IV. Market Analysis

Report
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.