Chapter 3: Competitive advantage

e
c Entrants

o
m
m Supplier Competitive
Rivalry
Buyers

e
r
electronic
commerce


c strategy
technologies
and
Substitution

e
applications

E-Commerce ©David Whiteley/McGraw-Hill, 2000 1

 Competitive advantage
e
c  Three basic strategies:
 Cost leadership:
o Prices lower than the competition.

m  Differentiation:

m Products with some quality that makes them

more attractive than the competition.

e  Focus:
r
electronic
commerce Concentration on a single aspect of the market
 (a niche).
c strategy
technologies
and (Porter, 1980)
e
applications

E-Commerce ©David Whiteley/McGraw-Hill, 2000 2

 IT and competitive advantage
e
c  Information and communications technologies (ICTs) can:
 Cost leadership:

o • Reduce administrative cost

(including the logistics supply chain)

m  Differentiation:

m
• quality of service
• responsiveness to customer requirements.

e  Focus:
• Target information on the selected segment.
r
electronic
commerce • Gather customer data from that segment.


c strategy
technologies
and
 Quick response and just-in-time can:
• Evolve new products and services.
e
applications • Facilitate customisation.

E-Commerce ©David Whiteley/McGraw-Hill, 2000 3

 IT and competitive advantage cases
e
c  American Hospital Supplies (AHS):
 Customers given online access to the order
o processing systems.

m  Airline booking systems:

m  American Airline’s Sabre system and United’s

Apollo system.
e
r  Federal Express:
electronic
commerce
  Web site for customers to track the progress of
c strategy
technologies
and
packages whilst in transit.

e
applications

E-Commerce ©David Whiteley/McGraw-Hill, 2000 4

 e Porter’s model of competitive rivalry

c Entrants

o
m
m Supplier Competitive Buyers

e
Rivalry

r
electronic
commerce


c strategy
technologies
and
Substitution

e
applications

E-Commerce ©David Whiteley/McGraw-Hill, 2000 5

 e Porter’s model of competitive rivalry

c  The model helps a firm identify threats to its

competitive position and to lay plans, that may
o include IT and e-Commerce, to protect or enhance
that position.
m
m  The five forces identified by the model are:
 Competitive rivalry among existing players.

e  Threat of potential new entrants to the sector.

 Threat of a substitute product or service.
r
electronic
commerce

 The bargaining power of the buyers.

c strategy
technologies
and
 The bargaining power of the suppliers.

e
applications

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 Porter’s model – new entrants
e
c  The ease with which a company can enter a given
trade sector.

o  Barrier to entry include the need for:

m  Capital
 Knowledge
m  Skills

e  The need for IT investment can be a barrier to

r
electronic
commerce entry.


c strategy
technologies
and
 Internet e-Commerce can facilitate entry, e.g.:
 Internet bookshops
e
applications
 Internet banks
E-Commerce ©David Whiteley/McGraw-Hill, 2000 7
 Porter’s model – substitution
e
c  A new product or service that becomes available
and supplies the same function as the existing
o product:
 Substitution of natural fibres by synthetic fibres
m  Replacement of glass bottles by a plastic

m alternative
 Replacement of the typewriter by the word

e processor

r
electronic
commerce  e-Commerce substitution:


c strategy
technologies
and
 Online banking
 Down-loadable music
e
applications

E-Commerce ©David Whiteley/McGraw-Hill, 2000 8

 e Porter’s model – bargaining power of buyers

c  Buyers have bargaining power where:

 There are a number of competitors.
o  There is a surplus of supply.

m  Defences include:
m  Low production cost.

e
 Product branding.
 Efficient service (ICTs facilitated).

r
electronic
commerce  Value added services (ICTs facilitated).


c strategy
technologies
and
 e-Commerce defences:

e
applications  Reshaped supply chain (dis-intermediarisation).

E-Commerce ©David Whiteley/McGraw-Hill, 2000 9

 e Porter’s model – bargaining power of suppliers

c  Suppliers have bargaining power where:

 There are few or no competitors.
o  There is a shortage of supply.

m (The mirror image of the buyer’s position)

m
e
r
electronic
commerce


c strategy
technologies
and

e
applications

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 Porter’s model – existing players
e
c  The competition between existing players is won on
the basis of the generic competitive advantage of
o price, differentiation or focus.

m  The use of e‑Commerce can:

m  Reduce the administrative costs of trading.

 Increase the logistic efficiency of the supply chain.
e  Meet any requirements to trade electronically.

r  Differentiate the product or service.

electronic
commerce
  Cut out intermediaries in the supply chain.
c strategy
technologies
and
 Provide a new marketing channel.

e
applications

E-Commerce ©David Whiteley/McGraw-Hill, 2000 11

 First mover advantage
e
c  The first organisation to implement a new type of ICT system
can gain the price advantage or differentiation while

o competitors are still operating with traditional methods and

systems.

m  e-Commerce first movers include:

m  amazon.com
 eBay

e  First mover take a big risk:

r
electronic
 New business models.
commerce
  New (expensive) technologies

c strategy
technologies
and  Second/late movers copy proven ideas and technological

e
applications applications. 

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 First mover advantage
e
c  To gain competitive advantage using IS and IT
usually needs an element of surprise; the system

o needs to be out in the market place before

competitors make a start in copying the idea.

m  Sustaining that competitive advantage requires

m either:
 Converting the technical advantage into brand
e advantage.
 Sustaining the technical lead by continuous
r
electronic
commerce product and service development.


c strategy
technologies
and
 The development of many e-Commerce systems,
cannot be entirely private – customers had to
e
applications become involved and competitors can copy.
E-Commerce ©David Whiteley/McGraw-Hill, 2000 13
 e Competitive advantage using e-commerce

c Force System Competitive

advantage

o New entrants/ Internet  Reduced entry costs

m
substitution e-commerce  New sales channel
 New service
opportunities

m Suppliers
(& trade buyers)
e-commerce
logistics
 Cost reductions
 Quick response

e (EDI/IeC)  Lockin

r
electronic Buyers Internet e-  New sales channel
commerce commerce  dis-intermediarisation


c
 Customer Information
strategy
technologies Competitive rivalry E-commerce  Cost leadership
and

e
 Differentiation
applications
 Focus

E-Commerce ©David Whiteley/McGraw-Hill, 2000 14

 Chapter 3 – Exercise 1
e
c  Use Porter’s model to assess the competitive
position of a large online trader. It is suggested that

o the assessment is of amazon.com (as an online

bookstore) against its online and conventional

m competitors.
 The external forces are:

m  Suppliers, principally the publishers;

 Buyers, the book buying public;
e  New Entrants, the possibility of new (large scale)
online bookshops being set up;
r
electronic
commerce  Substitution, that there would be a new sales

channel for books or that the book itself would
c strategy
technologies
and
be replaced by alternative media.
 Consider all five forces separately, making notes on
e
applications
amazon’s competitive position in each case.
E-Commerce ©David Whiteley/McGraw-Hill, 2000 15
 Chapter 3 – Exercise 2
e
c  Continuing with the online bookshop theme,
o consider ways in which a bookshop could seek to

m achieve cost leadership, differentiation and focus.

Make notes suggesting the strategy that could be

m applied in each case. Note that simple discounting

is not to be considered a satisfactory strategy if the

e result is that the bookshop ends up in bankruptcy.

r
electronic
commerce


c strategy
technologies
and

e
applications

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