Pindelski_Competitive_Strategies

8.4 Value Dynamics Model

Value Dynamic Model – the definition

In accordance with the definition developed by E.S.R.Boulton, et al.26, in the Value Dynamic Model, it is assumed that the source of value and competitive advantages of companies are their employees, suppliers, customers and the right organization of assets.

For specific subjects, the weight of each of these factors is different. Specifying the interdependence between the individual asset groups leads to a clear definition of a business model, and at the same time, it expedites the process of a company's valuation. Each asset carries some sort of an investment risk, and its distinction allows the determination of the impact it has on a company and to objectively assess its market value. The Value Dynamic Model (VDM) assumes that an effective management consists of:

•management strategy;

•risk management;

•process and information management.

In accordance with the introduction of these elements in the VDM, a proper balance allows you to achieve the desired objectives.

The VDM is connected to the concept of Value Based Management or as it is said now – ValueS Based Management. The Value Based Management approach is massively critisized now as not humanitarian and ommiting many social problems of nowadays, not taking into consideration other stakeholders than shareholders only. The term value is concerned as a financial resources and money created by the company in many ways (eg. as income or shares‘ value), the values term however points out that a firm has different types of values as market value and corporate social value at the same time. There are way more of types of values the company creates and posseses. All of them drive the managers from money focus only to dispersed activities not necessarily connected to the mone measured value.

Fig.16 Classification of Processes in Value Dynamic Model

26Boulton, R.E.S. , Libert B.D. , Samek S.M., Cracking the Value Code. How Successful Businesses are Creating Wealth in the New Economy, Harper Collins, Now York, 2000, p.5

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Source: own elaboration based on Boulton, R.E.S. , Libert B.D. , Samek S.M., Cracking the Value Code. How Successful Businesses are Creating Wealth in the New Economy, Harper Collins, Now York, 2000, p.152

This model also shows substantial differences in the organization's resources and their impact on the market value (fig.17). It starts to be visible the shifts in value drivers. As 10-20 years ago the fixed asset, brick and mortar were the crucial sources of value, and income now plenty of very successful companies tend to be an alomst zero gravity business. It is not of machinery and building anymore but organizational asset, people and intangible values.

Zero gravity business – the definition

The zero gravity business describes firms that do not possess a lot but are doing well on the market. Mainly it is connected to e-business and related businesses. But it

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reflects the trends in nowadays management where traditional companies even as clothes producers, car manufacturers or airlines lease the fleet, machinery and office space, outsource most of the activities and use payroll services in order not to hire workers directly in the mother company. The core of the business remaining in the zero gravity company is connected to the organizational assets, customers relations and employees that fit the company needs perfectly.

Source: own elaboration based on Boulton, R.E.S., Libert B.D., Samek S.M., Cracking the Value Code. How Successful Businesses are Creating Wealth in the New Economy, Harper Collins, Now York, 2000, p.112

Based on three types of measures, for example, ownership (the number or value of the assets), flow (the life-cycle or rate of changes in assets) and effectiveness (achieving planned and measurable results) and by referring them to various, listed here, categories of assets, the authors of the Value Dynamic Model proposed the key factors for success.

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3. Describe the Value Dynamics Model.

Case Study 19

Groupon.pl in Poland and its' Key success factors

To assess Groupon.pl Company we have to clearly define the phenomenon of high volume shopping on Groupon.pl. The business model constituents of the Groupon.pl Company.

The Groupon.pl Company has a database of over 7 millions subscribers, who get a daily email with an offer prepared especially that week. Groupon.pl focuses on the mass market, it does not distinguish between different clientèle in any way and its newsletter is the same for each subscriber. In other words, every resident of Warsaw gets exactly the same email on a given day. In the American Groupon, segmentation went further, being at the same time fully automated. Initially, the subscriber has to only select which specific market areas he or she would like to receive offers from, and from that date on, they will be notified only about the offers according to their interest. This allows you to better match an offer to a subscriber and prevent quickly losing interest in group shopping, where "the same thing is out over and over again". However, there is a huge disadvantage of such a system. Group buying phenomenon is based on impulsive purchases, i.e. a person subscribed does not think much when making a purchase, considering it worth testing. When presenting a customer with an offer only within his/her interest range, we lose an opportunity to sell products or services from different categories, which could possibly appear interesting to such a customer.

Another part of the competitive strategy is the offer Groupon.pl presents. This is the main reason why Groupon.pl users decide to subscribe and shop through its website rather than turning towards competitor's offers. It would seem that Groupon.pl and its competitors offer precisely the same thing. But exactly why a customer should shop at Groupon.pl and not other company from the group buying industry? Well, Groupon.pl as the biggest player in the market, can personally choose partners with whom they want to work with. In the case of smaller group buying portals, which do not have such capabilities as Groupon.pl does, they virtually work with any partner interested in them. Also, all offers are analyzed in detail, so they are the most beneficial for the subscribers and better than those offered by the competition. This allows the maintaining of an

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opinion, that only Groupon.pl has the best discounts with the best quality of its partners. In addition, the level of outside sales is very high. Customer service is running very efficiently and quickly solves any problems, and any refunds are applied within one week of submitting such a request. Moreover, while other companies are quite often accused of applying artificial discounts or cheating their partners, then in Groupon.pl, partners are screened in many ways. In order to verify their financial capacity, the socalled "mystery calls" are made to check, whether the price given by a partner is real, or if s/he is lying to the Groupon.pl company and its subscribers. Only such a partner may work together with the Polish branch of Groupon. The website on which the company bases its activity, is very simple and user friendly and yet it contains all the information needed. In addition, the offers are described in an unusual way, using its editorial writing technique called the Groupon Voice. The Bloomberg Businessweek describes these text writers as the "Wunderwaffe" (wonder weapon) of the Polish, increasingly tight market. 28

All of these characteristics make Groupon.pl boast about the largest number of users, and have a high level of service satisfaction with a small amount of returns.

The channels constitute the element of the business model, which determines how a company goes on to their customers and provides them with an offer. Effective communications, distribution and product sales depend on the character and the nature of each channel. Groupon uses several channels. First and foremost, it is the Groupon.pl website and the sales platform available on it. The website allows you to make purchases, obtain a company's information, and their way of cooperation. The dropdown-list offers a selection of several dozen cities, according to the users’ interest.

Additional sales channels were created about a year ago, together with separate tabs, like Groupon Shopping and Groupon Travel. Offers in these categories are sent out to users only once every few days. And in contrast to the newsletters emailed only to users of specific cities, these get to all users simultaneously, across the country. A completely new channel of sales is Groupon Mobile. It is a phone application used for browsing, buying, and redeeming vouchers over the phone. It is very easy to use, and due to the increased mobility of society, such an application appears to be a very good idea. The application is running on operating systems such as: Symbian, Android, IOS and Windows Phone 7, being the vast majority of smartphone users in Poland. An

28 http://www.bbwp.pl/artykul/copyfighterzy-zrobia-nawet-lewatywe/ [Access: 5.10.2012]

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additional channel - Groupon Now, has been activated in the USA, which seems to be quite fitting to start using it in Poland as well. The idea is to use mobile phones as a new channel. In the case of traditionally presented offers on a website, a purchase may be made only over a short period of time (a few days). In the case of Groupon Now, offers would be available at all times, due to the different characteristics of this channel. The programme would show a list of offers in the area near a customer, and not necessarily discounted by more than 50%. For example, while walking through the city a user becomes hungry. Instead of walking into a random restaurant, s/he opens the Groupon Now application and goes to the dining/food tab. The user now can momentarily see what is within several kilometres of him/her, for example, there are 10 restaurants with discounts, from which 3 offer 30% off the entire menu, one - 50% off, and the remaining - only have lunch offers. The user makes a purchase and shows the voucher at that restaurant, thoroughly enjoying the discount.

This business model describes the relationship between the company and its customers. The company, at the very beginning, should determine what type of relationship they want to have with their customers. Customer relationships in the Groupon Company can be divided into two separate components. The first one can include support for users in the form of customer care. This is a form of personal support, given to the portal users. It works well, and any problems are quickly solved. The second aspect for building relationships with users is the widespread use of social media. The most important medium for communication is Facebook, where newly available offers are posted onto the site on a daily basis. Each of the users can evaluate offers, comment on them and ask any questions, with are typically answered the same day. Keeping in mind, that Groupon.pl has a few hundred thousand fans on Facebook.pl, it creates huge opportunities in maintaining positive relations with users. Additionally, Groupon.pl uses Tweeter and writes its own blog.

A very important, if not the most important element is the revenue stream, meaning the amount of funds generated by the company through services offered. Determining price levels for services offered is seen as the "be or not to be" of the company. Groupon.pl generates the cash flow in only one way. Namely it sells low-priced products from other companies via its website. As an alternative, it charges roughly a 50% fee of the sale’s value. Groupon takes advantage of its dominant position in the market and, almost without any exceptions, does not agree to smaller shares. This provides an

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incomparably greater revenue stream than the competitions. An extra money source is the voucher accounting policy. The competitors usually pay their partners immediately after their offer expires. They pay them the entire amount received from customers minus the commission fee for the group buying service. In the case of the Groupon.pl website, this looks a bit different. Money is deposited into a partner's account for each coupon at the time of its redemption. That is why cash from all unused vouchers does not go to the partner, but becomes an additional source of income for Groupon.pl. In the case of cheap offers, unused and forgotten vouchers may constitute up to 30% of all sold coupons. In addition, not paying right of the bet, but rather after using the voucher, also affects the state of Groupon's cash. This considerably enhances the fluency of a company and simplifies the realization of returns.

The Groupon.pl website seeks to facilitate the payment system. That is why customers trying to make a payment can use a credit card, PayPal or a bank transfer via dotpay.pl service cooperating with 23 major Polish banks. This type of payment does not exclude any Internet user and allows generating an even greater cash flow.

The key resources are an element which indicate the most important resources, without which a company would not be able to compete. These can include physical, intellectual, human and financial resources.

For Groupon.pl, the most important resources are human resources and intellectual resources. The Polish Groupon branch hires more than 300 people, most of whom have at least a college degree. Traders signing contracts with partners have experience in trade and receive additional, full range training. People in managerial positions have business experience from working at consulting firms or companies similar to Groupon industries. However, the most important resource is the intellectual resource. Groupon is a very recognizable brand and often at times by the term "Groupon" we think of the entire market of group buying29. This can help against competition, because a brand new user will most likely subscribe to a well known website. Additionally, Groupon has the largest mailing database in Poland, having access to more than 7 million emails. The know-how companies should be included into the intellectual resources. Groupon has a competitive advantage, being a subsidiary of a global giant. It immediately, without having to sacrifice its own time and money for such development, gets readymade patterns, proven designs or proposals for new sale channels.

29 Http://biznes.onet.pl/trudne-poczatki-groupona-rzadu,49674,5091343,news-detal (Access 05.11.2012).

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