Examples of changes to the five forces
In this section further examples are given of changes to the five competitive forces.Bargaining power of buyers
The increase in customer power and knowledge is perhaps the single biggest threat
posed by electronic trading. The bargaining power of customers is greatly increased
when they are using the Internet to evaluate products and compare prices. This is partic-
ularly true for standardised products for which offers from different suppliers can be
readily compared through online intermediaries such as search engines and price com-
parison sites such as Kelkoo (www.kelkoo.com) or Pricerunner (www.pricerunner.com).
For commodities, auctions on business-to-business exchanges can also have a similar
effect of driving down price. Purchase of some products that have not traditionally been
thought of as commodities, may become more price-sensitive. This process is known as
commoditisation. Examples of goods that are becoming commoditised include electrical
goods and cars.
In the business-to-business arena, a further issue is that the ease of use of the Internet
channel makes it potentially easier for customers to swap between suppliers – switching
costs are lower. With the Internet, which offers a more standard method for purchase
through web browsers, the barriers to swapping to another supplier will be lower. With a
specific EDI (electronic data interchange) link that has to be set up between one com-
pany and another, there may be reluctance to change this arrangement (soft lock-indue
to switching costs). Commentators often glibly say ‘online, your competitor is only a
mouse click away’, but it should be remembered that soft lock-in still exists on the web –
there are still barriers and costs to switching between suppliers since, once a customer
has invested time in understanding how to use a web site to select and purchase a partic-
ular type of products, they may not want to learn another service.
A significant downstream channel threat is the potential loss of partners or distribu-
tors if there is a channel conflict resulting from disintermediation (see section on new
channel structures below). For example, a car distributor could switch to an alternative
manufacturer if its profitability were threatened by direct sales from the manufacturer.
TheEconomist(2000) reported that to avoid this type of conflict, Ford US are now usingMARKETPLACECommoditisation
The process whereby
product selection
becomes more
dependent on price
than on differentiating
features, benefits and
value-added services.
Soft lock-in
Electronic linkages
between supplier and
customer increase
switching costs.
Activity 2.2 Assessing the impact of the Internet on competitive forces in
different industriesPurpose
To assess how some of the changes to the competitive forces caused by electronic
communications impact particular industries.Activity
Referring to Table 2.2, assess the impact of the Internet on a sector you select from the
options below. State which you feel are the most significant impacts.
1 Banking.
2 Grocery retail.
3 Book retail.
4 B2B engineering component manufacturer.
5 B2B software services company selling customer relationship management software.
6 Not-for-profit organisation such as hospital, local government or charity.