Tag Archives: business model

Ultimate Business Model– Management of Savagery: ISIS, al-Qa`ida, Jihadist… Strategy of Savagery…

It’s the terrorist business model, playbook, manifesto… and its called Management of Savagery– It’s from a book written more than a decade ago under the name Abu Bakr Naji, and it serves as the terrorist’s key strategy for– finding, creating, managing chaos… The Management of

Savagery refers to the control of chaos that results from breakdown of order. It’s interim stage between collapse of the old order and establishment of a caliphate, a stage characterized by– ungoverned space, savage politics, lack of the provision of basic needs, loss of religious adherence… 

There is a deliberate purpose to the savagery– total domination of its subjects through fear and intimidation, on the one hand… and outright hate, vengeance towards its enemies, on the other…

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This manifesto is based on a mythic and medieval past where how they execute their victims is as important as to why they execute them… Shocking violence is a key element of the strategy… The beheadings, violence practiced are not whimsical, crazed fanaticism, but a very deliberate, considered strategy, and the seemingly random violence has a precise purpose: It’s [sick] aim is to strike huge fear; to break the psychology of a people… According to this doctrine; in instances in which hostage demands are not met, the hostages should be liquidated in a terrifying manner, which will send fear into the hearts of the enemy and supporters…

Understanding the Management of Savagery is an indispensable first step towards understanding the kind of war that some Islamist groups have embarked upon; it’s not necessarily the war we think it is… According to Scott Atran; simply treating ‘terrorism’ or ‘violent extremism’ masks the menace, and merely dismissing it as a ‘nihilistic’ reflects a willful and dangerous avoidance of trying to comprehend, and deal with its profoundly alluring moral mission to change and save the world… The truth is more complicated… ISIS is reaching out to fill the void wherever a state of ‘chaos’ or ‘savagery’ (at-tawahoush) exists, as in Mid-East, Central Asia, Africa… And where there is insufficient chaos in the lands of the infidel, it seeks to create it, as in Europe…

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In the article Terrorism: What’s the Business Model? by Karl Muth writes: A misunderstanding of terrorist habits is symptomatic of a larger misconception about the business model, financial resources and sophistication of modern terrorists enterprises. Terrorist attacks are profit centers, not cost centers… Here are interesting questions: Do terrorists have necessary ‘capital (money)’ to create substantial cash flows from terrorist events? Can these groups raise outside ‘capital (money)’ by splitting proceeds with cooperative investors? The answer is yes, in one or both cases…

Imagine an efficient terrorist enterprise backed by savvy investors with enormous financial resources making the practice of terrorism is not only sustainable but very profitable… The economic effects of major attacks are dramatic and predictable, hence it’s relatively easy to profit from even basic portfolio management and modest resources… Western civilization’s obsession with a fantasy war against a group of unsophisticated, impoverished nomads living in the wilderness is highly naive, and leaves it unprepared to reality of the situation…

In the article Understanding Terrorist Business Model by Alex Gallo writes: During the past few years, two seemingly distinct and ostensibly contradictory narratives have emerged regarding the capability, positioning, and operational strategy of terrorism… On one hand, many government leaders and counter-terrorism experts have asserted that terrorist are weakening and too impotent to conduct large-scale attacks. However, on other hand, there are examples of terrorist having the ability to successfully influence and facilitate smaller scale attacks around the world…

Hence, one can speculate that terrorist organization, such as; al-Qa`ida have made a calculated decision to leverage its branding and expertise, and almost exclusively engaging in ‘professional consulting’, or advisory entrepreneurial activity… As a result, these groups have effectively de-emphasized the resource-intensive portion of their strategy, i.e.; training, equipping, deploying fighters… and support other violent movement groups to carry out these direct operational activities… These jihadist groups provide value as ‘consultancy’ in two critical ways; 1. by serving as a financial adviser and facilitator to the global jihadist financial coffers… 2. by providing ideological coherence within the global jihadist movement…

These groups, e.g.; al-Qa`ida… uniquely understands how to play this role effectively, even though they may not wholly share the same agenda, experiences and ideological visions… The basic consequence of this evolution towards a ‘consultancy’ business model is that the profile of these groups increasingly become– diffuse, fragmented, unpredictable… At a micro-level, it’s this shift toward the services-end of the value chain that at a macro-level has materially altered the very nature of violence, and the strategic ‘feel’ of global jihadist movements.

Hence, the attempt by Western policy makers to write-off jihadists as losers, dunces, clowns… betrays the reluctance to confront the ideology that motivates those who seek to throw in their lot with revolutionary movements like ISIS. According to David Martin Jones and M.L.R. Smith; the result is a sad ignorance among Western policy makers of the group’s deliberate strategy of savagery… Attempting to identify what drives young men (and women) along the path of jihad and the sanguinary embrace of ISIS, is hardly relevant to understanding the true extent of the current threat…

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Rather than condemnatory rhetoric, Western policy makers should focus on evaluating the intended purpose that the acts of savagery are designed to serve. An examination of ISIS’s thinking suggests they have thought about the ‘strategy of savagery’ very carefully… That ISIS and its jihadist confreres beyond the Middle East adhere to a campaign of ultra-violence, often rotating around graphic displays of killing that shock and disrupt modern sensibilities is itself significant, because it displays how they have deduced what they perceive as the fundamental weakness in Western society, i.e.; its attachment to life…

Hence, far from being desperate or over-extended, Islamist strategic thinking reveals a rigorous design from first principles that discerns the weaknesses in Western society (beginning with the attachment to life), and manners in which to exploit them to achieve long-term goals…

The salutary fact is that these theorists have thought about how to manage the escalation process, thereby controlling the strategy of savagery– doubtlessly and probably accurately– concluding that Western nations lacks the collective ‘will’ to counter-escalate in any coherent way…

Radical Business Models– Rule Breaking, Pushing Boundaries, Transform: Power of Different…

Radical business models are all about– rule breaking, transformation, innovation… It’s about turning a market or industry upside down, changing the business landscape, doing something completely different and unexpected to gain a competitive advantage.

Developing a ‘rule breaking strategy’ for your business means defying the business rules in force, choosing new paths, shaking up old habits… It’s about differentiation and becoming the market leader by changing the rules of the competitive game– ‘play the game’ in a way ‘no-one’ in your market, industry has done before…

In rule breaking you develop new rules that sets you radically apart from the competition… the challenge for business is to be creative enough to invent a business model that is radical enough to gain significant advantage in their market, industry… Hence, don’t just copy what others do; create something different, radical,  innovative, transformative…

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According to Tapio Järvenpää; *Rule Breaking = Same Game Played With New Rules*…  seeing things differently requires a mindset of rebellion, curiosity, perseverance… When a business is asked the question: What is your business model? They really want an answer to a much more basic question: How do you plan to make money? Behind that question is a lineup of other questions: Who’s your target customer? What customer problem or challenge do you solve? What value do you deliver? How will you reach, acquire, and keep customers? How will you define and differentiate your offering? How will you generate revenue? What’s your cost structure? What’s your profit margin?

According to Alexander Osterwalder; companies that put more emphasis on radical business models experienced significantly better operating margin growth (over a five-year period) than their peers… Radical business models are key to unlocking transformational growth, but few executives know how to apply it to their businesses…

In the article Radical Business Model Innovation by Greg Fisher writes: Abandon old thinking and embrace new innovative models of value creation… Once upon a time, all business models were relatively similar and relatively simple. You bought low and sold high. The more you could repeat this simple recipe, the richer you would grow. But the world has become more complex and more competitive…

New technologies have opened up many different ways of doing business and most companies are no longer competing just with the business down the road, they are competing with entities from across the globe. In this environment of increased complexity and heightened competition, a firm’s business model has become a critical source of competitive advantage…

The business that have taken the time to understand what a business model is and how to innovate around their own business model have found new sources of profit, growth… By contrast, those who have failed to adapt a thoughtful business model are languishing and giving way to their more inventive rivals…

In the article Managing the Unmanageable: Radical Innovation by David Küpper, Markus Lorenz, Andreas Maurer, Kim Wagner write: In recent decades, companies have greatly improved the efficiency of new-product development and managers have drawn on a variety of processes, methods, tools to maximize their return on R&D investment… Unfortunately, these advances have had the unintended consequence of discouraging radical innovation, i.e.; technical breakthroughs that render existing products obsolete or create new markets altogether… Unlike incremental innovation, radical innovation involves a great deal of uncertainty– the quality that’s not tolerated by most management techniques…

As a result of this intolerance for uncertainty, companies have been undertaking less and less radical innovation… A recent study found that radical innovation accounted for only 10% of an average company’s innovation portfolio, down from 21% in 1990. As the new productivity measures gained traction, managers naturally gravitated to projects that succeeded under the incremental constraints. Hence, more breakthrough projects with potentially higher failure rates and less predictability lose out when investment priorities are set…

Breakthroughs are an important source of competitive advantage. Although incremental improvements help maximize returns on existing investments, radical innovations are vital to long-term growth, profitability… While challenging to carry-off, they can deliver great value… Radical business models are essential for progress in society at large…

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In this Era of Rampant Change and New Business Models by Vadim Kotelnikov writes: The old principles no longer work in the new economy. Business has reached the old model’s limits with respect to complexity, speed… The real problem is– a ruinously dysfunctional mismatch between today’s business environment and classic business models… Quite simply, the wrong model may transform a business into the vehicle of its own death…

Great shifts– genuine and radical transformation– have been shaping the economy and business environment in recent decades. Technology has radically altered requirements for building and managing a successful business. In this new business climate, although the basic command-and-control business model still survives, it has lost its effectiveness significantly…

Hence for business to grow and prosper they must shift focus to more relevant issues, such as; how to build capabilities for faster growth, how to attract and retain best people, how to develop leaders at all levels in a company, how to manage knowledge effectively, how to become a true learning organization, how to be more effective globally… The new radical business model has much stronger focus on the basics of what ultimately creates value today– people, knowledge, coherence… It fosters creation of value and ensures that each piece of the business contributes to system-wide value. It also goes beyond the workplace and the interface between government and business and looks into building a favorable social climate within and around the business…

In the article Reinventing Business Model by Mark W. Johnson, Clayton M. Christensen, Henning Kagermann write: Most established companies don’t understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don’t know how to build a new business model when they need it… Successful companies already operate according to a business model that can be broken down into four elements: customer value proposition that fulfills an important job for the customer in a better way than competitors’ offerings do; profit formula that shows how a company makes money delivering the value proposition; key resources and processes needed to deliver that proposition…

Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way, solve a problem that’s never been solved before, or serve an entirely unaddressed customer base… Capitalizing on such opportunities, however, does not always require a new business model… A new model is often needed, however, to leverage a new technology, or when the opportunity addresses an entirely new group of customers, or when an established company needs to fend off a successful disruptor…

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In the article Rethinking Industry Logic: Cross Industry Business Model Innovation by Norbert Haehnel writes: The phrase– Our industry is unique and should not be compared with other industries! is often used by business executives; but is it true? Strangely enough the most successful companies become prosperous not by excluding but by leveraging other industries success factors and applying them in a new context. Many companies that just innovate within their own industry boundaries and their current industry logic often struggle to stay competitive… When designing/redesigning a business model a business must overcome the current thinking patterns or dominant logic within their industry…

Successful leaders often apply business models from a different industry and combined them with a new approach that breaks the dominant industry logic… Companies should always look beyond their traditional industry borders to learn, e.g.; could you learn from ‘Nespresso’s’ direct sales model? Could you learn from ‘Ikea’ and outsource some core activities to your customers? Could you learn from ‘Gillette’ and their ‘razor and blade’ model? Could you learn from the ‘newspaper industry’ with their subscription model that makes customer pay you in advance before they get the product?

To succeed in the digital age; business must know how to delight customers: What excites them? What moves them? According to John Kay; economic success comes not from doing what others do well, but from doing what others cannot do, or cannot do as well… According to radical; a disruptive business model occurs when a business chooses a commoditization level not conventional to the industry, e.g.; Uber is utility, whereas BMW is exclusive.

A disruption would happen when premium cars of BMW’s nature are available on hire and on demand (more commoditized). That may sound weird, but when one figures out how that could be, they just invented a new business model! Radical business models are about transformation…

According to Robert Glass; it’s useful to think of transformational business change as profound, fundamental, irreversible… It’s a metamorphosis, radical change from one form to another… Transformational change is distinguished by radical breakthroughs in paradigms, beliefs, behavior…

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In transformational change; what are seen as obstacles may morph into opportunities,  irreconcilable opposites seen as creative change that is improbable… Transformational change is all about appreciating interdependence and working in partnership with others– people, organizations, social trends, unseen forces…

According to Patrick Stähler; most people think that radical business models are only about new technology and bringing new things to the market… but radical business models are also about being different in the way you delight customers… Radical is about being different, e.g.; it’s when you see the ‘telephone’ not as a device, but as a gate-way to whole new world…

Maelstrom of Change in Business– Manage The Unmanageable, Manage The Unknowable, Manage The Chaos…

Today’s business world is a maelstrom of changing markets, technologies, customers,  products… that are whirling so fast that they create an illusive and uncertain mind-set for managing a business… Chief executives of many companies are quietly lamenting that their business model don’t work anymore…

According to Bill Ford; the business model that sustained us for decades is no longer sufficient to sustain the business now… The biggest challenge has less to do with corporate strategy or management structures than with the nature of people and their instinctive reactions to change… The companies that have found ways to survive, thrive in the chaos of business hold valuable lessons, e.g.; paradoxically, many businesses are meeting chaos with chaos, i.e., loosening controls, sometimes radically, reorganization, restructuring… And yet, even these efforts are losing their effectiveness over time.

Today’s fast-moving reality is forcing a rethink of just how long companies can and should survive, and when they do survive– what business model will sustain their survivability… managing amid chaos is the central problem for many companies; it’s a predicament that arises from very nature of today’s digital economy… And some experts believe the solution requires a rethinking, retraining of leadership’s very mindset and assumptions…

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According to Geoffrey Colvin; the digital revolution makes business more chaotic by its shifting of information and power to customers, and it’s changing the way business is producing product in every industry, new or old, for example; today’s cars are essentially computers on wheels. Some credit cards have chips in them. Some greeting cards have chips in them. Some children toys have chips in them… Now, what did the makers of any of these ‘things’ know about computer chips? Probably very little; yet these and many other industries are being transformed by technology…

Hence, real challenge for many modern day business– in the maelstrom, chaos of disruptive technology– is leadership’s ability to manage uncertainty, manage the unknowable, manage the unpredictable. According to David Nadler; the concept of the corporation was to create a structure and rules to resist forces buffeting the enterprise… This concept worked fine in an era when great companies would last 30 years or so, but now in the digital era; what used to be an asset for a business is now a liability.

In the article Survive in the Business World is Crazier and Riskier Than Ever by Geoffrey Colvin writes: Businesses are not designed as being– structures or machines or collections of assets… A business is groups of people working together for a common outcome… But in the digital era while business is changing at the speed of light, these groups of people are not changing at the same rate of speed, and haven’t changed much in 10,000 years… Hence, the most intractable business problem is getting these groups of people to think and behave in new and very different ways, which is consistent with the rapidly changing technologies of business… 

In many situations it’s identifying the right business model or structure that works for both people and the rapidly changing business environment; often its managing the unmanageable, managing in chaos… Some of the reasons are familiar, e.g.; most change creates winners and losers in an organization and the caveman part of people’s brain is still wired to defend against loss, so people almost always tended to resist change.

According to Peter Drucker; the key management challenge of 21st Century is ‘abandon it yesterday’… By yesterday Drucker meant whatever it is in the business that ‘no longer works’, then change it… but, abandoning yesterday is excruciatingly difficult for many businesses because yesterday was often– safe, knowable, comfortable… But, it’s time for businesses to face reality; in a world where technology, competition, business models are in a constant state of flux, it’s highly unlikely, if not foolish to think, that many businesses will be able to keep-up or even survive as they might have in bygone decades…

Perhaps, in this digital age, some business will conduct themselves in the manner of Hollywood’s movie making business model, i.e., bringing together the right mix of people, hired for a few months or few years, and until the project is completed, then move on… However, sustainability is the key and in this revolutionary business age, it’s crazy to think that even more radical business models will not develop… Hence, the challenge for management and all stakeholders is to find the courage to embrace uncertainty, and think about how to manage the unmanageable…

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In the book The Strategy Paradox by Michael E. Raynor writes: A compelling vision, bold leadership, decisive action… these are the key attributes that are owned by the leaders of successful businesses, but unfortunately these same attributes owned by the leaders of failed businesses, too… In fact, most leaders seeking to maximize their chances for glory are often unwittingly setting themselves up for ruin.

The sad truth is that most companies have left their futures almost entirely to chance, and don’t even realize it. The reason? Leaders feel they must make choices with far-reaching consequences today, but must of them base their choices on assumptions about a future they cannot predict. It’s this collision between commitment and uncertainty that creates– a strategy paradox… This paradox sets up a ubiquitous but little understood trade-off, i.e.;– most leaders base their strategies on assumptions about an unknown future, and the more the ambitious leaders, either; hope their guesses are right or that they can somehow adapt to the turbulence that will confront them, then the more they are in jeopardy…

In fact, most leaders who try to predict the unpredictable or know the unknowable or guess the unguessable, only a small number of these ambitious leaders prosper, while many more find themselves at helms of sinking ships…

Hence, since many leaders are well aware of this dilemma even if only intuitively, and most will shy away from the bold commitments that success demands and many choose instead a timid, unremarkable strategy… and thus they are sacrificing the trade-off between any chance at success, against a better chance at mere survival. Hence, in this turbulent digital age there exists a desperate need for leaders who can manage in the unknowable, manage the unmanageable…

In essence these are leaders who have the vision and skills to commit specific resources in today’s world that will service customers, markets… that will emerge in a distant and inherently unpredictable future… These are leaders who have the ability to take bold actions while maintaining strategic flexibility… According to Peter L. Bernstein; many leaders admit that they do not know what the future holds, but many of them go on acting as though they did, and that can be dangerous when taken to the extreme… 

According to William Hunter; not many executives or board members look forward to the annual corporate clairvoyant ritual known as strategic planning; in no small part because of the unspoken recognition that ‘their’ crystal ball vision of the future has no greater fidelity than the competition’s glass sphere...

In the article Behavior is the Unknowable by Joseph Dager writes: People’s behavior is the key unknowable, and it’s the variable that most determines sustainability of a business model… According to Thomas Koulopoulos; businesses are at the beginning of a new era that focuses on the innovation of what I like to call– behavioral business models. These models go beyond asking how you can make what you make better, cheaper, or asking how you can do what you do faster. These models are about asking ‘why’ you do what you do, to begin with

The question ‘why’ is almost always tied to the question of how markets ‘behave’, for example: When Apple created iTunes it did not just create a faster, cheaper, better digital format for music, it altered very nature of the relationship between music and people… eBay did not just create a platform for auctions, it changed the way people look at the experience of shopping and how many communities plays a role in the experience…

Google did not invent Internet search, but Google changed the way people interact with the Internet and how people’s behaviors are tracked and analyzed, allowing advertisers to find and pay for buyers in a way that was inconceivable before… All of these are examples of innovations in ‘behavior’ that led to entirely new business models. Yet most business continue to be obsessed with just technology innovation… To paraphrase James Carville: It’s not technology, it’s– behavior, stupid…

Leaders should not abandon their concern for the long-term, but they must recognize its uncertainty… they must understand that the mental model of ‘control’ is out of touch with the nature of the new era of change… Trying to control the outcome of situations that are out of their control carries with it the certainty of ultimate failure…

According to Ralph D. Stacey; when the business leaders who still embrace the conventional wisdom of the traditional long-term strategic planning begin to understand that its only value is as a talisman against the anxiety of uncertainty… in traditional sense, the misguided comfort of long-term strategic planning and the notion that it bring stability is fantasy that is not particularly desirable… and, as odd as it may sound instability, which is at the ‘edge of chaos’ can, in fact, be the enabler of great creative innovation…

According Alfred W. Hübler, Glenn C. Foster, Kirstin C. Phelps; ‘chaos’ means that a strategy have gone wildly astray and it’s often associated with very real and tangible issues, e.g.; missed, ineffective leadership, disruptive technology, competitiveness…

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But managing ‘chaos’ is essential, particularly when it becomes clear that the goals of a strategy are unachievable, and therefore the outcomes become– random, unpredictable, often undesirable… According to Geoffrey Colvin; some business believe that a radically changed world requires a radically restructured business… hence, some companies take extreme steps in order to ‘meet chaos with chaos’, e.g.; some organizations can become completely virtually, which means– no job titles, they trade CEO role every six months or so, workers set their own hours and choose their managers by vote…

Some organizations find this approach a little too extreme, but the concept of decentralization and anti-control ethos seem to characterize a growing number of successful businesses… Managing the unmanageable, managing chaos– is the hardest thing a leader must do, and vast majority of leaders would prefer not to deal with it, if given a choice…

But, great leaders accept the challenge with a positive mind-set; they know the inevitability of uncertainty, they stay calm, they don’t think in terms of ‘winning’, and they work hard to optimize the business sustainability… 

Marketing Authorities and Economists Think Differently: How They View– Market Structure Vs. Market Segmentation…

Market structure: Many companies look to market structure and market segmentation to better understand the composition of markets and to identify and profile groups of people (i.e., potential customers) to grow their business… but is  ‘market structure’ the same as ‘market segmentation’ or do they differ?

Market structure is often defined as interconnected characteristics of a market, such as; relative strength of buyers and sellers, degree of collusion, types of competition, differentiation, barriers of entry… Whereas, market segmentation is defined as process of subdividing, targeting a mostly homogenous market into clearly identifiable segments having similar need, want, characteristic, demand… In segmentation the objective is to design a market mix that precisely matches the expectations of the customers…

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According to Jeanne Grunert; economists and marketing people each define the terms a bit differently: Economists look at the overall market structure with the goal of defining and predicting consumer behavior… Whereas, marketing professionals seek to define the market structure to create competitive strategies as part of their overall marketing plan…

Economists examine market structure to help with decision-making and they seek to analyze broad trends in order to better understand consumer motivation… While marketers also look at trends, but they defer in that economists tend to focus more on the big picture… The economist want to know more about how this information affects large segments of various populations. Whereas, marketing is keen to understand the information, but apply it to their company’s specific marketing strategy…

Economist define market structure according to how an industry– that’s serving a market– is organized, and these structures typically include:

  • Monopolistic competition: Type of imperfect competition such that companies sell products, services… that are not identical with each other, but competitive… they are differentiated from each other by branding, pricing, quality… hence, they are not perfect substitutes…
  • Oligopoly: Market is controlled by small number of companies that together have the majority of market share… Duopoly: Special case of oligopoly with only two controlling the market.
  • Monopsony: Only one buyer in a market…
  • Oligopsony: Many sellers but meet only a few buyers…
  • Monopoly: Only one seller of a product, service…  Natural monopoly: Serves the entire market demand, typically at lower cost than any combination of two or smaller, and more specialized companies…
  • Perfect competition: No barriers to entry, an unlimited number of sellers and buyers, and a perfectly elastic demand curve…

Marketing, in contrast, defines market structure a little differently, when they know that an industry is organized as describe as one of the above restructures, i.e.,  oligopoly, perfect competitive… typically they will dig deeper into industry, searching to better understand other factors, such as; nature of competition, vulnerability, customer behavior, price sensitivity… Understanding the market structure and landscape helps marketers develop relevant and effective marketing strategies… Hence, defining a structure from marketing perspective tends to seek answers to questions, such as:

  • What are the key motivational drivers that determine how, why, what… consumers buy?
  • How do product, service… packaging, features, brand, pricing… and other factors play into the consumer decision to buy?
  • What and where are the opportunities for growth in an industry through major innovation?
  • What are the key market differentiators and competitive factors?
  • Where are the key market opportunities, threats, risks?

Defining market structure isn’t always easy. Definitions remain fluid and subject to change even among various functions-groups within a company…  and it’s common that different companies view the same market structure differently… As may be observed, both marketing and economists confuse the terms; segments and structures, so much so that the line between the two is nearly obliterated. You can have a conversation with some of these people and, at the end, not only will you not know what they are talking about, but you feel completely confused about both subjects…

In the article What Can Economics Learn From Marketing Market Structure Analysis?  by Charles Fischer writes: The concept of market structure is central to both economics and marketing. The problem for economists and marketing professionals is that a meaningful operational definition of market structure is elusive… Each discipline takes a different methodological approach toward the definition… and each has its own strengths, limitations.

Economics is concerned with broad socio-economic,  micro-economic issues, e.g., competitive fairness, predatory pricing… Whereas, marketing is more concerned about the managerial aspects of market structure… Although, each discipline touches on the primary domain of the other, the primary distinction between the two is just a matter of relative emphasis… 

In economics, markets are classified according to the structure of the industry serving the market… Industry structure is categorized on the basis of market structure variables which are believed to determine the extent and characteristics of competition… In the traditional framework, these structural variables are distilled into the following taxonomy of market structures:

  • Perfect Competition: Many sellers of a standardized product, service…
  • Monopolistic Competition: Many sellers of a differentiated product, service…
  • Oligopoly: Few sellers of a standardized or differentiated product, service…
  • Monopoly: Single seller of a product, service… for which there is no close substitute…

These four market structures each represent an abstract (generic) characterization of a type of real market… Market structure is very important because it affects business outcome through its impact on the– motivations, opportunities and decisions of economic players participating in the market… A key element of the economic market structure is product substitutability, which is strategically linked to market definition… however, this also complicated by the fact that consumers have their own perceptions of product substitutability…

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In the article Market Structure Analysis by Steven Struhl writes: Some of the confusion surrounding market structures arises from the fact that two contrasting traditions of– marketing and economics– have embraced it… Comparing and contrasting the marketing vs. economic methods are briefly summarized as:

  • Marketing approach: Basic elements– analyze the relationships among– target markets and segmentation, potential customers, competing brands, risks, opportunities, business strengths and weaknesses, pricing strategy…
  • Economic approach: Basic elements– analyze the trends of buyers and sellers, extent to which products, services… are substitutable, analysis of comparative costs, market barriers to entry, extent of mutual interdependence– extent to which buyers and sellers depend on each other…

One important point that the economists have in common with marketers is that they include demand elasticity and cross-demand elasticity (or words meaning the same thing) in market structures. Also, how economists get to their answers is usually very different from marketing practices, for example; economists can do much of their work without ever talking to an actual person, and some even act as if asking people what they do or think is, in fact, superfluous to understanding what is happening in a marketplace.

This may seem slightly ridiculous, but we should remember that these people win ‘Nobel’ prizes, while humble marketers and market researchers do not, but perhaps they are onto something… The basic consideration in market analyses is reaching a definition of exactly what constitutes the market… Traditionally this is done by focusing on these factors:

  • Degree to which products, services… can substitute for each other, based on consumer perceptions…
  • Extent to which products, services… are intended to serve similar purposes…
  • Impact of products, services… on each other and as measured by elasticity of demand and its effects on each other, as well as cross-elasticity

In typical marketing approaches, it always start with the consumers… but, to reach an overall market structure, the needs of each consumer must be aggregated… This is an aggregated list of each consumer’s– behaviors, perceptions… The  two main aggregation methods are:

  • Behavioral aggregation; (linked to studying market impact)…
  • Subjective aggregation; (linked to the extent to which products, services… can substitute for each other, ratings, opinions, and perceptions)…

Aggregation is problematic: One question often asked is– what happens when aggregation consists of many idiosyncratic consumer opinions; in other words, how do you meaningfully aggregate all the individual consumer choices or opinions when these often reflect great diversity?  Since most marketing authorities do not consider market structures to be the same as market segments, hence finding segments almost always is taken to mean looking for groups that fit these following criteria:

  • Defined product, service… related needs different from those of all other groups…
  • Characterized or identified specific customer– needs, wants…
  • Reachable selectively (or targeted) through communications and marketing efforts…

Different segments of a market, may structure a market differently, since their needs are different… A clear understanding of a market’s structure and segmentation is paramount to understanding it’s– needs, buying processes, preferences, value perceptions, revenue potential… but then, as important, translating these insights into an actionable strategy is precursor to developing a successful business…

Reinvent Your Business Model: Think Customer, Aim Big, Move Fast– Kill the Old Business Model Before It Kills You…

Business models describe the rationale of how an organization creates, delivers, and captures value (e.g., economic, social, cultural, or other forms of value). 

Simply put, the business model describes– how a business positions itself within the value chain of its industry, and how it intends to sustain itself… The business model converts innovation to economic value, and spells-out how a company makes money by specifying how it’s positioned in the value chain… 

Whenever a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation, delivery, and capture mechanisms employed by the business enterprise– it reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, and make a profit… Ultimately the success or failure of a company depends first and foremost on how well its business model design matches customers’ priorities…

According to Joan Magretta; a good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate price?

The creation of a business model is much like writing a new story, which is a variation on the generic value chain underlying all businesses. This chain has two parts: First, associated with making something; second, associated with selling something. A business models need to pass two critical tests: the ‘narrative’ test (the story doesn’t make sense) or the ‘numbers’ test (the profit & loss doesn’t add up). However, a business model is not the same as strategy; it describes a system but they do not factor in competition…

According to Michael Porter: Dealing with competition is a strategy’s job and doing better than your rivals, which means being different… Ultimately, both a good business model and effective strategy are required for business success…

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In the article What Exactly is a Business Model? by Vivek Wadhwa writes: Many people in business talk about business models. But, if you quizzed a random sample of these people, you’d find that they really don’t know what a business model is… The reality is that a business model is like the old saying about teenage sex: everyone talks about it all the time; everyone boasts about how well he or she is doing it; everyone thinks everyone else is doing it; almost no one really is; and the few who are fumbling their way through it incompetently.

For almost any traditional business, the business model is so obvious that you don’t have to talk about it: Stores sell goods. Restaurants sell meals. Hotels sell lodging. Airlines and taxis sell transportation. Think of the business model as how you make money. How you get money out of your customer’s pocket and into your bank account. The new businesses, mainly Internet businesses, need to explain how they make money.

Some businesses still get away with generating traffic, so-called eyeballs, but not money. The underlying assumption in these cases is that the traffic means a likelihood of being able to generate money– somehow, some day. And if you want to be really trendy, use the phrase ‘business model’…

In the article Kill Your Business Model Before It Kills You by Ron Ashkenas writes: Why do business leaders wait too long to modify or abandon their business models? The U.S. Postal Service, even with the constraints of its government mandate, has known for years that its traditional model was coming apart; Kodak realized that film was being replaced by digital media long before it changed its investment strategy; even a sophisticated G.E. waited too long to reorient its lighting business away from incandescent bulbs.

From these cases, and others over the years, it seems to me that there are two keys for getting ahead of the business model curve, both of which apply to managers at all levels: First, remember that no business model lasts forever. The most dangerous trap that any manager can fall into is complacency. Peter Drucker reportedly once said; the biggest curse for any business was twenty years of success… Markets, environments, and technology can change so quickly that no amount of profit today guarantees success tomorrow.

Years ago, during the ‘dot-com’ boom, Jack Welch required each of his businesses to go through an exercise that he called ‘Destroy Your Business.com’ in which he asked them how ‘dot.com’ competitors could possibly put them out of business. In other words, long-term success is more likely when we welcome the anxiety of competition, instead of avoiding it. The second key is to continually and actively be on the lookout for new business opportunities that can potentially replace the current model. If you only invest in refining today’s business model you’ll get locked into it.

Testing, incubating, and investing in alternative models hedges against that possibility. Sure there will be failures, but with enough persistence and creativity, some viable alternatives will emerge. Nobody wants to be in the position of trying to defend a business model that has little runway left. So instead of assuming that it can’t happen to your business, take the lead in looking for alternatives– long before the competition leaves you in the dust…

In the article Your Business Model is Obsolete by Geoff Colvin writes: Innovation is the hottest word in business, but most of the discussion centers on products and services. The more profound challenge for most companies now is imagining a new business model, a new answer to the fundamental question: How do we make money? All business people face the challenge, sooner or later– even if business model has worked for decades, even if it’s working okay right now, odds are that it soon won’t be...

Not since the Industrial Revolution have we seen a longer or broader list of companies whose business models are suddenly obsolete. Start with virtually all companies in the media business, or any company that relies on owning copyrights or selling advertising. Then look at how major retailers– Best Buy, Target, Wal-Mart… are rethinking their models in response to show-rooming (i.e., browsing in-store and buying online from eBay, Amazon…)

The whole education industry needs a new model. So do banking, the post office, computer makers, big-pharma, music, and telecoms. They all need new business models, and almost all are having a hard time finding them: Business model innovation is a competency that doesn’t exist in most companies, since it never had to... For example, the newspaper business model worked great for 200 years; twenty generations of management didn’t have to change it.

Why should we expect that today’s generation would know how it’s done? It’s the same in most companies. Even in today’s environment, your new business model will not last nearly as long as the old ones… The new normal is Amazon: It launched with an innovative model as an online bookstore. Then, it also became a marketplace for other booksellers. Then, it started offering other products (e.g., clothing, computers…) requiring far different distribution infrastructures; then, it began selling digital books, music, TV shows, and movies online; created its own branded devices (e.g., Kindle and Kindle Fire); added web services for companies; and is now investing hundreds of millions of dollars in original programming, and in warehouses for same-day delivery of groceries and other merchandise…

The model is changing continually. Peter Drucker noted that ‘sloughing off yesterday’ is almost impossibly difficult, yet every organization must get used to doing, it regularly. The largest obstacles will be weak imaginations, threatened interests, culture… Business model innovation is the new essential competency: It’s hard, and it will separate tomorrow’s winners from the losers.

In the article How Sustainability is Reinventing the Business Model by Eric Lowitt writes: Do you remember when business was not only uncomplicated, but dare I say, easy? You found customers with unmet needs, created a solution to those needs, and sold the product or service at a profit… Essentially you created a business model; identify customers, create a solution customers want, source the needed materials to put the solution together, and get it to the customers– that mapped out a path to growth…

There are trailblazing companies that are rewriting conventional business thinking to overcome the challenge of sustainability. These companies view sustainability not as altruism, not as ‘do less bad’, but as an arrow in their competitive strategy quivers. They are marrying profitability with sustainability by seeking– partnerships with strange bedfellows, financing from unique sources, and ideas from the crowd. In short, these trailblazers are reinventing their business models.

Companies used to set goals they were capable of achieving on their own, that is; be number one or number two; go global…To achieve these goals, companies have entered new markets, invested heavily in developing countries, and adapted to the realities of the Internet. As long as they applied their core capabilities correctly and swiftly, they controlled their own growth trajectory. But, not anymore: Trailblazers think not only bigger, but also broader when setting the paths for growth. Sustainability is the catalyst that is leading trailblazing companies to reinvent their business models…

We are witnessing a fundamental paradigm shift in business today; business dynamics have evolved beyond many of current business models… According to Carol Kinsey Goman; today’s business leaders are experiencing shock as their old business model are breaking down, and many business leaders remain emotionally attached to theories that have long since been disproved… We are only just beginning to understand what it means to move from a purely analytical ‘objective’ perspective to one that includes; subjective, intangible and emotional aspects of business

In 1982, John Naisbitt wrote in his classic book ‘Megatrends’ about the collapse of the ‘information float’. He defined information float as the amount of time information spends in any media channel– the amount of time between transmission and reception. Today, technologies such as; social media, smart phones, high-speed data mining, ubiquitously networked electronic devices… have precipitated the collapse of the customer feedback float— the amount of time it takes a vendor to understand whether their product suits the market’s interests. This collapse of the customer feedback float becomes part of the new psychology behind the new business models…

The old business model was– market research leads to a defined problem that leads to a defined solution that leads to big scope development… Whereas, the new business model says; take a step back from any pre-defined ideas about a product and think about possible consumer pains, undiscovered needs… Allowing your perspective to shift from a big-plan-specific vision to a fluid-discovery-process… Seeing business growth as a series of discrete discoveries, instead of an over-reaching plan, that wires your brain for flexibility. This, in turn, will enhance creativity and ability to innovate… It’s a new way of thinking; a clearer, braver way to think…

According to Clayton Christensen; one of the most compelling cases yet for the maxim: You can build a better mousetrap, but that doesn’t mean they will necessarily use it… Christensen’s argument goes something like this; innovations that disrupt markets nearly always start with a new, or newly applied, technology that offers a significant improvement over previous ones. But, great technology alone is not enough for success.

To truly shake things up in a market, innovations also needs– new business models and value networks– new supply chains, channels to market… and, sometimes it can take a long time for new business models and value networks to evolve…

However, it’s time for business models to get back to being actual business models: If you really want to grow your business, then base your business model on innovation and new value creation; most important–value what your customers really wants and are willing to pay…

Micropayment Model for Monetizing Small-Microtransactions: Behavioral Shifts are Reigniting the Micropayment Option…

Micropayment is an online financial system that processes very small sum of money; some say less than one U.S. dollar, others say less than five U.S. dollars… but, exact definition depends on the business case and target group.

According to experts, key micropayment drivers, include; monetization of digital content, small online purchases, and emergence of new business models… However, one slightly cynical provider has commented– that the true meaning of micropayment is any transaction whose value is currently too small to be worth bothering with– about one U.S. dollar…

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One important issue that has prevented the successful emergence of micropayment systems is the need to keep processing costs very low for individual transactions. This is difficult when processing transactions that are very small sums of money; even if the fee is just a few cents.

According to ‘Peppercoin and Ipsos-Insight’; more than 10 million consumers said that they had purchased digital content for less than $2 in the past year… While digital music is the item most likely purchased, other items, such as; articles, games, ringtones… are also frequently purchased. However, the micropayment is still messy-fragmented– bit like early days of the Internet itself– and it still lacks a universal solution, i.e.; low-cost, high-speed, secure, flexible… 

One trend recognized by many people– that play games on smartphones is a shift among developers to micropayment as an alternative to traditional subscription-based payment, that is; providing the basic game for free, but requiring some features to be paid for with micro-currency, which is ultimately fed by real-life payments. For example, you might download a racing game at cost, but accessing better cars and extra tracks costs in-game money, which are purchased one-click at a time, without a credit card. With this model, the player can scarcely resist the upgrade purchases: Developers now have monetized the game.

According to ‘Frost & Sullivan’; growth of micropayment is driven by usage of mobile payment solutions… and, cloud-based mobile payment  is also expected to contribute to the expansion of micropayment. Although, traditionally, micropayment is the processing of very sums of money, e.g., less than $1.0… and, since micropayment is without any industry ‘standards’; some companies are redefining micropayment to suit their systems, for example; ‘PayPal’ defines micropayment as payment that are less than $12.00, and they charge a lower fee for these transactions.

Also, Facebook has ventured into the micropayment realm, using PayPal’s micropayment service for Facebook Credits. Facebook Credits are a form of virtual currency that consumers pay up-front for. The credits can be spent in apps on Facebook. Apple also uses a form of micropayment for purchase of its songs. But, Apple’s model is slightly different from the intended use of micropayment: Apple aggregates a user’s song purchases to one credit card transaction and allows users to prepay by putting credit on their account, and that seems to be the prevailing micropayment scheme…

In the article Google Rebooting Content Micropayment Initiative by Robert Andrews writes: Consumers may not buy all kinds of web content, but Google is now courting publishers who want to charge for rebooted version of its micropayment  system. Google is now going ahead with full version of its content micropayment platform under the Google Wallet moniker.

According to Pali Bhat; Google Wallet will support content payments typically ranging between $0.25 and $0.99, with content obfuscated after an opening preview and a 30-minute ‘instant refund’ for unhappy users. This development marks the arrival of a big beast in to a micropayment facilitation space populated by several smaller vendors like ZnakIt, but also bigger providers like PayPal, whose own digital content platform has been gathering pace. Google’s system works like similar rivals, for example, Cleeng, redacting  article text in what Google is calling a ‘rich preview’ and ‘rich obfuscated content’. In the same way, images that must be paid for can also be pixelated.

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Payment must be made before readers can see the whole article. The Google Wallet overlay enables swift (dare I say ‘frictionless’?) payment for users who already have card registered in Google Wallet account: It’s all rather quick. But, will any of it work?

According to Google: Users love free content, and so we expect that advertising will remain most effective monetization model for most content on the web. However, we know that there is more great content that creators could bring to the web if they had an effective way to sell individual articles that users can find with search. Google has been making good advances with Google Wallet for digital goods this year, introducing in-app payments and recurring subscriptions, plus payments for games…

In the article Death of Micropayment by Elizabeth Millard writes: Will the concept of micropayment fade into the footnotes of e-commerce history, or will this business model find new success? Despite the number of failed companies in this sector, advocates of the micropayment model still believe it can work. During the boom, they say, the concept was ahead of its time…

Today, among the micropayment firms are working hard to spiff up the industry’s image, challenges remain. However, according to Clay Shirky; it’s possible that the micropayment business model is too flawed to work. Everybody who imagines doing micropayment is basically thinking about forcing users to pay a little here and a little there… Literally, they’re nickel and diming them. He noted that the idea of this model is intriguing enough to stay alive, despite past failures and current problems.

To become profitable, a site must elicit large volumes of transactions, which is very difficult, even for established e-businesses. Even online porn industry, which has tried on several occasions to adopt a micropayment strategy akin to the 25-cent peep-show booths in the offline world: They can’t make it work online… And, those guys are the e-commerce geniuses, so if they can’t do it, who can?

However, despite rough road of the past and current potholes, micropayment companies still believe sunny days lie ahead. According to Kurt Huang; I think future is very bright… The music industry is doing us a great favor in validating the price point, and indeed, micropayment companies are carefully watching the pay-per-song battles currently being waged heatedly among Apple’s iTunes Music Store and its competitors. It is possible that similar conflicts will arise in the video game, publishing, movie… industries.

Going forward, the market is poised to leverage the technology, more so than back when the technology was first introduced. Before, the timing wasn’t right, but it is now…

micropay thCAM0U1W5In the article Micropayment Promising or Penny-Ante by Steve Smith writes: Online micropayment is an idea that just won’t die…nor will it quite come to life. Attractive as it may sound to consumers and some publishers, the idea of spending $2.0 – $3.0 here or there for a song, an article, or a day of access to a site remains in a zombie-like state. Despite increased interest in the model and no shortage of firms with payment solutions users just aren’t buying in…

Ultimately, it comes down to consumer behavior, and there are no signs that has substantially changed. Sure, millions of people are buying 99-cent songs at iTunes, but according to Apple, most are buying them in larger album packages rather than nickel-and-dime purchases. People do not buy content same way they do candy.

Some of the micropayment solutions themselves admit that the early customers are not loading more money into their accounts than they expect to spend on initial buys, which suggests that a significant barrier for this model remains. Without a big enough network of partnered content sites, consumers don’t buy into the network and spend across multiple partners.

And without this kind of consumer support, no one company can break through to be ubiquitous in the market and attract the major content publishers… No doubt the large companies are being sensible by sitting back and waiting for the category to shake out, but unless a major content venue steps-up to let itself and its customers experiment with these micropayment networks, the category may not shake-out so much, and stay zombie-fied waiting for the right voodoo.

Trust in business is a necessary condition for consumer to buy anything. That’s why companies need to ensure that all their processes, and especially their payment systems are trustworthy and secure. Increased security will attract more customers and improve business overall. However, high levels of security bring high costs.

Companies must weigh benefits and costs associated with different levels of security. For example, the amount of money a company may pay for security could be more than the amount lost to fraud. Also, the cost of clearing and settling a payment is approximately 20-cents, which is prohibitive for any purchase of one dollar or less… that is a key-difficult hurdle for micropayment to overcome…

According to Adam Thierer; there continues to be a debate about what counts as a micropayment, but the fact that so many more people are paying just a couple of bucks or less for content in mobile-app stores suggests that its only going to be easier for people to pay even smaller sums for content in coming years… We’re not nearly as reluctant today to surf away when something says 99-cents on our screen, and increasingly we’re hitting the ‘buy’ button…

The really interesting question is to what extent we can expect micropayment to grow and become more widely utilized for other types of content. Some people in the ‘news’ business are hopeful that micropayment can help monetize news content… However, most are skeptical that micropayment is going to ‘save the news’, since funding ‘news’ is really expensive and micropayment alone will not cover the cost…

But perhaps there are options, for example; micropayment could become a part of an array of new business payment models that media could tap into in an effort to reinvent themselves, and thrive going forward.

For example, subscriptions, advertising, micropayment… working together could all be part of the answer. However, we are still tinkering with the micropayment model, and many people have grown at least a tad bit more optimistic that micropayment can at least be considered part of the conversation, again…

Changing Face of Global e-Commerce: More Personal, More Mobile, More Channels, More Selection, More Convenience…

E-commerce: A good e-commerce user experience is unobtrusive and transparent– ‘it just works’… The best content in the world won’t drive revenue if nobody sees it…ecommerce 1357822839_470932899_1-Ecommerce-Portals-Sector-10E-commerce: Build a business, not a website. An e-commerce website is a business– first and foremost; the website is merely the commerce delivery channel. An effective e-commerce site begins by understanding and defining the business strategy, goals, and metrics for the site, and then crafting a website that is tailored to meet those site objectives.

Begin with 5-Ps: Proper-Preparation-Prevents-Poor-Performance: You don’t build a house without an architect and a blueprint, and you shouldn’t build website without a digital equivalent. If you want your digital ‘house’ to crumble, the surest way to ensure failure online and waste untold time and money is to skip proper planning and jump blindly into implementation.

A successful e-commerce business must deliver real economic value… The Internet has torn up the rulebook by which businesses have traditionally operated, and the new rules are still being formulated… According to Evans and Wurster; companies must be prepared to repeatedly revise their ideas and strategy as their e-commerce business evolves. They must also be prepared to rethink, radically– the structure of their organizations and not shrink from making major changes to operations. The future of e-retail is global… there is an increasing trust and confidence in purchasing online… e-commerce is becoming an integral part of any country’s economy and should be considered so…

According to Helen Thomas; e-commerce trends for 2013 clearly pose a win-win situation for both the brands and their customers. Online retailers will have to build distinctive strategies to suit their business motives, whereas consumers will be ‘picky’  looking for better alternatives. Companies will have to spend more time building brand loyalty by consistently providing a great user experience for both existing, as well as newly acquired consumers. The trends that are shaping e-commerce are: Go Local! Go Mobile! Go Cashless! Get a Video, Share it Social Media! Get Short, Simple, Original Content!

E-commerce Market Trends: B2C e-commerce sales in 2012 grew 21.1% to top $1 trillion for the first time, according to new global estimates by eMarketer. This year, 2013, sales will grow 18.3% to $1.298 trillion worldwide, eMarketer estimates, as Asia-Pacific surpasses North America to become the world’s No. 1 market for B2C e-commerce sales.

Sales in North America grew 13.9% to a world-leading $364.66 billion, in 2012– a figure expected to increase 12.2% to $409.05 billion, 2013– as more consumers shift spending from physical stores to retail and travel websites– thanks to lower prices, greater convenience, broader selection and richer product information. But despite strong growth, North America’s share of global sales will drop from 33.5% in 2012 to 31.5% in 2013 as Asia-Pacific surges ahead. B2C e-commerce sales in Asia-Pacific grew more than 33% to $332.46 billion in 2012.

This year, 2013,  the region will see sales increase by more than 30% to over $433 billion– or more than one-third of all global B2C e-commerce sales. The rapid growth in Asia-Pacific sales is a result of several factors. Three Asia-Pacific markets– China, India and Indonesia– will see faster B2C e-commerce sales growth than all other markets worldwide in 2013, while Japan will continue to take a large share of global sales. China, unsurprisingly, is the primary driver of growth in the region.

The country will surpass Japan as the world’s second-largest B2C e-commerce market this year, taking an estimated 14% share of global sales, as its total reaches $181.62 billion, up 65% from $110.04 billion in 2012.  The U.S. will remain the single country with the largest share of worldwide B2C e-commerce spending, at 29.6% in 2013– down from 31.5% in 2012 despite relatively strong growth. This will continue throughout the forecast period, though China is closing the gap fast. In 2016, China will have 22.6% of the worldwide market vs. 26.5% in the U.S.

China also boasts the highest number of people who buy goods online in the world– nearly 220 million in 2012, according to eMarketer– a result of increasing Internet penetration; burgeoning middle class with growing trust in online shopping; government-driven campaigns to promote consumerism; improved infrastructure; greater product selection and services offered by online sellers and retailers.

According to eMarketer, B2C e-commerce sales in the U.S. will grow 12% to $384.80 billion in 2013—after growing 13.8% to $343.43 billion last year– as average B2C e-commerce sales per user reach $2,466 this year among those who buy goods online in the U.S. Average spending per user is lower in China– set to reach just $670 this year, eMarketer estimates– but the sheer growth in China’s digital buyers is staggering. The country will nearly double the number of people buying goods online between 2012 and 2016, eMarketer estimates, resulting in considerable upside for B2C e-commerce sales in China through the forecast period.

In the article Trends That Drive E-Commerce Strategy by Heather Clancy writes:  Retail businesses are in the middle of one of the most profound business model transitions for the industry ever, as consumers transfer their shopping habits to mobile devices and e-commerce Web sites. So where should business development executives and merchandise managers’ focus their attention?

A recent analysis from Forrester Research (U.S. Online Retail Forecast, 2011 to 2016) offers some sign-posts. Overall, the research firm believes we’ll spend $327 billion annually by 2016; that compares with $200 billion spent in 2011. Here are five trends underlying that prediction:

  • Higher percentage of sales from existing online shoppers: While new shoppers are driving increases in e-commerce activities, existing ones are actually more of a factor. Forrester predicts that the average shopper will spend $1,738 annually by 2016, compared with $1,207 in 2011. So, it’s imperative that retailers consider– technology, Web site design principles, and incentives that encourage people to fill their online shopping carts with more items.
  • Fourth quarter remains dominant cyber-season: More than 70% of the shoppers who purchased items online during the fourth quarter of 2011 said that they did so because of deals and promotions, Forrester reported. In November and December 2011, e-commerce accounted for about 15% of overall holiday sales, which is a much higher percentage than during other times of the year.
  • Keep an eye out for flash sales sites: Forrester calls out sites that offer what we used to call ‘fire sales’ in real world retail. These are sales where the prices keep dropping, as long as merchandise lasts.
  • Online loyalty programs are more of a factor: Forrester reported that in 2010, about 9% of shoppers belong to new frequent buyer programs. In 2011, about 12% of online shoppers were members of such clubs.
  • The tablet is driving mobile shopping: The smartphone is extremely important for when shoppers are in stores, but the tablet is more likely to be used for researching and for browsing products online. In addition, shoppers were more likely to ‘place an order for physical goods’ using a tablet than a smartphone.

In the article Develop an E-commerce Pricing Strategy by Mark Hayes writes: With the advent of highly competitive pricing tools, winning the online pricing war can be lose-lose for e-commerce retailers. Large online retailers have an advantage in competitive pricing, as they can set the price low enough to run smaller retailers out of business. But there are other ways to compete – and it all starts with developing (or at least thinking about) an e-commerce pricing strategy:

  • Know your Margins: The reality of online retail pricing is that the lowest price doesn’t always win. In fact, pricing battles usually end with you pricing your products too low. When you consistently price too low, your customers will always expect the lower price, even when it is unsustainable to your business. As a result, you could lose those customers over time.
  • Know your USP (Unique Selling Proposition): What makes you different? Every company has to tackle this question to determine their value proposition and target market. With pricing competition at an all-time high, retailers have to ‘think outside of the box’ when crafting a marketing or promotional strategy for their online store…
  • Lose-Leader (Selling Below Market Value): Highly discounted pricing can be advantageous if paired with the appropriate merchandising strategy. The Lose-Leader Strategy assumes that an item sold below market value will encourage customers to buy more overall… The end goal is to sacrifice losing money on one item in order to make a profit on the rest of the products sold (i.e. cereal cheap, milk expensive).
  • Offer Incentives: Once you know your margins and price accordingly, then you can offer  incentives to motivate your customers to buy. Even if you can’t sustain an ultra-low price in the long-term, you can always offer limited time pricing to reach these customers… Being savvy with your incentives allows you the ability to garner attention to your products, and build a reputation for having good deals, without breaking the bank.
  • Diversify Product Offerings: To offer a diverse product offering that will sell, e-commerce store owners must first understand their market demand… Having a better idea of what your customers want gives you the opportunity to sell and generate profit from diversified products. The end result of proper diversification is that online retailers will offer bad options to emphasize the good, driving customers to act based on perceived value.
  • Test your E-commerce Pricing Strategy: As with many things in e-commerce, one size does not fit all, so it is important to measure and test the success of changes you make to your online store’s pricing strategy. Ideally, every change should be tested and validated with an analytics tool…

While e-commerce sales will grow for all industries, according to Gartner– retail, discrete manufacturing, wholesale distribution, entertainment, and travel/leisure industries have the greatest potential for growth. No surprise here. But, keep in mind, that if you are a solopreneur or a small, completely virtual firm, you have a huge competitive advantage over larger companies trying to digitize their sales efforts.

The companies that learn how to make each customer experience a stellar one will stay at the head of the industry. Gartner sees the changes in– mobile, social and globalization as the 3 most important reasons to evaluate your e-commerce marketing strategies. The wide availability of cloud technology and finely honed market research are some additional reasons to reevaluate your product marketing strategy.

With globalization, one of the most overlooked strategies is– how well you are able to market to the needs of individual international customers. For example, while Americans prefer uniqueness and individuality; the Chinese prefer long-term relationships…

There are a number of challenges for e-commerce businesses on the horizon, and companies that adjust first– then their success will come easier and swifter… This is scary time, but for brands and companies who get it, who are able to make sense of it, this is an exciting time, a time of great opportunity… But for those who don’t– well, try something else…