Session 2 - Digital Business Models Flashcards
Long tail strategy
Retailing strategy of selling a large number of different items which each sell in relatively small quantities, usually in addition to selling large quantities of a small number of popular items
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What is causing the long tail? How does it affect the industry dynamics? Supply side
What is causing the long tail?
- Virtual shelf space
- Made-to-order production
- Electronic delivery
- Aggregation of consumers
How does it affect the industry dynamics?
- Increased incentive to develop new products
- Restructuring of marketing strategies
- New intermediaries and industry structures
What is causing the long tail? How does it affect the industry dynamics? Demand side
What is causing the long tail?
- Search tools
- Recommendation systems, web-based tools
- Customer reviews, online communities
**How does it affect the industry dynamics? **
- Changes in consumer tastes and demand patterns
- Positive feedback
- Culture changes from access to more varied source of information
Power Law (Pareto)
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Why do incumbents miss or overlook disruptive innovation?
- They emphasize different products or service attributes
- They target different customer segments
- They start out as small and low-margin businesses
- They conflict with the existing way of doing business
Definition of disruptive innovation
Disruptive innovation is a strategy that involves targeting a niche or underserved market segment.
- Targeting a fringe market
- Underperforming on the attributes that mainstream customer value, but over performing in other attributes
- High improvement potential on these attributes and can ultimately disrupt the existing market by offering a unique value proposition
Describe the disruptive innovation model
The disruptive innovation model describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses:
1. Incumbents focus on improving their products for their most demanding customers
2. Entrants begin successfully targeting those overlooked segments
3. Incumbents move upmarket, delivering the performance that mainstream customers want
4. When mainstream customers move to entrant’s offering, disruption is successful
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Disruptors often enter via the lower end of the market
What was a challenge with Blockbuster’s business model compared to Netflix?
Blockbuster’s business model required customers to physically go to a store to rent DVDs, which was inconvenient and required effort. In contrast, Netflix offered the convenience of DVD rentals through mail, eliminating the need for customers to leave their homes. This difference in accessibility and convenience was a challenge for Blockbuster, as it limited their reach and customer base compared to Netflix
What are the three waves of innovation?
- Unbundling (1994 - 1999): refers to the breaking down of products or services into separate components
- Disintermediation (2000 - 2005): involves the removal of intermediaries in the supply chain
- Decoupling (2005 - onward): process of separating previously integrated functions or processes
—> these waves represent different phases of innovation and highlight the evolution of business models and technology over time
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What is the focus of decoupling and what are examples of decoupling activities
Decoupling focuses on the customer side of the supply chain, identifying activities that can be broken into deliver and capture value
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Business Model Canvas
A business model specifies how the firm creates value (and for whom) and how it captures value (and from whom).
The business model canvas is a visual chart to document various aspects of a business:
- Key partners
- Key activities
- Key resources
- Value propositions
- Customer relationships
- Channels
- Customer segments
- Cost structure
- Revenue streams
Questions to assess digital threats
To what extent is your product or service…
… electronically specifiable and searchable?
… ordered digitally?
… delivered digitally?
… augmented (or can be) with valuable information?
… threatened by companies in other industries that have relationships with your customers - offering competitive services to yours and disrupting your business?
… at risk of being replaced with an alternative digital offering?
… going to be delivered digital in five years?
Describe the different types of digital business models
Supplier Model: Have little knowledge of their customers. E.g., P&G: 83% of its customers make their purchase decision before entering a store. Some insurance companies know nothing of their customers
Omnichannel Model: They own the customer relationship and have a lot of data on their customers. E.g., Coolblue, Amazon: 66% net promote score (you will recommend to a friend). NPS = % promoter - % detractors. Rarely > 20. Often < 0.
Modular Producer: Paypal can be embedded in different platforms, they don’t really know their customers, but they work in ecosystems helps people & business accept and make payments digitally.
Ecosystem Driver: Smallest % of volume of new business models. e.g. DBS: most digital banks, API platform with 200 APIs, 300 customer journeys, partnerships with McDonalds, Red dot etc.
Questions to self assess your business model
(scale 1-7) result: score x2+2
To what extent does your enterprise know…
1. The identity of the most important end customers
2. Their purchase history with your enterprise
3. Their purchase history with your competitors
4. Purchase history of all products you sell
5. Interaction history with your enterprise
6. Business or personal goals
7. Purchase decision making progress
What is a company’s digital competitive advantage?
A digital competitive advantage is a distinct set of features in a company’s digital business model that differentiates it from competitors. It encompasses elements such as content, customer experience, and platform components that combine to offer a compelling customer value proposition. This advantage allows the company to stand out in the digital marketplace and attract and retain customers
But where should you start?
That depends on the strategic goals, if the goal is driving new digital revenue, then start with strengthening the digital content. If the goal is cross-selling and driving more revenue per customer, focus first on improving customer experience. If the goal is efficiency and flexibility, then focus first on building and exploiting shared digital platforms.
