies should think how each components

- Value proposition, Online Offering, Resources and Revenue Model – will fit together to form a successful business.