chapter 7: exploiting opportunities of new market spaces in e-business

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Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008

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

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Dimensions of benefit

Convenience Selection range

Value curve of Amazon.com

Value curve of traditional bookstores

Speed Face-to-faceinteraction

High

Low

Per

form

ance

Price

Book RetailingExhibit 7.1 The value curve provides insights into new market spaces

Source: Adapted from C. Kim and R. Mauborgne, (1999).

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The first step leading to value innovations is the ‘visual awakening’Assignment for team exercise

• 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?

Activities

Objective

Draw the value curve of a specific offering and compare it with competitors

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Display the current situation of the offering selected

Value curve of . . . . . . . . . . .

Offeringlevel

Very high

High

Average

Low

Very low

Non existent

Key elements

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Value innovations focus on customers rather than competitors

Characteristics of conventional and value innovation logic

Conventional logic Value innovation logic

Assumption

Strategicfocus

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.

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Activities

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

• 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

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Display possible changes to the existing value curves

Value curve of . . . . . . . . . . .

Offeringlevel

Very high

High

Average

Low

Very low

Non existent

Key elements

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Lookingacross functional

or emotional appeal

Lookingacross time/

trends

Lookingacross substitutive

industries

Lookingacross strategic

groups

Lookingacross the chain

of buyers

Lookingacross comple-

mentary offerings

Factors to beraised?

Factorsto be

eliminated?

Factors to bereduced?

Factors to be

created?

4

5

6 1

2

3

Exhibit 7.2 The six paths framework suggests different starting points for creating value innovations in e-business

Source: Based on C. Kim and R. Mauborgne (1999), pp. 83–93.

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Eliminate Reduce

RaiseCreate

Pinpointing possibilities for new value creation

1 2

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What can we do that has not been done so far?

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?

Where should we raise thestandard of products or services? Where can we increase benefit by expanding our existing offering?

Source: See also W. C. Kim and R. Mauborgne (1997), pp. 103–112, and (1999), pp. 83–93.

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Value innovation shifts the focus of strategy from head-to-head competition to creating new market spaceSix path framework to create value innovations

Head-to-head competition Creating new market space

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

Industry

Strategicgroup

Buyer group

Product scope

Appeal

Time/trends

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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

chapter 7: exploiting opportunities of new market spaces in e-business

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