Business Models - Part 1 CPS 181s Jan 28, 2003. Market Opportunity Analysis Where will business compete? Business Model How will company win?

Business Models - Part 1Business Models - Part 1

CPS 181s

Jan 28, 2003

Market Opportunity Analysis Where will business compete?

Business Model How will company win?

QuestionsQuestionsQuestionsQuestions

What is a business model? Do firms compete on value propositions or value

clusters?How does a firm develop an outline offering-

whether product, service, or information? What is a successful, unique resource system?

What are characteristics of good resource systems?

QuestionsQuestionsQuestionsQuestions

What are the financial models available to

firms?

What business classification schemes

seem most appropriate for eCommerce?

Components of A Business Components of A Business ModelModel

Components of A Business Components of A Business ModelModel

Four business choices on the part of senior management

a value proposition or a value Cluster for targeted customersa marketspace offering

> product, service, information, or all threea unique, defendable resource systema financial (revenue) model

Heidi Roizen

Components of a Business ModelComponents of a Business ModelComponents of a Business ModelComponents of a Business Model

Value ClusterValue Cluster

Online OfferingOnline Offering

Resource SystemResource System

Financial ModelFinancial Model

Lise Buyer

Value Propositions or Value ClustersValue Propositions or Value ClustersValue Propositions or Value ClustersValue Propositions or Value Clusters First step is to specify the value proposition for the

business Items include

1) choice of target customer segment 2) choice of focal customer benefits 3) rationale for why the firm can deliver the benefit package

significantly better than competitors in the same space Can view as value cluster (on-line customization capability)

the choice of target customer segments a particular focal combination of customer-driven benefits that

are offered the rationale for why this firm and its partners can deliver the

value cluster significantly better than competitors

1) Choice of Segments1) Choice of Segments1) Choice of Segments1) Choice of Segments

Target segmentsMarket size and growth rateUnmet or insufficiently met customer needsWeak or nonexistent competitors

Examine ability to compete through examining a business’ strengths matching the customers benefits desired

1) Choice of Segments...1) Choice of Segments...1) Choice of Segments...1) Choice of Segments...Degree of fit with existing channels

Can be demographic segmentsbenefit segments, orcombination

Segmentation exampledemographic segment

the under-30 segmentupper-income segment

benefit segmentfresh flowersmost convenient buying methodlowest priced flowers

Must maximize actionability and meaningfulnessMust maximize actionability and meaningfulness

Yossi Vardi

2) Choice of Focal Customer 2) Choice of Focal Customer BenefitsBenefits

2) Choice of Focal Customer 2) Choice of Focal Customer BenefitsBenefits

Factorspricecustomer supporton-time deliveryshipping and handlingprivacy concerns

Price sensitivity can actually decrease when usability of quality information increase

Could be the dominated by direct buying from manufacturerTrying to compete on more than one benefit creates problems

customers confused about messageon supply side, systems must be uniquely constructed to deliver certain benefits (forces

compromise solutions, i.e., low price/fast delivery)

Point-Counterpoint

Single Benefit Cluster of Benefits

Clear, non-contradictory communication to customer (avoids customer confusion)

Partnerships can be assembled with “like-minded” firms

Back office systems must be tailored to distinct benefits

Focuses employee hiring and retention Focuses the enterprise

Customers rarely desire one benefit In the online world, back-office systems can

easily be reconfigured for different benefits With an online presence, a firm can provide

multiple benefits - with no tradeoff of performance (e.g. provide broadest selection and low price)

We have examples of firms that offer multiple benefits such as portals (e.g. Yahoo!), ISPs (i.e. AOL), product sites (BN.Com) and information services (WSJinteractive)

Point-Counterpoint: Single Vs. Cluster of BenefitsPoint-Counterpoint: Single Vs. Cluster of BenefitsPoint-Counterpoint: Single Vs. Cluster of BenefitsPoint-Counterpoint: Single Vs. Cluster of Benefits

12

Shattering Myth That Consumers Care Only About Prices On-lineShattering Myth That Consumers Care Only About Prices On-lineShattering Myth That Consumers Care Only About Prices On-lineShattering Myth That Consumers Care Only About Prices On-line

19

22

23

24

24

45

49

49

58

65

0 10 20 30 40 50 60 70

Product Price

Product Selection

Web Site Navigation & Locks

Product Information

Ease of Ordering

Privacy Policies

Product Content

Product Shipping & Handling

On-time Delivery

Customer Support

PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE

AT

TR

IBU

TE

Source: JP Morgan Report: etailing and the five Cs

3) Firms Ability to Deliver Unique 3) Firms Ability to Deliver Unique and Differentiating Capabilitiesand Differentiating Capabilities

3) Firms Ability to Deliver Unique 3) Firms Ability to Deliver Unique and Differentiating Capabilitiesand Differentiating CapabilitiesFactors inside the firm leading to delivery of targeted

benefits“core competencies”“business strengths”“strategic control points”“unique resources”“unique capabilities”

Key is linking directly to the core benefits that customers value most

Flower Industry FrameworkFlower Industry FrameworkFlower Industry FrameworkFlower Industry Framework

Highly competitiveRapidly changing$15B domesticHighly fragmentedNo National brandMultiple layers of

distribution

Uneven product quality

Sold 10-12 days after harvest

60% walk-in sales80% sales are for

local delivery

On-line Flower MarketOn-line Flower MarketOn-line Flower MarketOn-line Flower Market

$350M (1999) > $2.5B (2004)Value Proposition of on-line retailers is

quite similarHigh prospect of consolidation

Value Propositions or ClustersValue Propositions or ClustersValue Propositions or ClustersValue Propositions or Clusters

Dot.com flower comparisons

PC Flowers & Giftsspecial occasions target segmentkey benefits

> fresh flowers> complementary gifts> lower prices

differentiating capabilities> online experience and knowledge> unique, broad product line of complementary gifts

Proflowersprice sensitive, convenience orientedfreshest cut flowers at competitive pricesFedEx shipping

Value Propositions or Clusters...Value Propositions or Clusters...Value Propositions or Clusters...Value Propositions or Clusters...FTD.com

mid-to-high end marketease of sending flowers and giftssupplier network

1-800-flowers.commid-to-high end market with broad

assortments, fresh flowers, reasonable prices

easy to access because of > their strong brand name > product and media partnerships> brick-and-mortar network of franchises (I.e.

Bloomnet)

How differentiated

are these

value propositions?

Classes of CriteriaClasses of CriteriaClasses of CriteriaClasses of CriteriaCustomer Criteria

understand criteria? relevant to needs? believable? unique or “me-too”? provoke action?

Company Criteria a rally point? resources or capabilities available? block or facilitate move to additional vertical markets?

Competitive Criteria others attempting to hold a similar proposition or cluster? will others allow the focal company to own cluster? can competitors match cluster? ease at matching cluster?






Lise Buyer

Develop an Online OfferingDevelop an Online OfferingDevelop an Online OfferingDevelop an Online Offering Articulating broad description of the online

product/service through three sequential tasks (not yet designing content look & feel) 1) Identify scope of the offering 2) Identify customer decision process 3) Map the offering (product, services,

information) to the decision process

1. Scope of Offering1. Scope of Offering1. Scope of Offering1. Scope of Offering

The categories of products and services offered

Category-specific dominance(increasingly rare)Cross-category dominance

Amazon “supply side” logically grouped for logistics and distribution

> Physical goods> Stored in inventory> Can not be digitized> Consumer focused

1. Scope of Offering...1. Scope of Offering...1. Scope of Offering...1. Scope of Offering...“metamarkets”

those sites offering a category of clustered goods and services

“Customers think in terms of activities, while firms think in terms of products…Metamarkets, then, are clusters of markets in the minds of customers.”

Online businesses can be organized in a variety of goal-derived ways.

2. Identify Consumer Decision 2. Identify Consumer Decision ProcessProcess

2. Identify Consumer Decision 2. Identify Consumer Decision ProcessProcess

Articulating the consumer decision process for the various product categories

PrepurchasePurchasePostpurchase

Consumer Decision Process — Flower ExampleConsumer Decision Process — Flower ExampleConsumer Decision Process — Flower ExampleConsumer Decision Process — Flower ExampleFlowers

DisposalDisposal

LoyaltyLoyalty

SatisfactionSatisfaction

Purchase DecisionPurchase Decision

Evaluation of AlternativesEvaluation of Alternatives

Information SearchInformation Search

Problem - RecognitionProblem - Recognition

Pre-Purchase

Purchase

Post-Purchase

Need recognition, potentially triggered by a holiday, anniversary or everyday events

Search for ideas and offerings, including:– Available on-line and off-line stores– Gift ideas and recommendations– Advice on selection style and match

Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc.

Purchase decision Message selection (medium and content)

Post-sales support– Order tracking– Customer service

Education on flowers and decoration Post sales perks

3. Mapping Products and Services 3. Mapping Products and Services onto the Customer Decision onto the Customer Decision

ProcessProcess

3. Mapping Products and Services 3. Mapping Products and Services onto the Customer Decision onto the Customer Decision

ProcessProcessArticulating the steps of the decision

process for a particular product categoryIdentify the products, services, and

information

Flower / Gift Decision Process

Need Recognition

Search For Ideas and Offerings

Purchase Decision

Message Selection

Post Sales Support and Perks

Education on Flowers and Decoration

Egg Diagram for 1-800-flowers.comEgg Diagram for 1-800-flowers.comEgg Diagram for 1-800-flowers.comEgg Diagram for 1-800-flowers.com Gift reminder service Holiday specials Everyday celebrations

suggestions Special occasion suggestions

Gift guru Favorite gifts Gift frequency Gift impossible Gift baskets Corporate gift services

Ideas and Information

Post-Sales Support

Product price Product picture Product description Delivery information Delivery availability

Gizmo fully-animated greeting cards

Physical cards in gifts

Order receipt email eQ&A online customer

service FAQ Customer service

inquiry formPerks

Miles earned with flower purchases

Free gifts Discounts at AOL &

BN with flower purchases

Member specials

“Care and handling” “Do it yourself” Special events and

educational workshops held at stores

Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by

budget Best sellers

Evaluation of Alternatives

Gift Recommendations

Shopping basket E commerce transaction Special shopping features

– Delivery outside U.S.– 1-800-lasfloras.com

Product Offering






What Is a Successful, Unique Resource System?What Is a Successful, Unique Resource System?What Is a Successful, Unique Resource System?What Is a Successful, Unique Resource System?

Value proposition and offering specification criticalDictate resource system of the company

Unique activities, tied to a value proposition, lead to a competitive advantage

Selection of capabilities and activities Supply of resources

Four modifications for e-CommerceShift from Physical World to Virtual-and-Physical WorldShift from a Supply-Side Focus to a Demand-Side Focus

initial focus on the benefits desired by targeted customersShift from Activities to Capabilities

higher order of skills and assets of the companyphysical or intangible assets (Yahoo’s brand name, Priceline’s patents)

Shift from Single to Multifirm Systemspartnerships

Specifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemStep 1 - Identify Core Benefits in the

Value Cluster

1-800-flowers.com Resource System1-800-flowers.com Resource System1-800-flowers.com Resource System1-800-flowers.com Resource System

Broad Assortment

of Gifts

Broad Assortment

of Gifts

Customer Service

Customer Service

Widespread, Easy

Access

Widespread, Easy

Access

High Quality of Flowers


= Activities & assets

= Capabilities

= Core Benefits

= Partnerships

Specifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemStep 1 - Identify Core Benefits in the

Value ClusterStep 2 - Identify Capabilities That Relate

to Each Benefit


Online Gift Center

Online Gift Center

Integrated Partner Offers


Broad Assortment

of Gifts

Broad Assortment

of Gifts

Customer Service

Customer Service

Wide Reach to Customers


Widespread, Easy

Access

Widespread, Easy

Access

Multiple Contact Points


Popular Web Site

Popular Web Site



TechnologyTechnologyStrong Brand

NameStrong Brand

Name

Strong Distribution

Network

Strong Distribution

Network


= Capabilities

= Core Benefits

= Partnerships

Specifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemStep 1 - Identify Core Benefits in the Value

ClusterStep 2 - Identify Capabilities That Relate to

Each BenefitStep 3 - Link Resources to Each Capability,

and….. Step 4 - Identify to Which Degree the Firm

Can Deliver Each Capability


Online Gift Center

Online Gift Center



Broad Assortment

of Gifts

Broad Assortment

of Gifts

Customer Service

Customer Service



Widespread, Easy

Access

Widespread, Easy

Access



Popular Web Site

Popular Web Site




NameStrong Brand

Name

Strong Distribution

Network

Strong Distribution

Network

TelephoneTelephone

On-lineOn-line

Fran-chise Stores

Fran-chise Stores

CatalogCatalog

Gift Recommend-

ations

Gift Recommend-

ations

Address BookAddress Book

Gift ReminderGift Reminder


= Capabilities

= Core Benefits

Customer Service Centers


Integrated on-line off-

line systems


line systems

Personalization Capabilities


Rich ContentRich Content

StoresStoresFulfillment

Center

Fulfillment Center

= Partnerships

Specifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemSpecifying a Resource SystemStep 1 - Identify Core Benefits in the Value ClusterStep 2 - Identify Capabilities That Relate to Each

BenefitStep 3 - Link Resources to Each CapabilityStep 4 - Identify to Which Degree the Firm Can

Deliver Each CapabilityStep 5 - Identify Partners Who Can Complete

Capabilities


Online Gift Center

Online Gift Center



Broad Assortment

of Gifts

Broad Assortment

of Gifts

Customer Service

Customer Service

AOLAOL MSNMSN

SNAPSNAP



Widespread, Easy

Access

Widespread, Easy

Access



Popular Web Site

Popular Web Site




NameStrong Brand

Name

Strong Distribution

Network

Strong Distribution

Network

TelephoneTelephone

On-lineOn-line

Fran-chise Stores

Fran-chise Stores

CatalogCatalog

StarmediaStarmedia

Gift Recommend-

ations

Gift Recommend-

ations



Garden WorksGarden Works

Plow & HearthPlow & Hearth

Great FoodsGreat Foods


= Capabilities

= Core Benefits




line systems


line systems

3,000 Affiliates3,000 Affiliates




Third Party Contractors


StoresStores

BloomNet Network

BloomNet Network

Fulfillment Center

Fulfillment Center

= Partnerships

Criteria to Assess the Quality Criteria to Assess the Quality of a Resource Systemof a Resource System

Criteria to Assess the Quality Criteria to Assess the Quality of a Resource Systemof a Resource SystemUniqueness of the SystemLinks between Capabilities and BenefitsLinks Among Capabilities in the SystemLinks among ResourcesLinks between Virtual World and Physical World

Business SystemsSustainable Advantage

Donna Dubinsky

Benefits and Challenges of Integrated Benefits and Challenges of Integrated Online/Offline Business ModelOnline/Offline Business Model

Benefits and Challenges of Integrated Benefits and Challenges of Integrated Online/Offline Business ModelOnline/Offline Business Model

BenefitsBenefits

Persistent connection with customers

New value for customers

Access to new customers

Scalability

Persistent connection with customers

New value for customers

Access to new customers

Scalability

ChallengesChallenges

Cannibalization

Channel conflict

Customer confusion

Investor confusion

Cannibalization

Channel conflict

Customer confusion

Investor confusion

On-line/Off-line Egg Diagram for 1-800-flowers.comOn-line/Off-line Egg Diagram for 1-800-flowers.comOn-line/Off-line Egg Diagram for 1-800-flowers.comOn-line/Off-line Egg Diagram for 1-800-flowers.com

Off-line Product Offering

Special events and educational workshops held at stores

Prompts on toll free number recording Suggestions from CSRs* in stores and via phone

Prompts on toll free number recording

Suggestions from CSRs* in stores and via phone

Brochure

Suggestions from CSRs in stores via phone

Brochure

Information from CSRs in store and via phone

Brochure

Purchase in-store Purchase via phone

In-store specials Specials offered

via phone

*CSR = Customer service representative

Flower / Gift Decision Process

Need Recognition

Search For Ideas and Offerings

Purchase Decision

Message Selection

Post Sales Support and Perks

Education on Flowers and Decoration

Gift reminder service Holiday specials Everyday celebrations suggestions Special occasion suggestions

Gift guru Favorite gifts Gift frequency Gift impossible Gift baskets Corporate gift services

Ideas and Information

Post-Sales Support

Product price Product picture Product description Delivery information Delivery availability

Gizmo fully-animated greeting cards

Physical cards in gifts

Order receipt email eQ&A online customer

service FAQ Customer service inquiry

form

Perks

Miles earned with flower purchases

Free gifts Discounts at AOL &

BN with flower purchases

Member specials

“Care and handling” “Do it yourself”

Floral ideas Garden ideas Home ideas Gift ideas Gourmet ideas Store locator Recommendations by budget Best sellers

Evaluation of Alternatives

Gift Recommendations

Shopping basket E commerce transaction Special shopping features

– Delivery outside U.S.– 1-800-lasfloras.com

On-line Product Offering

In-store customer service

Customer service on toll-free number

Select card in-store Select card via phone

On-line and Off-line Integration for the 1-800-FLOWERS Resource SystemOn-line and Off-line Integration for the 1-800-FLOWERS Resource SystemOn-line and Off-line Integration for the 1-800-FLOWERS Resource SystemOn-line and Off-line Integration for the 1-800-FLOWERS Resource System

Online Gift Center

Online Gift Center



Broad Assortment

of Gifts

Broad Assortment

of Gifts

Customer Service

Customer Service

AOLAOL MSNMSN

SNAPSNAP



Widespread, Easy

Access

Widespread, Easy

Access



Popular Web Site

Popular Web Site




NameStrong Brand

Name

Strong Distribution

Network

Strong Distribution

Network

TelephoneTelephone

On-lineOn-line

Franchise

Stores

Franchise

Stores

CatalogCatalog

StarmediaStarmedia

Gift Recommend-

ations

Gift Recommend-

ations



Garden WorksGarden Works

Plow & HearthPlow & Hearth

Great FoodsGreat Foods

= On-line Activities & Assets



3,000 Affiliates3,000 Affiliates






StoresStores

BloomNet Network

BloomNet Network

Fulfillment Center

Fulfillment Center

= Off-line Activities & Assets

Integrated on-line off-line systems

Integrated on-line off-line

systems

The Role of PartnershipsThe Role of PartnershipsThe Role of PartnershipsThe Role of PartnershipsFor 1-800-flowers.com

Portal AgreementsAmerica OnlineMicrosoft NetworksYahoo! Inc.Excite@HomeStarMedia Network

Anchor Tenant AgreementsSnap.comSears, Roebuck, and Company

Promotion AgreementsAmerican Airlines® Advantage®, Delta Airlines SkyMiles®, United Airlines Mileage

Plus: Frequent Flyer MilesMCI Worldcom: Gift Certificates, 10% discountPeoplePC: Became key floral and gift providerZapa.com: Offers greeting cards on 1-800-flowers.com, allowing personalization

1-800-FLOWERS Partnerships1-800-FLOWERS Partnerships1-800-FLOWERS Partnerships1-800-FLOWERS Partnerships American Airlines® Advantage®, Delta Airlines SkyMiles®, United Airlines Mileage Plus

Earn frequent flyer miles with 1-800-FLOWERS.com purchases

MCI Worldcom Receive 1-800-FLOWERS.com gift certificates with long distance sign-up Receive 10% off every 1-800-FLOWERS.com purchase with MCI WorldCom membership

America Online First agreement signed in 1994 Exclusive marketer of fresh-cut flowers across key AOL brands until 2003 One-year exclusive agreement to market gardening products commencing Nov. 1999

Microsoft Networks Premier floral partner and anchor in the MSN Home and Garden Department Products, advertising and links featured on MSN Shopping Channel

Snap.com One of the 45 premier merchants in Snap shopping service (on-line e-superstore) Anchor tenant in Snap.Com Flower Shop To be spotlighted in select Snap.com on-air promotions, scheduled to run on the NBC Television

Network during the Valentine’s Day and Mother’s Day periods

Source: 1-800-FLOWERS.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online

1-800-FLOWERS Partnerships (Cont.)1-800-FLOWERS Partnerships (Cont.)1-800-FLOWERS Partnerships (Cont.)1-800-FLOWERS Partnerships (Cont.) Excite@Home

Markets flowers and other gifts through Excite.com and webcrawler.com web sites Products, advertisments and links featured in the Excite Shopping Channel Entered second year of marketing relationship in October 1999

Yahoo! Inc. Will run banner advertisements throughout the Yahoo! Network, with additional presence in shopping area

StarMedia Network Developing Spanish and Portuguese language versions of 1-800-FLOWERS.com web site

People PC Signed one year agreement to become key floral and gift-provider for PeoplePC commencing October 1999

Zapa.com Offers selection of online greeting cards on 1-800-FLOWERS.com web site Greeting cards never deleted by Zapa.com Users will be able to personalize greetings with their own photos, clip-art or other multi-media creations

Sears, Roebuck and Company Licensing relationship which enables Sears customers to use their store charge cards when shopping with

1-800-FLOWERS.com

Source: 1-800-FLOWERS.com website, WR Hambrecht & Co., TheStandard.com. Hoover’s Online






Yossi Vardi

Case Study - Frontgate Case Study - Frontgate CatalogCatalog

Case Study - Frontgate Case Study - Frontgate CatalogCatalog

1. Why has Frontgate Catalog met with such success as a new catalog offering in an already crowded direct-mail market?

2. Who are the customers who buy from Frontgate??3. What aspects of its operations enhance the customers’ level of perceived

value, satisfaction, and loyalty?4. Given that customer lifetime value drives profitability of any direct

marketing business, how should Frontgate managers maximize the value of the catalog’s customer relations?

5. Evaluate the existing Frontgate catalog site on the Web. How well suited is the site to building awareness, selling product, and providing customer service in the Web environment?

6. Is Frontgate’s stated plan for its website implementation reasonable and sound? What changes in strategy or tactics would you recommend?

Documents

Business Models - Part 1 CPS 181s Jan 28, 2003. Market Opportunity Analysis Where will business compete? Business Model How will company win?