How the Internet Is Affecting theFive Competitive Forces The Threat of New Entrants The Bargaining Power of Buyers The Bargaining Power of Suppliers The Threat of Substitutes The Intensity of Competitive Rivalry
The Threat of New EntrantsNew Entrants will be a bigger threat now because the Internet lowers barriers to entry. Business that exist in cyberspace can create an appearance that makes them seen like strong competitors, regardless of their actual size or the quality of their operation. A New Cyber Entrant can use the savings provided by the Internet to chargelower prices and compete on price despite the incumbent’s scale advantages. A New Entrant may be able to serve a market more effectively, with more personalized services and greater attention to details. A new firm may be able to build a reputation in its function and charge premium prices.It can capture small pieces of an incumbent’s business and erode profitability. Another potential benefit of Web-based business is access to distribution channels.
The Bargaining Power of Buyers The Internet may increase buyerpower by providing consumers with more information to make buying decisions and lowering switching costs. Internet sales activity that is First, a large amount of consumer information is labeled “B2C” (Business to available on the Internet.Consumer) is likely to increase thepower of these buyers for several Second, an end user’s switching costs are also reasons. potentially much lower because of the Internet The bargaining power of distribution channel buyers maydecrease because of the Internet.
The Bargaining Power of Suppliers Use of the Internet to speed up and streamline the process of acquiring supplies is already benefiting many sectors of the economy.Internet technologies make it possible for suppliers to access moreof their business customers at a relatively lower cost per customer. Supplier may not be able to hold onto these customers because buyers can do comparative shopping and price negotiations somuch faster on the Internet, and can turn to other suppliers with a few clicks of the mouse.One of the greatest threats to supplier power is that the Internet inhibits the ability of suppliers to offer highly differentiated products or unique services.
Other factors may also contribute to stronger supplier power. Third, the use of Second, suppliers proprietary may be able to software that links Finally, supplier willFirst, the growth of create Web-based buyers to a have greater power new Web-based in purchasing supplier’s website to the extent thatgeneral may create arrangements that may create a rapid, they can reach end more downstream make purchasing low-cost ordering users directlyoutlets for suppliers easier and capability that without to sell to. discourage their discourages the intermediaries. customers from buyer from seeking switching. other sources of supply.
Disintermediation and Reintermediation Traditional Intermediation Disintermediation Process Reintermediation
The Threat of Substitutes is heightened because the Internet introduces new ways to accomplish the same tasks.The Threat ofSubstitutes The economies created by the Internet technologies have led to the development of numerous substitutes for traditional ways of doing business.
The Intensity of Competitive Rivalry Internet creates more tools and means for competing, so rivalry among competitors is likely to be more intense. The Internet tends to increase rivalry by making it difficult for firms to differentiate themselves and by shifting customer attention to issues of price.
How the Internet is Affecting the Competitive Strategies To stay competitive, firms must update their strategies to reflect the new possibilities and constraints that this phenomenon represents. Three Overall Cost Competitive Leadership Differentiation Focus Strategies
Overall Cost Involves managing costs in Leadership every activity of a firms value chain and offering no-frills products that are an exceptional value at the best possible price. Managing costs, and even changing the coststructures of certain industries, is a key of the internet economy.The internet reduces the costs of traveling to a location to search for a product or service.Internet is creating new opportunities for firms to achieve low-cost advantages.
Involves providing unique,Differentiation high quality products and services that promote a favorable reputation and strong brand identity and usually command a premium price. Internet technologies have created new ways for firms to achieve a competitive advantage. The internet is creating new ways of differentiating by enabling mass customization.Internet capabilities are changing the way differentiatorsmake exceptional products and achieve superior service.
Focus Involves targeting a narrow market segment with customized products and/or specialized service. Internet offers new avenues in which to compete because they can asses markets less expensively, and provide more services and features. Achieving competitive advantage will depend on how effectively firms use internet technologies and deploy focus strategies.