session 2 slides - ut

Software Economics

Channels

Mida tähendab “farssima”?

A. Lastegamängima

B. Parodeerima

C. Hakklihaga täitma

D. Kaugus ühik

Mida tähendab “möögatama”?

A. Mööga võitlema

B. Lehmahääl

C. Müratama

D. Moodustama

Howmanyhoursdidyouspendonthiscoursesincelastlecture?

A. 0-2hours

B. 2-4hours

C. 4-6hours

D. 6-8hours

E. 8-10hours

F. Morethan10hours

Inthiscourse,Ifeel

A. Iamaheadofthecourse

B. Iamjustinlinewiththecourse

C. Iamabitbehindbutitsok

D. IambehindbutIcanmanagetocatchupbymyself

E. IambehindandIneedhelp

Channel

“Describes how a company communicates with and reaches its customer segments to deliver its value

proposition.”

September 22, 2016

6

Questions to consider

¤ How does a company want to sell its product/service?

¤ How does a customer want to buy a product/service?

September 22, 2016

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Evolution of channels

• Physical Products• Passive role – if you

build it, they will come …

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The first companies made mostly physical products and therefore had physical channels to get their value proposition to the customer segments.

In mid 1920-ties intangible products were introduced (stocks, insurances) but were still sold through physical channels – “over a handshake”.


• Physical Products• Passive Role – if

you build it, they will come …

• Need to be online

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In mid-late 1990-ties with the emergence of Internet, we could sell physical products through the web (intangible channel).


• Physical Products• Passive Role – if

you build it, they will come …

• Need to be online • Shopping across channels

• Physical stores, web, direct sales …

September 22, 2016

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• Physical Products

• Passive Role – if you build it, they will come …

• Need to be online

• Shopping across channels

• The right product/service at the right place?

September 22, 2016

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Product and Channel

Intangible via Web

•Google, Cloud Services, Twitter, Facebook

Intangible via Physical

•SAP, Oracle

Tangible via Web

•Amazon

Physical via Physical

•Cars, Bookstores

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Prod

uct

Tang

ible

(phy

sical

) vs.

Inta

ngib

le (d

igita

l)

ChannelWeb(online) vs. Physical(AFK) Allows

customization, optimization, adaptability

almost instantly

Web Channels

Picture from Steve Blans’s Udacity Course September 22, 2016

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Your own webpageAndroid/iTunes –

using their platform

Using someone with strong web-presence (Amazon).

Facebook (Zinga-video games)

Vertical Market Approach –zappos.com

Groupon

Web Channels

Picture from Steve Blans’s Udacity Course September 22, 2016

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Physical Channels

http://www.slideshare.net/sblank/lecture-4-distribution-channels?related=1 September 22, 2016

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Original Equipment Manufacturer –component inside someone else product (their marketing / brand) – cars, computer chips (intel).Ericsson, Cisco – take your component and build out a system (with components from others) with perhaps own software – highly complex

Value Added – less complex systems such as consultancies for software (SAP), video editing systems, AMD for BMW?

Video Editing Studio

September 22, 2016

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Wikipedia GNU Free Documentation License, picture taken by Nullcron, 2007

Physical Channels

http://www.slideshare.net/sblank/lecture-4-distribution-channels?related=1 September 22, 2016

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Distributor: independent agent who has an agreement with manufacturer to sell, like selling agent.

Dealer: Legal entity who sells the product of the manufacturer to the customer – a way for manufacturers to get to a market.

Retailers/Mass Merchants: Stores that sell the product, either only the product of a manufacturer (concepts stores) or multi-brand stores (Wal-Mart, Kaubamaja)

Whichofthebelowisbestusedtodistributecomplexproducts/services?

A. SystemIntegrators

B. Dealers

C. Webpage/portal

D. ValueAddedResellers

September 22, 2016

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Picture from Steve Blans’s Udacity Course

Defense Contracts

Toners

Laptops

Video Editing Systems

Insurances

Effect of Channel

September 22, 2016

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Trends …

¤ Third platform – includes cloud, mobility, big data, and social media.

¤ VARs: ¤ advisors who provide technology consulting - general; ¤ and solution experts capable of building solutions that

alleviate the pain points of customers – “the vertical specialization”.

¤ Managed Service Providers (MSP)¤ Company that remotely manages a customer’s IT

infrastructure and/or end-user system (www.newsignature.com).

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Exercise

Describe how your selected company delivers value (value proposition) to its customers (segments).

About 15 min.

September 22, 2016

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Software Economics

Customer Relationships

Channel

Describes the types of relationships a company establishes and maintains with each customer segment.

September 22, 2016

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Questions to consider

In essence, about

¤ Customer Acquisition (get new customers)

¤ Customer Retention (keep your customers)

¤ Upselling (grow your customers, sell more)

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The Funnel – Physical Products

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From Steve Blank slides found at http://www.slideshare.net/sblank/delft-climate-kic-070212-part-2

Paid Media

¤ Paid Media examples¤ Advertising

¤ Trade shows

¤ Webinars

¤ Emails/direct mail

¤ Search Engine Marketing

¤ Sponsorships

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Earned Media

¤ Earned Media examples¤ Publications in journals

¤ Conferences / Speeches (also posted on e.g. Youtube)

¤ Blogs, guest-blogging

¤ Guerilla Marketing (for the curious, see https://en.wikipedia.org/wiki/Guerrilla_marketing)

¤ Events (TransferWise)

¤ Viral videos

¤ Using social media

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Question

What is the relationship / connection between “Customer Segments” and

“Paid & Earned Media)?

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Get the Customers

¤ Generating AWARENESS that you exist.

¤ Did they show INTEREST by e.g. visit the webpage, checked the price, made a call etc.

¤ Did the CONSIDER the product/service – came to the store, took the car for a ride etc.

¤ Did they PURCHASE the product/service?

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Keep the Customers

¤ Loyalty programs¤ Airlines¤ Credit Card Companies

¤ Discounts¤ Travel Insurance¤ Bonus points – gifts

¤ Newsletters¤ Offers¤ Product updates¤ Events

¤ Knowing “the Customer”

¤ What more (your experiences)?

September 22, 2016

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Grow the Customers

¤ Un-bundling (decompose the product into parts and sell as separate “products”) –MOOCs?

¤ Up-sell – offering the customer to buy something more expensive – example of buying a computer

¤ Cross-sell – example of offer discount for other products or selling accessories

¤ Referrals – “customer sells for you” – Dropbox, Taxify

September 22, 2016

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Haveyoubeenexposedto“growcustomer”strategies?

A. Never

B. Fewtimesperhaps

C. Quiteoften

D. YESbutIwasnotaware

Digital Products (web/mobile)

http://www.marsdd.com/news-and-insights/startup-marketing-get-keep-and-grow/

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Digital Products


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¤ Acquire: Get them to my site(webpage/app/cloud app).

¤ Activate: Sign up, register, become a user, pay – to engage and to get the customers to do what I offer (then I can make money).

BUT AT WHAT COST?

Customer Acquisition Cost (CAC)CAC = cost of getting an activated/paying customer.

I pay 50 cents per click on Google (as advertisement).

I get 10 000 clicks.

Of these, 5 % take the limited free trial and sign up to start use the service.

Of the free trial, 10 % continue using my service (they pay).

September 22, 2016

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WhatismyCAC?

A. 10€

B. 50€

C. 100€

D. 150€

CAC

10 000 clicks for a cost of 50 cents each = 5 000 €

5% taking the free trial = 500 users

10 % actually paying after free trial = 50 persons

CAC = 5000 € / 50 = 100 €.

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Life Time Value (LTV)

¤ Life Time Value = how much will the customer spend on my product/service from the beginning to the end (within a specified time period)?

¤ CAC = Customer Acquisition Cost

LTV > CAC – why and what ratio?

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Digital Products


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Next-Sell:¤ Marketing Email – mix of offers,

promotions etc. ¤ Transactional Email – email you

get after you have made a purchase (confirmation, billing info etc.) and/or messages sent to recent buyers (≈10 days after) with offers tailor to them.

AARRR Model

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AARRR Model developed by Dave McClure

Web Channels

AARRR Model developed by Dave McClureSeptember 22, 2016

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Types of Customer Relationships

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¤ Personal Assistance – based on human interaction (face to face, phone, chat, emails)

¤ Dedicated Personal Assistance – Dedicated representative to an individual client (banks and high net worth customers, key account managers)

¤ Self-service – no direct contact but help themselves

¤ Automated Services – mix of self-service and automated processes (offering books or movies to buy)

¤ Communities – user community where users help each other and companies understand their customers better.

¤ Co-Creation – co-create value with customer (amazon reviews, youtube)

Example of Merck

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Trends …

¤ Multi-channel¤ online consulting followed by in-store purchasing

¤ price comparing via a smartphone directly in the store

¤ Not buying just a product but rather comparing experiences

¤ Power of Video Recordings – increasingly used to communicate (Youtube stars, product placement, sponsoring)

¤ Customers more busy but also demanding so simplicity become important in buying decisions

http://us.watcheezy.com/blog/2016/04/28/10-customer-relationship-trends-in-2016/

September 22, 2016

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Exercise

Reflect on how your selected company manages

¤ Customer Acquisition (get new customers)

¤ Customer Retention (keep your customers)

¤ Upselling (grow your customers, sell more)

¤ What type of relationship does each of the company’s customer segment expect them to have and maintain?

About 20 min.

September 22, 2016

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Software Economics

Key Resources

Key Resources

Describes the most important assets (resources) required to make a business model work.

September 22, 2016

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Types of Key Resources

Physical

¤ Capital Intensive for instance,¤ Manufacturing Facilities, Equipment, Buildings, Vehicles,

Machines¤ Distribution Network

¤ Large retailers such as Wall-Mart and Amazon rely (not only) on physical resources. Tesla would be another example.

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Intellectual Property¤ Difficult to develop but key

¤ Brands¤ Patents, Copyrights¤ Partnerships¤ Customer Database

¤ Lets consider¤ Nike and Sony (rely on their brand)¤ Microsoft and SAP (Software and Intellectual Properties)¤ Qualcomm (patented microchip designs)

¤ Remember Google buying Motorola’s patent portfolio ($ 4 billion) and Nortel selling its portfolio for $ 4,5 billion)?

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Human

¤ Crucial in Knowledge-Intensive/Creative Businesses¤ Qualified Employees

¤ R&D¤ Sales force¤ Advisors

¤ Pharmaceuticals (research and sales force)¤ Apple and Google (development)

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Financial

¤ Financial Resources or Guarantees¤ Line of Credit¤ Loans

¤ Compare traditional banks, Ericsson, ABB and IBM.

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What is/are key resources of 23andMe?

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Whatisyourcompany’skeyresource?

A. Physical

B. Intellectual

C. Human

D. Financial

Exercise

What are the key resources of your selected company require to offer its value proposition, channels and relationships?

¤ Physical¤ Intellectual¤ Human¤ Financial or¤ Mix?

About 10 min.

September 22, 2016

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Software Economics

Key Activities

Key Activities

Describes the most important tasks/activities a company must do to make its business model work.

September 22, 2016

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With what focus?

¤ To make the Value Proposition work?¤ To make the distribution channels work?¤ To make the customer relationships work?

To make the business model work, includes all components

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Types of Key Activities

Production

¤ Design, production and delivering products¤ Usually in larger quantities and/or superior quality

¤ Examples: Manufacturing firms such as ?

What would typically be the focus of development for manufacturing firms?

Operations Management (improve production processes)

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Problem Solving

¤ Coming up with new solutions¤ Usually customized to individual customers

¤ Examples: Consultancy firms, Hospitals, Service Organizations

What would typically be the focus of development for “problem-serving” firms?

Knowledge Management and Training

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Platform / Network

¤ Maintaining and developing the platform or network is the key activity that enables the company to produce value.

¤ Examples:E-bay (maintain and develop the website and network)Visa or MasterCard (transaction platform for stores, customers and banks)

What would typically be the focus of development for “platform/network” firms?

Platform Management, Platform Promotion

September 22, 2016

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Whatisthemainkeyactivityofyourcompany?

A. Production

B. Problem-Solving

C. Platform/Network

Exercise

What key activities does the value proposition, channels and relationships require?

What way are the key activities supporting the creation of value?

¤ Production¤ Problem Solving¤ Platform/Network

About 20 min.

September 22, 2016

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Software Economics

Partnership

Partnership

Describes the network of suppliers and partners that make the business model work.

September 22, 2016

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Why Partner Up?

Optimization and Economies of Scale

¤ Striking the right balance/trade-off between fully own everything and fully buying everything from a marketplace.

¤ Division of labor – not efficient for one to do all things –cannot do everything by myself.

¤ Benefits are mainly to reduce costs

September 22, 2016

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Why Partner Up?

Reduction of Risk and Uncertainty

¤ Secure (less risk and uncertainty) supply to your operations with key partners

¤ Collaboration on certain aspects such as standards, will reduce risk of “product failure”

¤ Beta, VHS, DVD, Blu-Ray – partnership reduced risk in the competitive market but each player sells their own Bly-Ray products.

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Why Partner Up?

Partnering up for Resources and Activities

¤ Extending what you need to other “performers” or relying on others to “help” you.¤ Insurance company relies/uses independent insurance

brokers to sell its policies as opposed to developing their own sales force.

¤ Rely on others “to give” the resources they need.¤ Mobile phone manufacturer relies on another company

(license) for the operative system for the smart phones.

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Partnering up for …

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+

+

=

=

Whydidtheypartnerup?

A. Gaineconomiesofscale

B. Toreduceriskanduncertainty

C. Forresourcesandactivities

Types of Partnerships

¤ Strategic Alliances – use a partner to provide the customer with the “complete package”Starbucks & Pepsi, Starbucks & Barnes and Noble

¤ Joint Business Development – jointly promoting or developing a product. Example of “Intel inside” joint promotion (Intel paid fee to PC manufacturers).

¤ Coopetition – Competitors collaborating to grow awareness or create standardsTradeshows, Industry Associations such as standards, Lobby together

¤ Key Suppliers – outsourcing or direct suppliers (from buyer to relationships)

September 22, 2016

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Exercise

Who are the key partners of your selected company?

Who are the key suppliers?

Which key resources are they “getting” from partners?

What key activities of your company are the partners performing?

About 15 min.

September 22, 2016

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Software Economics

Assignment 1 – Business Model Canvas

Assignment Business Model Analysis

Business Model Canvas

• Work in groups of 3-4

• Sign up your group in Moodle

• Business Model Analysis for 3 different companies• Same industry, competitor, different industry, young/old,

same/different segments, as you wish but has to be interesting comparison.

• First come, first served principle in piazza.

September 22, 2016

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Assignment 1 cont.

Compare and Contrast the Canvases1. What is similar/different?2. How does it affect the "building blocks" of the companies?3. What are the advantages/disadvantages?4. For one of the companies, discuss your ideas on how it could be improved (using information technology). You are encouraged to search the web for inspiration.

Use Google, search, find, analyze – don’t just think on your own. References is an indicator.

September 22, 2016

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Grading

Business Model Analysis Part

¤ Submission of analysis (10 points) – average of two peer-review grade.

¤ Submission of “reviews” (5 points) – graded by lecturer

¤ Presentation (10 points) – graded according certain criteria by all

Business Case Analysis Part

¤ Submission of analysis (10 points) – average of two peer-review grade

¤ Submission of “reviews” (5 points) – graded by lecturer

September 22, 2016

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Deadline

Submission Deadline

20th of November 23:55

But don’t waitSeptember 22, 2016

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Questions?

September 22, 2016

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Thetempooftoday’slecturewas…

A. Waytofastforme

B. Justrightforme

C. Abittoslowforme

D. Waytoslow,Iwasfacebooking

Thematerials(slides)were…

A. Easytofollowandunderstand

B. Justaboutright

C. Iwasabitlostattimes

D. Mis asja,kas seeonabstraktnekunst?

September 22, 2016

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session 2 slides - ut

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