Digital Business Management - Essay Example

? Digital Business Management Contents Introduction 3 Business Model 3 Online value proposition (OVP) 5 Online Revenue Model 6 Target market 7 Marketand product strategies 8 Recommendation 10 Conclusion 11 Reference 12 Bibliography 12 Introduction Prada Group is a retail store operating in Milan Italy, which started operating way back in 1913 by Mario Prada. Prada is a luxury store which sells leather hand bags, leather accessories, travelling trunks, luxury accessories and beauty cases. It is because of the designed goods which are handcrafted with fine materials and through sophisticated techniques, the store rapidly grew to be the shopping point for most of the European aristocrats and the elegant members of haute bourgeoisie in Europe. Prada is an official supplier of the Italian Royal family and has been serving since 1919. The turning point came when Miuccia Prada, granddaughter of Mario launched a partnership with Tuscan business man, Patrizio Bertelli. The partnership created a new era with creativity and new business ideas. In 1977, Bertelli set up I.P.I spa in order to consolidate the production and in the year 2003 I.P.I spa was merged with Prada spa. It opened up a new store in 1983 in the prestigious Via Della Spiga in Milan. A new brand named Miu Miu was launched in the year 1993. In the year 2003 the store entered into a ten year licensing agreement with the Italian eyewear Luxottica, one of the leaders in eyewear industry. In the same year Prada went into joint venture with Spanish cosmetic PUIG beauty and fashion group and launched a new women’s fragrance by the end of 2004. Prada became the official partner of Italian Pavilion at the Shanghai World Expo in the year 2010 and in the same year it launched its collection and eyewear postcard (Prada Group, p. 15). Apart from the offline stores the company also operates through online mode of business. Business Model E-business is often defined as transformation of some key business through the use of the web and internet technologies. Business model is architecture for the products and services and of the information flow which also includes the description of the business partners along with their roles (Hiltz, Murphy & Sigala, p.454). Business models are the most discussed topic and also the least aspect of the web which is understood. The web has changed the traditional business model of business. In the basic sense, business model is the method of performing business through which a company can sustain and generate sufficient revenue. A business model is essential and it shows how a company can make money by specifying its place in the value chain. Some of the business models are quite simple whereas others are complex. Internet has given rise to new kinds of business models. But at the same time the web is also reinventing tried and true models for online business. Business models have been defined and categorized into many different ways. Internet business model continuously keep on evolving and thus new as well as interesting variations can be expected in the near future (Rappa, “Business Models on the Web”). Prada Group had developed a business model which takes into consideration the value proposition and the revenue model. The reason behind the success of Prada group is the adoption of the business model. Figure 1: Business Model . (Source: Hiltz, Murphy & Sigala, p.454) Online value proposition (OVP) The first and foremost step in online business model is the value proposition for the relative business. Value proposition is mainly required for three things which are to target segmentation, focal the customer benefits and key resources of the business which can help deliver the benefit package in a much better way than its competitors. Value proposition is often considered as one of the smallest benefit package that a business offers to the customers. But the value cluster approach has helped the online business to address the multiple customer segments and at the same time offer a variety of benefits to its targeted customers. The definitions of value proposition along with the offerings which are offered online are the crucial steps in the formation of the business model (Hiltz, Murphy & Sigala, p.454). Prada Group’s value proposition has played a very crucial role in making it one of the most well known brands not only in Italy but all over the world. The value proposition of the brand plays an important role in the conversion of the prospective customers as to why they should buy products from them. In the highly competitive market in the online sector, it is value proposition of Prada that has helped it to stand out in the competition (Wow Consulting, “An effective online value proposition”). The reason behind an effective online proposition of Prada Group is that the brand has been able to target the specific customer sector, which is for the high class people including the royal families and the aristocrats. The brand has offered products which are not available to its competitors or even in offline stores. Prada owns a number of luxury brands in the world which represents a key part of the company’s assets. Prada tends to go beyond the conventional solution in order to satisfy the customers and their taste and preference. Prada knows what the customers wants and clearly answers the question what is it in for the customer in their minds. Online Revenue Model There are several alternatives which are appropriate for revenue model and also different combination of models which is made available for distributed information system. Potential revenue models usually includes sales of direct product and services, transaction fees, advertising, affiliate deals, subscription of service and information sale. A composite revenue model aims to exploit a combination of sources of revenue in order to maximize profitability (Hiltz, Murphy & Sigala, p.460). The type of revenue generation model adopted by Prada Group is that of Manufacturer Model also known as direct model. The web allows a company or a manufacture to reach its buyers directly and compress the channel of distribution. Manufacturer model is the most appropriate form of revenue model for Prada Group as it is the manufacturer and the web allows it to sell of its products directly neglecting the distribution channel. The manufacturing model is based on the efficiency, customer service and also a better understanding of the customer preference (Rappa, “Business Models on the Web”). Prada Group revenue model also uses the advertising model but mainly focuses on the Manufacturer Model. The Advertising Model on the web is an extension of the traditional media. The broadcaster is the web page of Prada Group which provides contents and services which are mixed with advertising messages in the form of banners. These ads may be one of the major sources of revenue. The advertising banners displayed on the website generate revenue for the company. Prada Group has adopted the revenue model because these particular models works best when the volume of customers is really high and are highly specialized. Portal is defined as a search engine which tends to include various services and content. The site usually generates a high traffic thus making it profitable for the company. Prada Group tends to use a niche portal which cultivates well defined demographics of the users targeting mainly the rich section of the society (Rappa, “Business Models on the Web”). The company estimated that by next five years about 40% of the revenue would come from the internet (Prada Group, p. 28). The next revenue generation model is the Infomediary Model, where the data collected are about the customers and their habits which are valuable when it comes to targeting the desired customers. The information’s obtained are carefully analysed and are used in marketing campaigns against the target audience. Prada with the help of Infomediary Model can analyse the segmented market and manufacture products accordingly. Target market In an online business it is important to define the target market. The company should know as to who are the customers that the brand is trying to focus and reach them (Brown, p.25). In order to identify the target market, market segment should be carefully defined. It helps the company with a set of specific characteristic through which the target market can be identified (Abrams & Kleiner, p.88). Prada Group has targeted mainly the high class people of the society including the royal family and the aristocrats. The products of Prada group have been segmented as a luxury brand and thus it is made available only for the higher section of the society. The products are highly costly and are not targeted to the normal people. Prada is a historic brand which represents the best Italian tradition and culture with sophisticated elegance and style and with the best quality available. Therefore Prada Group mainly targeted the people with a higher income level and who belong to the high class. Market and product strategies Prada Group had launched a variety of products since its existence. The first product that was launched by Prada was women footwear followed by women ready to wear collection, apparels, handbags, men collection of ready to wear and footwear. Prada also launched eyewear collection, fragrance for men and others. Prada Group product also includes Prada phone by LG (Prada Group, p.15). Prada Group has launched a variety of products and all have been equally successfully and has helped to generate revenue for the business. For a business to become a success it is essential to follow the marketing strategies and adopt then according to the requirements of the company. A various number of frameworks have been developed in order to identify the strategic alternatives that an organization should consider while choosing the business level strategy. The most important strategies include the porters generic strategies, strategies based on the PLC of the product and the Miles and Snow typology (Griffin, p. 243). For Prada Group, Porters generic strategies would be taken into consideration. According to Porter, an organization can pursue any of the three strategies at the business level which are differentiation strategy, cost leadership strategy or the focus strategy. In the cost leadership strategy, the organization aims to achieve the lowest delivered cost to its customers and provides a various number of competitive advantages to its firm. A firm which has adopted the low cost strategies tends to reduce the competitive rivalry among the firms. The firm can also become the price leader as no other firm would be able to uncut the price set by the company. By keeping the cost low the firms is able to sell its products at a much lower price and still make profit out of it. One of the examples is Timex which has used the cost leadership strategy (Griffin, p. 244). In case of Prada Group, the cost leadership strategy is not adopted by the company as the products are highly costly and are not made available to the common crowd. Prada target customers are the high class society and therefore this form of strategy is not adopted by Prada Group which is one of the luxurious brands in Italy. The differentiation strategy is the next type of strategy suggested by Porter. In differentiation strategy the product is recognized as a premium perceived value in the eyes of the buyer and its potential customers. Most often a premium price is charged for the products. Companies which apply the strategy of differentiation are able to charge more price than the competitors as the customers are willing to pay a higher price in achieving the product. Rolex pursue a differentiation strategy (Botten, p.269). Prada Group products differ from those of its competitors but the company does not apply the differentiation strategy. Although the company products are very different from other brands and them charge a high price over other brands but the firm target market does not comprise of the common or the higher middle class people. They cater to the high sections, rich people. The brand, Prada Group follows the focus strategy as their target market is only the rich people of the society who can afford the products along with the royal families and aristocrats. The brand has focused mainly on one type of customers and makes every effort to satisfy their needs and wants. The brand has adopted the focus strategy by way of differentiating the products in the focus market which caters to the royals and aristocrats. Therefore Prada Group has followed the focus differentiation strategy to sustain in the competitive market and selling only those products which are needed by the target customers. Recommendation Prada Group has been performing well both in terms of revenue and profits. EBITDA for the year ended January 2011, the company net revenue increased from 18.6% to 26.2%. The company targeted the higher class society of the people and is termed as a luxurious brand. The offline retail segment of Prada Group has performed well and at the same time has established itself in some major countries. E store of Prada has been developing itself so it is recommended to put more emphasis on the online retail market. With a change in consumer mind set, the customers are willing to buy more through online stores rather than going to the offline stores. Instead of going for international expansion which would cost the company, it can cater the needs of the customers through its websites and online marketing. It is advantageous for the firm to spend more on the online marketing as revenue is generated from various sources. Prada Group can utilise any of the revenue generation model and can generate revenue n accordance to the needs of the firm and its customers. Presently the most appropriate form of revenue model which is utilised by Prada Group is Manufacturer Model. Apart from this model it is recommended to the firm to use more of the Advertising Model and the Infomediary Model. With the help of advertising model through Cost per Click, the company would be able to charge for the number of times the advertisement is being clicked. The costs per click are relatively high and this can increase the revenue generation of the company. Since the company is one of the luxurious brands and has achieved the top most places with its innovative designs and catering according to the need of its target customers, therefore it can be recommended ways to increase profits and generate revenue in the online business sector. Conclusion Emerging business webs in business are rapidly transforming the retail industry by way of introducing new value proposition, setting new rules of competition and finally mobilising the resources and people to an unprecedented level of performance. The emergence of webs in retail business has been marked by the new players in the market and also from increased competition outside the industry. The business web also enables a firm to generate new sources of revenue along with the existing sources. In order to harness the new opportunities created through the online business must take hold of the revenue generation model and identify the key partners and form a partnership and core business functions and processes. Therefore it can be said that with the introduction of web or the online business, a company is able to generate more revenue than its offline stores. Reference Botten, N. CIMA Official Learning System Management Accounting Business Strategy. Elsevier. 2008. Brown, B. C. How to Use the Internet to Advertise, Promote, and Market Your Business Or Web Site: With Little Or No Money. Atlantic Publishing Company. 2010 Griffin, R. W. Management. Cengage Learning. 2010. Hiltz, M. Murphy, J. & Sigala, M. Information and communication technologies in tourism 2006: proceedings of the international conference in Lausanne, Switzerland, 2006. Birkhauser. 2006. Prada Group. History of PRADA Group. 2010. 2010 Annual Report. 16 March, 2012 . Rappa, M. Business Model n the Web. 2010. Managing the Digital Enterprise. 17 March, 2012 < http://digitalenterprise.org/models/models.pdf> Wow Consulting. An effective online value proposition. 2011. HOW POWERFUL IS YOUR ONLINE VALUE PROPOSITION?. 17 March, 2012 Bibliography Proctor, T. Strategic marketing: an introduction. Routledge. 2000. Stonehouse, G. & Campbell, D. Global and transnational business: strategy and management. John Wiley & Sons. 2004. Weber, L. Sticks and Stones: How Digital Business Reputations Are Created Over Time and Lost in a Click. John Wiley and Sons. 2009. Read More