BMGT301 Mid Term Review 1 i Fundamentals of Information Goods C2 C3 a i Basic Concepts Describe a product A B P 1 A atoms Example Beer 2 B bits Example Music a 50 of advertising BIT 2 P price ALL GOODS ARE A COMBO OF BOTH A B As time goes on new products have fewer atoms and more bits a b ii What is a Digital Information Good Information good Collection of symbols bits only its utility depends on the arrangement of symbols Infinitely replicable 1 2 Easy to distribute 3 experience goods 4 Time dependent or perishable weather forecasts stock 5 quotes or news indestructible the quality does not deteriorate over time 6 value might accumulate over time 7 non rival 8 non excludable 9 Example Recipes Digital goods Anything that can be expressed as a string of 1s and 0s bits a Example of both music 1 Digital Goods Information Goods iii 3 major properties of information goods 1 Experience good Consumers cannot tell their quality value before consuming them watching a movie a i Information goods ARE experience goods Very hard to sell information good because we don t know the value willingness to pay b Ways to promote experience goods i ii iii reputation preview expert customer reviews iv v trial sample money back guarantee sample warranty 1 Public good example lighthouse national defense TV radio broadcast Opposite would be your home car Nonrival One person s consumption does not diminish the amount available Nonexcludable It is costly to exclude people who do not pay from consuming a to another a the good a i ii 2 ways to turn public into private Using technology and legal system PROTECTION patent trademark copyright trade secret 1 Economics of scale The increase in efficiency of production as the number of goods being produced increases a the first good you produce will always be the most expensive one i Digital business is DIFFERENT this is not on guide 1 Atom centric business Physical Product Markets rule a b c a b c a i i of Big 3 GM Toyota Ford Anheuser Busch Miller Coors Exxon Mobil Texaco Chevron 2 SUPPLY AND DEMAND 3 Very common for a market leader to emerge in digital business but not in physical goods market 4 Digital business almost free to reproduce after original is made Computer Operating Systems 91 Windows Online Music Retailing 67 iTunes Internet Search Engines 52 Google Comprehensive Trend of Atom Bit 1 Examples E book digital photography E mail faxing Online classes Implications of the 3 properties in selling information goods 1 Economics of Scale high sunk fixed costs very low marginal costs expensive to produce and cheap to reproduce unlimited capacity but only the company with the lowest prices gets sales Bertrand competition being a near monopoly is NOT illegal but a company cannot leverage its monopoly power in one product area to compete in another product area by squeezing suppliers or tying products implication of MC 0 1 Experience good Reputation preview expert review sample customer reviews money back 1 Public good patents trademarks and legal implications 1 Economies of scale Implications of Diseconomies of Scale multiple firms exist Learning by doing Fixed cost a b a i a b a b c d e 2 IT Strategy C4 C5 Basic Concepts Tools for analysis of competitive advantage self study 1 Occupy a niche product differentiation own a niche market so that no one will compete with you 2 Price discrimination 3rd degree price different groups of customers based on characteristics ex 2nd degree offer different packages at different prices to attract the correct 1st degree find each customer s willingness to pay and charge them that a student discounts b customers hardest to do c amount 2 Lowering cost examples process data cheaper Just In Time Inventory 1 Porter s 5 forces model the 5 forces that determine the competitive intensity and attractiveness of a market The Threat of New Competition The Threat of Substitute Products or Services Bargaining power of consumers Bargaining power of suppliers Intensity of competitive rivalry 1 Value chain set of activities through which a product or service is created and delivered to customers Primary components of the value chain Inbound logistics getting needed materials and other inputs into the firm from suppliers Operations turning inputs into products or services Outbound logistics delivering products or services to consumers distribution centers retailers or other partners Marketing and sales customer engagement pricing promotion and transaction Secondary components Firm infrastructure functions that support the whole firm including general management planning IS and finance Human resources management recruiting hiring training and development Technology research development new product and process design Procurement sourcing and purchasing functions 1 Resource based view Ch 2 of textbook A firm must control a set of exploitable resources that are a b c d valuable rare imperfectly imitable non substitutable b Comprehensive i What s wrong with Nicolas Carr s argument IT has become a commodity citing that once every business has it the value 2 of IT will diminish 1 NOT TRUE only focused on its hardware part he has a narrow definition of IT 1 Provides platform for movement it s a platform of innovation rather than just a cost i The role of technology in reshaping the home video rental industry 1 Blockbuster vs Netflix Blockbuster because CDs are so thin they were able to mail it Netflix streaming capability a b core problem in video rental business matching product to customers c desires 3 IT and Organization C6 C7 Basic Concepts ON THE FINAL Organization design a i Market price mechanism Organization Hierarchy Coordination Supply Demand Giving Dividing Jobs Motivation Price Promotion 1 motivation and coordination 1 How organization achieves the 2 goals hierarchy Decision rights and centralization hierarchy is associated with different decision rights efficiency principle to achieve decision rights collocate decision rights with 4 a b necessary information knowledge i ii centralization more knowledge to decision maker UPS Fedex Amazon decentralization Delegate decision rights to knowledge owner open source software c Two types of knowledge i general scientific easily communicated ii specific difficult to communicate 6 a b c d e 2 a i ii iii iv Principles for designing good incentive plan Look at quality instead of quantity Focuse s on the bottom line Includes factors that relate to productivity Is accurate uses good indicators for
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