Porter Forces and eBusiness Strategies

IT6305 e-Business Applications Porter Forces and eBusiness Strategies

Upekha [email protected]

Strategies for What?

When the forces are high, the strategy is mainly to position the company in the least vulnerable position. In a position where the company is least

effected by the competitive forces.

Strategies for What?

When a force is high, the business strategy should be to either

minimize the force or diversify in to an area that will have a minimal effect from that force.

When a force is low, the strategy should be to capitalize on

the force or to use it to get more competitive advantage.

Product Differentiation Value-added Similar products with minor variations that

are used by consumers when making a choice.

Sometimes differentiation does not involve changing the product at all, but creating a new advertising campaign or other sales promotions instead.

Sometimes product differentiation can be as simple as packaging the goods in a creative way.

http://www.investopedia.com/terms/p/product_differentiation.asp

Product Diversification / Market Diversification Market diversification means

extending your business offering to new market segments not previously targeted.

Product diversification means adding new products or services to expand the business offering within existing markets. These new products can simply be extensions of existing brands or they may be entirely new.http://www.ehow.com/info_7746062_market-diversification-vs-product-

diversification.html

Strategic Alliances

Agreement between two or more parties to pursue a set of agreed upon objectives (short term goals) while remaining independent organizations. each company maintains its autonomy

while gaining a new opportunity. They join together to pursue mutual

benefits.http://www.investopedia.com/terms/s/strategicalliance.asp

Product Bundling (contd.)

Offering several products for sale as one combined product.

The fast food industry combines separate food items into a complete meal. A bundle of products may be called

a package. A software bundle might include a word

processor, spreadsheet, and presentation program into a single office suite.

Product Bundling

In a bundle pricing, companies sell a package or set of goods or services for a lower price than they would charge if the customer bought all of them separately.

The products and services are usually related, but they can also consist of dissimilar products which appeal to one group of customers.

Integration

Horizontal Integration

Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain.

A company may do this via internal expansion, acquisition or merger.

The process can lead to monopoly if a company captures the vast majority of the market for that good or service.http://www.investopedia.com/terms/h/horizontalintegration.asp

Backward Integration

Backward integration is when a firm buys a company who previously supplied raw materials to the firm. It is a type of vertical integration, but

specifically refers to the merging with firms who used to supply the firm

Companies pursue backward integration when it is expected to result in improved efficiency and cost savings.

http://www.investopedia.com/terms/b/backwardintegration.asp

Forward Integration

Type of vertical integration where a manufacturer acquires the channels of distribution of its outputs.

This is commonly referred to as "eliminating the middle man“

Benefit of forward integration is that manufacturers can reduce steps in the distribution process

http://www.investopedia.com/terms/f/forwardintegration.asp

Pricing Strategies

Method companies use to price their products or services.

Almost all companies, large or small, base the price of their products and services on production, labor and advertising expenses and then add on a certain percentage so they can make a profit.

Pricing Strategies Cost Leadership

lowest cost of operation in the industry. The use of this strategy is primarily to gain an

advantage over competitors Price Leadership

Price leadership is when a firm that is the leader in its sector determines the price of goods or services. This approach can leave the leader's rivals with little choice but to follow its lead and match these prices if they are to hold onto their market share.

A company could be the lowest cost producer, yet not offer the lowest-priced products or services

Pricing Strategies

Price Discrimination Strategies Charges customers different prices for

the same product or service. In pure price discrimination, the seller charges each customer the maximum price that he is willing to pay.

The seller places customers in groups based on certain attributes and charges each group a different price.

http://www.investopedia.com/terms/p/price_discrimination.asp

Expand Product Line

Line Extensions occur when a company introduces additional items in the same product category under the same brand name such as new flavors, forms, colors, added ingredients, package sizes.

Line extension occurs when the company lengthens its product line beyond its current range.

E.g. : new package size, new branch of a franchised store

Bulk Ordering (Bulk Purchasing) An order to buy a large quantity of a

good at once.

Product Development

Developing new products or modifying existing products with new or different characteristics, so they appear new, and offering those products to current or new markets that offer new or additional benefits to the customer.

MarketingCustomer Relationship Mgt. (CRM)

Supply Chain Management

Discussed in a separate lectures

Reduce the Force in Threats of New Entrants

Reducing the Threat ofNew Entrants Enhancing your marketing/brand image Utilizing patents Demonstrating your ability and desire to

retaliate to potential entrants Setting a product price that discourage new

entrants Cost leadership Position to reduce the price of the

product/service to an extent that newcomers cannot even come close to the pricing structure.

Reducing the Threat of New Entrants Strengthen the barriers of entry

Adding value to the product/service by product differentiation strategy or product bundling.

Form strategic alliances or partnerships with associated products to strengthen the company’s position in the market.

Customer Relationship Management (CRM) or in other words, providing a better, convenient, less costly customized service to the customer is also another strategy.

Reducing the Threat of

Competitors /Rivals

Reducing the Threat of Competitors /Rivals To minimize price competition distinguish

your product from your competitors’ by innovating or improving features.

Focusing on a unique segment of the market

Distributing your product in a novel channel

Trying to form stronger relationships with customers Build customer loyalty.

Reducing the Threat of Competitors /Rivals Value addition or Product differentiation

will move the product from a very competitive market to a market segment which would not be that much competitive.

Product bundling will provide a total solution to the customer which many competitors would not be able to provide. This is practiced a great deal in the tourist

industry where they deal with ticketing, hotel bookings, car rentals, etc.

Reducing the Threat of Competitors /Rivals With internet technologies, it is very easy to

link up with partners to form strategic alliances.

Organizations can link up horizontally with the supply chain to provide a value added better service to the customer increasing CRM.

Target marketing or niche marketing are effective marketing strategies which will make a major difference in creating awareness of the company and it’s products/services.

Reducing the Threat of Competitors /Rivals Another effective strategy would be the, pricing

strategies including price discrimination strategy .

There are many Internet shopping agents, offering price comparisons and a lot of other information to customers to compare products/features and prices. Companies can change different prices for different

market segments or different combinations of product/service offerings for different prices.

Discounted pricing can also be offered depending on quantities as well. This makes it difficult for customers to compare prices of alternate products offerings.

Reducing the Threatof Substitutes

Reducing the Threatof Substitutes Use tactics such as staying closely in tune

with customer preferences Differentiate your product by branding Collective advertising for an industry Value added products that would take your

products to a different market.Diversifying into a new product or

market is a permanent solution of avoiding the pressure of dealing effectively with substitute products/services, but, is not always possible.

Reducing the Threatof Substitutes Strategic alliances and product bundling

can add value to the basic product/service taking it away from direct competition from substitutes. One good example would be how soft drink producers

link up with major food chains such as McDonalds and KFC to beat the competition coming from ready-to-drink fresh juice producers and diary drink producers.

In certain markets, with price-sensitive customers, cost effective pricing strategies would negate the force coming from substitute products.

Reducing the Bargaining Powerof Suppliers


Forming a buying group of small producers, to buy as one large-volume customer.

Produce your own inputs by purchasing one of your key suppliers or doing the production yourself.

Evaluate market information in suppliers business.


Backward integration will allow a company to become a component manufacturer or a raw material dealer reducing or eliminating the barrier of dealing with the bargaining power of suppliers.

Bulk ordering is also a good strategy where few companies who are in need of the same material get the pricing advantage by ordering in larger quantities.


Supply Chain Management will definitely improve the relationships with the nodes of the value chain where the raw material ordering, manufacturing, buying from suppliers and tracking raw material orders, and these will result in lowering the bargaining power of the suppliers.

Electronic links/ Strategic Alliance with suppliers will help the transfer of valuable information with regarding to raw material which will ease the situation.

Reducing the Bargaining Powerof Buyers


Increase their loyalty to your business through partnerships or loyalty programs

Selling directly to consumers Increasing the inherent or perceived

value of a product by adding features or branding.

Select the customers who have little knowledge of the market and have less power.


Product differentiation is improving the product and adding value to it to be different from the competitors.

CRM will let the company focus on high value customers and have a customized approach rather than a mass-production approach. This will create brand loyalty and trust

among customers.


Online and offline marketing strategies and Customer Relationship Marketing are important ways of promoting the company and products to reach the customers.

There can be so many other mechanisms that can be used such as product based marketing, customer based marketing, segmented and behavior oriented marketing.


Traditionally, the price of a product/service depends on quality, features, quantity, type of customer, etc.

On the Internet, there are many more strategies used and one such technique is customized negotiated pricing, used by priceline.com. (C2B)

Another pricing strategy would be to camouflage the real price by bundling or unbundling the product/service related components or features thereby making it difficult for customers to compare the pricing with similar products/ services.


eAuctions such as eBay.com and reverse auctions are also ways of reaching the cyber customers in the e-marketplace.

Expanding the product line can also give the customer a wider variety and choice creating a customized approach to selling products/services.

The other strategies proposed are forward integration, cost leadership, product development.

Depending on which force is working on the company, the strategies are developed and the suitable eBusiness models are being used.

Education

Porter Forces and eBusiness Strategies