X. Case Study: Second Life

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A case study of Second Life was the final topic taken up in the course. Launched in 2003, Second Life is an internet-based virtual world developed by Linden Research, Inc. (commonly referred to as Linden Lab). In this world, motional avatars, called “residents,” are enabled to interact with each other, create in-world appearances and identities, participate in individual or group activities, and create and trade items and services, i.e. virtual property, with one another. A virtual currency, the Linden Dollar, used as the medium of exchange, has been exchangeable for real world currencies since 2004. As of February 2007, its rate is reasonably stable at around L$ 266 to US$1. A small percentage of Second Life’s residents draw net incomes from this economy, equivalent to between a few hundred and several thousand US$ per month.

More than 11.5 million accounts have been registered to date. Since many accounts are inactive and some residents have multiple accounts, there are no reliable figures for actual consistent usage. Second Life users tend to be professional males, between the ages of 25 and 55. Their profiles similar to gamers, they have ample time to invest their energies in this virtual world.

Businesses have also begun to use Second Life as a space through which to reach consumers. In all, about 100 businesses already are represented (Sky Network and HSBC, for example) paying real money to Linden Lab for the opportunity to establish themselves in-world and expose their brands. There is high involvement in the Second Life market, and the user who wants his/her avatar to look cool, wear fashionable clothing and own a nice home pays to do so.

Teachers and educational institutions are also availing of virtual classrooms on Second Life, hosting projects and lectures online, and bridging the distance gap between students and teachers through avatar interaction. Corporations such as IBM, too, have been able to hold international meetings without burning aviation fuel.

Second Life’s revenue model is based on subscription fees. Basic accounts have low and no recurring fees, but have little access to Second Life’s more sophisticated features. Premium accounts pay US$9.95 per month which includes a tier fee for a small amount of land, purchased either from another player or from Linden Labs by land auction method; the tier fee for land increases as more land is owned. These accounts receive a weekly stipend of L$300 per week. Since residents can exchange L$ for real world currencies, taxation has become a subject of economic debate.

While Second Life started off as a dot-com earning no income to speak of, it has become a successful business. It has established a platform of considerable size with global coverage, and the creation of its in-world content has, uniquely, been outsourced to its residents, such that Linden Lab has only to focus on the maintenance and development of its technology.

As gaming online is expected to grow exponentially, Second Life can expect to face increasing competitor rivalry, particularly from Japan and China. At this point in time, however, it has achieved a popularity greater than that of Facebook, Myspace, and Youtube, as well as that of director competitors, such as There and Active Worlds. One of Second Life's drawbacks is that its system is unable to handle large volumes of traffic, and the transaction lag time is presenting difficulties. Security of resident information is also an issue.

Reflection
I must admit I was surprised, even startled at first, by our discussion on this topic. While in-class mention had been made before about Second Life, I had no idea of the scope of its current audience or of the connections it makes between virtual and real worlds.

While i was amazed, my reactions, at first, were also somewhat negative. What does it mean when human beings start to project their consciousness into one or even several avatars? If one can escape so easily from one’s limited reality to another where any lifestyle, activity or appearance is possible – given the finances, that is – how will individuals reconcile the disparity between the different worlds they inhabit? Will a kind of schizophrenic existence be the result?

As i continued to reflect, however, i wondered if there might, in time, be some positive implications. Does Second Life, in fact, give individuals new scope for latent creativities? Could the connections forged in virtual realms lead to a more unified world? If underdeveloped countries, such as the Philippines, had better internet access, would its people be able to find new avenues for small business development? And, if so much “living” can be done online, will that not have positive implications for the earth as it faces climate change?

No doubt, as Linden Lab continues to iron out hiccups and improve on its technologies, the virtual population there will expand quite rapidly.

Maybe i should open an account on Second Life!!

IX. Analysis of Clickstream Data

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This topic continued the examination of online market researched, focusing on the collection of B2C data on consumers, products, etc. Sources of data for collection can include internal data (e.g. sales, payroll), external data (e.g. government / industry / competitor reports), and clickstream data. Clickstream data may be gathered using software packages that run under a website, tracking where customers have come from and where they are going, and trailing their activities within the site. These data consist of records of a user’s browsing patterns, i.e. every website and page of every website the user visited, how long the user remained on a page or site, in what order the pages were visited, etc.

Clickstream data allow a business to profile a great number of consumers, which is something that cannot be done in a physical outlet. The data reveal information such as what goods a customer looked at, what goods the customer purchased, what the customer examined but did not purchase, what items the customer bought in conjunction with other items, and what items the customer looked at in conjunction with other items but did not purchase.

Subsequent analysis of profiles can then reveal which ads and promotions were effective and which were not, which ads generated attention but few sales, whether certain products are too hard to find and/or too expensive, etc.

Information that cannot be gathered online is what items are of interest to consumers.

A video entitled “The World According to Google” followed, describing how Larry Page and Sergey Brin invented the software that revolutionized how people search for information. Google’s relevance ranking and its ability to allow people to search for language in its everyday usage resulted in a public, useable search engine unlike prior designs. In 2000, the successful search engine was converted into a successful business by having companies pay per click on their sites. Other features include Google Earth and the program’s inclusion in the past year of business listings, seasonal features and Google books. Google purchased YouTube in 2006 and is considering buying Facebook, through which it hopes to find another way to make money.

Issues that Google face are related to clickstream data, i.e. the ethics of collecting and storing information on user searches. Is this an infringement of privacy? Could this information be used in a court of law? Click fraud, in which people click on a competitor site just to make the competitor pay, is another issue faced by Google, and one with which the company has managed to deal.

Other issues encountered by Google are the effects on books and on research, and the consequences of countries (such as China) imposing limitations on searches, impeding Google’s efforts to provide freedom of information.

Reflection
I can see how clickstream analysis can contribute to market research, though it must be an enormous task to arrange this kind of data into useable forms. E-Commerce 2006 discusses this difficulty as one of the limitations of online market research (p.157). The data needs to be organized, edited, condensed and summarized, all of which may be expensive and time-consuming. Data mining and data warehousing, however, are ways of automating this process.

According to the article “Data Mining: What is Data Mining?” http://www.anderson.ucla.edu/faculty/jason.frand/teacher/technologies/palace/datamining.htm, data mining software allows users to analyze data in order to discover correlations or patterns. Retail, financial, communication and marketing organizations use this process to establish relationships “among ‘internal’ factors such as price, product positioning, or staff skills, and ‘external’ factors such as economic indicators, competition, and customer demographics.” From there, the organizations can assess the impact on customer satisfaction, sales and company profits.

The article also gives some interesting examples of the use of data mining. One is of a Midwest grocery chain that used Oracle software with data mining capacity to analyze buying patterns. Midwest discovered that men tended to buy beer at the same time that they bought diapers on Thursdays and Saturdays. Analyzing further, it was determined that these shoppers did their grocery shopping on Saturdays, while they bought only a few items, like diapers and beer, on Thursdays, to have them available for the weekend. Using this information, Midwest decided to move beer closer to the diaper display and to charge full prices for beer and diapers on Thursdays. The insight gleaned from data mining helped Midwest increase its revenues.

VIII. Online Market Research

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This class took up the concerns of market research as applicable to EC. It was noted that, in the first place, this type of research was developed primarily for application to the area of economics and had little to do with customers per se. However, with the increase of customization and the departure from mass marketing, there currently is growing emphasis on market research as a way of gathering information about the economy, as well as about industries, firms, products, pricing, distribution, competition, promotion and consumer purchasing behaviour.

Taking consumer purchasing behaviour as an area of focus, market research for EC looks at the purchase patterns of individuals and groups (segments), the factors that encourage online purchasing, navigational patterns, and optimal web design. Its objective is to turn browsers into buyers. This conversion rate is becoming increasingly important because of the growing number of suppliers. The challenges lie in overcoming security issues, customer hesitancy to part with money, time factors (e.g. delivery) and using search tools ("open" or "by attribute") that match consumer navigation patterns for a particular product.

Online market research methods include web-based surveys, online focus groups, hearing directly from customers, customer scenarios, and tracking customer movements. Web-based surveys can be passive or interactive and can even be used in product design. (Mazda’s design of Miata, for example, was assisted by web-based survey.) The problem here is that the customers that are surveyed are already part of the segment that is using the site, and trying to find out why people are not buying online cannot be done by surveying those who are! Online focus groups, in which companies recruit participants in advance by telephone and help them connect to the internet, work well for fast-moving consumer products and as a way of reaching busy executives who have little time. The method’s only requirement is technology that works; otherwise, the method is cheap and disperses easily geographically. Hearing directly from customers can be done by establishing an e-bulletin board where visitors can make and read each other’s comments and opinions, as in that which Facebook makes available. Lego employed this kind of survey method, using a market-research agent to analyze and report on responses daily. Customer scenarios gather information on the reasons why customers make specific purchases towards the design of future products and advertising. Tracking customer movement uses cookie files to track consumer web movement, observing their behaviour rather than questioning them directly.

The benefits of internet research are its speed, efficiency, high response rate, and potential access to a large and geographically diverse audience. Its limitations lie in response accuracy, obtaining truly representative samples, obtaining so much data that analysis becomes expensive and time consuming, the lack of eye contact and body language, equipment failures, and legal and ethical issues related to web tracking. To attain an optimal web page design, the site must be tested repeatedly, first on employees, then on sample consumers via a non-productive interface.

As a case in point, Boots uses customer purchase history data collected through its Advantage Card loyalty program to improve marketing. Strategic change within the organisation is driven by this information on purchasing patterns and is resulting in a move away from a product category focus to a customer-centred view.

Reflection
Good market research techniques are obviously essential to helping businesses remain competitive, and i can see that they would be able to provide valuable information at various stages of a business’ development, i.e. creating a business plan, launching a new product or service, fine tuning existing products and services, or expanding into new markets. While online market research methods have their benefits, the fact that internet surveys completely miss consumer segments that are not using online channels is, i believe, a huge drawback at this point – and one which will presumably decrease as online consumption grows.

The issue of market fragmentation, cited as one of the reasons that market research has become so important, is something that we also have been taking up in our course in International Marketing. Market fragmentation is being driven, since the 1990s, by increasing levels of consumer affluence and sophistication. Consumers have never before enjoyed such a wide variety of products and brands. Product life cycles are short, and disposability has become the norm. New market segments with distinct needs and requirements have emerged out of previously homogeneous segments, limiting the usefulness of mass marketing and eroding brand loyalty.

A 2003 article by Julian Mellentin, entitled “Market Fragmentation Paves the Way for Niche Marketing” (http://www.functionalingredientsmag.com/fimag/articleDisplay.asp?strArticleId=423&strSite=FFNSite), gives an interesting example of this phenomenon. Mellentin says that consumers have been bombarded by information about food and health and that, rather than finding this educational, consumers have found this confusing and contradictory. Their response has been simply to decide what works best for them in the context of their own lifestyles and to choose food and diets accordingly. As a result, the market for health products has become fragmented, meaning that health-enhancing products may perform well as niche brands, while attempts to mass market new lines are doomed to failure – “as Swiss pharma group Novartis thought it could do for its now-failed Aviva range of functional foods.”

I wonder if online market research could have helped Novartis avoid this problem?!

VII. Market Communications Online

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This class began with a consideration of easyJet as a case example of what websites can do to communicate or promote their products or services to various stakeholders. Among these, the class noted that the site is user-friendly and very easy to navigate, with direct links from the home page. 18 languages are offered, there is an extensive list of FAQs, customisation is possible and there are a variety of e-offers. The company practices affiliate cross promotion, offers links to press releases, and takes seriously its commitment to corporate social responsibility, supporting charities and providing a carbon calculator. The site also has a good section catering to investor relations where it provides annual reports and frequently updated statistics.

From there, the topic of web advertising was taken up. Studies have shown that the individual sees 3000 ad messages every day. Companies are realizing that they need to invest in alternative methods to highlight their particular message, and many are turning to web advertising to do this. Traditional advertising via TV, newspapers, magazines is impersonal and leaves the consumer in a passive position. While telemarketing and direct mails ads are more personalized, they are slow and expensive, and the consumer is still hardly more than passive.

The internet, on the other hand, has introduced the concept of interactive marketing, by which vendors can target specific groups and individuals on whom they want to spend their finance, and which offers consumers an active role through email or 2-way communication. Consumers who are searching online are already behaving in a more active and targeted manner than those watching TV or reading a newspaper, as they are searching with an intention to gather information or to buy. Besides this, costs of production are low, advertising can be combined with customer service, there is more flexibility in reaching consumers, and, with internet-enabled mobile phones, information is available when they are on the go as well as at their desks. Web advertising, furthermore, is not regulated the way TV and newsprint ads are, so companies are able to broaden the scope of their presentations.

Banner and pop-up advertising has been in existence on the web since 1997, but these are becoming less and less effective (the click ratio has decreased from 3% to 0.8% in 2004), as users have become immune to them and do not notice them as they once did. Alternatives include advertising in chat rooms (talkcity.com) or in newsletters (ecommercetimes.com), posting press releases online (Southwest Airlines), associated ad displays (amazon.com), web casting (free news service), online events, promotions and attractions, online affiliate marketing, and viral marketing. Affiliate marketing is the revenue model by which an organization refers consumers to the selling company’s web site. Viral marketing is word-of-mouth marketing in which customers promote a product or service by telling others about it by email, in chat rooms, in newsgroups and in e-consumer forums. SPAM has never been part of the practice of responsible companies. While it is illegal, unsolicited and lowers the overall effectiveness of e-marketing, there is little that can be done about it.

Reflection
This topic clarified for me the ways in which web advertising is revolutionizing market communications. Until now, i had been aware of ads on the web – one can hardly avoid them after all – but i had not understood the strategy behind their use. I see now, however, that the use of web advertising is going far beyond what formerly has been possible through traditional advertising media. Never before have customer segments been targeted as accurately, have advertisers been able to cover such a large geographical population at so little cost, and have consumers had such a participative role in the advertising process.

“Online Exhibit 4.3” of E-Commerce 2006 clearly contrasts the advantages and limitations of internet advertising. The advantages listed there include low costs regardless of location as well as of distribution number (“so reaching millions of consumers costs the same as reaching one”), around-the-clock availability, advertising and content that can be updated at any time, click-through-rates and page views that are immediately quantifiable, logical navigation, increasingly attractive ads, one-to-one direct marketing relationship opportunities, and, as already mentioned, large market segmentation opportunities. Limitations are fewer and include the currently small audience size, the difficulty for consumers when making “apples-to-apples comparisons,” the difficulty of measuring market size, rating, share, reach or frequency, the lack of clear standards of measurement, and the immaturity of measurement tools.

A topic such as this poses challenges for charitable organizations, which is where my own involvement lies. While online market communications options are readily available, it seems to me that this resource remains largely untapped by most not-for-profit groups. Then again, organizations such as Avaaz and Pace e Bene have, with my consent, been using my email to establish a direct relationship with me and highlight current issues; i intend, in future, to pay more attention to the strategies which they employ. Browsing the web, i have also come across eNonProfits.org (http://www.enonprofits.org/about.html) which offers web development for organizations, specifically interactive nonprofit marketing. I want to keep this resource in mind for my return to work in the Philippines.

VI. Channel Conflict

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A case study, describing growth in the internet as a retail channel in 2002-3, with a detailed account of John Lewis’ (department store) development of its online offering, introduced this topic. Traditional retailers, such as John Lewis, took a long time to join the dot-com’s. Some of the reasons for this included: opting to wait and see and learn from the mistakes of others; waiting to clarify a strategic direction; needing to test and retest before launching so that internet quality matched retail outlet quality; and waiting for the necessary technology to come down in price.

Another reason that manufacturers perceived the internet as a threat instead of an opportunity has been their fear of distribution channel conflicts.

As a background to this, e-tailing is retailing conducted over the internet. While retailing is done in stores via intermediaries, or through catalogues, e-tailing makes it easier for manufacturers to sell directly to customers, cutting out intermediaries. As a result, the catalogue aspect of businesses has been decreasing yearly.

E-tailing has resulted in the phenomenon of multi-channel shoppers who switch between catalogue, store and online channels. Not only does the customer decide on the store, but on the channel. Tri-channel Shoppers are well-informed consumers, and servicing them requires high levels of coordination.

Items that sell well on the internet include brands with high recognition, digitized items (software, music, videos), inexpensive (office supplies, clothes) or frequently purchased items (groceries, prescription drugs), commodities with standard specifications (books, CDs, airline tickets), and packaged items that cannot be opened even in a store (foods, chocolate, vitamins). Items that require complex buying behaviour do not e-tail well.

Businesses that decide to go online can suffer from channel conflict, as catalogues and online offerings within the same business end up competing for the same customer. The channel conflict matrix can help businesses analyze existing conflicts and determine how they should be resolved. If the channels have a high importance and there is a high risk of conflict, it is best to address the problem and find ways to reconcile the channels, such as differentiating them with different offerings. If the channel has a low importance and the risk of conflict is high, it may be best to shift the strategy and allow the threatened channel to decline. If the prospect of conflict is low and the importance of the threatened channels is high, employees need reassurance that they will not be affected. If the prospect of channel conflict is low, and also unimportant, management may choose to ignore the problem in the short run, checking on it periodically.

Reflection
If i had been running a traditional bricks-and-mortar business at the time of dot-com start-ups, i would probably also have bided my time before establishing a presence online. It is obvious now, however, that internet e-tailing is not a passing fad, and that remaining competitive in business depends on being able to include online distribution channels. Given the necessity of this expansion, understanding channel conflict could be crucial to businesses that are trying to incorporate additional new channels of distribution into their existing systems.

E-Commerce 2006 defines channel conflict as “any situation in which the online marketing channel upsets the traditional channels due to real or perceived damage from competition” (p.127). It gives an example of an online department wanting to offer lower prices and have more advertising than an off-line department. While the different markets require different strategies, an action by one department may be at the expense of another.

A 2005 article by Nirmalya Kumar, entitled “Some Tips on Conflict Management,” shares some actual examples of channel conflict (http://www.rediff.com/money/2005/jul/01guest5.htm). In one case, the department store, Dayton Hudson, reduced shelf space on Estée Lauder products, when Estée Lauder set up a website to sell its Clinique and Bobbi Brown brands. In another, Gap decided to stop stocking Levi’s and concentrate on its own Gap brands when Levi’s decided to expand its distribution.

While channel conflict has the potential to be destructive, and fear of it can paralyse a company, Kumar suggests reframing “channel conflict” as “healthy channel competition.” Conflict management, then, is not about eliminating channel conflict, but about managing it so that it does not reach destructive levels. Kumar suggests a number of strategies for channel conflict management, including clear end user segmentation, differentiating products, expanding sales, compensating existing channels, role differentiation, and equitable treatment of channels.

As a final caution, Kumar reflects that a "delicate balance must be maintained between moving too quickly and unleashing destructive channel conflict versus clinging too long to declining distribution networks.” Businesses would do well to heed this advice.

V. Customer Loyalty

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This lesson took up the topic of customer loyalty – the degree to which a customer will stay with a specific vendor or brand for repeat purchasing. EC has been blamed for decreasing consumer loyalty, as customers’ ability to compare prices and switch to different vendors has become easier, faster and less expensive. Loyal customers, however, have been found to buy more when they shop from a particular website. Clearly establishing a brand by investing heavily in it, therefore, helps to build loyalty. Amazon and eBay are examples of businesses that have invested heavily in their brands.

Both loyalty and satisfaction are necessary for a business to be competitive and benefit from recommendations. Consumer satisfaction with internet shopping is impacted by beliefs about information quality, system quality and service quality. Research indicates that the most significant factors affecting online sales are frequent content updates; availability of company information; secure, individualized accounts; and a good privacy statement.
Building loyalty and satisfaction toward a successful business also entails an aspect of trust. Kept promises regarding quality and delivery are significant, especially since, in cases of disputes, conflicts caused by culture, or fraud, it is so difficult to have recourse to legal action.

A video on eBay, then, served as an example of the way a brand was successfully established. Investment through advertising contributed to this, as well as the system of feedback to buyers and sellers that is activated by each transaction. eBay uses a simple revenue model, charging a 30p transaction fee for each auction, and taking a 2-3.5% cut from each sale. Its costs are low, as there is nothing to ship or receive except money. Problems with fraud and with being part of the grey economy may pose greater challenges in the future.

Reflection
While i had had some idea about the importance of customer loyalty to the success of a business before this class, i had not realized what a critical factor it is and that repeat purchasers actually represent cost savings. E-Commerce 2006 (p.147) explains.

(I)t costs between five to eight times more to acquire a new customer than to keep an existing one. Increased customer loyalty can bring cost savings to a company in various ways: lower marketing costs, lower transaction costs, lower customer turnover expenses, lower failure costs such as warranty claims, and so on. Customer loyalty also strengthens a company’s market position because loyal customers are kept away from the competition.

A Japanese 2006 study entitled “What Keeps Online Customers Repurchasing through the Internet?” (http://www.sigecom.org/exchanges/volume_6/6.2-Atchariyachanvanich.pdf) also offers insights into this topic. The authors, Atchariyachanvanich, Okada and Sonehara, begin by pointing out that factors affecting the intention of purchasing online have frequently been the subject of studies, while what keeps online customers repurchasing has not. The result of their study is that all five of the variables they set out to investigate, i.e. satisfaction, confirmation, perceived usefulness, customer loyalty and perceived incentives, keep customers repurchasing through the Internet. Perceived usefulness was found to be a significant determinant of repurchase intention, and customer loyalty was nearly as important. Perceived incentives also were significant. The authors reflect, in conclusion, that, while their model explains the repurchasing behaviour of Japanese online customers, it would need validation from respondents of other nationalities, such as Chinese and American customers.

A system of feedback to buyers and sellers, such as the one devised by eBay, also seems to support customer trust and satisfaction, because, perhaps, it introduces a measure of personalization to the exchange process that customers miss out on when they purchase online, as opposed to traditional retail outlets. eBay itself credits its feedback system with building customer loyalty to its website.

IV. Market Analysis

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This class explored EC’s contribution to competitive advantages as one of its major economic impacts. By offering customers greater value through lowered prices or increased benefits and services that justify the price, EC is having a profound impact on industry structures.

Sources of competitive advantage may derive from a superior market position, superior knowledge and/or relationship base, or a superior resource base. EC competition is intense, as online transactions enable lower search costs, speedy comparisons, differentiation and personalization, lower prices, customer service, reduced barriers to entry and virtual partnerships.

Market analysis is essential to helping businesses stay abreast. Useful analysis tools include Porter’s Five Forces, PESTEL, SWOT and Generic Strategy Options Matrix.

Porter’s Five Forces are sector specific and is comprised of the key factors that can help determine a strategy’s market viability: competitive rivalry, potential entrants, bargaining power of suppliers, bargaining power of buyers, and threat of substitutes. EC’s influence on competitive rivalry is an increase in the number of competitors, a reduction in the differences between them, and an emphasis on price as the competitive basis. For potential entrants, barriers to entry in the form of physical assets, channels access and sales force are reduced. For suppliers, the internet provides a channel for suppliers to reach end users, as well as equal access to all companies. For buyers, there is the advantage of a shift in bargaining power in their favour as well as a reduction in switching costs. The threat of substitutes lies in the proliferation of internet approaches, creating new substitution threats.

PESTEL analysis takes account of political, economic, socio/cultural, technological, environmental and legal factors. Political factors include stability and elements of policy; economic – interest rates, inflation, GDP; social /cultural – language, religion, cultural attributes, demographics, attitudes; technological – availability, cost, influence; environmental – factors related to climate change; and legal – data protection and privacy.

SWOT analysis looks at a business’ strengths, weaknesses, opportunities and threats.

The Generic Strategy Options Matrix, proposed by Porter, builds on the value a firm creates and the breadth of its target. Its quadrants include: cost leadership (broad target, lower cost); differentiation (broad target, differentiation); cost focus (narrow target, lower cost); differentiation focus (narrow target, differentiation). The trade-off, usually, is that high levels of quality, as in differentiation, entail high costs, while low cost tends to impair the ability to provide above average levels of consumer benefits. Amazon and eBay are two examples of businesses that outperform their competitors in prices as well as quality.

Strategy development that takes an alternative approach requires moving beyond the sole industry focus and looking outside one’s box for new market spaces across different industries. Possibilities for new value creation lie in eliminating (forms, bureaucracy, products, mistakes), reducing (costs), raising (awareness, media relations) or creating something (new products/services).

A case study of Deutsche Bank was taken up, finally, as an example of how companies need to re-evaluate their competitive environment as a result of changes brought on by the internet.

Reflection
This class helped me to recognize how significantly EC has contributed to an intensification of competition in the marketplace. Clearly, businesses must make consistent use of market analysis tools to monitor their competitive positions and to develop strategies that help them to stay competitive.

It seems best that a business make use of as many analysis tools as possible, as no one method provides a comprehensive picture, and one tool may pick up what another overlooked. By way of proceeding, i think it could be useful to apply PESTLE analysis first, in order to delineate the framework within which a business is operating. Porter’s Diamond should follow, as it scrutinizes the competitive forces that are significant within this framework. SWOT analysis, then, zeroes in on the company itself, making use of the information from PESTLE and Porter’s Diamond to more clearly identify the business’ strengths, weaknesses, opportunities and threats. The Generic Strategy Options Matrix, finally, could help the business to refine its strategy based on the foregoing analyses and chart a course for the future.

Electronic Commerce 2006 provides an on-line tutorial on writing e-Business Plans with a specific section on competitor analysis (http://wps.prenhall.com/wps/media/objects/2519/2580469/CompAna.html). The tutorial suggests that competitors be grouped as direct, indirect or future competitors. Direct competitors are businesses that might be offering identical or similar products or services to a company i would be planning to set up, representing, therefore, my most intense competition. They would probably have some degree of first-mover advantage, and customers could easily substitute one of their products or services for those i might hope to offer. Indirect competitors are businesses offering the same or a similar value proposition to that of my own company, but delivering a different, but close substitute, product or service. The tutorial gives this example:“television and the Internet itself are Amazon.com’s indirect competitors because each product competes for attention in a consumer’s leisure time, instead of reading books.” Future competitors are existing companies that are not yet in the marketspace i would hope to occupy, but could shift there at any time. An indirect competitor is an obvious source of future competition.

The tutorial also advocates the use of a competitor analysis grid, which is a strategic planning tool that highlights points of differentiation between competitors and the business in question.

While it is impossible, in the end, to identify all existing and potential sources of competition, recognizing those that could have a real impact on a business over time is a big step toward becoming and staying competitive.