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2004:102 CIV

MASTERS THESIS
Affects of the Internet on Customer Value and Competition in Business-to-Business Markets

MIKAEL HEDLUND

MASTER OF SCIENCE PROGRAMME


Department of Business Administration and Social Science Division of Industrial Marketing and e-Commerce 2004:102 CIV ISSN: 1402 - 1617 ISRN: LTU - EX - - 04/102 - - SE

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.

Division of Industrial Marketing and e-Commerce

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

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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

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Table of Content
ARTICLES .............................................................................................................................................................. 74 BOOKS .................................................................................................................................................................. 76 INTERNET .............................................................................................................................................................. 77 INTERVIEWS .......................................................................................................................................................... 77 APPENDIX A.......................................................................................................................................................... 78

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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

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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

Division of Industrial Marketing and e-Commerce

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.

Division of Industrial Marketing and e-Commerce

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.

Division of Industrial Marketing and e-Commerce

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.

Division of Industrial Marketing and e-Commerce

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

Division of Industrial Marketing and e-Commerce

Introduction

1.1.2 Internet and Competitiveness


In pre-Internet time, information gathering typically involved a patchwork of telephones, faxes, and EDI. Frohlich and Westbrook (2002) pointed out that this made information slow and expensive. But the Internet has changed this and makes information available to all. Kippenberger (2000) claimed that the Internet has an enormous quantity of rich information and that rich information also has an enormous reach. In the rush to go on-line and capture first-mover advantage many start-ups have offered untenably low prices. Baker, Lin, Marn and Zawand (2001) believed that the reason for this has been that the Internet is the most transparent and efficient of markets, so a low price outweighs such factors as product benefits, quality and service. But now, the primary goal of business that buys on-line is cutting the total cost. The authors observed that B2B purchasing managers expected that that the primary benefits from the Internet should be lower transaction costs and search costs. Jelassi and Leenen (2003) proposed that manufactures should sell a combination of products and services that minimise the customers overall costs associated with owning and using the product while maximising its utility. Porter (2001) observed that customers can go on-line and search for products and services all over the world and that buyers often can switch suppliers with just a few mouse clicks. Companies need to adapt to this new situation. To make this adaptation to the Internet companies need to gain knowledge about how their customer uses the Internet and also about their customers buying behaviour and how their customer uses the Internet for information retrieval. Companies also need to know who offers what on the Internet. Porter claimed that if a company can find this information then the Internet could be used to build a competitive advantage. 1.1.2.1 Different Business Models for the Internet Jelassi and Leenen (2003) observed that, The Internet is more than just another communication or distribution channel. The authors stated that the Internet offers companies a new business platform, which allows them to quickly respond to customer needs, and better predict future market demands. It also allows them in a cost-effective way to become fast-to-market, fast-to-produce, fast-to-deliver and fast-to-service their customers. Jelassi and Leenen (2003) argued that a sales model for manufacturing companies on the Internet consist of three stages. These stages are according to the authors, pre-sales service, transactions (commercial and financial) and physical order fulfilment and finally after-sales service. During the pre-sales phase, the customer should receive online information. The customer should also be able to use the Internet to design and customize their products. To impress customers manufactures should offer their customer to use the Internet for a simple and risk-free transaction. Companies need to cost-effectively fulfil the product delivery at the right time, to the right place and person in the way the customer wants it. Finally the authors claimed that delivering a great product is not enough to gain customer loyalty. The manufactures also need to provide online and offline after-sales service. The authors also proposed that, manufactures should sell a combination of products and services that minimize the customers overall costs associated with owning and using the product while maximizing its utility.

Division of Industrial Marketing and e-Commerce

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.

Division of Industrial Marketing and e-Commerce

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.

1.2 Pilot Study


Porter (2001) observed that the Internet will affect all industries, but all industries will be affected in different ways. This research conducted a pilot study with the purpose to gain knowledge about both the industry and the chosen company. The chosen company (Client Company) for the thesis was Volvo Penta. The pilot study took place at Volvo Penta in Gothenburg. Through the Pilot study several interviews and discussions were held recursively within Volvo Penta. During the pilot study the client stressed the fact that the interesting part for them was to find out if and how the Internet has affected their market in terms of new entrants, offerings to customers from competitors, and how the Internet has affected the bargaining power of customers.

1.3 Research Problem


Porter and Millar (1985, p.149) stated, The information revolution is sweeping through our economy. No company can escape its effect. Dramatic reduction in the cost of obtaining, processing, and transmitting information is changing the way we are doing business. According to the authors the information revolution is affecting competition in three vital ways, it changes industry structure and, in doing so, alters the rules of competition, secondly it creates competitive advantage by giving companies new ways to outperform their rivals, and finally it spawns whole new businesses, often from within a companys existing operations. Porter and Millar furthermore observed that information technology is reshaping the product itself, the entire package of physical goods, services, and information companies provide to create value for their buyers.

Division of Industrial Marketing and e-Commerce

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?

Division of Industrial Marketing and e-Commerce

Introduction

1.4 Disposition of the Thesis


This section illustrates the disposition of the thesis. Chapter one includes the introduction, the problem area, the background, and the problem discussion of the thesis. Chapter one has also introduced the research problem of this thesis. Chapter two contains a review of the literature that is related to the research problem of this thesis, i.e. literature regarding the Internet, industry competition, business models for the Internet, competitive advantage, and customer value. Chapter three states the research questions for this thesis and describes the framework chosen for this thesis. At the end of this chapter the emerged frame of reference is visualised. Chapter four consists of the description of the methodology procedure of this thesis. This chapter also reviews some of the available techniques for conducting business research. Chapter five cover the empirical data gathered for this thesis work. Chapter six contains the analyse of the data collected for this thesis. Chapter seven surround the conclusions drawn from this thesis work. Chapter eight holds the recommendations for management, further research and theory, drawn from this thesis work.

FIGURE 1.2 Disposition of the thesis

1 Introduction

2 Literature Review

3 Frame of Reference

4 Methodology

5 Empirical Data Presentation

6 Analysis

7 Conclusions

8 Recommendations

Source: Authors own creation

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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.

2.1 The Internet


Today is the Internet a world-wide computer network of networks that interconnects millions of computing devices throughout the world. Kurose and Ross (2002, pp. 1-45) recognised that most of these computing devices are desktop PCs, UNIX-based workstations or servers. The authors described a server as a device that store and transmit information such as Web pages or e-mails. All these devices are called for hosts or end systems (host = end system). According to Kurose and Ross are hosts connected to each other by communications links and routers. A router is a switching device that takes a chunk of information arriving on one of its incoming communication links and forwards that chunk of information on one of its outgoing communications links. Hosts or end systems can be divided into two subgroups, clients and servers. Kurose and Ross (2002) observed, A client program is a program running on end system that requests and receives a service from a server program running on another end system. Krajewski and Ritzman (1999 p.15) noted that the Internet has emerged as a vital tool linking firms internally and linking firms externally with customers and strategic partners.

2.1.1 Computer Networking and Internet History


Kurose and Ross (2002, pp.58-65) observed that the field of computer networking and todays Internet trace their beginnings back to the early 1960s. Back then researcher was working on packet-switching techniques that are used today on the Internet. Packet switching is an effective method for bursty traffic. Bursty means that there are intervals of activity such as sending or receiving information followed by periods of inactivity while ponder on the received response. By the year of 1969 the hatchling ancestor to the Internet consisted of four nodes. By 1972 the ARPAnet (Advanced Research Projects Agency) had grown to 15 nodes and the same year the first public demonstration took place. The first e-mail program was also written in 1972. By the end of 1970s, approximately 200 nodes were connected to the ARPAnet and by the end of the 1980s approximately 100 000 hosts were connected to the public Internet that back then was a confederation of networks almost like todays Internet. In 1986 NSFNET (National Science Foundation) was created as an access provider with the primary task to link together regional networks. NSFNET replaced ARPANET as the main government network linking universities and research facilities. In 1991 the restrictions for using the NSFNET for commercial purposes was lifted and in 1995 NSFNET was decommissioned with the Internet backbone traffic now being carried by commercial Internet service providers (ISP).

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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.

2.1.2 The World Wide Web


According to webopedia is the World Wide Web a system of Internet servers that support specially formatted documents. The documents are formatted in a script called HTML (Hyper Text Markup Language) that supports links to other documents, as well as graphics, audio, and video files. This means that a user can jump from one document to another by clicking on hot spots. Not all Internet servers are part of the World Wide Web. There are several applications called Web browsers that make it easy to access the World Wide Web. Two of the most popular are Netscape Navigator and Microsofts Internet Explorer. The World Wide Web is not synonymous with the Internet. But since it is so common in academic literature this thesis will sometimes use these terms interchangeable. Kurose and Ross (2002, p.63) stated that during 1989-1991 Tim Berners-Lee and associates invented the Web. Berners-Lee and his associates developed initial versions of HTML, HTTP (Hypertext Transfer Protocol), a Web server, and a browser. According to Krajewski and Ritzman (1998, p.134), the Web is a collection of thousands of independently owned computers. These computers are called Web servers and are located all around the world. Web browser like Netscape and Internet Explorer makes the Web user-friendly. Alsop (1999) pointed out that the Web has forever changed the way companies and customers buy and sell to each other. Alsop also claimed that the Web has changed the way we communicate and the way we collect information.

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Literature Review

2.2 Industry Competition


Porter (1980) observed that every firm competing in an industry has a competitive strategy. Porter further observed that the essence of formulating competitive strategy is relating a company to its environment. Porter stated that industry structure has a strong influence in determining the competitive rules of the game as well as the strategies potentially available to the firm. Porter further claimed that competition in an industry is rooted in its underlying economic structure and goes well beyond the behaviour of current competitors. Porter (1979) proposed that the state of competition in an industry depends on five basic competitive forces.

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

Suppliers Bargaining power of suppliers

Industry Competitors Rivalry among Existing Firms

Buyers Bargaining power of buyers

Substitutes Threat of substitute products or services


Source: Porter, 1979, p.141

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

2.2.1 Threat of New Entrants


Porter (1980) recognised that new entrants to an industry bring new capacity, the desire to gain market share, and often-substantial resources. This can lead to reduced price and lover margins for a company in the industry. Porter claimed that the threat of entry into an industry depends on the barriers to entry that are present on the market. Porter observed that if barriers are high and/or the newcomer can expect sharp retaliation from entrenched competitors, the threat of entry is low. Porter put fort six major sources of barriers to entry.

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.

2.2.2 Pressure from Substitute Products


Porter (1980) observed that all firms in an industry are competing with industries producing substitute products. Porter claimed that substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge. Porter further claimed that substitute products are a matter of searching for other products that can perform the same function as the product of the industry. Substitute products that deserve the most attention are those that,

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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.

2.2.3 Intensity of Rivalry among Existing Competitors


Porter (1980) observed that rivalry among existing competitors takes the familiar form of jockeying for position. Porter recognised that companies are using tactics like price competition, advertising battles, product introductions, and increased customer services or warranties to gain market shares. Porter claimed that rivalry occurs because one or more competitors either feels the pressure or sees the opportunity to improve position. Porter claimed that price cuts are quickly and easily matched by rivals, and once matched they lower revenues for all firms unless industry price elasticity of demand is high enough. Advertising battles, on the other hand, may well expand demand or enhance the level of product differentiation in the industry for the benefit of all firms. The authors Rodgers, Yen, and Chou (2002) claimed that the Internet could create interconnectivity between companies that previous had no contact. This could be both positive and negative for a firm. The positive trend is that a firm can gain more customers and the negative trend is that a company can face lower margins and a lost of customers.

2.2.4 Bargaining Power of Buyers


Porter (1980) proposed that buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other, all at the expense of industry profitability. Porter claimed that the power of each of the industries important buyer group depends on a number of characteristics of its market situation and on the relative importance of its purchases from the industry compared with its overall business. Porter realised that a buyer group is powerful if the following circumstances hold true,

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.

2.2.5 Bargaining Power of Suppliers


Porter (1980) claimed that suppliers could exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own price. Porter observed that the conditions making suppliers powerful tend to mirror those making buyers powerful. A supplier group is powerful if the following applies,

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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2.2.6 Industry Competition and the Internet


In 2001 Porter modernised his framework of industry competition to embrace the Internet. Figure 2.2 displays how the Internet has affected industry structure. Porter observed that the Internet is a new and extremely important technology. Porter (2001, p.63) observed problems with the Internet, Some companies have used Internet technology to shift the basis of competition away from quality, features, and service, towards price, making it harder for anyone in their industries to turn a profit. FIGURE 2.2 How the Internet Influences Industry Structure

- 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

+ Expanding the size of the market - Creates new substitutes threats

Bargaining power of suppliers

Rivalry among existing competitors

Buyers Bargaining Bargaining power of power of channels end users

+ 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.

2.3 Customer Value


Feurer and Chaharbaghi (1994) highlighted the fact 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 claimed that superior value is a result of either lower prices for equivalent benefits or differentiated benefits that justify a higher price. Customer value can therefore be considered as the benefit perceived by the customer in relation to the demanded price. Customer Value =

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.

2.3.1 Customer value and the Internet


Grewal, Iyer, Krishnan, and Sharma (2003) observed that perceived value consists of different value components.

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.

2.3.2 Value Focused Thinking


Keeney (1996) proposed that values should be the driving force for decision-making. Therefore proposed the author a value-focused thinking model to help decisions makers. Value focused thinking is designed to identify desirable decisions opportunities and create alternatives. The differences between value-focused and the normal alternative-focused way (the decisions-maker concentrates first on alternatives and only afterwards addresses the objectives or criteria to evaluate the alternatives) are the following,

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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2.3.3 Value Focused Thinking and the Internet


Keeney (1999) observed 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. Keeney (1999, p.533) defined Internet commerce as the sale and purchase of products and services over the Internet. Keeney observed that the offer given by Internet commerce is valued differently by different customers. Keeney observed that business commonly use the concept of a value proposition. According to Keeney (1999, p.533) value proposition is the combination of end result benefits weighted towards a product or service price. Customers are seeking the offers that are giving them the best value, meaning the best combination of benefits and price. When it comes to Internet commerce Keeney (1999, p.533) observed that there is no value proposition per se offered from the Internet, since Internet commerce is not a product that one purchases but a means to purchasing products. However, we can speak of a value proposition to a customer of purchasing a specific product on the Internet. Keeney (1999, p.533) defined the value proposition derived from the Internet as the net value of benefits and cost of both a product and the process of finding, ordering, and receiving it. Keeney observed that different customer could view the value of the same Internet purchase very differently. Keeney (1999) observed that the competitors to a specific Internet purchase are other products purchased on the Internet, other means (stores, mail order) of purchasing the same product, or no purchase. Keeney claimed that the best way to find out what customers value is to ask them. Keeney observed that it is useful to ask many customers because they will have different views of values derived from the Internet. Keeney (1999, p.534) claimed that managers should 1) Develop a list of customers values. 2) Express each value in a common form, and convert each value into an objective. 3) Organize the values to indicate their relationship, reorganisation of means-end relationships and articulating the fundamental objectives. Keeney (1999) proposed that the first step involves asking people about their perceptions of values derived from the Internet. An analyst should do the second and third step. The analyst should make sense of the values identified.

2.4 Business Models for the Internet


Porter (1980, p.171) recognised that, Most new industries are initially characterised by a great deal of uncertainty about such things as the potential size of the market, optimal product configuration, nature of potential buyers and how they can best be reached, and whether technological problems can be overcome. This uncertainty often leads firms to a high degree of experimentation, with many different strategies adopted representing different bets about the future. Rapid growth provides slack to allow these differing strategies to coexist for long periods of time. Over time, however, there is a continual process by which uncertainties are resolved. Technologies are proven or disproved, buyers are identified, and indications are gleaned from the industrys growth about its potential size. Hand in hand with such reduction

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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.

2.4.1 Changing Internet Focus


Internet is a new technology and according to Huizingh (2002) could its introduction to the market be described like other new technologies. Figure 2.4 shows the authors thoughts about the introduction of the Internet into the market. The first phase is the hype; the focus was on the new amazing Internet technology. Huizingh (2002) observed that during the years 19941995 the popular press created a real Internet hype. The future would be totally different from past; managers were told that the Internet was a global medium, fast and cheap with shops open 24 hours a day seven days a week for customers all over the world. The second phase is according to Huizingh business as usual. Managers realize that todays world is not radically different from yesterdays, however it includes a new tool that enables them to do the same things better, faster, and cheaper. In this phase managers learn which functions or activities there are that could benefit from the Internet. In the third phase, companies consider the Internet as a means to an end. Increased customer value is the result of integrating Internet capabilities with business processes. Currently many companies are according to Huizingh trying to leverage their marketplace assets into the Web and turn their bricks and mortars operations into effective clicks and mortar firms. FIGURE 2.4 The Evolution of Internet Models: From a Technology Push to a Business Focus

Focus on: Business

3. Business as unusual Business processes

2. Business as usual Web functions

1. The Hype Web capabilities

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.

2.4.2 The Strategic Internet Application Model (SIAM)


The first model proposed was the Strategic Internet Applications Model (SIAM). This model explains the possibilities the Internet offers for new strategic directions. According to Huizingh (2002) the model distinguishes between four strategic choices. 1) 2) 3) 4) To use the Internet to offer customised products or services To provide added value to current customers To attract new customers To reposition the company in its business network

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

New Business Current Customers New Customers

Network Repositioning Source: Huizingh, 2002, p 727

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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.

2.4.3 The Customer Interaction Cycle (CIC) model


The customer interaction cycle is a model that according to Huizingh (2002) concentrates on how a strategic focus can translate into applications that deliver added value to new or current customers. The CIC model is a tool to discover Web applications that can lead to superior customer value. The rational behind this model is that a Web site should support the entire customers purchase process. Huizingh claimed that customers would only use the Web site if they think they can do a better job by using it. Figure 2.6 visualises the CIC model. Bertsch, Busbin, and Wright (2002) observed that the key benefits that should be offered to customers when they purchase on the Internet are speed of access, transactions, and delivery. Huizingh proposed that managers must ask themselves these questions during each phase of the CIC model. 1) Current support activities. How do we support customers in their selection process, their buying process, or their product use process? 2) Evaluation of these activities, from both a supplier and a customer point of view. Are there any services with which important customers are unsatisfied or that lead to high costs? 3) Possible replacement by Web applications. Which of these customer support activities can be performed also or even better in a Web site? 4) Unfulfilled needs and wants and Web capabilities. What current unfulfilled needs and wants can be identified and what possibilities offer the Web to meet them?

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Literature Review FIGURE 2.6 The Customer Interaction Cycle (CIC) model

1. Purchase

4. Use After Sales

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.

2.4.3 Accessibility Design Offer Fulfilment (ADOF) model


Huizingh (2002) proposed that the ADOF model describes the factors that determine the operational success of a Website. The ADOF model supports management thinking for traffic generation, the design and the offer given from the Website. Figure 2.7 visualises the ADOF model. According to Huizingh are these three factors determining the short run success of the Website. The fourth factor that determines the long run success is according to Huizingh fulfilment. Huizingh stated, Only if customers experience that a company is able to deliver what it has promised, they may become loyal (e-) customers. FIGURE 2.7 The ADOF model

Accessibility

Design

Offer

Fulfilment

Success of Web site


Source: Huizingh, 2002, p.737

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.

3.1 Research Problem


The research problem of this thesis is the following. How has the Internet affected the competitiveness and the industry competition within a business-to-business market? The literature review has made it clear that there are not many studies done about customer value and industry competition connected to the Internet. Therefore is it justified to conduct a study that closer focus on this problem.

3.2 Research Questions (RQ)


In 1979 Michael E Porter wrote an article called How competitive forces shape strategy. In this article the author introduced a framework of five basic forces. The author claimed that the state of competition in an industry depends on these five forces. The framework is included in chapter two. Since the research problem is related to the area presented by Porter, this thesis will construct the research questions around the theories presented by Porter. Porter (2001) recognised that the Internet affects every industry. But all industries are affected in different ways. 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. The research questions needed for this thesis was found after several interviews with knowledgeable persons within the industry.

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Frame of Reference

3.2.1 The First Research Question


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, 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 lower 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. With this in mind will the first research question be the following. How can the Internet be used to increase the buyers value? To find out if the buyers costs has changed due to the Internet this thesis will try to find out if the Internet has affected the following costs.

Ordering Delivery Financing and payment Search for information

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.

3.2.2 The Second Research Question


Porter (1980) proposed that buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other, all at the expense of industry profitability. Porter (1980, pp.108-110) further 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. Therefore will these buyers value the offerings differently. Porter (2001) claimed that the Internet has provided the customers with more and better information and has therefor strengthened the bargaining power of buyers. Therefore will the second research question of this thesis be the following. How can the influence of the Internet on the power of buyers be described? To find out if the buyers bargaining power has increased, these factors or queues proposed by Porter (1980) will be search for in this thesis.

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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.

3.2.3 The Third Research Question


Porter (1980) recognised that new entrants to an industry bring new capacity, the desire to gain market share, and often-substantial resources. This can lead to reduced price and lover margins for a company in the industry. Porter claimed that the threat of entry into an industry depends on the barriers to entry that are present on the market. Porter observed that if barriers are high and/or the newcomer can expect sharp retaliation from entrenched competitors, the threat of entry is low. Galbraith and Merrill (2001) observed that the Internet has reduced the industry entry barriers, particularly in the area of product specific marketing and channel assets. Galbraith and Merrill claimed that previously most of the marketing and distribution functions involved a combination of matching, 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 and Merrill observed that the establishment, maintenance, and management of these traditional channel assets could be very expensive and long-term. Galbraith and Merrill claimed that the Internet makes these channel-specific assets less expensive and the management relatively easy. Savoie and Raisinghani (1999, p.249) 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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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.

3.2.4 Summary of Research Questions


As a reminder will all three research questions be presented together. 1) How can the Internet be used to increase the buyers value? 2) How can the influence of the Internet on the power of buyers be described? 3) How can the influence of the Internet on the threats from new entrants be described? With the chosen framework constructed by Porter in mind, the inquisitive reader will ask why are not the other forces made into research question. The answer is that during the interviews with knowledgeable persons within the industry those forces were rejected as not interesting with regard to the Internet. Other industries would most certainly demand other research questions than those constructed for this thesis.

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Frame of Reference

3.3 Emerged Frame of Reference


This section will present the emerged frame of reference. In figure 3.1 a visualisation is presented of how the theoretical areas, the research questions and how the Internet are perceived to relate to each other. As can be seen in figure 3.1, theories related to each research question will serve as a base for the data collection. Much emphasis in the literature review is focused on strategy literature. Several authors discuss the lack of studies that focus on competitiveness and the Internet (Grnroos et al., Aguila Obra et al.). This thesis will be based on the framework constructed by Porter (1979) as a model for data collection. This framework is chosen because it fits well to the Internet environment. It focuses on the connections between the different players in the industry and it is easy to incorporate the value concept into this framework. FIGURE 3.1 Emerged Frame of Reference

Barriers to Entry

Threat of New Entrants (RQ 3)

Industry Competitors Internet Rivalry among Existing Competitors

Offerings (RQ 1)

Bargaining Power (RQ 2)

Buyers

Source: Authors own conception

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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.

4.1 Purpose of Research


Zinkmund (2000) claimed that depending of the nature of the problem the research would be exploratory, descriptive, or causal. Exploratory research is conducted to explain and identify the nature of a problem. Zinkmund (2000) claimed that exploratory research is used to help managers to better understand a problem. Zinkmund (2000, p.103) proposed, Exploratory research may be a single research investigation or a series of informal studies to provide background information. Zinkmund (2000) claimed that the purpose of exploratory research could be.

Diagnosing a situation Screening alternatives Discovering new ideas

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.

4.1.1 Thesis Research Purpose


The research purpose of this thesis is a combination of exploratory and descriptive research. The aims were to find out if and how the Internet has affected the competitiveness and the industry competition within an industry. This involves both identifying the nature of the problem, which is exploratory research, and explains distinctiveness of an observable fact, which is descriptive research.

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Methodology

4.2 Research Approach


This section will consider the research approach for this thesis.

4.2.1 Deductive or Inductive Reasoning


Zinkmund (2000) discovered that theories could be developed with either a deductive or inductive reasoning. Deductive reasoning is according to Zinkmund (2000, p. 43) the logical process of deriving a conclusion from a known premise or something known to be true. Inductive reasoning is according to Zinkmund (2000, p.43) the logical process of establishing a general proposition on the basis of observation of particular facts.

4.2.2 Qualitative or Quantitative Research


Zinkmund (2000, p.103) mentioned that the focus of qualitative research is not on numbers but rather on words, and observation. Zinkmund (2000, p.103) claimed, Any source of information may be informally investigated to clarify which qualities or characteristics are associated with an object, situation, or issue. Miles and Huberman (1994, p.10) noticed the following about qualitative data, One major feature is that they focus on naturally occurring, ordinary events in natural settings, so that we have a strong handle on what real life is like. Zinkmund (2000, p.103) acknowledge, The purpose of quantitative research is to determine the quantity or extent of some phenomenon in the form of numbers.

4.2.3 Thesis Research Approach


This thesis started with a problem area, a research problem, and a literature review. Since the emerged frame of reference constructed for this thesis is derived from the literature review, which is something, known to be true (facts, figures, and theories from old research), the research of this thesis was deductive. The choice of qualitative or quantitative research approach naturally depends on the research problem and the data needed to solve the research questions and research problem. The research of this thesis focused on words and not on quantity, therefore was the research of this thesis qualitative.

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Methodology

4.3 Research Strategy


Yin (1994) put forth five different research strategies to use when conducting social science research. These strategies provided with a three conditions criteria to determine which strategy to use is displayed in table 4.1. Yin (1994) proposed that a study concerning how or why questions, should use a case study, histories, or an experiment. Yin (1994) proposed that during a case study the researcher could use primary and secondary documents, direct observations, and interviews. Table 4.1 Relevant Situations for Different Research Strategies
Strategy Experiment Survey Archival Analysis Form of research question how, why who, what, where, how many, how much who, what, where, how many, how much how, why how, why Requires control over behavioural events? yes no no no no Focuses on contemporary events? yes yes yes/no no yes

History Case Study Source: Yin, 1994, p.6

4.3.1 Thesis Research Strategy


The purpose of this thesis was to gain an understanding about how the Internet has affected the competitiveness and the industry competition within a B2B market. Therefore was the research strategy chosen to solve this problem a case study. Yin (1994) proposed that the unit of analysis is the case. The case for this thesis was the stated research problem. How has the Internet affected the competitiveness and the industry competition within a business-to-business market? The sub units of analysis were the research questions. 1) How can the Internet be used to increase the buyers value? 2) How can the influence of the Internet on the power of buyers be described? 3) How can the influence of the Internet on the threats from new entrants be described?

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Methodology

4.4 Sample Selection


The chosen company for the case study was Volvo Penta. This company was chosen because it fulfils all the criteria stated in chapter one, i.e. a business-to-business company in a manufacturing market with a presence on the World Wide Web and they are using the Internet to conduct business. Other reasons for choosing this company were that they gave access to needed information and that they also gave support for the thesis.

4.4.1 AB Volvo Penta


Volvo Penta is a part of the Volvo group. Volvo Penta is a manufacturer of engines and complete drive systems. Volvo Penta has three different areas of business, marine leisure, marine commercial and industrial customers. Table 4.2 displays economic figures of Volvo Penta. Volvo Penta provides power for customers who produce leisure boats, work boats, and power generating equipment and forklifts. Manufacturing is concentrated in Sweden and the US, while sales and service are conducted worldwide. The products are found all over the world, with an exporting amounting to more than 90 percent of company business and with dealers in some 120 countries. Genuine Volvo Penta parts are offered for servicing needs at least 15 years after serial production has been stopped. The parts services are important from a customer satisfaction standpoint as well as from a business standpoint (internal document). Table 4.2 Economic figures of AB Volvo Penta Period 200201-200212 200101-200112 200001-200012 199901-199912 Turnover (kkr) 4718300 4281700 3589700 3215200 Turnover change 10.20 19.28 11.65 18.27 Employed 621 599 636 524 366600 392000 344400 242700 Income after financial items and expenses Summary of 2084000 1848500 1514700 1239100 access Solidity 33.39 34.67 40.11 45.31
Source: Affrsdata AB [On-line]. Available: http://www.ad.se/nyad/ff/ff_rapport.php [2003, October 5]

(kkr is thousand Swedish crowns)

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4.5 Data Collection Method


Yin (1994) proposed that a researcher should prepare before conducting a case study. The researcher should, 1) Train for a specific case study 2) Develop a protocol for the investigation 3) Conduct a pilot case study Yin (1994) proposed six sources of information. These sources are presented in table 4.3. Table 4.3 Six Sources of Evidence: Strengths and Weaknesses
Source of Evidence Documentation Strengths Archival Records Interviews stable, can be reviewed repeatedly unobtrusive, not created as a result of the case study exact, contains exact names, references, and details of an event broad coverage, long span of time, many events, and many settings (same as above for documentation) precise and quantitative targeted, focuses directly on case study topic insightful, provides perceived causal inference Participant Observations Physical Artifacts Source: Yin, 1994, p.80 (same as above for direct observations) insightful into interpersonal behaviour and motives insightful into cultural features insightful into technical operations Weaknesses retrievability, can be low biased selectivity, if collection is incomplete reporting bias, reflects (unknown) bias of author access, may be deliberately blocked (same as above for documentation) accessibility due to privacy reasons bias, due to poorly constructed questions response bias inaccuracies due to poor recall reflexivity, interviewee gives what interviewer wants to hear time consuming selectivity, unless broad coverage reflexivity, event may proceed differently because it is being observed cost, hours needed by human observers (same as above for direct observations) bias due to investigators manipulation of events selectivity availability

Direct Observations

reality, covers events in real time contextual, covers context of event

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

4.5.1 Thesis Data Collection Method


Yin (1994) proposed that a researcher should train for a specific case study. The researcher of this thesis trained by conducting a literature review for this case. Yin further claimed that a researcher must also develop a protocol for the investigation. This thesis developed both a methodology and an interview protocol. Yin finally claimed that a researcher should conduct a pilot case study. This thesis used the first interview with Bil och Traktor, Tunga Fordon Lule as a pilot case. The reasons for choosing Bil och Traktor as a pilot case were first of all because that they were geographically convenient but also because they represent an unusual amount of data. Bil och Traktor is one of few distributors that are active in all of Volvo Penta business areas. Since the protocol worked so well, there was no need to change it and the pilot case could be used as empirical data in the thesis. The researcher of this thesis used interviews, documentation, and archival records for collecting the data needed. Interviews with selected retailers were discussing how the Internet has affected the value proposition and if the retailers sense themselves empowered by the Internet. Questions were also asked about new entrants into the market. Interviews were also conducted inside of Volvo Penta. The interviews conducted followed a set of outlined questions but the respondent was still allowed to speak freely and thus was the interview kept somewhat open ended. The interview followed the guideline provided in Appendix A. To overcome the weaknesses of the interview method the following was done. 1) Bias, due to poorly constructed questions. Before the interviews were conducted the interview guide was sent to and approved by the supervisor of this thesis. 2) Response bias. The respondents were asked and encouraged to explain if they understood the questions and the topic asked to them. 3) Inaccuracies due to poor recall. Direct after each interview the researcher filled in the answers into the case study database. If something was unclear the researcher contacted the respondent once again for clarification. 4) Reflexivity, interviewee gives what interviewer wants to hear. All respondents were asked to tell what they thought to be the truth. All respondents did also concur that this is an important topic and that it is important to answer truthfully. Documents provided from Volvo Penta and from the Web were used as information within the research. Finally were several different databases located on the Web used to gather archival records.

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Methodology

4.5.2 Sample Selection of Respondents


Zinkmund (2000, pp. 338-365) recognised that, The process of sampling involves any procedures using a small number of items or parts of the whole population to make conclusions regarding the whole population. A sample is a subset or some part of a larger population. Zinkmund (2000) claimed that sampling could be done with a probability or a non-probability sampling method. Zinkmund (2000, p.350) defined non-probability as, A sampling technique in which units of the sample are selected on the basis of personal judgement or convenience. The non-probability methods include.

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

4.5.3 Thesis Sample Selection of Respondents


The sample selection model used in this thesis was judgement sample. Zinkmund (2000) pointed out that judgement sampling or purposive sampling is a non-probability sampling method in which experienced individual selects the sample based upon his or her judgement about some appropriate characteristics required of the sample members. This means that the result from this thesis cannot be project on the total industry. But since the purpose of this thesis was to screen the market, this choice of sample is all right. The experienced persons who constructed the sample for this thesis was, Rune Bengtsson, Parts Product and Planning Manager, Kent Eldholm, Marketing Manager, and Kurt Rhodin, Swedish Part Manager.

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Methodology

4.6 Analysis of Data


Zinkmund (2000. p.66) observed that analyse is the application of reasoning to understand and interpret the data that have been collected about a subject. Miles and Huberman (1994, p.10) put forth three concurrent flows of activity that defines analysis, and they are according to the authors data reduction, data display, and conclusion drawing/verification. Figure 4.1 visualises the model presented by Miles and Huberman (1994). FIGURE 4.1 Components of Data Analysis: Interactive Model

Source: Miles and Huberman, 1994, p.12

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.

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Methodology

4.6.1 Thesis Data Analysis


This thesis used Miles and Huberman interactive model for analyse of gathered data for the first, second, and third research question. The first research question was also analysed by the model constructed by Keenye (value focused thinking) described in chapter two.

4.7 Quality Standards


Yin (1994) noticed that four test are normally used to determine the quality of empirical social research. These tests are reviewed in table 4.4. Table 4.4 Case Study Tactics for Four Design Tests
Tests Construct validity case study tactic Use multiple sources of evidence Establish chain of evidence Have key informants review draft case study report Do pattern-matching Do explanation-building Do time-series analysis Use replication logic in multiple-case studies Use case study protocol Develop case study data base phase of research in which tactic occurs data collection data collection composition data analysis data analysis data analysis research design data collection data collection

Internal validity (not for descriptive or exploratory studies) External validity Reliability

Source: Yin, 1994, p.33

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.

4.7.1 Thesis Quality Standards


This thesis accumulated validity by using multiple sources of evidence throughout the data collection. Further was a chain of evidence constructed and finally was two key informants used to review the draft report, the supervisors at Lule University of Technology and at Volvo Penta. To increase the reliability this thesis used a pilot case, a case study protocol, and finally was a case study database constructed from the interviews.

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Methodology

4.8 Visualisation of Methodology


Figure 4.2 provides a visualisation of the discussion above about the methodology chosen for this research. FIGURE 4.2 Visualisation of Methodology Purpose of Research
Exploratory Descriptive Causal

Research Approach
Deductive Inductive Qualitative Quantitative

Research Strategy
Case Study Experiment Survey History Analysis of Archival Information

Data Collection Method


Documents Archival Records Interviews Direct Observations Participant Observations Physical Artefacts

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

Source: Authors own conception

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Empirical Data Presentation

5 Empirical Data Presentation


his chapter will present the empirical data collected from the interviews conducted in this thesis. The data will be presented in the same order as the research questions. Hence will data about buyers value be presented first, secondly will data about the power of buyers be presented and finally will data about threats from new entrants be described. The data presented in this chapter is derived from the case study database constructed for this thesis.

5.1 Wist Last och Buss AB


Wist Last och Buss AB (www.wistlastbuss.com) is an industrial dealer to Volvo Penta in Skellefte. Wist Last och Buss started their business in 1961 in stersund. Figure 5.1 show a summary of Wist Last och Buss AB in Sweden today. Wist Last och Buss AB are also present in Norway. FIGURE 5.1 Summary of Wist Last och Buss AB Sweden

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.

5.1.1 How the Internet can Increase the Buyers Value


The respondent claimed that customers that can use the Internet have gain access to more information due to the Internet. But the respondent observed that many of their customers are not users of the Internet. The respondent claimed that he did not use the Internet to find new products and services. But he did use the Internet to order products and services from his current suppliers. The respondent believed that the Internet has made it much easier to order products and services. The respondent further claimed that the Internet has made the order routine much simpler. Today everything can be checked and verified with the help of a computer and the Internet. The respondent observed that today there is much less paperwork due to the Internet. Much of the order routine has become electronic. The advantage of this is

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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.

5.1.2 How the Internet can affect the Power of Buyers


The respondent did not believe that the Internet has affected the power of buyers. The respondent claimed that Volvo Penta customers are using the Internet to compare prices but they are still buying Genuine Volvo Penta parts. The respondent observed that nowadays 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. The respondent claimed that they are only searching the Internet for new suppliers when a part is out of stock at Volvo Penta, then they are using the Internet to find alternative ways of getting the missing part. And since they are using the Internet in this way their number of suppliers has increased due to the Internet.

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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.

5.2.1 How the Internet can Increase the Buyers Value


The respondent claimed that Internet has made it easier to order products and services if you know what you want and know were to find it. The Internet has not made it easy to find products or services. The respondent claimed that it takes a lot of time and effort to find something useful on the Internet. But the respondent did recognize that Drevias market share has increased because of the Internet. Customers from a larger region are nowadays buying from Drevia and because of that Drevia has increased their sales and increased their customer base. Drevia is using the Internet as a marketing tool and are well known in the business for a well-kept and good Web site. The respondent has noticed that the Internet has made transactions easier, but the workload for the ordering person has increased since that person is nowadays responsible to make the payment via the Internet. The respondent claimed that the Internet has not made it cheaper or easier to customise products and services. The respondent did also claim that their customers Division of Industrial Marketing and e-Commerce 52

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.

5.2.2 How the Internet can affect the Power of Buyers


The respondent did not believe that the Internet has affected the bargaining power of the buyer in any ways. The industry has not changed the prices due to the Internet. The Internet has not changed the amount of business Drevia is doing with Volvo Penta, they are just buying the amount they need to serve their customers. The respondent did not use the Internet to find new suppliers, but competitors to Volvo Penta are using the Internet to market themselves towards Drevia. The respondent claimed that their numbers of suppliers has not increased due to the Internet. The respondent did not believe that the Internet has made it inexpensive to switch supplier, but it has become easier to find suppliers.

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.

5.3 Bil och Traktor, Tunga Fordon Lule


Bil och Traktor, Tunga Fordon Lule (www.bilotraktor-lule.se) is a Volvo Penta dealer in Lule. Bil och Traktor is an industrial, marine leisure, and marine commercial dealer.

5.3.1 How the Internet can Increase the Buyers Value


The respondent claimed that the Internet has speed up the distribution chain. The Internet has also increased the information base about the availability of parts and information about products. Today the Internet is used in many ways that in the past required telephones, effort and time. The respondent claimed that the Internet has made it easier to order products. The respondent further claimed that the Internet has made it easier to check the stock, and this is important in an industry were the customers wants the parts as fast as possible. The respondent claimed that the Internet has not changed the payment system, they are using the same system they have always used. The respondent said that we have personal that takes care of the payments and that is the system we always have used. The Internet has not affected the financial costs in this industry. The respondent claimed that the Internet has not increased their customer base. But the respondent did claim that the Internet has given them better prices on purchased items. The respondent further stated that the Internet has made it easier to customise engines, otherwise no difference in the ability to customise products. The respondent claimed that their customers are not demanding the ability to customize products because it is too difficult for non-professionals. Table 5.3 Economic figures of Bil & Traktor Tunga Fordon Lule AB Period 200201-200212 200101-200112 200001-200012 199901-199912 Turnover (kkr) 77858 66656 Turnover change 46.01 Employed 45 44 3105 2048 Income after financial items and expenses Summary of 29664 17292 access Solidity 20.58 25.87 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, more information, and low price.

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Empirical Data Presentation

5.3.2 How the Internet can affect the Power of Buyers


The respondent did not believe that the Internet has affected the bargaining power of buyers in any way. The Internet has made them order smaller quantities but more often. They do not use the Internet to find new suppliers and their numbers of suppliers has not increased because of the Internet. The respondent claimed that the Internet has made it easier to buy products and services but suppliers are not offering more on the Internet.

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.

6.1 Usage of the Internet to Increase the Buyers Value


Several authors like Porter (2001), Keeney (1999), and Verona and Prandelli (2002), have written about possibilities with the Internet and about how the Internet can increase the buyers value. This section will analyse and compare the respondent companies with the theories in this thesis.

6.1.1 within Analysis of Wist Last och Buss AB


The respondent claimed that the Internet has given the customers access to more information. This statement is easy to confirm with academic literature. Authors like Porter (2001) stated that the Internet has provided buyers with easier access to information, and further on has Verona and Prandelli (2002, p.299) observed, Customers can more easily initiate and control information, with a shift in the power balance. The respondent claimed that the Internet is used to order products and services from current suppliers. The respondent claimed that the Internet has made it much easier to order products and services. The Internet has speeded up the order routine. The respondent was also impressed to notice that the delivery of ordered goods only takes 24 hours. These statements can easily be found in literature from academic authors. Porter (2001, p.70) observed, the benefits to buyers include low transaction cost, easier access to price and product information, convenient purchase of associated services, the authors 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. The authors Jelassi and Leenen (2003) observed that it is important to fulfil the transaction quickly, reliably and rewardingly for the customer. Frohlich and Westbrook (2002) observed, the most admired and feared competitors today are companies that link their customers and suppliers together into tightly integrated networks using what is now commonly called demand chain management (DCM).

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.

6.1.2 within Analysis of Drevia


The respondent claimed that Internet has made it easier to order products and services if you know what you want and know were to find it. Authors like Porter (2001) and Verona and Prandelli (2002) supports this statement. The respondent further claimed that it takes a lot of time and effort to find something useful on the Internet. The authors Grnroos, Heinonen, Isoniemi and Lindholm (2000) observed this problem and proposed the customer has to be able to operate the system in order to be able to get information about goods and services. The authors further claimed marketers who wish to use the Internet to offer their goods or services to customers should take care to design their offerings as service offerings which customers perceive and evaluate as services. The respondent claimed that their market share has increased due to the Internet. The turnover for Drevia has increased during the last years. Customer from a larger region is nowadays buying from Drevia. During this thesis work it has become clear that Drevia has probably one of the best Websites in the country in this industry. 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 (2002) 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. Porter (2001) observed that the Internet might intensify the rivalry among competitors because the use of the Internet tends to expand the geographic market, bringing many more companies into competition with one other. Porter saw this as a negative trend for the industry because it enhances the bargaining power of the buyer. Porter claimed that the Internet could create significantly greater pressure for companies to engage in destructive price competition. Porter (2001, p.66) further observed the great paradox of the Internet is that its very benefits, making information widely available, reducing the difficulty of purchasing, marketing, and distribution, allowing buyers and sellers to find and transact business with one other more easily, also make it more difficult for companies to capture those benefits as profits.

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Analysis

6.1.3 within Analysis of Bil och Traktor, Tunga Fordon Lule


The respondent claimed that the Internet has made it easier to order products. The respondent further claimed that the Internet has made it easier to check the stock, and this is important in an industry were the customers wants the parts as fast as possible. Authors like Porter (2001), Rodgers, Yen and Chou (2002) and Jelassi and Leenen (2003) support this statement. The respondent claimed that the Internet has speeded up the distribution chain, and the Internet has also made it easier to check and verify the delivery of parts. The respondent observed that today is the Internet used instead of telephones or faxes. This statement can be supported by findings from McCormack and Kasper (2002). These authors observed, In B2B a customer and process focused integration of all the SCM (Supply Chain Management) aspects is vital. The Internet has provided the ability to easily send and receive information globally. Dai and Kauffman (2002) further observed, Internet technologies can improve the efficiency of the supply chain links between buyers and sellers by synchronising their planning and scheduling activities. The respondent claimed that the Internet has not changed the payment system, they are using the same system they have always used. Neither has the Internet affected the financial costs in this industry. Jelassi and Leenen (2003) proposed, Too fully benefit from the Internet, manufactures should offer customers online financial transactions in a simple, universally accepted secure way. Dai and Kauffman (2002, p.56) observed, B2B electronic markets are developing partnerships with financial service providers to offer these necessary services. Financial institutions, however, have to become more active in providing Internet-based realtime credit approvals and business payment services. The turnover has increased during the last years. The respondent further claimed that the Internet has made information more available, both for themselves and for their customers, both Porter (2001) and Verona and Prandelli (2002) support this claim.

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Analysis

6.1.4 Cross Analysis


Table 6.1 will display the data from the first research question. Table 6.1 Internet affect on customers value Wist Last och Buss Ordering
The Internet has made ordering easier and reduced the time needed to make an order.

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.

Bil och Traktor


The Internet has made it easier to order products. Today the Internet is used in many ways that in the past required the use of telephones and faxes. The Internet has speed up the distribution chain.

Delivery

Financing and Payment Information

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.

The Internet has made transactions easier.

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.

Increased Faster delivery More information Low price

Source: Authors own formation

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.

6.2 Influence of the Internet on the Power of Buyers


Porter (2001) asked the question: Who will capture the economic benefits that the Internet creates? Will all the value end up going to customers, or will companies be able to reap a share of it?. This section will take a closer look at the influence of the Internet on the power of buyers.

6.2.1 within Analysis of Wist Last och Buss AB


The respondent did not believe that the Internet has affected the power of buyers. The respondent claimed that Volvo Penta customers are using the Internet to compare prices but are still buying genuine Volvo Penta parts. Porter (1979) observed that companies could use brand identification to create high fences around their businesses.

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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.

6.2.2 within Analysis of Drevia


The respondent believed that the Internet has not affected the bargaining power of buyers. The industry has not changed the prices due to the Internet. The Internet has not changed the amount of business Drevia is doing with Volvo Penta, they are just buying the amount they need to serve their customers. But they are using the Internet to order products. The respondent claimed that they are not using the Internet to find new or alternative suppliers and their number of suppliers has not increased due to the Internet. The respondent further claimed that competitors to Volvo Penta are trying to market themselves towards Drevia through the Internet. The respondent did not believe that the Internet has made it inexpensive to switch supplier, but it has become easier to find suppliers.

6.2.3 within Analysis of Bil och Traktor, Tunga Fordon Lule


The respondent did not believe that the Internet has affected the bargaining power of buyers in any way. The Internet has made them order smaller quantities at each time but they are ordering more often. The respondent claimed that they are not using the Internet to find alternative suppliers and their number of suppliers has not increased due to the Internet.

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Analysis

6.2.4 Cross Analysis


Table 6.2 will display the data from the second research question. Table 6.2 Internet influence on the power of buyers Wist Last och Buss Drevia Non Non Perceived affects from the Internet on the power of buyers The Internet has not Purchasing volume Buying smaller
quantities but they are buying oftener. Alternative supplier Increased due to the Internet affected the purchasing volume. Do not use alternative supplier. But the Internet has made it easier to find new suppliers. The Internet has not affected the costs in the industry.

Bil och Traktor


Non

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

The Internet has not affected the costs in the industry.

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.

6.3 Influence from the Internet on the Threat of New Entrants


This section will analyse the data gathered about the threat of new entrants. Jelassi and Leenen (2003) observed, Although pure Internet firms like Amazon.com represent a threat, they only reach a small part of the buyers population, i.e. those that surf the Internet. As they still have to establish customer relationships, they will not meet the sales volume of a manufacturer that has mastered all sales channels.

6.3.1 within Analysis of Wist Last och Buss AB


The respondent claimed that the Internet is a window of opportunity that could be taken advantage of by retailers within the industry to reach out to customers. Support for this claim is easily found in the academic world. Authors like Porter (2001) claimed that the Internet could reduces barriers to entry such as the need for a sales force, access to channels, and physical assets. Galbraith and Merrill (2001) further observed, One potential effect of the Internet is the reduction of industry entry barriers. The respondent did not believe that the Internet would reduce the power of scale. In this industry it is a huge advantage to be big. The customers want to feel safe and that is obtained through a strong brand name (Volvo Penta) that emphasis on safety and with an extensive distributor net. Porter (1979) observed that scale economies could be achieved in areas such as production, marketing and research. The respondent did not believe that the Internet would reduce the power of brand identification. Customers feel safe with a strong brand name and most of the customers are brand loyal within the industry. Porter (1979) observed, Brand identification creates a barrier by forcing entrants to spend heavily to overcome customer loyalty. The respondent claimed that that it is hard for a new entrant to solely use and 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.

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Analysis

6.3.2 within Analysis of Drevia


The respondent did not believe that the Internet has affected the threat of new entrants in any way. The respondent further claimed that Drevia is known on the Internet. We do not feel threaten by the Internet we use it as a marketing tool. It is probably other dealers in Sweden that is feeling threaten by Drevia. The respondent further claimed that the Internet cannot reduce the power of scale. You need a strong and well-known name in this business. Most of the customers want to buy genuine Volvo Penta Parts. Arguments from Porter (1979) can be used to support this argument. 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 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. Arguments from Porter (1979) and (2001) support these arguments.

6.3.3 within Analysis of Bil och Traktor, Tunga Fordon Lule


The respondent did not believe that the Internet yet has affected the threat of new entrants. But the respondent believed that the future could involve new entrants from the Internet. The respondent did not believe that the Internet would decrease the importance of a strong brand name. This industry requires a strong brand name and customer are seeking genuine parts. The respondent believed that it would be difficult for a new entrant to solely relay on the Internet. Porter (1979) concurs with this opinion. The respondent claimed that the biggest threat comes from entrants that will use the Internet to reach out to the 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.

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Analysis

6.3.4 Cross Analysis


Table 6.3 will display the data from the third and final research question. Table 6.3 Internet influence on the threat of new entrants Wist Last och Buss Drevia Perceived affects from the Internet on the threat of new entrants
The Internet is a window of opportunity that can be taken advantage of by retailers within the industry. Drevia is known on the Internet. We do not feel threaten by the Internet, we use it as a marketing tool. It is probably other dealers in Sweden that are feeling threaten by Drevia.

Bil och Traktor


The Internet has not yet affected the threats of new entrants. It may be possible for small players to utilise the Internet in the future to make an entry into the market.

Economy of scale Product differentiation and brand identification Access to distribution channels

Hugh advantage to be big in this industry.

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.

Source: Authors own formation

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

Internet 1 2 Increased information base 3 4

Low price

Fast delivery

Increased customer base

Source: Authors own creation

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.

7.4 General Conclusions Drawn From This Thesis Work


This thesis work has used a framework constructed by porter in 1979 as a foundation. The research problems were constructed and chosen with help from knowledgeable persons within the industry. One of the forces that were chosen to study was the threat of new entrants because this was found interesting for this thesis work. One of the forces that were rejected for this thesis was the rivalry among current competitors. With this study in mind one can observe that these forces should have been substituted with each other. The Internet has today a greater impact on the rivalry among current competitors than what the Internet has on the threat of new entrants, at least in the studied industry.

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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.

8.1 Recommendations for Management


Porter (2001, p.64) observed that 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. I conclude that in this industry most of the end customers are not online yet, but I believe that they will be online in the future and therefore is it important to learn how to use the Internet as a business tool. As I see it, the hard question for management is the question of channel conflict. Management must decide how to use the Internet to deliver values to their end customers. I conclude that a new entrant cannot solely relay on the Internet to make an affect on the market structure. A new entrant that is solely using the Internet can reach a small segment of the market but not the large market. I conclude that the Internet has affected the industry structure. I believe that retailers are feeling much closer to Volvo Penta today due to the Internet. This has given Volvo Penta a competitive advantage by creating a DCM (demand chain management) link to their retailers. The value to manufactures from the Internet is the possibility to improve their SCM and to create a DCM with their customers. I conclude that in this industry, the Internet will affect the rivalry among current competitors. Porter (1979) observed that this jockeying for position involves tactics like price competition, product introduction, and advertising slugfest. I believe that the battle for customers that use the Internet for purchases will affect the dealer network. Some dealers will gain customers through the Internet and some dealers will loose customers because of the Internet.

8.2 Recommendations for Further Research


This thesis work has concentrated on the business-to-business market within the industry. It would be interesting to do a study that focused on the business-to-consumer market in this industry. It would be interesting to know what values end customers perceive that they are gaining from the Internet and if they perceive that their bargaining power has increased due to the Internet. This thesis work has done a qualitative study on buyers value from the Internet. It would be interesting to do a quantitative study on the same topic to get further knowledge about customer values from the Internet.

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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.

8.3 Recommendations for Theory


It is easy to find articles about the greatness of the Internet. Many authors have written about the possibilities with the Internet. There are not that many articles about the problems and obstacles with the Internet. I would like to see more balance in the debate, more problems and real life case discussions. I would also like to see more articles about competitive advantage and the Internet and how the Internet actually has affected an industry.

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References

References
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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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