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MASTERS THESIS
Affects of the Internet on Customer Value and Competition in Business-to-Business Markets
MIKAEL HEDLUND
Abstract
Abstract
The Internet is a new and important technology for companies. They have to learn and adapt to the new ways of doing business if they want to stay competitive in the future. Therefore was the purpose of this master thesis to gain knowledge about how the Internet has affected the industry competition within a business-to-business market with regards to buyers value, power of buyers, and threat of new entrants. This research explore, describe and starts to explain how the Internet has affected an old industry and how the Internet can strengthen a firms position within the market. This thesis has completed a qualitative case study, mainly based on interviews. The case for this research was the stated research problem. How has the Internet affected the competitiveness and the industry competition within a business-tobusiness market? The interviews were conducted within a manufacturing firm and with three distributors. Findings from this thesis showed that the Internet has improved the distribution chain, given actors on a market access to more information, expanded the market place, and tied companies within a distribution chain closer to each other.
Table of Content
1 INTRODUCTION ................................................................................................................................................. 1 1.1 BACKGROUND .................................................................................................................................................. 2 1.1.1 Competitiveness ....................................................................................................................................... 2 1.1.1.1 Competitive Advantage ................................................................................................................... 3 1.1.1.2 Customer Value ............................................................................................................................... 3 1.1.1.3 Competitiveness Connection to Competitive Advantage and Customer Value............................. 4 1.1.2 Internet and Competitiveness .................................................................................................................. 5 1.1.2.1 Different Business Models for the Internet..................................................................................... 5 1.1.2.2 Internet Impact on Firms ................................................................................................................. 6 1.2 PILOT STUDY .................................................................................................................................................... 7 1.3 RESEARCH PROBLEM ........................................................................................................................................ 7 1.4 DISPOSITION OF THE THESIS ............................................................................................................................. 9 2 LITERATURE REVIEW................................................................................................................................... 10 2.1 THE INTERNET ................................................................................................................................................ 10 2.1.1 Computer Networking and Internet History ......................................................................................... 10 2.1.2 The World Wide Web............................................................................................................................. 11 2.2 INDUSTRY COMPETITION ................................................................................................................................ 12 2.2.1 Threat of New Entrants.......................................................................................................................... 13 2.2.2 Pressure from Substitute Products........................................................................................................ 14 2.2.3 Intensity of Rivalry among Existing Competitors ................................................................................. 15 2.2.4 Bargaining Power of Buyers ................................................................................................................. 15 2.2.5 Bargaining Power of Suppliers ............................................................................................................. 16 2.2.6 Industry Competition and the Internet .................................................................................................. 18 2.3 CUSTOMER VALUE ......................................................................................................................................... 19 2.3.1 Customer value and the Internet ........................................................................................................... 20 2.3.2 Value Focused Thinking ........................................................................................................................ 21 2.3.3 Value Focused Thinking and the Internet ............................................................................................. 23 2.4 BUSINESS MODELS FOR THE INTERNET .......................................................................................................... 23 2.4.1 Changing Internet Focus ....................................................................................................................... 25 2.4.2 The Strategic Internet Application Model (SIAM)................................................................................ 26 2.4.2.1 Customisation ................................................................................................................................ 27 2.4.2.2 Current Customers ......................................................................................................................... 27 2.4.2.3 New Customers.............................................................................................................................. 27 2.4.2.4 Network Repositioning.................................................................................................................. 28 2.4.3 The Customer Interaction Cycle (CIC) model ...................................................................................... 28 2.4.3.1 Purchase ......................................................................................................................................... 29 2.4.3.2 Order .............................................................................................................................................. 29 2.4.3.3 Exchange........................................................................................................................................ 29 2.4.2.4 Use (After sales services) .............................................................................................................. 30 2.4.2.5 Relationship ................................................................................................................................... 30 2.4.3 Accessibility Design Offer Fulfilment (ADOF) model.......................................................................... 31 2.4.3.1 Accessibility................................................................................................................................... 31 2.4.3.2 Design ............................................................................................................................................ 32 2.4.3.3 Offer ............................................................................................................................................... 32 2.4.3.4 Fulfilment....................................................................................................................................... 33 3 FRAME OF REFERENCE ................................................................................................................................ 34 3.1 RESEARCH PROBLEM ...................................................................................................................................... 34 3.2 RESEARCH QUESTIONS (RQ).......................................................................................................................... 34 3.2.1 The First Research Question ................................................................................................................. 35 3.2.2 The Second Research Question ............................................................................................................. 35 3.2.3 The Third Research Question................................................................................................................ 36 3.2.4 Summary of Research Questions........................................................................................................... 37 3.3 EMERGED FRAME OF REFERENCE .................................................................................................................. 38 4 METHODOLOGY .............................................................................................................................................. 39 4.1 PURPOSE OF RESEARCH .................................................................................................................................. 39 4.1.1 Thesis Research Purpose....................................................................................................................... 39
Table of Content
4.2 RESEARCH APPROACH .................................................................................................................................... 40 4.2.1 Deductive or Inductive Reasoning ........................................................................................................ 40 4.2.2 Qualitative or Quantitative Research ................................................................................................... 40 4.2.3 Thesis Research Approach .................................................................................................................... 40 4.3 RESEARCH STRATEGY .................................................................................................................................... 41 4.3.1 Thesis Research Strategy....................................................................................................................... 41 4.4 SAMPLE SELECTION ........................................................................................................................................ 42 4.4.1 AB Volvo Penta...................................................................................................................................... 42 4.5.1 Thesis Data Collection Method............................................................................................................. 44 4.5.2 Sample Selection of Respondents .......................................................................................................... 45 4.5.3 Thesis Sample Selection of Respondents............................................................................................... 45 4.6 ANALYSIS OF DATA ........................................................................................................................................ 46 4.6.1 Thesis Data Analysis ............................................................................................................................. 47 4.7 QUALITY STANDARDS .................................................................................................................................... 47 4.7.1 Thesis Quality Standards....................................................................................................................... 48 4.8 VISUALISATION OF METHODOLOGY ............................................................................................................... 49 5 EMPIRICAL DATA PRESENTATION .......................................................................................................... 50 5.1 WIST LAST OCH BUSS AB .............................................................................................................................. 50 5.1.1 How the Internet can Increase the Buyers Value ................................................................................ 50 5.1.2 How the Internet can affect the Power of Buyers ................................................................................. 51 5.1.3 How the Internet can affect the Threat of New Entrants ...................................................................... 52 5.2 AB DREVIA..................................................................................................................................................... 52 5.2.1 How the Internet can Increase the Buyers Value ................................................................................ 52 5.2.2 How the Internet can affect the Power of Buyers ................................................................................. 53 5.2.3 How the Internet can affect the Threat of New Entrants ...................................................................... 53 5.3 BIL OCH TRAKTOR, TUNGA FORDON LULE.................................................................................................. 54 5.3.1 How the Internet can Increase the Buyers Value ................................................................................ 54 5.3.2 How the Internet can affect the Power of Buyers ................................................................................. 55 5.3.3 How the Internet can affect the Threat of New Entrants ...................................................................... 55 6 ANALYSIS ........................................................................................................................................................... 56 6.1 USAGE OF THE INTERNET TO INCREASE THE BUYERS VALUE........................................................................ 56 6.1.1 within Analysis of Wist Last och Buss AB............................................................................................. 56 6.1.2 within Analysis of Drevia ...................................................................................................................... 57 6.1.3 within Analysis of Bil och Traktor, Tunga Fordon Lule..................................................................... 58 6.1.4 Cross Analysis........................................................................................................................................ 59 6.2 INFLUENCE OF THE INTERNET ON THE POWER OF BUYERS ............................................................................ 60 6.2.1 within Analysis of Wist Last och Buss AB............................................................................................. 60 6.2.2 within Analysis of Drevia ...................................................................................................................... 61 6.2.3 within Analysis of Bil och Traktor, Tunga Fordon Lule..................................................................... 61 6.2.4 Cross Analysis........................................................................................................................................ 62 6.3 INFLUENCE FROM THE INTERNET ON THE THREAT OF NEW ENTRANTS ......................................................... 63 6.3.1 within Analysis of Wist Last och Buss AB............................................................................................. 63 6.3.2 within Analysis of Drevia ...................................................................................................................... 64 6.3.3 within Analysis of Bil och Traktor, Tunga Fordon Lule..................................................................... 64 6.3.4 Cross Analysis........................................................................................................................................ 65 7 CONCLUSIONS.................................................................................................................................................. 67 7.1 HOW THE INTERNET CAN BE USED TO INCREASE THE BUYERS VALUE .......................................................... 67 7.2 HOW THE INFLUENCE OF THE INTERNET CAN BE DESCRIBED ON THE POWER OF BUYERS ............................ 69 7.3 HOW THE INFLUENCE OF THE INTERNET CAN BE DESCRIBED ON THE THREATS FROM NEW ENTRANTS ....... 70 7.4 GENERAL CONCLUSIONS DRAWN FROM THIS THESIS WORK........................................................................ 71 8 RECOMMENDATIONS .................................................................................................................................... 72 8.1 RECOMMENDATIONS FOR MANAGEMENT ...................................................................................................... 72 8.2 RECOMMENDATIONS FOR FURTHER RESEARCH ............................................................................................. 72 8.3 RECOMMENDATIONS FOR THEORY ................................................................................................................. 73 REFERENCES ....................................................................................................................................................... 74
Table of Content
ARTICLES .............................................................................................................................................................. 74 BOOKS .................................................................................................................................................................. 76 INTERNET .............................................................................................................................................................. 77 INTERVIEWS .......................................................................................................................................................... 77 APPENDIX A.......................................................................................................................................................... 78
Table of Content
List of Figures
Chapter 1 FIGURE 1.1 COMPETITIVENESS CONNECTION TO CUSTOMER VALUE....................................................................... 4 FIGURE 1.2 DISPOSITION OF THE THESIS ................................................................................................................... 9 Chapter 2 FIGURE 2.1 FORCES GOVERNING COMPETITION IN AN INDUSTRY ......................................................................... 12 FIGURE 2.2 HOW THE INTERNET INFLUENCES INDUSTRY STRUCTURE .................................................................. 18 FIGURE 2.3 PERCEIVED VALUE AND COMPETITIVE ADVANTAGE............................................................................ 19 FIGURE 2.4 THE EVOLUTION OF INTERNET MODELS: FROM A TECHNOLOGY PUSH TO A BUSINESS FOCUS ......... 25 FIGURE 2.5 THE STRATEGIC INTERNET APPLICATIONS MODEL (SIAM) ............................................................... 26 FIGURE 2.6 THE CUSTOMER INTERACTION CYCLE (CIC) MODEL .......................................................................... 29 FIGURE 2.7 THE ADOF MODEL .............................................................................................................................. 31 Chapter 3 FIGURE 3.1EMERGED FRAME OF REFERENCE......................................................................................................... 38 Chapter 4 FIGURE 4.1 COMPONENTS OF DATA ANALYSIS: INTERACTIVE MODEL ................................................................. 46 FIGURE 4.2 VISUALISATION OF METHODOLOGY .................................................................................................... 49 Chapter 5 FIGURE 5.1 SUMMARY OF WIST LAST OCH BUSS AB SWEDEN .............................................................................. 50 Chapter 7 FIGURE 7.1 COMPONENTS OF CUSTOMER PERCEIVED VALUES FROM THE INTERNET ........................................... 68
Table of Content
List of Tables
Chapter 4 TABLE 4.1 RELEVANT SITUATIONS FOR DIFFERENT RESEARCH STRATEGIES .......................................................... 41 TABLE 4.2 ECONOMIC FIGURES OF AB VOLVO PENTA ............................................................................................. 42 TABLE 4.3 SIX SOURCES OF EVIDENCE: STRENGTHS AND WEAKNESSES ................................................................. 43 TABLE 4.4 CASE STUDY TACTICS FOR FOUR DESIGN TESTS .................................................................................... 47 Chapter 5 TABLE 5.1 ECONOMIC FIGURES OF WIST LAST OCH BUSS AB ................................................................................. 51 TABLE 5.2 ECONOMIC FIGURES OF AB DREVIA ........................................................................................................ 53 TABLE 5.3 ECONOMIC FIGURES OF BIL & TRAKTOR TUNGA FORDON LULE AB................................................... 54 Chapter 6 TABLE 6.1 INTERNET AFFECT ON CUSTOMERS VALUE ............................................................................................. 59 TABLE 6.2 INTERNET INFLUENCE ON THE POWER OF BUYERS................................................................................... 62 TABLE 6.3 INTERNET INFLUENCE ON THE THREAT OF NEW ENTRANTS ..................................................................... 65
Introduction
1 Introduction
urose and Ross (2002) observed that the Internet is a world-wide computer network that interconnects millions (and soon billions) computing devices. The Internet is the infrastructure that is used by the information travelling between the communicating computers. To make use of this infrastructure Berners-Lee and associates developed the World Wide Web during the years 1989-1991. Alsop (1999) observed that the World Wide Web has opened up a classic window of opportunity for new companies to challenge the existing old companies. Evans and King (1999) forecast that the Webs potential for businessto-business marketers is vast, as long as it is properly used. Dai and Kauffman (2002) stated that there has been an amazing growth of Internet-based business-to-business (B2B) electronic markets and on-line B2B sales. Keeney (1999) noticed that it is clear that there is no value proposition per se offered from Internet transactions. Keeney supported this argument by claiming that Internet transactions are not a product that one purchases but rather a way to conduct business. Keeney further claimed that there is however a value proposition to a buyer of purchasing a specific product on the Internet. Keeney (1999, p.533) defined the value proposition associated with Internet as the net value of the benefits and cost of both a product and the processes of finding, ordering, and receiving it. Keeney also observed that different customer may view the value of the same Internet purchase very differently. Keeney (1999) detected that the Internet has the potential to offer customers a better deal compared to purchases by usual methods in many situations. Keeney claimed that if this potential should become a reality business must focus on the values delivered to their customers. According to Porter (2001) the Internet is not necessarily a blessing for the companies. Internet tends to alter industry structures in ways that dampen overall profitability. But the companies has no option according to Porter, they must deploy Internet technology if they want to stay competitive in the future. Porter further observed that the Internet is a powerful set of tools that can be used wisely or unwisely. Porter (2001) further argued that the Internet provide buyers with more and better information and therefore strengthen the bargaining power of buyers. Porter (2001, p.66) further reasoned, Because the strength of each of the five forces varies considerably from industry to industry, it would be a mistake to draw general conclusions about the impact of the Internet on long-term industry profitability, each industry is affected in different ways. Verona and Prandelli (2002) realised that the Internet has made it easy to create business models, but hard to make the business models successful in the long run. The authors claimed that recent academic literature has not been able to agree on how to maintain competitive advantage on the Web. In the light of the discussion above, this thesis will discuss how the Internet affects the competitiveness and the industry competition within an industry. Thurlby (1998, p.19) realised that, There is a continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed to provide competitive advantage.
Introduction This thesis will use the business-to-business environment because of the vast potential in that market. Furthermore will this thesis focus on a manufacturing market in an old-market because it is important to gain an understanding about how the Internet has affected an old industry. A further criterion is that the chosen company should be a part of the World Wide Web and conduct some sort of business activity through the Internet.
1.1 Background
Porter (1979) proposed that the state of competition in an industry depends on five basic forces. These forces are according to Porter, bargaining power of suppliers, bargaining power of customers, threats of new entrants, threats of substitute products or service, and finally competition among current competitors. Porter stated that the collective strength of these forces determines the ultimate profit potential of an industry. Knowledge of these underlying sources of competitive pressure provides the groundwork for a strategic agenda of action. Porter believed that these forces highlight the critical strengths and weakness of the company, animate the positioning of the company in its industry, clarify the areas where strategic changes may yield the greatest payoff, and highlight the places where industry trends promise to hold the greatest significance as either opportunities or threats. Porter also proposed that understanding these sources also proves to be of help in considering areas for diversification.
1.1.1 Competitiveness
Neill (1999) observed that competitiveness could be defined as the ability to sell goods and services under free and fair market conditions while maintaining and increasing living standards over the long run. Neill further claimed that competitiveness could be described as continuous, very long run progressive change in product and production processes. Neill also observed that companies need new technologies, new production structures and use a framework that encourages restructuring if they want to stay competitive. Feurer and Chaharbaghi (1994) highlighted that an organization is competitive in the eyes of its customers if it is able to deliver a better value when compared with its competitors. The authors claim that this could be done through continuous improvement of the offerings and capabilities of an organization. The authors proposed that a model of competitiveness should consist of customers, shareholders, competitors and the firm under consideration. Feurer and Chaharbaghi also recognized that another side of competitiveness is the organizations ability to act and react within its competitive environment. Carneiro (2000) stated that companies should be able to combine their innovation efforts, updated IT, and knowledge development in order to achieve a set of capabilities to increase competitiveness. Carneiro believed that when this combination is adequately managed, the company could formulate competitive strategies, which integrate innovative products and new technological weapons to face its competitors.
Introduction 1.1.1.1 Competitive Advantage OConnell, Clancy and van Egeraat (1999) claimed that competitive advantage is the means by which firms achieve success. Porter (1995) brought attention to the fact that the firms performance within the industry depends on its competitive advantages. Competitive advantage is according to Porter manifested either in lower costs than those of rivals or in the ability to differentiate and command a premium price that exceeds the extra cost of differentiating. Porter also recognised that some competitive advantages arise because of differences in operational effectiveness, but the most sustainable advantage come from occupying a unique competitive position. Porter (1985, p.3) claimed that competitive advantage grows primarily out of value a firm is able to create for its buyers that exceeds the firms cost of creating it. Leidecker and Bruno (1984, p.25) defined competitive advantage as a companys competencies versus its competitors. Value is according to Porter (1985) what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. The authors Aguila Obra, Cmara, and Melndez (2002) tried to find out if Internet technologies have led to competitive advantage for companies operating in traditional industries. The authors used the resource-based view (RBV) constructed by Wernerfelt (1984) as their main framework for the study. But since the RBV model demands that a sustainable competitive advantage should have limitations of imitations, the authors did of course discover that the Internet does not give a company a sustainable competitive advantage. The authors stated however that, the Internet, which is the universal media par excellence, such barriers to mobility and imitation do not appear to exist . The authors observed that other theoretical frameworks could be used to explain the impact of Internet usage on organisational success. Jemmeson (1997) observed that there existed a need to define competitive advantage coming from the Internet. Jemmeson proposed that if any or all of the following holds true, then the firm has achieved competitive advantage trough the Internet.
The Internet lets a firm carry out relevant business activities quicker and or cheaper than before The Internet allows a firm to carry out relevant business activities it was previously unable to do The Internet allows a firm to originate a previously untaught method of doing business
1.1.1.2 Customer Value Lapierre (2000) defined customer-perceived value as the difference between scarifies and the benefits perceived by customers in terms of their expectations. Lapierre observed that customer scarifies includes both monetary and non-monetary costs. Lapierre defined nonmonetary costs as the time, effort, energy, and conflict invested by the customer to obtain the products or services or to establish a relationship with a supplier. Lapierre further stated that the majority of researchers defines customer value in terms of get (benefit) and give (sacrifice) components.
Introduction Porter (1980, pp.108-110) observed that most companies do not sell their products and services to a single buyer but to a range of buyers. These buyers differ widely in their volumes of purchases, the importance of the product as an input to their production processes, and so on. Therefore, these buyers will value the offerings differently. Porter (1985, p.3) recognised that value is what buyers are willing to pay. Porter claimed that superior value comes from either offering lower prices than competitors for equal benefits or providing unique benefits from differentiation. Porter (1985, pp.36-61) further introduced the concept of the value chain. Porter observed that all companies conduct a set of activities that are performed to design, produce, to market, deliver, and support its products. All these activities could be represented as a value chain. The importance is to understand that buyers also have value chains and that a companys product represents a purchased input to the buyers chain. Porter argued that value is created when a company creates competitive advantage for its buyers, either by lowering the buyers costs, or raise the buyers performance. Porter stressed the fact that the buyer must perceive the value created for the buyer if the seller should be reward with a premium price. According to Doyle (1998) customers buy from those suppliers they perceive as offering the best value. Doyle proposed that perceived value consist of three factors. 1) The perceived benefits offered by the companys brand 2) The products price 3) Other cost of owning the product Therefore, a company can gain competitive advantage through offering superior benefits, lower prices or a reduced cost of ownership. Doyle recognised that the perceived benefits are a function of the products performance and design together with the services that augment it and the staff that deliver it. Furthermore a competitive advantage is of limited value if it is easily copied. A company needs strategies to sustain their competitive advantage by building barriers to entry. 1.1.1.3 Competitiveness Connection to Competitive Advantage and Customer Value Doyle (1998, pp 49-51) observed that competitiveness comes from competitive advantages, and that competitive advantage requires more than being able to meet customers needs, it requires meeting them better than competitors. Doyle stated that customers choose those suppliers, which offer the best value. If a company does not have a competitive advantage, it will lose market share or have to cut prices and profit margins to retain it. Figure 1.1 displays the connections. FIGURE 1.1 Competitiveness connection to Customer Value Competitiveness Customer Value
Competitive Advantage
Source: Authors own conception
Introduction
Introduction Oliva (2001) claimed that there exist three potent e-business models for the B2B market that has been proven online. Oliva proposed that they are infomediaries, market makers and communities. Infomediaries are third parties that aggregate and sort through information about alternatives, specification, and solutions tailored to a particular buyer. Market makers are third parties that seek customer and producers, set specifications, and assemble transactions. And finally communities of customers that are an electronic meeting place for customers where they can swap tales about suppliers products and services, the quality of support, the strength of competitors and other information relevant for themselves. The Internet has also created new marketplaces called electronic hubs or e-hubs. Kaplan and Sawhney (2000) proposed that an e-hub is a business-to-business (B2B) marketplace, which bring a huge number of buyer and seller together. By letting the buyers and sellers pay fees for their transactions the market makers can earn vast revenues. Wise and Morrison (2000) pointed out that the business model of the Internet today has three fatal flaws. First, most companies have come to realise that getting supplies at the lowest price may not be in their best economic interest. Secondly the exchange delivers little benefits to sellers. And finally, the business models of most B2B exchanges are at best half-baked today. 1.1.2.2 Internet Impact on Firms Porter (2001) recognised that the Internet is an extremely important new technology. But according to Porter many of the pioneers of Internet business have competed in ways that violate almost every aspect of good strategy. Rather than focus on profit companies has sought to maximise revenue and market shares at all costs and pursuing customers through discounting, give-aways, promotions, channel incentives and heavy advertising. Porter claimed that the worse thing yet by the Internet is that price has been defined as the primary competitive variable. Instead of emphasising the Internets ability to support convenience, service, specialisation, customisation and other forms of value that justify attractive prices, companies have turned competition into a race to the bottom. Porter (2001) observed that well establish and well run companies has been thrown of track by the Internet. Forgetting what they stand for or what makes them unique, they have rushed to implement hot Internet applications and copy the offerings of dot.coms. Porter further stressed that industry leaders have compromised their existing competitive advantage by entering market segments to which they bring little that is distinctive. Porter suggested that it did not have to be this way and does not have to be in the future. The companies should make the Internet technology a responsibility for all mainstreams units of the company. With support from IT staff and outside consultants, companies should use the technology strategically to enhance service, increase efficiency, and leverage existing strengths. Porter also mentioned that everyone in the organisation must have an incentive to share in the success of Internet deployment. Porter also brought attention to the fact that In our quest to see how the Internet is different, we have failed to see how the Internet is the same. While a new means of conducting business has become available, the fundamentals of competition remain unchanged. The next stage of the Internets evolution will involve a shift in thinking from e-business to business, from e-strategy to strategy. Only by integrating the Internet into overall strategy will this powerful new technology become an equally powerful force for competitive advantage.
Introduction Alsop (1999) argued that old markets are being influenced and changed by the Internet. Alsop claimed that the Web has forever changed the way companies and customers buy and sell to each other, learn about each other, and communicate. Boyle (2001) acknowledged that there is little doubt that the Internet has made a substantial and lasting impact on both consumer and industry. Porter (2001) stated that the Internet could be used for strategic positioning which is a way of building a competitive advantage. Strategic positioning is a strategy about doing things a different way from your competitors, and doing so you can deliver a unique type of value to your customer, and this will increase your competitiveness on the market place. According to McCormack and Kasper (2002) has the Internet raised the customers expectations. The customers want more information, speed, flexibility, co-operation, collaboration, and service. According to the authors Jelassi and Leenen (2003) the Internet can help the customers when choosing a product and or service. A customer can easily compare offers on the Internet and focus on their value-adding proposition as well as product utility, price and order fulfilment.
Introduction Ling and Yen (2001) claimed that the Internet could be used for increasing the loyalty, commitment and confidence among customers and partners. They also claimed that the Internet can be used for automate the supply chain, develop new products jointly and transform business processes. All this drives revenue and creates competitive advantages for the companies involved. According to Jelassi and Leenen (2003), the Internet allows companies to quickly respond to customers needs and better predict future market demands. It also allows them to become fastto-produce, fast-to-market, fast-to-deliver, and fast-to-service their customers. A problem with this new technology according to McCormack and Kasper (2002) is that the customers are becoming more demanding. The customers want more information, speed, flexibility, cooperation, collaboration, and service. So far the companys counter measurement to this problem has been to compete on price. But as Wise and Morrison (2000) pointed out, many companies has come to realise that getting supplies at the lowest price may not be in their best economic interest. Porter (2001) stated that the Internet has thrown many well establish and well-run companies of track, mainly just because they have competed on price. But Porter stated that it did not need to be this way, and it does not need to be so in the future. Porter claimed that the Internet could be used for building a competitive advantage and by doing so companies can shift the attention away from price and into more rewarding areas such as product development, support convenience, specialisation, and services. Porter (1985, pp.1-4.) brought attention to the fact that the firms performance within the industry depends on its competitive advantages. Porter (1990) also argued that international successful companies use innovation and improvement to achieve success and build competitive advantages. Porter further stressed the fact that information plays a large role in the process of innovation and improvement. In the light of the discussion above in this chapter, the research problem of this thesis is, How has the Internet affected the competitiveness and the industry competition within a business-to-business market?
Introduction
1 Introduction
2 Literature Review
3 Frame of Reference
4 Methodology
6 Analysis
7 Conclusions
8 Recommendations
Literature Review
2 Literature Review
he previous chapter covered the introduction and lead down to the research problem of this thesis. To help solve the research problem various theories, models, and frameworks are needed. Therefore will this chapter review the literature and theories that are needed for solving this research problem.
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Literature Review Clark (1988) brought attention to the fact that when the architecture of the Internet was put together the engineers had a list of different goals. Clark stressed that the list was not a checklist of all the desirable network features. It is important to understand that these goals were in order of importance and entirely different network architecture would be the result if the order of importance were changed. Clark recognized that architecture primarily for commercial deployment would have an entirely different list of importance than what the Internet has today.
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Literature Review
Threat of new entrants Bargaining power of suppliers Bargaining power of customers Threat of substitute products or services Jockeying for position among current competitors
These forces and their internal relationship is shown in figure 2.1. The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long run return on invested capital. FIGURE 2.1 Forces Governing Competition in an Industry Potential Entrants Threats of new entrants
Porter (1979) claimed that the strongest competitive force or forces determine the profitability of an industry and so are of greatest importance in strategy formulation.
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Literature Review Porter (1979, p.143) argued that when the forces affecting an industry have been recognised the strengths and weaknesses of a company could be identified. Thereafter could a plan of action that include the following stages be deployed, 1) Positioning the company so that its capabilities provide the best deafens against the competitive force 2) Influencing the balance of the forces through strategies
Economies of Scales. Refer to declines in unit costs of a product as the absolute volume per period increases. Economies of scales deter entry by forcing the entrant to come in at large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage, both undesirable options. Scale economies may relate to an entire functional area, as in the case of a sales force. Units of multibusiness firms may be able to reap economies similar to those of scale if they are able to share operations or functions subject to economies of scale with other businesses in the company. The benefits of sharing are particularly potent if there are joint costs. Joint costs occur when a firm that is producing product A must inherently have the capacity to produce product B. A common situation of joint costs occurs when business units can share intangible assets such as brand names and know how. The cost of creating an intangible asset need only be borne once; the asset may then be freely applied to other business. Product Differentiation. Established firms have brand identification and customer loyalties, which stem from past advertising, customer service, product differences, or simply being first into the industry. Differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome existing customers loyalties. This effort usually involves start up losses and often takes an extended period of time. Such investments in building a brand name are particularly risky since they have no salvage value if entry fails. Capital Requirements. The need to invest large financial resources in order to compete creates a barrier to entry, particularly if the capital is required for risky or unrecoverable up-front advertising or research and development. Capital may be necessary not only for production facilities but also for things like customer credits, inventories, or covering start up losses. Even if capital is available on the capital market, entry represents a risky use of that capital which should be reflected in risk premiums charged the prospective entrants; these constitute advantages for going firms.
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Literature Review Switching Costs. A one time cost facing the buyer of switching from one suppliers product to another. Switching costs may include employee retraining costs, cost of new ancillary equipment, cost and time in testing or qualifying a new source, need for technical help as a result of reliance on seller engineering aid, product redesign, or even psychic costs of severing a relationship. If these switching costs are high, then new entrants must offer a major improvement in cost or performance in order for the buyer to switch from a current supplier. Access to Distributions Channels. A barrier to entry can be created by the new entrants need to secure distribution for its product. The more limited the wholesale or retail channels for a product are and the more existing competitors have these tied up, obviously the tougher entry into the industry will be. Existing competitors may have ties with channels based on long relationships, high-quality service, or even exclusive relationships in which the channel is solely identified with a particular manufacturer. Sometimes this barrier to entry is so high that to surmount it a new firm must create an entirely new distribution channel. Government Policy. Government can limit or even foreclose entry into industries with such controls as licensing requirements and limits an access to raw materials. More subtle government restrictions on entry can stem from controls such as air and water pollution standards and product safety and efficacy regulations.
Porter further stated that the potential entrants expectations about the reaction of existing competitors would also influence the threat of entry. If the existing competitors are expected to respond forcefully and drive away the entrants then Porter claimed that the entry might well be deterred. Porter put forth some signals of strong likelihoods of retaliation.
A history of vigorous retaliation to entrants Established firms with substantial resources to fight back, including excess cash and unused borrowing capacity, adequate excess productive capacity to meet all likely future needs Established firms with great commitment to the industry and highly illiquid assets employed in it Slow industry growth, which limits the ability of the industry to absorb a new firm without depressing the sales and financial performance of established firms
Savoie and Raisinghani (1999) claimed that the absence of borderlines on the Internet makes it possible for any business to go global with exceptional ease and low costs. The authors claimed that the Internet will reduce the barriers that distribution channels traditionally offered the market leaders.
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Literature Review 1) Are subject to trends improving their price performance trade-off with the industrys product. 2) Are produced by industries earning high profits.
The buyer group is concentrated or purchases large volumes relative to seller sales. If a large portion of sales is purchased by a given buyer this raise the importance of the buyers business in results. The products the buyer group purchases from the industry represent a significant fraction of the buyers costs purchases. Buyers are prone to expand the resources necessary to shop for a favourable price and purchase selectively. When the product sold by the industry in question is a small fraction of buyers costs, buyers are usually much less price sensitive. The products the buyer group purchases from the industry are standard or undifferentiated. If the buyer is sure to find an alternative supplier they may play one company against another. The buyer group faces few switching costs. Switching costs lock the buyer to the seller. Conversely, the buyers power is enhanced if the seller faces switching costs.
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Literature Review The buyer group earns low profits. Low profit creates great incentives to lower purchasing costs. Highly profitable buyers however are generally less price sensitive. Buyers pose a credible threat of backward integration. If buyers either are partially integrated or pose a credible threat of backward integration they are in a position to demand bargaining concessions. Buyer power can be partially neutralised when firms in the industry offer a threat of forward integration into the buyers industry. The industrys product is unimportant to the quality of the buyers products or services. When the quality of the buyers products is very much affected by the industrys product, buyers are generally less price sensitive. The buyer has full information. Where the buyer has full information about demand, actual market prices, and even suppliers costs, this usually yields the buyer greater bargaining leverage than when information is poor. With full information, the buyer is in a greater position to insure that it receives the most favourable prices offered to others and can counter suppliers claims that their viability is threatened.
Porter claimed that most of these sources of buyer powers could be attributed to consumers as well as to industrial and commercial buyers. Only a modification of the frame of reference is necessary. Verona and Prandelli (2002, p.299) observed that the Internet has created a friction-less economy where transaction cost is low and customers can float freely from competitor to competitor. The authors further argued that the Internet has caused information scarcity to evolve into information democracy. This has empowered the customers and now can the customers more easily initiate and control information.
The supplier group is dominated by few companies and is more concentrated than the industry it sells to. Suppliers selling too more fragmented buyers are usually able to exert considerable influence in prices, quality, and terms. The supplier group is not obligated to contend with other substitute products for sale in the industry. The power of even large, powerful suppliers can be checked if they compete with substitutes. The industry is not an important customer of the supplier group. When suppliers sell to a number of industries and a particular industry does not represent a significant fraction of sales, suppliers are much more prone to exert power. If the industry is an
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Literature Review important customer, suppliers fortunes will be closely tied to the industry and they will want to protect it through reasonable pricing and assistance in activities like R&D and lobbying.
The suppliers product is an important input to the buyers business. If the input is important for the buyer than the suppliers power is raised. The supplier groups products are differentiated or it has built up switching costs. If the buyer faces differentiation or switching costs the suppliers power is increased. If the supplier faces switching costs the effect is reverse. The supplier group poses a credible threat of forward integration. This provides a check against the industrys ability to improve the terms on which it purchases.
Porter observed that the conditions determining suppliers power are not only subject to change but also often out of the firms control. However Porter reasoned, as with buyers power the firm can sometimes improve its situation through strategy. It can enhance its threat of backward integration and try to eliminate switching costs. Porter (1985, pp. 1-2) argued that competition is at the core of the success or failure of firms. Competitive strategy is the search for a favourable competitive position in an industry. Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition. Porter claimed that both industry attractiveness and competitive position can be shaped by a firm, and according to Porter, this is what makes the choice of competitive strategy both challenging and exciting. Porter further claimed that competitive strategy not only responds to the environment but also attempts to shape that environment in a firms favour.
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Literature Review
- Makes offerings more allike Threat of substitute - Competition on price products or services - Widens the market, increased number of competitors - Lowers variable cost relative to fixed cost, pressure for discounting
+ Internet tends to raise + Eliminates - Shifts the buyers bargaining power powerful bargaining over the supplier channels power to end - Internet reduces the number consumers of intermediaries - Reduces Barriers to entry - Internet tends to standardise switching products costs. - Internet reduces barriers to entry and therefore shifts the power towards - Reduces barriers to entry the suppliers - Difficult to keep a unique position on the Internet - Internet has invited new entrants into many industries Source: Porter, 2001, p.67
Porter (2001, p.64) observed that gaining competitive advantages through the Internet does not require a radically new approach to business, It requires building on the proven principles of effective strategy. The Internet per se will rarely be a competitive advantage. Many of the companies that succeed will be ones that use the Internet as a complement to traditional ways of competing, not those that set their Internet initiatives apart from their established operations. Rodgers, Yen, and Chou (2002, p.186) observed, Many companies do admit that they are inclined to implement an e-business solution in order to operate more efficiently, but a larger percentage of executives indicate that improved customer service is their primary reason.
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Literature Review Galbraith (2001) observed that the Internet has reduced the industry entry barriers, particularly in the area of product specific marketing and channel assets. Galbraith claimed that previously most of the marketing and distribution functions involved a combination of matching, but somewhat loosely linked physical assets, such as a sales force, catalogue printing and mailing, sales ordering staff, billing and accounts receivable staffs, distribution network, and advertising and marketing staff. Galbraith observed that the establishment, maintenance, and management of these traditional channel assets could be very expensive and long-term. Galbraith claimed that the Internet makes these channel-specific assets less expensive and the management relatively easy.
benefit price
Doyle (1998 pp. 20-21) brought attention to the fact that customers buy from those suppliers they perceive as offering the best value. Doyle noted that perceived value consist of three elements, the perceived benefits offered by the companys brand, other cost of owning and the price. A company can therefore gain competitive advantage through offering superior benefits, lower prices or a reduced cost of ownership. Figure 2.3 will show the connection between the perceived value and the perceived benefits, ownership costs, and price. FIGURE 2.3 Perceived value and competitive advantage Perceived benefits + Perceived value Ownership costs -
Price
Source: Doyle, 1998, p.21
Feurer and Chaharbaghi (1994) further stated that customer values are the combination of several benefits offered for a given price, and include all aspects of the physical product and the accompanying services. The authors furthermore recognized that customer values should be viewed not only in terms of product characteristics, but also in terms of processes, which
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Literature Review deliver the product. Both the product and process concept have to be right if customer satisfaction is to be achieved. Lapierre (2000) observed that it is critical for organisations to understand their offerings and learn how they can be enhanced to provide value to their customers. The author further proposed that a firm must understand what drivers create value for their customers in order to build competitive advantage. Value Chain Porter (1985) observed that a firms competitive advantages appears from the way the firm choose to organise and perform discrete activities such as salespeople making sales call, engineers inventing and designing new products, and so on, because it is these activities that creates value for their customers. If the firm should stay competitive the value created for and paid by the customer should exceed the collective cost of performing all the required tasks to create the value for the buyer. Porter claimed that a firm could gain competitive advantage over its rivals by either performing activities more efficiently (lower cost), or by performing activities in a unique way that creates superior buyer value and commands a premium price (differentiation). Porter proposed that all these activities performed by a firm could be thought of as a value chain. Porter claimed that all these activities contribute to buyer value. The activities could be divided into primary activities, and support activities. Porter claimed that primary activities include ongoing production, marketing, delivery, and service of the product. Support activities include providing purchased inputs (procurement), technology development, human resources management, and firm infrastructure (financing, planning). Porter stressed the fact that strategy should guide the way a firm chooses to perform individual activities and the way they organise their entire value chain. Porter observed that in different industries activities fluctuate in their importance. Porter observed that the value chain is connected through linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Porter observed that linkages demand that activities are co-ordinated. On-time delivery for example demands that several different activities run smoothly together. Porter claimed that careful management of linkages could be an important base of competitive advantage.
Acquisition value, which is associated with the benefits customers think they will receive by acquiring the product relative to the money given up to acquire the product. Transaction value, which is the pleasure of getting a good deal. In-use value, which refer to the actual usage of the product. Redemption value, which is the price of the product at the time of trade in or end of life.
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Literature Review The authors claimed that the Internet is proficient of having a deep impact on all these value components. Internet improves acquisition value because of the ability to provide greater reach and access. Transaction value is enhanced by Internets ability to search out the best deals. In-use value is improved by the Internets capability to provide extensive support and information about how to use the product. Finally the authors claimed that redemption value is enhanced by the Internets ability to provide outlets for exchanging the product when there is less perceived benefit from using the product. Grewal et al. (2003) observed that a problem with Internet transactions is that it still has to rely on traditional methods of shipping, which adds to the time between the transaction and the receipt of the products by customers. This problem is even more severe in cases where the buyer requires immediate fulfilment and is making a seasonal purchase and has less time to wait before possessing the product. Verona and Prandelli (2002, p.300) observed that keepers of a Website should follow these principles to increase the customers value from the Internet.
Creating navigational services that solve problems, not just pushing products. Providing comprehensive information. Adding decisions support software on content.
Significant effort allocated to make values explicit. Logical and systematic concepts are used to qualitatively identify and structure the values appropriate for a decisions situation. Articulation of values in decisions situations comes before other activities. The articulated values are explicitly used to identify decision opportunities and to create alternatives.
Keeney (1996) observed that decisions often are embodied by multiple objectives. Each objective is a statement of something that one wants to achieve in that decision context. Keeney claimed that an objective explicitly requires three features, the decision context, an object, and a direction of preference. The author gave an example of a forest products company, One objective is to minimize environmental impacts. With this objective, the decisions context is harvesting natural resources, the objective is environmental impact, and less impact is preferred to more. The author distinguished between fundamental objectives and means objectives. Fundamental objectives concern the ends that decisions makers value in a specific decision context, means objectives are methods to achieve ends.
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Literature Review Keeney (1996) observed that it is important to list objectives. The value-focused thinking model does so by, 1) 2) 3) 4) Identifying objectives and create an initial list of objectives Structuring objectives Creating alternatives Identify decisions opportunities
Keeney (1996) observed that the most apparent way to identify objectives is to engage in a discussion of the decision situation. The first question to a decision-maker should be What do you like to achieve in this situation? the answer provides the researcher with a list of potential objectives and a base for further probing. Keeney observed that the initial list of objectives would contain many items that really not are objectives. The list will include alternatives, constraints, and criteria to evaluate alternatives. These items should with care be transformed into objectives. Now the researcher has a list with both fundamental and means objectives. It is important to separate these types of objectives and establish their relationship by examining the reason for each. Keeney proposed that the researcher should ask why is this objective important in the decisions context? Keeney noticed that two types of answers are possible. One answer is that the objective is one of the essential reasons for interest in the situation. Such an objective is a fundamental objective. The other response is that the objective is important because of its implication for achieving some other objectives. In this case, it is a means objective. Keeney (1996) detected that when it comes to creating alternatives people are often constrained. Keeney proposed several reasons for this. There is a tendency in problem solving to move away from the ill-defined to the well-defined, from constraint-free thinking to constrain thinking. There is a need to feel, and perhaps even measure progress toward reaching a solution to a decision problem. To get a feeling of progress, one often quickly identifies some viable alternatives and proceeds to evaluate them, without making the effort to broaden the search for alternatives. Keeney claimed that managers must broaden their set of alternatives but they should use some rules,
Alternatives should be created that best achieve the values specified for the decisions situation. Create the best possible alternative using the least amount of time, effort, and resources.
When it comes to decisions Keeney (1996, p.545) observed Decisions makers usually think of decisions as problems to be solved, not as opportunities to be taken advantage of. Thus, it is not surprising that decisions makers do not systematically hunt for decisions situations. Who needs yet another problem? Keeney claimed that value-focused thinking helps managers to make better decisions because the problems are shifted into decision opportunities.
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Literature Review
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Literature Review of uncertainty is a process of imitation of successful strategies and the abandonment of poor ones. Rodgers, Yen, and Chou (2002) observed that every firm that seeks to be successful in the future has to implement a successful e-business strategy. The authors claimed that ecommerce focus on firms customers and the buying and selling of goods and services over the Internet while e-business expands the connectivity of the organisation to include its suppliers, employees, and business partners. The authors claimed that e-business provides links to customers, suppliers, business partners, and employees through the Internet, intranets, and extranets. According to the authors is Web solution systems handling transactions for the customers and providing them with e-commerce solutions Huizingh (2002) realised that both managers and management scientists has been fascinated for more than a decade now about the commercial potential of the Internet. Huizingh stated that the Internet has the potential to forever change the reach and depth possible with marketing activities. Internet may break the traditionally trade-off between the number of customers reachable and the richness of the information. Internet has also the possibility to make marketers more closely observe the customer purchase process. Further Huizingh observed that some companies have chosen to organise their online activities in a separate organisation unit. The reasons for this was accordingly to Huizingh to speed up the decision making process, to maintain flexibility, to create an entrepreneurial culture, to attract quality management, and to tap into the huge pool of capital available for Internet start-ups. Huizingh observed it took some time, and a fascinating crash at stock markets, before it was realized that the Internet is a tool and not a strategy, and that organizational separation could undermine companies ability to gain competitive advantage. Therefore proposed Huizingh that marketing managers need to understand how the Web can be used to develop and market offerings that are satisfying their customers needs. Lin (2003, p.206) proposed four disadvantages of Internet commerce. 1) Lack of physical contact and human interaction. This prevents inspection of products and face-to-face interaction. 2) Communication is conducted via the Web site and this is often a one-way communication, the Web site providing information to the buyer. 3) It is difficult to capture buyers attention as the Internet offers millions of Web pages. 4) Buyers that use the Internet are technically oriented making them ideal for some products but less ideal for others. Lin (2003) proposed the following advantages of Internet commerce,
Open 24-hour, 365-day a year Lower costs and efficiency gains Extended market reach Quick adjustments to market conditions Improved customer service
Lin (2003) claimed that the Internet has made it convenient for customers to buy, and they have access to more information and are struggling with fewer hassles. The Internet has also decreased the procurement costs and streamlined processes. The Internet has also made transactions easier.
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Literature Review Savoie and Raisinghani (1999) observed that the cost savings from the Internet would come from three sources:
Elimination or reduction of the sales function. Access to more suppliers with elimination of significant buying costs. Enhanced communication by consolidating information, which will empower the buyers.
Technology
Source: Huizingh, 2002, p.725
Time
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Literature Review Huizingh (2002) observed, The crux of e-business is to effectively match the efforts to create superior customer value with the technical capabilities of the new medium. Huizingh observed that in order to manage the transformation from a regular company into an ebusiness company manager need help. Therefore was three different models proposed by Huizingh to guide the managers in the transformation.
Figure 2.5 visualise the SIAM model. The SIAM model could be used to help managers structure their main objectives about e-business initiatives. Huizingh claimed that the strategic choices in the SIAM model do overlap each other, thinking about how to strengthen the relationship with current customers may lead to innovative services that are also attractive for new customers and current customers may be interested in services that are developed to attract new customers. FIGURE 2.5 The Strategic Internet Applications Model (SIAM) Customized Products
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Literature Review 2.4.2.1 Customisation Huizingh (2002) realised that there are many ways to customise a product or a part of a product. The easiest product to customize is a product that is digitized. These products can be customized at nearly zero cost according to Huizingh. For non-digital products a company can offer components that customers can combine into tailor-made products. Huizingh observed that recently companies started to exploring opportunities to supplement non-digital products with digital attributes. The advantage of using the Internet for customization is according to Huizingh that the Internet offers very low cost solution to the problem of the extensive communication that is often necessary between the buyer and the seller. Huizingh further observed that the Internet also gives the companies the opportunity to extend mass customization to other elements of the marketing mix, such as price, distribution, and communication. According to Huizingh is mass customization increasing the customer value of the core product, but at the same time is the complexity of the purchase increased for the buyer. The buyers choices shift from limited to almost infinite number of different products. Jelassi and Leenen (2003) observed that both customers and manufacturers could benefit from online customization. Customers appreciate customised products and services and are willing to pay a premium price. Manufactures can decrease product configuration costs because customers mainly specify their product themselves without the help of a salesperson. Grewal, Iyer, Krishnan, and Sharma (2003) observed that the Internet could be used to enhance the price-value-loyalty framework. The authors claimed that customization could be used to build loyalty through improvement in perceived value. Lee (2001) proposed that if the customers are involved in the actual design and production processes switching costs are increased. 2.4.2.2 Current Customers Huizingh (2002) observed that a companys current customers could be served through a Website in many different ways. Huizingh believed that companies should continuously increase the value offered to the buyer on the Website to prevent the buyer to switch to other suppliers. Huizingh claimed that when markets become saturated and competitive pressure increase, the necessity to provide added value becomes inevitable to retain market shares. Huizingh stated that the customer interaction cycle model could be used as a tool to determine how to add value to customers. 2.4.2.3 New Customers Huizingh (2002) observed that the Internet enables companies to attract new customers. Since the cost per contact is reduced by the Internet companies can reach previously margin customers, and since the Internet is a global medium geographic boundaries that previously limited the market is disappearing. Huizingh also observed that the Internet is a suitable medium to reach thin markets, niche markets in which buyers and sellers are small and geographical dispersed.
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Literature Review 2.4.2.4 Network Repositioning Huizingh (2002) put forth the ability of the Internet to strengthen or change the relationships within a business network. Huizingh claimed that Web sites could support intermediaries by: 1) The services offered to intermediaries 2) The co-operation among intermediaries 3) The services intermediaries provide to the final customers
Huizingh claimed that companies could use the Internet to reconsider their role in the business network by altering the ways they receive and deliver value to other parties in that network or by redefining their position in the network.
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Literature Review FIGURE 2.6 The Customer Interaction Cycle (CIC) model
1. Purchase
5. Relationship
2. Order
3. Exchange
Source: Huizingh, 2002, p 731
2.4.3.1 Purchase Huizingh (2002) observed that purchasing could be divided into different steps, and that a corporate Website should be designed to support the different phases of the purchasing process. Huizingh claimed that purchasing often starts with making a first round assortment of products and suppliers and then making the final choice among the alternatives in the evoked set. Huizingh proposed that knowledge of the customer purchase decision process should compose the design of a Website and the information for the preliminary selection should be on the top of the page and not stored deep down in the Website. 2.4.3.2 Order Huizingh (2002) proposed that customers should be able to order products from a company website and then should the supplier confirm the order by sending the buyer an automatically generated e-mail. Rodgers, Yen and Chou (2002) observed that the increased speed of fulfilling orders is a benefit from the Internet. The authors claimed that by interconnecting with suppliers orders will be received faster and should be filled at a quicker speed. This allows firms to substantially reduce its inventory levels. 2.4.3.3 Exchange Huizingh (2002) stated that information about the delivery should be available within the Website. Jelassi and Leenen (2003) proposed that manufactures should offer their customers a safe and risk free transaction online. Jelassi and Leenen further observed that it is important to fulfil the transaction quickly, reliably and rewardingly. The authors observed that manufactures could make use of the following transaction mechanisms:
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Literature Review
An online catalogue with continuously updated prices and features Bundled offers, a combination of multiple products sold in a package with a lower price than the sum of the single prices Discount or limited online edition products that can be offered on the manufactures Website Auctions
Porter (2001, p.66) observed, Its greatest impact has been to enable the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering information, or accomplishing transactions. Savoie and Raisinghani (1999) proposed that by feeding transactions into existing order entry systems, as well as inventory, shipping, billing, and other related subsystems the Internet can be used to control costs and gain monetary savings benefits. Rodgers, Yen, and Chou (2002) observed that the increased speed of fulfilling orders is a benefit coming from the Internet. The authors claimed that the Internet connection between suppliers and buyers would increase the speed in the distribution chain so that orders are received faster and delivered faster. This has a positive impact on firms inventory level and can lead to a just in time (JIT) inventory scheme. This gives that storage costs as well as the cost related to obsolete inventory would become near to non-existing, and this gives a positive impact on the profit figures of a corporation. Demand Chain Management (DCM) Frohlich and Westbrook (2002) proposed that companies that link their customers and suppliers together into a network are building something called demand chain management (DCM). DCM is defined as the practise that manage and co-ordinates the supply chain from end-customers backwards to suppliers. Frohlich and Westbrook observed that although the benefits with DCM have been known for many years it has been impossible to make it work. DCM requires an extensive amount of fast travelling information. This amount of information can be accessed via the Internet. The authors claimed, DCM is perceived in many industries as one of the most powerful tools presently available for creating real competitive advantage. 2.4.2.4 Use (After sales services) Huizingh (2002) observed that the company Website should help the buyer to make use of the purchased product. Jelassi and Leenen (2003) observed that the Internet makes it possible for manufactures to get in contact with the end users of their products. Therefore claimed the authors should a manufacturer carry out many downstream activities such as offering financing and maintenance. The manufactures could also train the users and supply spare parts and consumable products. 2.4.2.5 Relationship Huizingh (2002) observed that many companies have developed Website activities that are not directly aimed at transactions. These activities are aimed at strengthen the relationship with the customers. According to Huizingh there are three possible Web strategies that do this and they are,
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Literature Review 1) Community building 2) Image building 3) Offering services that enable the customer to do a better job Community building is a platform that allows a companys customers to directly interact with each other. Huizingh believed that if managed the right way online communities could strengthen brand names. Image building Web applications should strengthen the brand name. Many producers of fast moving consumer goods are including games on their Website in hope to strengthen the brand name.
Accessibility
Design
Offer
Fulfilment
2.4.3.1 Accessibility Huizingh (2002) observed that the difference between Web sites and classical media is its non-intrusiveness. Huizingh claimed that now are the customers visiting the suppliers instead of the other way around. Therefore is accessibility crucial, and with accessibility Huizingh referred to the extent which customers can easily find the Web site. Grnroos, Heinonen, Isoniemi and Lindholm (2000) proposed that accessibility refer to how customers could
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Literature Review purchase and consume a service, i.e. how easily they get access to the company. Huizingh observed that Web sites become easier to find if they have URL-addresses that make sense like (www.companyname.com or www.brandname.com). Web sites should be promoted both on-line and off-line. On-line promotion can be banners and links. Off-line promotion can be advertisements in broadcasting and print media and to print the URL-address on product packages and on business cards. Rodgers, Yen, and Chou (2002) observed that the Internet allows firms to get in touch with suppliers who never had access to them before. The authors further observed that this has increased the competition among suppliers and thus resulted in lower profit margins. 2.4.3.2 Design Huizingh (2002) observed that the content of a Web site should be organized and presented in such a way that visitors can easily find what they are looking for. Nielsen (1999, p.9) observed, Usability rules the Web. Simply stated, if the customer cant find a product, then he or she will not buy it. Evans and King (1999) claimed that design is critical. If the Website isnt fascinating there may be a quick exit by the visitor with little hope of return. The authors claimed that when a user (buyer) enters a Website there should be an overview of the site, where the firm is located, contact names, and what activities can be done through the Website. 2.4.3.3 Offer Huizingh (2002) claimed that on the Internet the quality of an offer is determined similarly to the way an offer is determined in the terrestrial world, where the ratio of price and quality determines attractiveness of an offer. According to Huizingh Web sites can influence both elements. Quality refers to according to Huizingh to the perceived value of the product and that includes both supporting services and information. Therefore claimed Huizingh could quality be increased by means of easier access to information, increased availability, and tools to speed up the purchase process. According to Huizingh could these tools be search engines, comparison facilities, or the ability to personalize the search process. Further Huizingh stated that instant information by e-mails or through the Web site could increase the perceived quality. The other factor that determines the attractiveness of an offer is according to Huizingh the price. Huizingh observed that the price on-line could be lower because the customers takes over the data entry process and thereby releases the supplier of the time consuming processes of data entry and the correction of data entry errors. Huizingh further claimed that disintermediation could lead to lower prices. Huizingh (2002) observed that strategies like customisation, bundling and providing information can lead to higher switching costs for the buyer and thereby give the seller a chance to increase the price.
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Literature Review 2.4.3.4 Fulfilment Huizingh (2002) observed that fulfilment on the Internet is concerned about two major factors the extent to which a company is able to meet its own promises with the regard to the product in a broad sense and the service standard on the Internet. When the term broad sense is used about a product Huizingh claimed that it includes the primary product or service and supporting services as well as the information communicated to customers about these elements and their use. A company should according to Huizingh deliver within 24 hours if they have promised that on the Website and the product should have the features described on the Website. Huizingh observed that fulfilment on the Internet is similar to that in the ordinary market. Huizingh further stated that the quality of the organisation behind the Web site often determines the quality of the fulfilment. The company Web site can support the fulfilment process by providing information about the delivery. Companies could also use their Websites to allow their buyers to make payments through them.
Huizingh (2002) observed that the other part of fulfilment refers to the standard on the Internet. Service standards refer to for example the time it takes for companies to answer on incoming e-mails.
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Frame of Reference
3 Frame of Reference
he theories in chapter two were chosen to give a theoretical foundation and to help solve the research problem of this thesis. To solve the research problem of this thesis three research questions (RQ) were constructed. The research questions will be introduced, presented, and explained in this chapter. Each research question will start with a discussion to guide the reader. Thereafter with both the theories from chapter two in mind and also with the research question in mind will the emerged frame of reference for this thesis be constructed. The emerged frame of reference will be used in the data collection and in the analyse of this thesis. As a reminder for the reader will the research problem of this thesis start this chapter.
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Frame of Reference
To find out if the performance of the buyer has increased on the market this thesis will try to find out if the turnover has increased. This thesis will also try to find if the buyers has any perceived values coming from the Internet. If so, the model from Keeney, presented in chapter two will be applied on the values so they can be organised.
35
Frame of Reference
When a buyer increases its purchasing volume from a supplier that buyer will become more important for the seller and the bargaining power for that buyer will increase. If the buyer is sure to find an alternative supplier they can use this to enhance their bargaining power and play suppliers against each other. Are the customers buying from more suppliers today, due to the Internet? If a buyer wishes to change suppliers they may face fixed, shopping, transactions, and negations costs. Has the Internet decreased these costs and therefore increased the bargaining power of buyers?
Porter (1980) observed that more factors then those above have an influence on the bargaining power of buyers. But since all industries are different, the influence from each factor will vary from industry to industry. After interviews with knowledgeable persons within the industry these factors were rejected for this thesis work.
The product purchased forms a component of the product and is expensive. The buyer earns low profit, which create great incentive to lower purchasing costs. The product purchased is unimportant to the quality of the buyers product. The purchased product does not save the buyer money. The buyer poses a credible threat of integrating backward to make the purchased product.
These factors were rejected because they are of no importance within the distributor net of the studied industry.
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Frame of Reference Therefore will the third and final research question be the following. How can the influence of the Internet on the threat from new entrants be described? To find out if the threat of new entrants into the market has increased due to the Internet these factors or queues proposed by Porter (1980) will be searched for in this thesis.
Economies of scale. Can the Internet reduce or facilitate the possibility to achieve the power of scale? Product differentiation. Can the Internet reduce or increase the power of brand identification? Access to distribution channels. Do new entrants need access to the old channels or can the use the Internet to bypass old existing channels.
Porter (1980) did also put forth these factors as important for the threat of new entrants.
Capital requirements, the need to invest large financial resources in order to compete Cost disadvantages independent of size Government policy, the government can limit or even foreclose entry to industries
These factors were rejected as not important for this thesis work after interviews with knowledgeable persons within the industry.
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Frame of Reference
Barriers to Entry
Offerings (RQ 1)
Buyers
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Methodology
4 Methodology
he previous chapters included the literature review and the selection of theoretical tools needed for this thesis. This chapter will describe the methodology used in this thesis. The selection of methodology is based on the research problem and the research questions. Motivations for the selected strategies will be given in each section.
Descriptive research is intended to explain distinctiveness of a population or an observable fact. Descriptive research seeks to determine the answers to who, what, when, where, and how questions. Zinkmund (2000, p.51) brought attention to the fact that descriptive studies are based on some previous understanding of the nature of the research problem. Causal research is conducted to recognise cause-and-effect relations between variables where the research problem has been intently defined. A causal study normally has an anticipation of the relations to be explained. Causal research tries to establish that when we do one thing, another thing will happen.
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Methodology
40
Methodology
41
Methodology
42
Methodology
Direct Observations
Yin (1994, p.84) observed, One of the most important sources of case study information is the interview. Yin observed problems with the interview method. These problems are shown in table 4.3.
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Methodology
44
Methodology
Convenience sampling Internet samples Judgement (Purposive) sampling Quota sampling Snowball sampling
Zinkmund (2000, p.350) noticed, There are no appropriate statistical techniques for measuring random sampling error from a non probability sample. Thus projecting the data beyond the sample is statistically inappropriate. Zinkmund (2000) reasoned that all probability samples are based on chance selection events. Zinkmund (2000, p.350) defined probability sample as a sample in which every member of the population has a known, nonzero probability of selection. Zinkmund (2000) proposed several different techniques of probability sampling.
Simple random sampling Systematic sampling Stratified sampling Proportional stratified sample Disproportional stratified sample Optimal allocation stratified sample Cluster sample Area sample Multistage area sampling
45
Methodology
Data Reduction refers to the process of selecting, focusing, simplifying, abstracting, and transforming the data that appear in written-up field notes or transcriptions according to Miles and Huberman (1994, p.10). The authors pointed out that data reduction is an ongoing process throughout the entire study. The authors stressed the fact that data reduction is not something separate from analysis. It is a part of analysis. The authors further claimed, The researchers decisions, which data chunks to code and which to pull out, which patterns best summarize a number of chunks, which evolving story to tell, are all analytic choices. Data reduction is a form of analysis that sharpens sorts, focuses, discards, and organizes data in such a way that final conclusions can be drawn and verified. Data Display is an organized, compressed assembly of information that permits conclusion drawing and action, according to Miles and Huberman (1994, p.11). The authors claimed that displays make it easy to analyze and interpret collected data. Display can consist of matrices, graphs, charts, and networks. The authors observed, As with data reduction, the creation of and use of displays is not separate from analysis, it is a part of analysis. Designing a display, deciding on the rows and columns of a matrix for qualitative data and deciding which data, in which form, should be entered in the cells, are analytic activities. The authors stressed the fact that designing displays also has clear data reduction implications. Conclusions Drawing and Verification is a process that start when the researcher begin to collect data. The authors claimed that conclusions can appear early in the research but they should be verified with data.
46
Methodology
Internal validity (not for descriptive or exploratory studies) External validity Reliability
Reliability Yin (1994, p.36) observed, The goal of reliability is to minimize the errors and biases in a study. If a later investigator followed exactly the same procedures as described by an earlier investigator and conducted the same case study all over again, the later investigator should arrive at the same findings and conclusions. Yin (1994) observed that the case study protocol is a way of increasing the reliability of the case study. The case study protocol should include both the instruments and the procedures and general rules to be followed in using the case study protocol. Yin (1994) proposed that the creation of a case study database improves the reliability. A case study database is not the same as the case study report. The database is the source of collected empirical data from which the evidence presented in the case study is drawn. Validity Zinkmund (2000, pp.281-283) proposed that validity is defined as The ability of a scale or measuring instrument to measure what is intended to be measured. Division of Industrial Marketing and e-Commerce 47
Methodology Yin (1994) proposed that the use of multiple sources of evidence throughout the case study improves the validity. Multiple sources could be observations, interviews or any other data collection method. Yin (1994) proposed that a maintained chain of evidence strengthens the validity. Yin (1994, p.98) claimed, The principle is to allow an external observer, the reader of the case study, for example, to follow the derivation of any evidence from initial research questions to ultimate case study conclusions. Yin (1994) claimed that the use of key informants could increase the overall quality of the study. The idea is to let other people review the draft report and make comments. The reviewers are aloud to disagree with the researchers conclusions and interpretations, but they are not aloud to disagree over the actual facts of the case. If they do so the researcher must settle the disagreement with further research.
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Methodology
Research Approach
Deductive Inductive Qualitative Quantitative
Research Strategy
Case Study Experiment Survey History Analysis of Archival Information
Sample Selection
Non-probability Sampling Probability Sampling
Convenience Sampling Internet Sampling Judgement Sampling Quota Sampling Snowball Sampling
Analysis of Data
Miles and Huberman Interactive Model for Data Analysis and Keeney model for value focused thinking
Quality Standards
Reliability Case Study Protocol Case Study Data Base Construct Validity Multiple Sources of Evidence Chain of Evidence Key Informants
49
Source: Wist Last och Buss AB [On-line]. Available: http://www.wistlastbuss.com/wist.htm [2003, October 3]
Wist Last och Buss AB had a turnover of 471866 (kkr) during 2002 and they had 152 people employed at the end of 2002.
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Empirical Data Presentation according to the respondent that today everything goes faster. And it has become easier to make payments. The respondent claimed that the Internet has helped them in increasing their sales during the last five years. The respondent believed that the increased sale does not come directly from the Internet, but the Internet has helped them in serving their customers better and in doing so it has increased their performance on the market. The respondent claimed that the Internet has not made it easier to customise products, they are still using catalogues and telephones to customise their products. The respondent further claimed that it is too difficult for a nonprofessional to customize his own product and therefore are the customers not asking for the ability to customize their products themselves. The respondent claimed that the Internet has not made the products and services they purchase cheaper. The respondent observed that price is not the most important factor for a purchase, the speed of delivery and the availability is the most crucial aspect of a purchase. Table 5.1 Economic figures of Wist Last och Buss AB Period 200201-200212 200101-200112 200001-200012 199901-199912 Turnover (kkr) 471866 393696 514725 158461 Turnover change 19.86 -23.51 224.83 18.54 Employed 152 142 140 50 4848 4922 19542 6506 Income after financial items and expenses Summary of 157842 129243 233257 91464 access Solidity 29.40 35.93 20.19 34.04
Source: Affrsdata AB [On-line]. Available: http://www.ad.se/nyad/ff/ff_rapport.php [2003, October 1]
The respondent said that their perceived values from the Internet are faster delivery, and more information.
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Empirical Data Presentation The respondent claimed that the Internet has not made it cheaper to switch supplier, it takes a lot of time and effort to use the Internet to find a new supplier. The respondent observed that in the past it was near to impossible to find rare spare parts, the Internet has changed this. But it still takes a lot of time and effort to find something useful on the Internet. The respondent claimed that the Internet has made him more aware of the products he is buying.
5.1.3 How the Internet can affect the Threat of New Entrants
The respondent claimed that the Internet is a window of opportunity that can be taken advantage of by retailers in the business. The Internet is a window out to the customers. But the respondent believed that the market today are not demanding Internet trade and marketing to the end users. The respondent did not believe that the Internet would reduce the power of scale. In this business it is a huge advantage to be big, if you have an extensive distributor net the customers fell safe. The respondent did neither believe that the Internet would reduce the power of the brand. Customers feel safe with a strong brand name and most of the customers are brand loyal in this business. The respondent further claimed that it is hard for a new entrant to use and solely relay on the Internet in this business. Boat engines are complex and difficult for most customers, they often need to talk face to face with a professional distributor.
5.2 AB Drevia
AB Drevia (www.drevia.se) is a wholesaler in the business of leisure marine engines. Dervia is an exclusive Volvo Penta dealer, and support customers all over Sweden with spare parts. Drevia has also customers in the other Nordic countries, and further they have customers in USA, UK and in Asia and also a lot of Mediterranean tourists. Drevia also deliver goods to some of the larger companies who construct yachts meant for pleasure. Drevia started as a subsidiary to Volvo Penta but 1984 the business was sold and Drevia was created. Drevia had a turnover of 10701 (tkr) during 2002 and they had 5 people employed at the end of 2002.
Empirical Data Presentation are not demanding to use the Internet to customise products. The respondent further claimed that the Internet has not reduced the price of their purchased items. Table 5.2 Economic figures of AB Drevia Period 200201-200212 200101-200112 200001-200012 199901-199912 Turnover (kkr) 10701 9019 8201 8242 Turnover change 18.65 9.97 -0.50 18.56 Employed 5 5 5 6 Income after 524 166 165 299 financial items and expenses Summary of 3567 3330 3717 3292 access Solidity 47.87 40.18 32.95 36.80
Source: Affrsdata AB [On-line]. Available: http://www.ad.se/nyad/ff/ff_rapport.php [2003, October 1]
The respondent said that their perceived value from the Internet is that they have gained access to more customers.
5.2.3 How the Internet can affect the Threat of New Entrants
The respondent did not believe that the Internet has affected the threat of new entrants in any way. The respondent claimed that Drevia is known on the Internet. The respondent do not feel threaten by the Internet they use it as a marketing tool. The respondent claimed that it is probably other dealers in Sweden that are feeling threaten by Drevia. The respondent further claimed that the Internet couldnt reduce the power scale. You need a strong and well-known name in this business. Most of the customers want to buy genuine Volvo Penta Parts. The respondent recognised that it is possible for a new entrant to use the Internet to bypass old channels and reach out to a small part of the market within the industry. The respondent
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Empirical Data Presentation alleged that there are always a few customers who are looking out for the lowest possible price, but the majority of the customers within this industry are brand loyal.
The respondent said that their perceived values from the Internet are faster delivery, more information, and low price.
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5.3.3 How the Internet can affect the Threat of New Entrants
The respondent did not believe that the Internet yet has affected the threat of new entrants. The respondent claimed that maybe in the future would the threat from the Internet increase and makes it possible for a small player to enter the market. The respondent did not believe that the Internet would decrease the importance of a strong brand name. The respondent further claimed that the biggest threat from new entrants is from those entrants that will compete on price with products of low quality.
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Analysis
6 Analysis
his chapter will cover the analysis of the data collected for this thesis. The structure of the analysis will follow the order of the research questions. The analyse start with a breakdown of each of the respondent companies. The empirical data collected from respondents will be compared with research brought up in the literature review. After that will all the respondent companies be analysed with each other in a cross analyse, where all companies will be compared with the theoretical foundation on which this thesis is based. By comparing the empirical data collected with the frame of reference this thesis has tried to identify patterns, and from that patterns draw conclusions that the data corresponds or does not corresponds with the theoretical foundation of this thesis.
The respondent has observed that today everything can be checked and verified with the help of a computer and the Internet. The respondent said that everything goes faster. The respondent did also claim that the Internet has made transactions easier. Porter (2001, p.66)
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Analysis observed the following about the Internet, Its greatest impact has been to enable the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering information, or accomplishing transactions. The respondent claimed that they have increased their sale during the last five years. The respondent believed that the increased sale does not come directly from the Internet, but the Internet has helped them in serving their customers better and in doing so it has increased their performance on the market. Porter (2001, p.66) observed that this is a positive trend of the Internet, the Internet can boost an industrys efficiency in various ways, expanding the overall size of the market by improving its position relative to traditional substitutes.
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Analysis
58
Analysis
Drevia
The Internet has made it easier to order products and services if you know what you want and were to find it. The Internet has made more information about delivery available.
Delivery
The Internet has made more information about delivery accessible, everything can be checked and verified with the computer. The Internet has made it easier to make payments. A customer that uses the Internet has gain access to much information.
Internets affect on performance on the market. Turnover Perceived Values of the Internet
Increased sales the last five years, the availability of parts and information gives more service to customers. Increased Increased Faster delivery Increased More information customer base
The Internet has not changed our financing or payment system. Increased base of Drevia is using the information about the Internet as a marketing availability of parts and tool, and by providing more information about customers with information they have gain products. customers from a larger region. Increased sales. The Internet has not affected the overall performance.
Ordering As displayed in table 6.1, all the respondents believe that the Internet has made it easier to order products. Porter (1985) observed, Technological change is not important for its own sake, but is important if it affects competitive advantage and industry structure. Jemmeson (1997) claimed that if the Internet lets a firm carry out relevant business activities quicker, then the Internet has created competitive advantage for that firm. Delivery The Internet has made more information about deliver available. This has made it easier for the respondents to serve their customers. Dai and Kauffman (2002) observed, Internet technologies can improve the efficiency of the supply chain links between buyers and sellers by synchronising their planning and scheduling activities.
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Analysis Financing and Payment The respondents have not noticed any change in financing due to the Internet. Jelassi and Leenen (2003) claimed, Too fully benefit from the Internet, manufactures should offer customers online financial transactions in a simple, universally accepted and secure way. The respondent that are using the Internet for payments has noticed that the workload has increased but that everything goes faster and that everything can be checked and verified with a computer. Information All respondents believed that the Internet has affected the way information is spread in the industry. Huizingh (2002) stated that the Internet has the potential to forever change the reach and depth possible with marketing activities. Internet may break the traditionally trade-off between the number of customers reachable and the richness of the information. Turnover The turnover has increased for all the studied companies during the last years. Perceived Values of the Internet Keeney (1999) observed that the best way to find out what buyers value is to ask them. This list of perceived values was found during the interviews.
Fast delivery Increased information base Increased customers base Low price
Chapter 7 will organise these values and indicate their internal relationships.
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Analysis The respondent claimed that they are buying smaller quantities but they are buying more often. They may be buying more today but that is only so because their customer are buying more. This claim can be supported by arguments from authors like Dai and Kauffman (2002), and Rodgers, Yen, and Chou (2002). The respondent claimed that they are only searching the Internet for new suppliers when a part is out of stock at Volvo Penta. They are then trying to find a supplier that has the missing part in stock. The respondent claimed that the Internet has not made it cheap to switch supplier, it takes a lot of time and effort to find new suppliers on the Internet. Porter (2001) observed that the power of customers will tend to rise as customer become more familiar with the technology their loyalty to their initial suppliers will also decline, they will realise that the cost of switching is low. Porter (2001) further claimed, Internet technology provides buyers with easier access to information about products and suppliers, thus bolstering buyer bargaining power. Evans and Wurster (2000) observed that the Internet is shifting the power away from the seller towards the buyer.
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Analysis
Buying smaller quantities at each time but are buying oftener. Do not use the Internet to find alternative suppliers.
It takes a lot of time and effort to find something useful on the Internet. Source: Authors own formation
Costs
Perceived affects from the Internet on the Power of Buyers As can be seen in table 6.2 does none of the respondent perceive that the Internet has had an affect on the power of buyers. Porter (1979, p.138) observed, The strongest competitive force or forces determine the profitability of an industry and so are of greatest importance in strategy formulation. Purchasing Volume The respondents claimed that the Internet has not changed the absolute amount of parts purchased. But the Internet has changed the way the parts are bought. Nowadays are the respondents buying smaller quantities but they are buying more often. The respondents claimed that the reason for this is that the Internet has made it easier to order products and that the Internet has speeded up the distribution chain. Porter and Miller (1985, p.150) observed, Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Alternative Supplier All respondents claimed that they are using their original supplier (Volvo Penta) for their purchases. But one of the respondents claimed that they are searching for and are using alternative suppliers if Volvo Penta is out of stock.
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Analysis Costs The respondents claimed that the Internet has not changed the costs associated with transaction, searching, negation, or switching supplier. The respondent further claimed that it takes a lot of time and effort to find something useful on the Internet. Porter and Miller (1985, p.150) observed, A companys value chain is a system of interdependent activities, which are connected by linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities.
63
Analysis
64
Analysis
Economy of scale Product differentiation and brand identification Access to distribution channels
The Internet cannot reduce the power of scale. A strong brand name is You need a strong a huge advantage brand name in this because the customers industry. Most feel safe. customers want to buy genuine parts. Hard for new entrants It is possible for a new to solely relay on the entrant to use the Internet. Customers Internet to bypass old need to talk face to channels and reach face with sellers in this out to a small part of industry. the market within the industry. There are always a few customers who are looking out for the lowest possible price, but the majority of the customers within this industry are brand loyal.
Most customers want to buy genuine parts. This industry requires a strong brand name and customer are seeking genuine parts. The biggest threat comes from entrants that will use the Internet to reach out to customers with an economical product with low quality. These companies could use the Internet to bypass old channels and make an entrant into the market.
Perceived affects from the Internet on the Threat of New Entrants As can be seen in table 6.3 the answers from the respondents differ widely when it comes to perceived threat of new entrants from the Internet. One respondent believed that the Internet can be used by new entrants, this statement can be verified with theorise from authors like Porter (2001) and Galbraith and Merrill (2001). One respondent feel no threat from the Internet and is instead claiming that other competitors are feeling threaten by them instead. Porter (2001) observed that the Internet could intensify the rivalry among competitors.
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Analysis Economy of Scale All respondents claimed that it is a huge advantage to be big in this industry and therefore did they not believe that the Internet could reduce the power of scale. The respondents did neither believe that the Internet can help a manufacturer to achieve power of scale, customers need to meet face to face with distributors sometimes. Porter (2001) observed that one of the problems with the Internet is that customers cannot physically examine, touch, and test products or get hands on help in using or repairing them. Product Differentiation and Brand Identification All respondents claimed that the Internet cannot reduce the power of brand identification. Most customers want to purchase genuine parts. Porter (2001) claimed, Attracting new customers is difficult given the sheer magnitude of the available information and buying options. Access to Distribution Channels The respondents observed that new entrants who want to sell inexpensive products with low quality could use the Internet. The respondents claimed that there will always be a small part of the market that will be attracted with this offer, but this segment of customers is relatively small. Porter (2001) observed the lack of human contact with the customer eliminates a powerful tool for encouraging purchases, trading off terms and conditions, providing advice and reassurance, and closing deals.
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Conclusions
7 Conclusions
his chapter will cover the conclusions and findings from this research. Conclusions will be drawn for each of the three research questions stated in chapter 3. The answers and conclusions will be based on the research completed in this thesis work.
7.1 How the Internet can be used to Increase the Buyers Value
This section will include the conclusions from the first research question. Ordering I do believe that the Internet has reduced the cost of ordering products. The Internet has maybe not reduced the price of the purchased products but the Internet has reduced the time it takes to order the products. The Internet has made it easier to order products, especially if you know what you want and were to find it. According to Jemmeson (1997) does this mean that the Internet has created competitive advantage for the buyer. The Internet has also tied suppliers and customers closer to each other within this industry. Delivery The Internet has improved both the delivery and information about delivery. This is a vital tool for the distributors in this industry. This has helped them to better serve their customers. Therefore has the Internet improved the buyers value chain. Searching for Information It seems to be a general opinion among the respondents that it is hard and take a lot of time and effort to find something useful on the Internet. Authors like Grnroos, Heinonen, Isoniemi and Lindholm (2000) claimed that the Internet is a great marketing tool, but that does not seem to be the case in this industry. There is a need for better marketing or navigation on the Internet in this industry. Customers should be able to use the Internet as a tool in their search for products and services on the Web. Turnover The turnover has increased for the studied companies. I do not believe that the Internet is the only reason for the increased turnover. The general business cycle is probably more involved in the increased turnover. But I do believe that the Internet has helped the respondents to better serve their customers and is therefore a part of the increased turnover.
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Conclusions Perceived Values of the Internet Keeney (1999) observed that the best way to find out what buyers value is to ask them. This list of perceived values was found during the interviews.
Fast delivery Increased information base Increased customer base Low price
Figure 7.1 will organise the values to indicate their internal relationships. An explanation of the figure is also included in this section. FIGURE 7.1 Components of Customer Perceived Values from the Internet
Low price
Fast delivery
1) The increased information base is a benefit from the Internet itself. The purpose of the Internet when it was constructed was to make sure that information could be spread whatever happened. 2) The respondents did not believe that the Internet has decreased the price on purchased items but the Internet has made it harder for the manufacturing firms to increase the price on the products because it is so easy to compare prices with the help of the Internet. Therefore is the low price connected to increased information. Porter (2001, p.69) observed the deployment of Internet technology will likely continue to put pressure on the profitability of many industries. 3) The Internet has increased the information about stock and delivery between companies. The Internet has also made it easier to order products. This has speeded up the distribution chain. 4) The Internet can be used as a marketing tool and it can increase the customer base because it has so great reach. 5) Basic marketing, more customers gives increased sales, increased sales gives better discount, the discount can be used to lower the price, low price can increase the customer base. Division of Industrial Marketing and e-Commerce 68
Conclusions Summary of the First Research Question I conclude that the Internet can be used to increase the buyers value. The Internet has made ordering of products easier and faster. The Internet has further on made more information about delivery available. The Internet has made it possible to make payments. The Internet has also given customers access to an enormous amount of information.
7.2 How the Influence of the Internet can be described on the Power of Buyers
This section will include the conclusions from the second research question. Perceived affects from the Internet on the Power of Buyers None of the respondent believed that the Internet has affected the power of buyers. Porter (1979) observed that brand identification could be used to construct customer loyalty. It seems that the power of brand identification is stronger than the raised bargaining power of buyers from the Internet in this industry. Purchasing Volume Nowadays are the respondents buying smaller quantities but they are buying more often. The respondents claimed that the reason for this is that the Internet has made it easier to order products and that the Internet has speeded up the distribution chain. The authors Frohlich and Westbrook (2002) observed that this pattern is called demand chain management (DCM) and that this is the most admired and feared way of doing business today. It is very difficult for a competitor to do business with a customer that is tied together with a supplier. Rodgers, Yen, and Chou (2002) observed that the Internet has a positive affect on the buyers inventory levels. The Internet can bring an organisation into a just-in-time (JIT) inventory schema. This gives that storage costs as well as the cost related to obsolete inventory could become near to non-existence and this gives a positive impact on the profit figures of a corporation. Alternative Supplier As seen in the section above competitors to Volvo Penta are in a difficult position. The respondents claimed that they are only searching for or using alternative suppliers when Volvo Penta is out of stock. This is something that Volvo Penta should take advantage of and bring their distributor even closer. I would like to see that distributors to Volvo Penta should be able to check each others stocks to find missing parts. This would decrease the incentive to search for alternative suppliers even more.
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Conclusions Costs The respondents claimed that the Internet has not changed the costs associated with transaction, searching, negotiation, or switching supplier. The respondent further claimed that it takes a lot of time and effort to find something useful on the Internet. Porter and Miller (1985, p.150) claimed that linkages connect a companys value chain. The authors further claimed, Linkages exists when the way in which one activity is performed affects the cost or effectiveness of other activities. This definition from Porter and Miller (1985) gives that the Internet has affected the linkages within the company and has therefore improved the buyers value chain. This is so because the Internet has made transactions and the search for information easier. One of the respondent claimed that the Internet has maybe not dropped the price on purchased products, but the Internet has made it harder for manufactures to raise the prices because of the increased information from the Internet. Summary of the Second Research Question I conclude that the increased bargaining power of buyers coming from the Internet has not affected the industry structure in this industry. The power of brand identification seems to be so strong that retailers se no reason to use the Internet for bargaining for a better position.
7.3 How the Influence of the Internet can be described on the Threats from New Entrants
This section will include the conclusions from the third and final research question. Perceived Affects from the Internet on the Threat of New Entrants As can be seen in table 6.3 the answers from the respondents differ widely when it comes to perceived threat of new entrants from the Internet. One conclusion that can be drawn from table 6.3 is that all respondents believe that the Internet will in some way affect the industry. Economy of Scale All respondents claimed that it is a huge advantage to be big in this industry and therefore did they not believe that the Internet could reduce the power of scale. Product Differentiation and Brand Identification All respondents claimed that the Internet cannot reduce the power of brand identification. Most customers want to purchase genuine parts. Porter (2001) claimed, Attracting new customers is difficult given the sheer magnitude of the available information and buying options.
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Conclusions Access to Distribution Channels The respondents observed that new entrants who want to sell inexpensive products with low quality could use the Internet. The respondents claimed that there will always be a small part of the market that will be attracted with this offer, but this segment of customers is relatively small. Porter (2001) observed the lack of human contact with the customer eliminates a powerful tool for encouraging purchases, trading off terms and conditions, providing advice and reassurance, and closing deals. Summary of the Third Research Question I conclude that a new entrant can use the Internet, but I believe that a new entrant that solely relays on the Internet will have a hard time to gain substantial market shares within the industry. To be a market leader in this industry you need an extensive distributor net and a large present in the off line world.
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Recommendations
8 Recommendations
his thesis has explored the Internets affect on customer values and the industry competition within a business to business market. This, the final chapter of this thesis work will include the researchers recommendations for management, further research and theory.
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Recommendations This thesis work has discovered that there is a need for better navigation and structure on the Internet. The share amount of information on the Internet is staggering. To find something useful in this clutter is very difficult and time consuming. The search engines used today are not totally useless but close to when it comes to structure large amount of information. I dont know if what the Internet needs are new Web browsers or new search engines or a total restructuring of it self. It would be interesting to study how Internet users find information on the Internet and it would also be interesting to study how information could be easier located on the Internet.
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References
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References
Internet
AffrsData AB. [On-line]. Available: http://www.ad.se/ [2003, October 01]. Bil och Traktor, Tunga Fordon Lule. [On-line]. Available: http://www.bilotraktor-lulea.se/ [2003, September 28]. Drevia. [On-line]. Available: http://www.drevia.se/ [2003, September 28]. Volvo Penta. [On-line]. Available: http://www.penta.volvo.se/ [2003, September 28]. Webopedia. [On-line]. Available: http://www.webopedia.com/ [2003, April 8]. Wist Last och Buss AB. [On-line]. Available: http://www.wistlastbuss.com/ [2003, September 28].
Interviews
Hller, Fredrik, sales and order at Drevia, Lule 2003, August 21. Jnsson, Roger, sales and order at Bil och Traktor, Tunga fordon Lule, Lule 2003, June 19. Pettersson, Hans, sales and order at Wist Last och Buss AB, Lule 2003, August 22. Rhodin, Kurt, Swedish Part Manager at Volvo Penta, Gothenburg 2003, Mars 12. Thorsn, Hans-Gran, Purchasing Manager at Volvo Penta, Gothenburg 2003, Mars 13.
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Appendix A
Interview Guide
General Questions
1) Name of the respondent 2) Name of the company 3) The respondents position within the company Value Proposition 4) Do you believe that the Internet has had an impact on your offerings to customers in any way? 5) Has the Internet made it easy and/or inexpensive to find products/services, and if so how? 6) Has the Internet made it easier to order products/services, and if so how? 7) Has the Internet made transactions easier, and if so how? 8) Has the Internet decreased your financial costs, has the Internet made it more convenience to make payments? 9) Has the Internet increased your overall performance on the market, increased sales, lower costs, increased market share? 10) How has the Internet affected the way information is spread and the cost for information in the industry? 11) State your perceived values derived from the Internet?
Product customization
12) Has the Internet made it cheaper and/or easier to customize products and services? 13) Are customers using/demanding the ability to use the Internet for customization?
Price
14) Has the Internet reduced the price on product and services you purchase? 15) Is price the most important factor for purchase, or are other factors more important? Buyers Bargaining Power 16) Do you believe that the Internet has affected the bargaining power of buyers in any way? 17) Has your purchasing volume or purchasing pattern been affected by the Internet in any way? 18) Are you using the Internet to find new suppliers and if so how are you doing it? 19) Has your number of suppliers increased due to the Internet? 20) Has the Internet made it inexpensive to switch supplier? 21) Do you believe that that searching, and negation costs has decreased by the Internet?
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Appendix A 22) Has the monetary price information provided by the Internet increased your or your customers bargaining power? 23) Are suppliers willing to offer more on a bargaining on the Internet then what are usually offering to your company? 24) Has the Internet made you more informed about the products you buy? Threats from new entrants 25) Do you believe that the Internet has affected the threats of new entrants in any way? 26) Do you believe that the Internet can reduce the power of scale and made it possible for a small player to make an entrant into the market? 27) Do you believe that the Internet can reduce the power of brand identification and make strong brand name less important? 28) Do you believe that new entrants can use the Internet to bypass old channels of distribution and make an entrant into the market?
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