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Business models - Coggle Diagram

- - - - The role of the customer in value shops is that the customer embodies the problem to be solved, the customer contributes to developing the solution. However, it is important to choose your customers carefully as the development of the resource base (solutions with demanding customers). Furthermore, the development of reputation is also important to be careful in as this can be done by solving customer problems.
        
        Co-creation and co-production is defined as two key considerations determining the competitiveness of knowledge-intensive business service firms (KIBS firms): 1.The degree to which clients are ready to be efficient co-producers of value. This determines the probability of successful value creation in co-production with the client, thereby increasing client satisfaction and firm reputation 2.The opportunities for knowledge development available in the client co-production processes. This determines the knowledge-based resources of the firm, thereby making the firm more attractive to 1) future clients (reputation), and 2) highly talented and knowledgeable employees
        
        Customer perspective: relational processes (value-in-achievement; shop). A. customer requirements definition, B.Customization and integration of goods and/or services and C.Their deployment, and D.Post-deployment customer support.
        
        Supplier perspective: A customized and integrated combination of goods and services for meeting a customer’s business needs (value-in-exchange; chain).
        
        Marketing should be viewed as the set of processes for: co-creating value with customers by identifying and developing organizational competencies; connecting with customers who value the competencies for the jobs they are trying to get done; integrating resources across the company, customers, partners, and society at large in support of customer value co-creation; and assessing and responding to how well value promises have been fulfilled.” (Bettencourt et al. 2014, p. 63)
        
        When considering value shop it is important to have a clear idea of how the business views the desired information asymmetry as this will be one of the value creation mechanisms. Furthermore, the co-creation effect will be affected by the chosen information asymmetry given the strength of it. Therefore, we will gain two characteristics of complex services
        
        Intangibility (difficult to evaluate)
        
        However, intangibility brings some implications such as it being difficult for buyers to understand what they are buying. Examples of intangible goods
        
        Search goods: ascertain/evaluate quality prior to purchase (e.g., shirt, etc.) 2. Experience goods: can ascertain/judge after purchase (e.g., food, software) 3. Credence goods: cannot evaluate quality after purchase (e.g., legal services, car repair)
        
        Experience and credence goods are goods that involve information asymmetry when purchasing. Which could cause:
        
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        Kirmani & Rao (2000) states that the marketing complex services can be seen as a typology of marketing signals of unobservable quality. Giving us different signals
        
        Default-independent signals (up-front expenditures) 1. Sale-independent (e.g., buildings, advertising spend) (less targeted) 2.Sale-contingent (e.g., low-introductory price) (customer adverse selection)
        
        Default-contingent signals (costly ex-post) 1. Revenue-risking (e.g., brand alliances) 2. Cost-risking (e.g., warranties) (Potentially risky for customer)
        
        Heterogeneity: (lack of standardization, cusmimation)
        
        Customer needs, request and involvement (consultants, fitness clubs)
        
        “Executional latitude” involvement The provider can choose (e.g., consultants, fitness club)the level of quality (e.g.,service in a restaurant, haircut, legal advice.)Quality of service may vary from “hour to hour”
        
        Furthermore, one can experience this problem with an agent (e.g. supplier) as this supplier can under-supply or over-supply
        
        However, this can be overcomed by reputation as it is a disincentive to cheat. This is due to reputation denotes an expectation of behavior based on past demonstrations of those same behaviors.
        
        Reputations emerge from others (customers) talking about what you do.
        
        It is the positive and negative stories exchanged about you, the gossip about you, that defines your reputation.
        
        Reputation creates a cost for misbehavior (i.e., a credible signal)
        
        (Eccles, 2007) Reputation also has major advantages as it:
        
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        Assumption: Economic actors are a) motivated by self-interest, and b) can act opportunistically when such behavior is possible and profitable
  - - - Segmentation
        
        Market segmentation...consists of viewing a heterogeneous market (one characterized by divergent demand) as a number of smaller homogeneous markets in response to differingproduct preferences... It is attributable to the desires of consumers or users for more precise satisfaction of their varying wants.” (Smith 1956, p. 6)
        
        “Heterogeneity in demand functions exists such that market demand can be disaggregated into segments with distinct demand functions (F i ’s).” (Dickson and Ginter 1987, p. 4)
        
        Assumes that customers have different/heterogeneous (product) preferences
        
        Heterogeneous preferences can be recognized using (general or product-specific) segmentation bases (Wedel and Kamakura 2000)
        
        Companies can respond to heterogeneous preferences through a product differentiation strategy (i.e., “to alter customer perceptions so as to result in a state of product differentiation”), utilizing either physical or nonphysical product attributes (Dickson and Ginter 1987, p. 4)
        
        Unit of analysis: independentcustomers (a “representative agent”)
        
        Market segments are treated as aggregates of (N ) independent customers with similar preferences
    - - Unit of analysis: existing or potential relationships
      - Segments in markets for networking/mediating services consist of aggregates of (N (N -1)/2) existing and potential inter-customer relationships
      - Demand in segments on the diagonal are driven by directnetwork effects
      - Demand in segments in the off-diagonal are driven indirectnetwork effects
      - Each segment can further broken into sub-segments, driven by direct or indirect network effects.
      - Demand in markets with independent demand (Diffusion curves can be seen in pp.10)
        
        Reservation price
        
        Assume r(x)is continuous and no two customers have same r(x). 2. Assume r (1) = 0, i.e., customer 1 not willing to pay for the service at any price.
        
        Market equilibrium without network effects
        
        x= fraction of population that will buy the service at price p(everyone left of x (who’s values are less than x) will buy; i.e., their reservation price is higher than x’s)
        
        market equilibriumwith network effects
        
        If expectations are notcorrect, then someone buying, or not buying, the service will not be happy
        
        E.g., if someone is too optimistic, expecting more people to adopt the service, they will be unhappy
        
        A “self-fulfilling expectations equilibrium”
        
        Think of last person (x ) buying the service. His/her reservation value is r (x) f (z)= p (price)
        
        If the guess z is correct, then person x has to be person z
        
        PS, the part of the population with the highest reservation price will start using the service first.
        
        It is important to have the correct expectations as the perceived quality of the customer will be affected negativly if not
        
        If the customer initial guess is wrong this can either effect the expectations
        
        If the guess is lower than expected this will effect the perceived value negatively with a shift to the left
        
        If the guess is higher than the expectations this will effect the perceived value positively with a shift to the right
        
        Implications
        
        If people’s expectations initially are pessimistic (z<z’), they will be right
        
        If you can tip initial expectations (above z’), the service succeeds, and usage grows all the way up to z’’
        
        How to get past the tipping point (above z’) through pricing
        
        Offer initial users of the product a discount, give it away for free, or even pay initial users
        
        Pricing can be a tool to create buzz (e.g., paying users) and impact expectations
        
        Companies may continue to “sell” service below marginal costs to some customer groups (two-sided markets)
    - - Network of two customers: 2 x (2-1)/2 = 1 possible relationship 2. Network of four customers: 4 x (4-1)/2 = 6 possible relationships 3. Network of six customers: 6 x (6-1)/2 = 15 possible relationships
      - network effects implies means that unless the service has any intrinsic value, the value of the service to the first user(s) is worthless.
        
        Ways of moving from diffusion and infusion
        
        Build from local network effects (e.g., using viral design, influential customers)
        
        Recruit single relationships
        
        Recruit small groups (clusters) as one
        
        Recruit central members of a network to give others somebody they want to connect to
        
        Build from global effects Exploit local effects later when most members of the local communities have been captured
        
        Interconnect with established (competing) network as a means for diffusion (e.g., mobile-phone networks in Europe and US diffused by instantaneously enabling customers to call between fixed lines and mobile)
        
        Steps for increasing the number of potential users
        
        Increase size (e.g., increase market share; new countries; interconnection)
        
        Enable more relationships (e.g., smsw/business)
        
        Enable new relationships (e.g., Skype for business; IoT)
        
        Strengthen relationships (e.g., encourage more and longer calling)
        
        Enable multiplexity (e.g., complement services - sms, payment...)
        
        All steps to the left are strategies that can contribute to increasing the average revenue per user (ARPU)
        
        Other ways to grow:
        
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        However, to combine these as independently profitable offerings is hard!
        
        Brute-force diffusion
        
        Brute force diffusion – target users with advertising and build self-fulfilling net-expectations
        
        If the service has some intrinsic value: Trojan horse
        
        Build expectations of who and how many will be in the network (e.g., Apple iPhone)
        
        Build complement mediator expectations about what they can support using the network as an infrastructure (e.g., Apple iPad)
        
        Build expectations in users about complement services and their size and composition – what the network can be used for and with whom they can exchange by way of the complement service (e.g., Evernote for Teams)
        
        Build reputation for fair treatment of competitors and complementors to ensure that they will contribute to increasing the Potential Industry Earnings (the PIE) – expanding the pie through “coopetition”.
        
        Steps for infusion of networking services
        
        Recruit single relationships (E.G. viral design pp.9)
        
        (e.g., introduction of fax machine; Skype – viral (referral) design -“recruit a friend”)
        
        Aral and Taylor (2014) Web-based flower delivery service (indirect network effect). With three conditions
        
        “Selfish incentive”: get $10 to invite friends to use the service
        
        “Generous incentive”: give friends $10 discount for signing on
        
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        3, “Fair incentive”: recommender receives $5 and friend receives $5
        
        Recruit whole clusters as one
        
        human preferences, interests and behaviorstend to cluster amongsimilar others (e.g., Watts and Strogatz1998)
        
        I.e., “homophily” is the propensity to associate with others who are similar -applies to friends, family members, colleagues, etc.
        
        (e.g., Facebook – Harvard Student Directory)
        
        Recruit central actors and those connected to them
        
        Some have many more relationships that others (Barabasi& Albert 1999)
        
        (e.g., Mobile payments sign up companies that receive a large number of payments; Internet: media companies)
        
        Important to consider which actor you should target first (WTP)
        
        Interconnection: service is highly valuable to the first customers – in addition to exchange among themselves they can also connect to the entire existing network of users (e.g., Mobile payment to bank accounts; Skype Out)
  - - - Though platforms value network can organize around the platforms that enable connections and their associated exchanges (Eisenmann et al. 2006)
    - - Refers to whoor whatcan be reached (exchange between who/what) and Captures the effects from both scale and composition of the customer base.
        
        (Referring) Networking/mediation services provide opportunities to exercise existing(e.g., Facebook) and potential(e.g., Tinder) dependencies (connectivity) 2. (captures) Scale (global size): how many be reached? (e.g., Amazon, Finn.no), Composition (local): who can be reached? (e.g., Skype, Vipps)
      - Furthermore, connectivity is frequently determined by layering of services and interconnection of multiple otherwise competing firms (cf., ecosystems)
    - - Refers to properties of the conduit and it determines what types of objects(atoms, electrons, or cash)can be exchanged and the capacityand the qualityof the exchange
      - Conductivity is frequently determined by complement layers of mediation services (cf., ecosystems)
    - - Mediation services offered by value networks represent the extreme case of [network externalities] because the dependency among customers is the main product delivered. Stated differently, in value networks, the other customers are the key part of the product. The services of a value network mainly deliver the customers’ opportunities to exercise those dependencies. Sizeand compositionof the customer base are therefore the critical driver of value in the value network.”
      - Global network effects(scale) drives how many a customer can connect with
      - Local network effectsdrives who (specific other) a customer can connect with (Important for mediation services where the identity of customers matters for value creation)
        
        Lower recruitment costs (you don’t need the entire network)
        
        Lower competition due to differentation
        
        Increase the need for coordination of marketing and distribution across specific customer groups
      - Furthermore, it is important to see the other customers as the most important part of the product. Therefore, it being important to consider the value the comapany gives the customer and the number of customers one can reach with that product. The price of this product will also be important as this can effect the number of customers your business reach
        
        The core of a network ecosystem is typically stacked/layered andinterconnected –in turn reflecting the structure of the value creation activities
        
        This layering can often be seen as activities creating value for costumers through:
        
        the activities creating value for the customers are stacked/layered (reflecting the technical architecture of digital communication systems)
        
        layer exchanges a distinct type of object. Thus, multiple layers determine conductivity.
        
        The greater the network effect is in a focal layer, the greater is the incentive for other organizations to create complementservices that provide additional exchange opportunities.
        
        The intersectionof the layers determine the associated connectivity.
        
        Interconnection increases interdependencies between competing value networks and equalizes competition
  - - - Resource acquisition and development (Buy and/or build)
      - Resource management (E.g., AWS: security, diagnostics, backup, reliability (uptime), environment...)
      - Access (E.g., AWS: contract, interface...) (E.g., AVIS: location, hours, app/web...)
    - - Scale (Value Access provides serve multiple customers, brining unit costs go down)
      - Learning curve (Value Access provides manage assets effectively)
      - Transaction costs (Customer often too small to “buy”, Outsourcing generally increases transaction costs, Value Access providers enable efficient access, including rel. with sub-suppliers)
- - - - Given the marketing process one can include the consumer in three different ways
        
        Co-marketing
        
        Co-marketing is done through sosial influence with conformity and Imitation. Conformity is defined as the social pressure and norms while imitation is defined as the effect of others choices providing information.
        
        Imitation have shown that social influence has a impact on what is perceived as popular and unpopular, as social influence increased inequality and unpredictability. Given that there were a large proportion of random variability. If the random variability were small then the average performance were more meaningful. Meaning that the influence of others were doing could cause different behavior for similar groups (Granovetter, 1978).
        
        Word of mouth have also shown to have positive effect as the it generates more than twice the sales of paid advertising in categories as diverse as skincare and mobile phones (McKinsey 2010). Furthermore, WOM have shown to be the primary factor behind 20-50 percent of all purchasing decisions. This is shown by the following examples: A word-of-mouth conversation by a new customer leads to an almost $200 increase in restaurant sales. A five-star review on Amazon.com leads to approximately twenty more books sold than a one-star review.
        
        The reason that WOM have this effect is that it is more persuasive. Meaning that Ads will always argue that their products are the best, meanwhile our friends tend to tell it to us straight. WOM is also shown to be It is more targeted. Meaning that companies try to advertise in ways that allow them to reach the largest number of interested customers, while we tend to select particular people who we think would find that given piece of information most relevant.
        
        Although co-marketing can help to gain customers and retain them better through marketing it also has some implications. Such as: Social currency (We share things that make us look good), Triggers (Top of mind, tip of tongue (reminders)), Emotion (When we care, we share), Public (Built to show, built to grow), Practical Value (News you can use) and Stories (Information travels under the guise of idle chatter). Examples of this happening can be seen in Aral texts in required reading
        
        User innovation
        
        https://www.youtube.com/watch?v=cKcAcm5NDOI&t=78s-Watch first 40 min.
        
        Open innovation
        
        Open innovation is when you use a crowd (outsourcing) as a innovative partner. Examples of this is using communities such as LEGO used adult fans of LEGO to develop their product with different software and designs. Another way of using open innovation is through: Crowd contests (e.g., InnoCentive.com), Ideation, Development and evaluation of product concept, Prototype development, Testing and validation of product.
        
        Economy of open innovation (pp4)
        
        Producer innovations
        
        Producer innovation is built on the following process: Ideation, Development and evaluation of product concept, Prototype development, Testing and validation of product and Product launch
- - - - Value creation can help to obtain value to the customer by meeting needs and demands from customer. Therefore, the business will see increased profit as the customer that gives the most value is being prioritized (set price). Lastly the activities should be configured to maximize the perceivied value and minimize the cost associated with delivering the product/service.