Disruptive Innovation and Value Network Analysis - Case Study Example

Houzz.com – Case Report Name: University: Date: Table of Contents Houzz.com – Case Report 1 Table of Contents 2 1.0 Introduction 2 2.0 Overview of houzz.com 3 3.0 Disruptive Innovation and Value Network Analysis 4 3.1 Disruptive Innovation 4 3.2 Value Network Analysis 5 4.0 Economic characteristics 6 4.1 Pricing 6 4.2 Switching costs 7 4.3 Standards 7 4.4 Network effects 8 4.5 Platform characteristics 8 5.0 Data Aspects 10 5.1 Sources 10 5.2 Analysis 11 5.3 Use and challenges 11 6.0 Challenges and opportunities from IP 12 7.0 Conclusion 12 8.0 References 13 Houzz.com – Case Report 1.0 Introduction The business world is being conducted in a different way thanks to the digital age. The digital-born businesses are moving in towards digital immigrants and are behaving in different ways towards the customers. More importantly, the digital business model has enabled these businesses to become more responsive and innovative. This case study report focuses on houzz.com in terms of its products, innovation, economic characteristics, data aspects, and IP’s challenges and opportunities. 2.0 Overview of houzz.com Houzz.com is an online platform for home design and remodelling that brings together home professionals as well as homeowners in an online community that is visually unique. The platform was founded by Adi and Alon who sought reduce the problems associated with relying on referrals and magazines for home professionals in order to make a dream home. Therefore, Houzz was created to help people get access and also post photos of the beautiful homes. The main objective of Houzz is to offer the users the right construction and design professionals and also to connect them with other users. At first, Houzz was initiated as a side project but currently it has become a community of over 40 million home improvement professionals, home owners, and enthusiasts of home design across the globe (Houzz, 2016). Houzz has developed visual, social as well as mobile technologies that enable professionals and homeowners work together to construct beautiful homes. Besides that the site enables the users to share ideas with design professionals, friends and family members, or they can utilise the private virtual ideabook to save the ideas. After gathering ideas suitable for their home, the users utilise the Houzz application to search for home improvement contractors, interior designers and architects within their residential area. The platform also provides various products such as holiday decor, pet supplies, furniture, lighting, kitchen & dining, housekeeping & laundry and many others. The registered users can utilise their mobile devices to purchase furniture as well as home accessories at houzz.com. 3.0 Disruptive Innovation and Value Network Analysis 3.1 Disruptive Innovation Disruptive Innovation can be described as the process through which a product/service initially takes root in the market’s simple applications and later moves relentlessly up in the market, ultimately displacing competitors who have been long-established in the market. Specifically, disruptive innovation changes a historically inaccessible, complex and expensive product into one that is available, less complicated and affordable to many people. Houzz is a disruptive innovation because it has two crucial factors, disruptive circumstances and value networks that are overlapping. The platform is a disruptive innovation because it serves non-served customers, people with no adequate funds or ability to remodel or design their homes using traditional channels. The overlapping value-networks aspect of Houzz is attributed to the fact that criteria of performance are the crucial criteria utilised by the customers. The platform’s value-network of has grown to overlap the traditional value-network. As mentioned by Enders et al. (2006) this connotes that although at the start, people satisfied by disruptive innovations are traditional value-network’s low-end customers, they eventually turn out to be very attractive for other customers such as those in the old value-network seeking to switch to the new one. Houzz has grown rapidly; thus, changing the perspectives of the customers regarding the brand as well as the online marketplace. At first, Houzz was operating unnoticed below the radar to the extent that it was too late for the competitors to respond to its ascendency. Now with over 40 million users, the site is not only authentic, but also a challenger daring, and vibrant. In addition, the brand has generated consumer advocates, who evangelise houzz.com through testimonials. 3.2 Value Network Analysis A value network according to Giangreco et al. (2014) is a relationship network, which creates both intangible as well as tangible value by means of complex dynamic exchanges between organizations, groups or individuals. Given that Houzz business is intangible (offer advice) and tangible (sell furniture and home accessories) in nature, it can be considered as a value network. Considering that value creation can be managed effectively in the knowledge economy, Houzz has clearly described the role played by intangible assets in its business. As mentioned by Giangreco et al. (2014), Value Network Analysis offers a technique that can be used to model, evaluate, analyse as well as improve the business ability to transform intangible and tangible assets into negotiable value. Houzz’s value network has three crucial aspects: (1) exchange for services and goods that generate revenue; (2) knowledge, whereby strategic information regarding home design and remodelling are exchanged, as a result, supporting the service value chain. (3) Intangible benefits, exchanges of benefits and value like image enhancement, customer loyalty, and sense of community. The above mentioned value exchanges are integral to Houzz’s value network. All these value exchanges are supported by Houzz’s website and mobile applications, which allows for the transaction to happen. For example if two people want to exchange messages about a meeting they may use the mechanism of e-mail or voice mail to support the exchange. Nearly all services and products at houzz.com rely on the exchange of information and knowledge; therefore, the brand uses intangibles and knowledge as exchange mediums. 4.0 Economic characteristics 4.1 Pricing At Houzz products and services are prices in a way that it captivates customers’ interests; thus, making them remains loyal. Clearly, Houzz understands that pricing strategy is a crucial factor that influences inventory turnover and profits. Houzz uses Value-Based Pricing strategy, whereby the product/ service are priced with the objective of appealing the customers. This pricing strategy considers the customer value; thus, the products/services’ prices are to a large extent based on the perceived value. Houzz pricing takes into account the cost of producing the products, tariffs and shipping. Besides that, Houzz has developed Real Cost Finder, which is an innovative interactive tool used by customers to determine the cost of remodelling their home. This tool has been integrated into all Houzz’s applications. Figure one shows a snapshot of Houzz’s Real Cost Finder. Figure One: Houzz’s Real Cost Finder 4.2 Switching costs Switching costs according to Pei-Yu and Hitt (2001) is caused by a number of factors such as the product’s general nature, the customers’ characteristics attracted by the brand, or premeditated investments as well as strategies by product/service providers. Houzz has created switching costs with the objective of softening price competition as well as generating “first mover” advantage. The platform success has not been driven only by customer loyalty, but also the created switching costs. Switching cost has been created in Houzz in two ways; the value that a customer gets after making a transaction as well as reduced transactions costs and risk costs. Therefore, reducing the perceived risks has led to increased switching costs to Houzz. In addition, switching costs has enabled Houzz to retain customers and improve customer loyalty. Yen (2011) asserts that perceived risks and switching costs are complementary; therefore, handling any of these forces effectively could subsequently reinforce the effects of the other at all stages. Therefore, switching costs has been an important factor that has helped Houzz stop its customers from switching to its rivals. 4.3 Standards Houzz transactions are legally straightforward and its sets of ‘terms and conditions’ outline various standards that the sellers should observe. According to Houzz’s terms and conditions outline the terms of payments, shipping, delivery, refunds as well as exclusions of liability in its website as shown in figure two. More importantly, Houzz has a delivery policy that is clearly defined; thus, enables the customers to know how they will get their products. Furthermore, Houzz has specified its delivery costs and timeframes and also has a refund policy that has enabled the brand to build trust with its customers. Figure Two: Houzz’s terms and conditions 4.4 Network effects Network effects can be grouped into direct and indirect, and are commonly influenced by the number of users. Houzz’s network effect is mainly the direct network effect since its product value has increased as a result of the increasing number of users, which includes the new users. On the other hand, the indirect network effect is the value of a product derived from products that are complementary in nature. In this case, indirect network effects are considered to be stronger when the existing complementary products are more to the extent that they increase core products consumption and products’ value. Considering that the consumer’s utility is reliant on the interaction between the user and his/her friends, instead of the overall network size, Houzz sometimes removes its original products’ features to facilitate the sales of degraded versions at a lower price. 4.5 Platform characteristics Houzz’s platform has a number of characteristics; for instance, it has add-ons and a shopping cart plug-in and a comprehensive library of themes that offer aesthetic appearance. Besides that, the site has basic navigational features, which gives the users the ability to get what they are searching swiftly. Figure three shows Houzz’s basic navigational features. Figure Three: Houzz’s basic navigational features Additionally, the platform has integrated Mobile Integration, which enables the users to access it through their mobile devices ubiquitously. Houzz has created a remarkable website which has incorporated responsive design; thus, allowing users to access the site through various screen types and devices devoid of compromising the site’s general functionality and look. The website enables the customers to make inquires or offer feedbacks regarding the products and services offered by Houzz through the link ‘Contact us’. Figure Four: Houzz’s Mobile Apps 5.0 Data Aspects 5.1 Sources Houzz data sources include Bulletin Board, which are mediums utilised to display all the posted messages as well as their respective replies. Data is also sourced from newsgroups and email addresses, whereby messages that have been posted are distributed to individuals who have subscribed. Houzz has a stories and advice link which serve as chat rooms, whereby users interact with home design and remodelling professionals or other users on a real-time basis. Other data sources include Web sites that are associated with Houzz and server log files. Blog and social media sites such as Facebook, YouTube and Twitter, whereby data such as reviews, prices, tips, and problems can be found (Dholakia & Zhang, 2004). As evidenced in figure five, Houzz is present in almost all social media sites and its main objective is to improve the business visibility and ensure the date is kept fresh. Figure Five: Houzz’s Social Media Sites 5.2 Analysis Houzz data analysis can be achieved through Supply Chain Management, which involves managing products’ data from the production site to the end user. Houzz extensively utilises analytics to effective manage its inventory as well as optimise pricing and transportation. As exhibited in figure five, Houzz uses recommender systems like YouTube to attract customers, since they show customers how they can navigate through the online store. Online marketing analytics, as well as product specific analytics, enable the brand to maximise the probability of the customers clicking its advertisement and also to generate the customers’ satisfaction rate. 5.3 Use and challenges Houzz uses its collected data to assess the platform’s traffic in real-time in order to establish the products and services that are more popular. The data is also used to track promotion success, offer the customers more visibility, introduce new features, monitor the customers search activity, and improve customer service. Still, Houzz faces the challenge of inadequate historical data, huge customer base, changing buying pattern, and also disruptive behavioural and social norms. 6.0 Challenges and opportunities from IP Houzz stresses that the Platform users must respect the IP rights of the others users. Still, it faces some challenges. For instance, some of the users could be selling counterfeit products using the Houzz platform considering that it is very challenging to determine the genuineness of the product using online platforms. Another IP challenge is selling parallel imported products; that is to say, the seller is selling genuine goods but in a different country. Other challenges can arise as a result if selling default goods or using Houzz trademarks to sell products; thus, creating confusion. Still, the IP assets’ value has increased due to the significance of creative works and technology in the contemporary economy. IP offers Houzz an opportunity to sell its products and services more effectively because the IP laws protect it. More importantly, Houzz’s business is protected from unfair competition law and the trademarks and portfolios improve the business value. 7.0 Conclusion In conclusion, this piece has focussed on houzz.com in terms of its products, innovation, economic characteristics, data aspects, and IP’s challenges and opportunities. As evidenced in this report, companies carrying out their business virtually pursue a business model that is radically different from that used by traditional businesses. Basically, managers and entrepreneurs considering new digital ventures must fathom the hazards and opportunities unique to the digital business. 8.0 References Dholakia, N., & Zhang, D. (2004). Online Qualitative Research in the Age of ECommerce: Data Sources and Approaches. Qualitative Social Research , 5 (2), 1-12. Enders, A., Jelassi, T., König, A., & Hungenberg, H. (2006). The relativity of disruption: e-banking as a sustaining innovation in the banking industry. Journal of Electronic Commerce Research , 7 (2), 67-77. Giangreco, E., Marasso, L., Chetta, V., Fortunato, L., & Perlangeli, C. (2014). Modeling tools of service value networks to support social innovation in a Smart City. IFIP Electronic Government (EGOV, (pp. 206-215). Dublin. Houzz. (2016). ABOUT HOUZZ. Retrieved from Houzz: http://www.houzz.com/aboutUs Pei-Yu, & Hitt, L. M. (2001). Measuring Switching Costs and the Determinants of Customer Retention in Internet-Enabled Businesses: A Study of the Online Brokerage Industry . Information Systems Research , 13 (3), 255 - 274 . Yen, Y.-S. (2011). How does perceived risks complement switching costs in e-commerce? African Journal of Business Management , 5 (7), 2919-2929. Read More