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Realizing competitive advantage with high-velocity co-production goods

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High-velocity co-production goods are goods that require a high degree of interaction between the supplier of an intangible web good and the user.

In addition, these goods are extremely time specific. For such goods, timeliness determines the actual value of the good.

Examples of goods that fit into this category are online stockbroking or auction platforms on the Internet.

High-velocity co-production goods are characterized by high relevance of individuality, i.e. customization to particular customers can be used in a way that increases the value-creation potential for high-velocity co-production good providers; the relevance of transmutability thus is very high.

Further features of intangible web-goods belonging to this category are a high extent of experience good characteristics as well as network good characteristics.

The digital form is crucial for a high degree of value-creation. These features in the following paragraphs are analyzed with regard to optimal positioning options and possible dynamic strategies to realize competitive advantage with high-velocity co-production goods in terms of the developed theory-based conceptual framework.

The actual high-velocity co-production good can be sold to the customer because it is not possible to copy the good in a way that leads to value creation for third parties.

The source of income generation can be the high-velocity co-production good itself. It is possible to earn revenue by selling the goods to the customer and charging the customer money.

In this context, appropriate pricing models as well as technical payment possibilities have to be found. It is additionally possible to generate income with innovative marketing.

High-velocity co-production good providers, however, have to limit innovative marketing to an extent that the paying customer does not become unwilling to pay for the good because of concerns with regard to using the Internet as a platform for relevant functionalities such as online stockbroking or participation in online auctions.

Because of the high degree of interaction between the intangible web-good provider and the customers for this good, a rather narrow area of activity in terms of market focus seems appropriate.

Coming back to the PEST analysis, we must specifically analyze which are the major influences on high-velocity co-production good providers from the macro-environment that have to be considered when finding appropriate positioning options.

Economic and socio-economic factors and determinants in particular have to be taken into account when analyzing the opportunities for high-velocity co-production good providers to sell their goods to customers.

Still, in most cases customers, because of legal as well as cultural factors, decide to access to intangible web goods from a home-country provider, when these intangible web goods are not free.

In the case of high-velocity co-production goods, time specificity further requires reliable providers for the customer.

Often customers prefer to trust national providers in this context. Also, the interaction between provider and customer is usually dependent on a common language.

In this context it is obviously relevant carefully to select the market segments to be served.

Here, as well as cultural, language and country-specific adaptations, it is crucial to find insights into the adherent levels of consumerism to assess the actual market potential.

Technological factors and determinants from the macro-environment also have to be analyzed with regard to competitive advantage realization with high-velocity co-production goods, especially because of the existing direct network effects influencing value-creation potentials and possibilities.

To profit From a situation in which direct network effects are existent it is essential for a high-velocity co-production good provider to achieve as big a possible paying customer base in the selected market segment in a short timeframe to achieve the critical mass of customers and thus realize positive feedback effects to attract even more paying customers.

High-velocity co-production good providers can select the Internet as an additional or as the only channel of distribution.

Because of the feature “high time specificity” the Internet in many cases seems to be the optimal distribution channel.

In terms of appropriate generic positioning options for high-velocity co-production good providers that means that focused positions are especially appropriate that are based on isolated or sometimes also complementary traditional selling.

Focused isolated or complementary traditional selling can, however, be augmented by using innovative marketing as an additional source of income.

It is relevant to combine insights from the external analysis of firm opportunities with the internal possibilities of an intangible web-good provider to come to successful strategies.

The business environment for high-velocity co-production good providers shows a clear tendency to be an attractive area of intangible web-good provision for firms already active in this business segment.

The bargaining power of suppliers is relatively low, since the main feature of the good provided here is to enable a “customer to customer” or “customer to firm” interaction via the web while taking the high time specificity into account with regard to this interaction.

Thus, possible content creators or software developers cannot put supplier pressure on high-velocity co-production good providers.

High-velocity co-production goods are proprietary goods offered by an intangible web-good provider on the Internet. No relevant suppliers of the adherent good can be identified in general.

The only critical force in terms of supplier power could be valuable employees that might be crucial for success.

These human resources are mobile and thus can be wooed by competitors. Usually, however, single employees are integrated into teams of human resources with regard to interaction platform offerings on the web.

If these teams of human resources are the source of value creation, instead of individual employees, resource mobility decreases.

Particular intermediaries are not seen as relevant suppliers and thus cannot be a danger with regard to the attractiveness of ‘high-velocity co-production good provision.

Rather, high-velocity co-production good providers themselves take the role of new intermediaries on the Internet.

Entry barriers that protect firms that have already established themselves as high-velocity co-production good providers are relatively high, since direct-network effects characterize these goods.

If direct-network effects are present, first movers are able to install a sufficient customer base that attracts even more customers to the firm and prevents possible new competitors from market entry because positive feedback already works for the incumbents.

From game-theoretic reasoning, such first-mover advantages can lead to a reputation as a high performing high velocity co-production good provider.

Such a reputation prevents potential new entrants from entering the market. In the context of network effects, signaling necessities are relevant with regard to gaining competitive advantages.

If a provider sends out credible signals to establish a large enough installed customer base, positive feedback leads to the attraction of even more customers while at the same time implying negative feedback on new entrants (or competitors).

In addition, high-velocity co-production good providers have the potential to realize economies of scale with regard to the establishment of their interactive platforms that can imply further entry barriers for new competitors.

The buyer power of individual customers is smoothed for high-velocity co-production good providers because of the opportunities to individualize and customize the adherent good in a value-creating manner.

A high-velocity co-production good provider can, after having convinced a customer to interact, build emotional as well as actual customer lock-in because of psychological and economic switching costs.

Once a customer decides on a specific high-velocity co-production good, psychological switching costs can come into being because of trust built with regard to the high-velocity co-production good that is transferred to the future relationship with the provider.

In this context it is also relevant that high-velocity co-production goods are experience goods,” i.e. it takes a while to be able to evaluate the performance of such a good.

If the customer is satisfied with the performance of a particular high-velocity co-production good at the end of this evaluation process, he or she will prefer to stay with the good already experienced.

Economic switching costs exist in the form of learning cost because the customer gets used to the technical features of the intangible web-good provider’s transaction process, for example, or learns how to use provider-specific software to enable the transactions.

Further economic switching costs can exist in the form of amounts of money already paid to initiate the business relationship with the high-velocity co-production good provider.

The customer may also be contractually bound to a high-velocity co-production good provider for a certain time.

The bargaining power of advertisers in this case is low, since high-velocity co-production good providers can sell their goods and are not highly dependent on advertisement revenue.

Substitutes are no major danger for high-velocity co-production goods because with regard to the time specificity, clear advantages of the Internet properties can be observed.

Moreover, high-velocity co-production good providers sometimes only come into being because of the new technological Internet opportunities and features (an example of such a case is the high-velocity co-production good provider eBay, which provides innovative electronic auction platforms for customer-to-customer transactions).

One crucial issue in this context, however, is to convince the customers to trust in online transaction by using every available opportunity not to lose customers to technically inferior substitutes.

Complementary products or services do not play a dominant role as competitive forces for high-velocity co-production goods.

The degree of rivalry between high-velocity co-production good providers is smoothed by the already mentioned factors, especially by the opportunities to differentiate the good in terms of customization and bind the customer to the firm.

This prevents the providers of high-velocity co-production goods from engaging in a Bertrand price competition, where prices go down to marginal costs which would be near zero for the offered good.

Such a kind of price competition would endanger the profitability for all incumbents, but can be avoided because of the differentiation opportunities.

From the above reasoning, it becomes obvious that it is possible to erect isolating mechanisms to gain competitive advantages with high-velocity co-production goods over time.

The most promising areas here lie in the establishment of customer loyalty as well as in building and bonding valuable human resources (usually in the form of employee teams) to the firm.

Customer loyalty, as already mentioned, can build on psychological and economic switching barriers.

Customer loyalty, however, does not exist forever after having once been established; it needs to be fostered.

This fostering happens with regard to the psychological side of switching costs, which are essential alongside economic switching costs to create customer loyalty.

If this is done a valuable resource can be developed that is imperfectly mobile as well as difficult to imitate because of path dependency (and often also causal ambiguity).

If a provider is able continually to foster customer loyalty, this leads to a valuable dynamic capability of the firm, making it possible to reach a high performance as a high-velocity co-production good provider. Human resources can be relevant in these processes to build customer loyalty.

Such human resources can be hard to imitate since they develop over time, thereby achieving valuable knowledge.

However, they are not immobile but can usually be wooed away by competitors if their knowledge is not highly firm specific.

Mobility decreases when human resources are integrated in teams that jointly create value.

Taking these features together in terms of dynamic strategies possible for high-velocity co-production good providers, it can be concluded that these providers have the potential to develop difficult to imitate resources and capabilities that are firm specific (customer loyalty and customer loyalty fostering capabilities) as well as valuable resources that might be mobile (human resources).

Possible strategies to achieve competitive advantages for these firms are thus to engage in nourishing valuable human resources and try to bond them to the firm to appropriate the resulting rents, as well as making use of valuable resources and capabilities such as customer loyalty and customer loyalty fostering capabilities without losing sight of relevant dynamic market developments.


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