Dickson K.W. Chiu PhD, SMIEEE, SMACM, Life MHKCS Jelassi & Enders : Chapter 8

1. COMP7880: E-Business Strategies Creating & capturing value Dickson K.W. Chiu PhD, SMIEEE, SMACM, Life MHKCS Jelassi & Enders: Chapter 8

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

3. Value is created if the perceived use value exceeds costs Value creation € Perceived use value Value created Costs

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

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

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

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

8. 1 2 3 Value Process Framework (VPF) integrates different strategy analysis Value chain Five forces

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

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

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

12. Value chain analysis of MVNO project reveals numerous value/cost drivers Handset purchasing MNOservices Content, productdesign Marketing, branding Sales, distribution MVNE services UMTS multimedia handset UMTS technology Concept design, artist roster, applications, features Concept image, concept brand Content distribution over the air / Value drivers Wholesale costs MNO service fees Royalties Advertising costs Retail margins MVNE service fees Cost drivers MVNO – Mobile Value Network Operator project by Sony BMG Germany MVNE - Mobile Virtual Network Enabler

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

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

15. Threat of new entrants • (moderate to high) • Low technical barriers, high barriers for brand and 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 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 • 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 • Threat of substitutes • (relatively low) • No devices in sight that could adequately fulfil the product’s major functions German wireless telecommunications industry: relatively low attractiveness

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

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

18. For your project & exercise Repeat the methodology in this chapter for your project case study