Because of the immense flow of information,
the Internet allows customers to be in charge of their buying behaviour as never
before, eliminating the considerable obstacles preventing an optimal purchase.
Further, finding information about products is no longer the time-consuming task
that it was in pre-Internet days when sellers controlled most of the
distribution of product information. Restricting information increases
sellers' power relative to that of buyers, but the Internet shifts the balance
of this power more toward the buyer.
The Internet also makes it possible for
sellers to identify consumers and collect an unprecedented amount of information
about their purchase patterns, making it possible for companies to increase
sales. So, based on a purchase
profile, a company such as Amazon.com can suggest a specific book or CD to the
customer and boost sales and customer satisfaction at the same time. The Internet also creates pricing
options that customers desire. This
allows buyers to pool as groups where they can purchase products at a lower
price. These features of the Internet allow
such companies to differentiate themselves from competitors.
Internet-based strategies put brick and
mortar businesses at a significant cost disadvantage since the former can reach
customers faster and for a fraction of the cost compared to traditional
businesses with stores and full sales staffs.
These can put Internet-based enterprises in better position to establish
low-cost strategies.
Amazon.com surpassed $1.2 billion in annual
sales revenue, an amount that equals the revenue Barnes & Noble generated from
200 of its superstores.
While Barnes & Noble has spent $472 million
to renovate and upgrade its 1,000-plus stores, Amazon.com carries only $56
million in fixed assets (mostly warehouses and computers).
Cisco Systems reconfigures the value chain
to generate added value by purchasing through suppliers' Web-based business
models, handling 78 percent of its sales via the Internet (i.e., the company
never physically touches at least $4 billion in customer orders).
Large traditional companies that respond by
establishing their own Internet presence have a tendency to cannibalise their
existing businesses, which can increase rivalry inside the company between
traditional and Internet operations.
The strategic changes resulting from use of
the Internet are profound.
Companies such as Hewlett-Packard, IBM,
Silicon Graphics, and others have sold plants because they were increasingly
regarded as a liability.
In 1998, companies outsourced 15 percent of
all manufacturing, but in 2001 and beyond, it is estimated that as much as 40
percent of manufacturing will be outsourced.
This approach allows much more customisation
in a shorter period of time.
In the Internet age, companies can maintain
competitive advantage in three ways:
thinking continuously about accessing and
connecting with customers (reach)
maintaining information with depth and
detail for (and from) customers (richness)
determining how to build a relationship with
customers (affiliation)
Taken together, these features of the
Internet will have a part in shaping the strategies companies adopt in the
future, especially at the business level.
In addition to selecting and implementing
business-level strategies, companies also must be prepared to anticipate and
respond to competitors' actions and reactions (strategic moves and countermoves)
that are initiated in response to the company's strategy and to competitors'
interpretations of environmental conditions and internal resources and
capabilities. (Consider again the cases of Merrill Lynch and Blockbuster Inc.)
