Porter's "Strategy and the Internet" made the case that the internet doesn't change the rules of business (many dot com companies learned this the hard way). Porter's five forces still apply but the internet has put a spin on them.
Buyer or your customer's power has probably never been so high as it is today. Anyone can search the internet for a better deal, cheaper shipping or a bigger discount. A store (physical or internet) can no longer just set a price and profit margin because the customer will know the price of every other competitor in one quick internet search.
As a buyer/customer can view hundreds of offers at once, Porter explains that the rivalries among competitors will be reduced due to reductions in price difference. I couldn't agree with this more. As long as website takes paypal, I will likely order from them just based on cost despite how well done the website is, their notoriety or key differentiators. I am assuming I am not alone on this.
The more customers that are willing to buy from a source simply because it is cheapest, the more powerful the suppliers become. If a customer simply wants the cheapest option, why not just go to the supplier? Like I said earlier, if I find a TV $200.00 less on one site than all others, I have little care who I am actually buying from (as long as it works and is not stolen).
So what about substitutions and new entrants? I think these become the toughest threats now that the internet exists. As Porter states, barriers to new entrants are reduced, ideas can quickly be taken and altered and the vast size of the internet and the market it reaches can favor even the newest company.
Pricing is definitely a major contributing factor, but it is also important to me (and I assume many others) that the on-line company has good customer service just in case I am unhappy with my purchase (not what I expected or worse yet - broke!). I want to know that I can return it for a full refund or exchange for a fully functional item.
ReplyDeleteElke, you had me thinking about your comment for sometime now. The main reason I don't worry about costumer service much is paypal. Paypal will (and has for me) refund money or work on your behalf to correct any mistake or broken items.
ReplyDeleteYou're right about needing trust in a company and their customer service but when paypal backs a new entrant and protects your personal/financial information while shopping at the site, paypal might be one of the largest reductions in new entrant barriers as it could eliminate most worries (as it has done in my case).
I didn't realize PayPal was such a powerful tool. Good point! I usually purchase things through Amazon.com and you don't get that kind of service through their website. Often times you have to go to the third party vendor that listed the item on Amazon. It can be a real pain in the neck at times.
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