Strategy and the Internet(2)-6

Strategy and the Internet(2)-6 - Strategy and the Internet...

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1 Strategy and the Internet Michael E. Porter
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2 A Return to Fundamentals Creation of true economic value is ultimate reason for business success Economic value = gap between price and cost Generating revenue, reducing expenses is not evidence value has been created How can Internet be used to create economic value? Consider two factors: Industry structure Determines profitability of average competitor Sustainable competitive advantage Allows company to outperform average competitor
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3 Internet and industry structure Underlying forces of competition determine industry attractiveness; the Internet: Increases intensity of rivalry among competitors (-) Decreases barriers to entry for new competitors (-) Increases threat of substitute products or services (-) These forces determine how economic value created is divided between: Companies in industry Customers, suppliers, distributors, substitutes, and potential new entrants
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4 Rivalry among existing competitors (-) Reduces differences among competitors as offerings are difficult to keep proprietary Toolbars, One-click shopping Hulu Plus vs. Netflix Flickr vs. Picasa (-) Lowers variable cost relative to fixed cost, increasing pressure for price discounting Migrates competition to price (-) Widens geographic market, increasing # of competitors
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5 Barriers to entry (-) Reduces need for sales force, access to channels, and physical assets Anything Internet technology eliminates/makes easier to do reduces barriers (-) Internet applications are difficult to keep proprietary from new entrants
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6 Threat of substitute products/services (+) By making overall industry more efficient, Internet can expand size of market (-) Proliferation of Internet approaches to meeting needs and performing functions creates new substitution threats
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7 Bargaining power of suppliers (+/-) Online procurement raises bargaining power over suppliers but can give suppliers access to more customers B2B C2C (-) Online procurement gives companies equal access to suppliers; leads to procurement of standardized products that reduce differentiation (-) Reduced barriers of entry and increased competition shifts power to suppliers
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8 Bargaining power of buyers (-) Shifts bargaining power to end consumers (-) Reduces switching costs
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9 Paradox of the Internet Internet’s benefits include: Make information widely available Reduce difficulty of purchasing, marketing and
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This note was uploaded on 01/19/2012 for the course MKT 301 taught by Professor Staff during the Spring '08 term at Miami University.

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Strategy and the Internet(2)-6 - Strategy and the Internet...

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