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What is e-Commerce:
e-Commerce refers to the exchange of goods and services over the Internet. All major retail
brands have an online presence, and many brands have no associated bricks and mortar
presence. However, e-Commerce also applies to business to business transactions, for
example, between manufacturers and suppliers or distributors.

In the online retail space, there are a number of models that retailers can adopt. Traditionally,
the Web presence has been kept distinct from the bricks and mortar presence, so transactions
were limited to buying online and delivering the goods or services. The online presence is
also important for researching a product that a customer can purchase later in the store.
Recently, there has been a trend towards multi-channel retail, allowing new models such as
purchasing online and picking up in store.

e-Commerce systems are also relevant for the services industry. For example, online banking
and brokerage services allow customers to retrieve bank statements online, transfer funds,
pay credit card bills, apply for and receive approval for a new mortgage, buy and sell
securities, and get financial guidance and information.

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ÀConsumer benefit
À  iquitya EC allows shopping 24/7/365 from
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À nformation availa ility: relevant and detailed
information in seconds
À in seconds
À 6articipate in auctions:
À 6articipate in auctions: virtual auctions
À virtual auctions
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À Ôlectronic communitiesa consumers can
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À a customization and personalization of
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Àîope for the poor
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À vaila ility of pu lic services
À vaila ility of pu lic servicesa
health care,
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Àeducation, and distribution of
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Àeducation, and distribution of
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Àsocial services can be done at a
reduce cost to cost to
Àa large number of people.
a large number of people.

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The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in
a business situation. This is useful, because it helps you understand both the strength of your
current competitive position, and the strength of a position you're considering moving into.

With a clear understanding of where power lies, you can take fair advantage of a situation of
strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an
important part of your planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have
the potential to be profitable. However it can be very illuminating when used to understand
the balance of power in other situations too.

Five Forces Analysis assumes that there are five important forces that determine competitive
power in a business situation. These area

  upplier 6ower: Here you assess how easy it is for suppliers to drive up prices. This
is driven by the number of suppliers of each key input, the uniqueness of their product
or service, their strength and control over you, the cost of switching from one to
another, and so on. The fewer the supplier choices you have, and the more you need
suppliers' help, the more powerful your suppliers are.

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2. 0uyer 6ower: Here you ask yourself how easy it is for buyers to drive prices down.
Again, this is driven by the number of buyers, the importance of each individual buyer
to your business, the cost to them of switching from your products and services to
those of someone else, and so on. If you deal with few, powerful buyers, then they are
often able to dictate terms to you.

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3. Competitive Rivalry: What is important here is the number and capability of your
competitors. If you have many competitors, and they offer equally attractive products
and services, then you'll most likely have little power in the situation, because
suppliers and buyers will go elsewhere if they don't get a good deal from you. On the
other hand, if no-one else can do what you do, then you can often have tremendous
strength.
4. 3hreat of u stitution: This is affected by the ability of your customers to find a
different way of doing what you do ± for example, if you supply a unique software
product that automates an important process, people may substitute by doing the
process manually or by outsourcing it. If substitution is easy and substitution is viable,
then this weakens your power.

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5. 3hreat of üew Ôntry: Power is also affected by the ability of people to enter your
market. If it costs little in time or money to enter your market and compete
effectively, if there are few economies of scale in place, or if you have little protection
for your key technologies, then new competitors can quickly enter your market and
6. weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favorable position and take fair advantage of it.

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These forces can be neatly brought together in a diagram like the one belowa


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The advantages of each method of advertising will be discussed in more detail in the
section on strategic risks and target markets.

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WWW users are clearly upscale, professional, and well educated compared with the
population as a whole. For example, from CommerceNet's Durvey (CommerceNet is a
not for-profit 501c(6) mutual benefit corporation which is conducting the first large-
scale market trial of technologies and business processes to support electronic
commerce via the Internet) as of 10/30/95 a

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CommerceNet's study also found that there is a sizable base of Internet Users in the
UD and Canada. With 24 million Internet users (16 years of age or older) and 18
million WWW users (16 years of age or older), WWW users are a key target for
business applications. Approximately 2.5 million people have made purchases using
the WWW. The Internet is, however, heavily skewed to males in terms of both usage
and users. Access through work is also an important factor for both the Internet and
online services such as America Online and CompuDerve. For an example of the size
of the market, the total Internet usage exceeds online services and is approximately
equivalent to playback of rented videotapes.

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can then immediately get the software by downloading it from Macromedia's
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even have to leave your terminal, and there was no shipping cost to you or the
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With the lifting of commercial restrictions in 1991, businesses are now joining the
Internet community. As with any small town that has a sudden increase in population,
fast growth can cause problems. Old residents could create animosity if they feel that
the new residents are taking over their community and causing congestion and prices
to increase. Businesses need to be conscious of this phenomenon.

While businesses can expect help from Internet users, businesses will lose this help if
they only use it to make a quick profit. As in a large city, people will start to feel less
like helping others in need. Businesses will be more successful on the Internet if they
can emphasize how they can help add value to the Internet rather than focusing on
how to make a quick profit. For example, businesses can take advantage of the
opportunity to provide additional Internet services (e.g., services discussed in the
sections on current uses of the Internet and future uses) now that funding from the
government is being reduced.
An example of a city that has grown rapidly, yet still considered very livable, is
Deattle. One of the reasons attributed to Deattle's successful growth is, that despite it
being a large city, there are numerous small communities within the city. These small
communities retain such benefits as concern for others within the framework of
services that a large city can provide. If businesses along with the Internet community
follow this model, the Internet will have a chance to keep its successful small town
atmosphere while adding increased services for more people.


 
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PORTERD FIVE FORCED AND INTERNET


COMPETITIONa
According to Porter's Five Forces Model, in my opinion, competition has increased overall as
a result of the internet and e-Commerce. The internet and IT has made it possible to both
focus on the top and bottom lines and market share is expanded and costs are cut. Many
products and services exist just online, major companies have gone online to successfully
augment the brick and mortar corporations, and the playing field is all the way to edges of
cyberspace, wherever that is. We will further evaluate this stepping through all five forces.

0uyer power is higher when buyers have more choices. Businesses are forced to add
value to their products and services to get loyalty. Many loyalty programs include excellent
services that customers demand on-line. Customers want to solve their problems and many
times they are more successful on-line than on-phone. Also, we see internet savvy businesses
springing up offering more valuable goods and services at lower costs. Now with the advent
of eBay, many people are assuming roles as drop shippers. Individuals can have a thriving
business selling goods of larger companies without having to carry inventory.

upplier power is higher when buyers have fewer choices from whom to buy. As
mentioned earlier, drop shipping has increased the amount of suppliers available. All an
individual has to do is form and agreement to sell products for the company. The company
takes care of all the logistics. The same is true of associates programs that amazon.com and
google.com offer. Associates allow a webmaster to earn money by recommending products
from others. This increases supplier offerings.

3hreat of su stitute products or services is high when there are many product
alternatives. This is different than having many suppliers. Examples of alternatives are
exchanging brand names, substituting credit card capabilities, and looking at better values
from cheaper sources. The internet allows this with the "global economy". I can substitute my
product by purchasing from companies overseas where labor, services and products are
cheaper, but of comparable quality.
3hreat of new entrants is high when it is easy for new competition to enter the
market. Well, what have we been talking about? Now, small operations can open shop with
less than $10.00 per month and make a lot of money. As inventive as people are, there are
always opportunities to do improve a product or service or just create and sell something
new. Recently, many new entrants have made even more money authoring Ebooks that tell
others how to do what they did. Rivalry among competitors is high when competition is more
intense within industries.

On-line book stores and catalog companies are an excellent example. Amazon com and
0arnesandno le com are very competitive. However, there are many also smaller niche
affiliate bookstores that when combined take a great deal of market share. They offer even
more competition. However, both major bookstores have used IT to create value for their
customers. These values include associates programs, ease of payment and shipping and
many, many others.

The internet offers avenues of competition to existing companies and opportunities for start
ups. Now businesses can enter the market on-line with few barriers to entry. Porter's Five
Forces Model can help demonstrate the attractiveness of starting your on-line business. A
business person should use the model to identify competition, make a plan, and implement
the process.

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3hreat of su stitute products means how easily your customers can switch to your
competitors product. 3hreat of su stitute is high whena

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In the above mentioned situations, Customer can easily switch to su stitute


products. Do substitutes are a threat to your company. When there are actual and
potential substitute products available then segment is unattractive. Profits and prices
are effected by substitutes so, there is need to closely monitor price trends. In
substitute industries, if competition rises or technology modernizes then prices and
profits decline.

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A new entry of a competitor into your market also weakens your power. 3hreat of
new entry depends upon entry and exit arriers. Threat of new entry is high whena
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There is variation in attractiveness of segment depending upon entry and exit barriers.
That segment is more attractive which has high entry barriers and low exit barriers.
Dome new firms enter into industry and low performing companies leave the market
easily. When both entry and exit arriers are high then profit margin is also high but
companies face more risk because poor performance companies stay in and fight it
out. When these barriers are low then firms easily enter and exit the industry, profit is
low. The worst condition is when entry barriers are low and exit barriers are high then
in good times firms enter and it become very difficult to exit in bad times.

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ndustry rivalry mean the intensity of competition among the existing competitors in
the market. Intensity of rivalry depends on the number of competitors and their
capabilities. ndustry rivalry is high whena

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These situations make the reasons for advertising wars, price wars, modifications,
ultimately costs increase and it is difficult to compete.

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0argaining 6ower of supplier means how strong is the position of a seller. How
much your supplier have control over increasing the Price of supplies. uppliers are
more powerful when

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When suppliers have more control over supplies and its prices that segment is less
attractive. It is best way to make win-win relation with suppliers. It¶s good idea to
have multi-sources of supply.
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0argaining 6ower of 0uyers means, How much control the buyers have to drive
down your products price, Can they work together in ordering large volumes. 0uyers
have more argaining power when:

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0uyer¶s argaining power may be lowered down by offering differentiated product.


If you¶re serving a few but huge quantity ordering buyers, then they have the power to
dictate you.

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