STRATEGIES FOR COMPETITIVE ADVANTAGE IN ELECTRONIC COMMERCE

Despite rapid and sustained development of electronic commerce, many companies doing e-business are still in the investment and brand-building phase and have yet to show a profit. However, as e-businesses shift their focus from building a customer base to increasing revenue growth and profitability, they should reevaluate their current business strategies, if any, and develop strategies that provide a clear path to profitability. This study uses McCarthy‘s four marketing mix model and Porter‘s five competitive forces model to identify strategies for Internet companies that respond to the five competitive forces and thereby achieve a competitive advantage. The study provides significant new insights into the development and implementation of e-business strategies that contribute to increased profit.


I. Introduction
E-commerce is fundamentally changing the economy and the way business is conducted.Ecommerce forces companies to find new ways to expand the markets in which they compete, to attract and retain customers by tailoring products and services to their needs, and to restructure their business processes to deliver products and services more efficiently and effectively.However, despite rapid and sustained development of ecommerce, many companies doing e-business are still in the investment and brand-building phase and have yet to make a profit (Zwass 1998).Many e-businesses (or Internet companies) have focused on the visual attractiveness and ease of use of their Web sites as the primary method of increasing their customer base.
However, as e-businesses shift their focus from building a customer base to increasing revenue growth and profitability, they should re-evaluate their current business strategies, if any, and develop strategies that provide a clear path to profitability.
This study uses McCarthy's (1960) four marketing mix model and Porter's (1980Porter's ( , 1985) ) five competitive forces model to identify strategies for Internet companies (or dot.coms) that respond to the five competitive forces and thereby achieve a competitive advantage.The overall goal is to provide significant new insights into the development and implementation of e-business strategies that contribute to increased profit.This research is organized around two questions: 1) What impact does the Internet have on McCarthy"s four marketing mix (product, price, promotion, and place) and Porter"s competitive forces (the threat of new entrants, rivalry among existing firms, the threat of substitutes, the bargaining power of suppliers, and the bargaining power of buyers)?
2) What strategies can be derived from the four marketing mix that will affect the five competitive forces and thereby bring a competitive advantage to e-businesses?

McCarthy's Four Marketing Mix Model
According to McCarthy (1960) and Perreault and McCarthy (1999), a firm develops its marketing strategies by first identifying the target market for its products or services.It then develops a marketing mix-a particular combination of product, price, promotion, and place (i.e., distribution and delivery functions in the supply chain) designed to enhance sales to the target market.A unique mix of these elements in a given industry allows firms to compete more effectively, thus ensuring profitability and sustainability.For example, by coordinating various product offerings and associated price discriminations with sales promotions and effective logistics, a firm can increase its sales and profit.Since the Internet has a significant impact on the makeup of this marketing mix, Internet companies should develop strategies that take the unique nature of online marketing into account.

Porter's Five Competitive Forces Model
According to Porter (1980Porter ( , 1985) ) and Porter and Millar (1985), a firm develops its business strategies in order to obtain competitive advantage (i.e., increase profits) over its competitors.It does this by responding to five primary forces: (1) the threat of new entrants, (2) rivalry among existing firms within an industry, (3) the threat of substitute products/services, (4) the bargaining power of suppliers, and (5) the bargaining power of buyers.
A company assesses these five competitive forces in a given industry, then tries to develop the market at those points where the forces are weak (Porter 1979).For example, if the company is a low-cost producer, it may choose powerful buyers and sell them only products not vulnerable from substitutes.The company positions itself so as to be least vulnerable to competitive forces while exploiting its unique advantage (cost leadership).A company can also achieve competitive advantage by altering the competitive forces.For example, firms establish barriers to deter new entrants from coming into an industry by cultivating unique or capitalintensive resources that new firms cannot easily duplicate.Firms also increase bargaining power over their customers and suppliers by increasing their customers' switching costs and decreasing their own costs for switching suppliers.The five competitive forces model provides a solid base for developing business strategies that generate strategic opportunities.Since the Internet dramatically affects these competitive forces, Internet companies should take these forces into account when formulating their strategies .In his recent study, Porter (2001) reemphasized the importance of analyzing the five competitive forces in developing strategies for competitive advantage: "Although some have argued that today"s rapid pace of technological change makes industry analysis less valuable, the opposite is true.Analyzing the forces illuminates an industry"s fundamental attractiveness, exposes the underlying drivers of average industry profitability, and provides insight into how profitability will evolve in the future.The five competitive forces still determine profitability even if suppliers, channels, substitutes, or competitors change.

III. Impact of the Internet on Marketing Mix and Competitive Forces
The Internet can dramatically lower entry barriers for new competitors.Companies can enter into ecommerce easily because they do not need sales forces and huge capital investments as they do in offline markets.As the number of people with Internet access increases, the competition for online business in many industries will also increase.According to the Department of Commerce"s "Digital Economy 2000" report1, in 2000 the number of people with Internet access reached an estimated 304 million worldwide, an increase of almost 78 percent over 1999 (Betts 2000).The Internet also brings many more companies into competition with one another by expanding geographic markets (Porter 2001).The Internet changes the basis of competition by radically altering product/service offerings and the cost structure of firms (e.g., cost reductions in production, distribution, and transaction).The Internet also changes the balance of power in relationships with buyers and suppliers by increasing or decreasing the switching costs of these buyers and suppliers.By reducing customers' search costs, the Internet makes price comparison easy for customers, and thus increases price competition (Bakos 1998).
The price competition resulting from lowered customer search costs increases rivalry among existing competitors, reduces switching costs of customers, and thereby shifts bargaining power to customers.On the other hand, IT reduces menu cost-the cost of administering multiple prices for a number of different products or services-and, in part, facilitates price discrimination (Bakos and Brynjolfsson, 1997).The Internet creates new substitution threats by enabling new approaches to meeting customer needs and performing business functions (Porter 2001).World Wide Web (WWW) technology itself has produced new promotion venues.The Internet also facilitates an electronic integration of the supply chain activities, achieving efficient distribution and delivery.It also facilitates partnerships or strategic alliances by networking partners or allies.

IV. E-Business Strategies for Competitive Advantage
This section considers the impact of the Internet on marketing mix and competitive forces, and suggests strategies for achieving a competitive advantage.

Product Strategy
On the Internet, consumers can easily collect information about products or services without traveling to stores to inspect products and compare prices.In the offline market researching product offerings can be extremely expensive and time consuming.As a result, consumers rely on product suppliers and retailers to aid them in the search, and the suppliers and retailers take advantage of this situation by charging higher prices (Allen and Fjermestad 2000;Viswanathan 2000).Consumers end up paying more and often not getting the product they really wanted.However, this is not the case for e-commerce.In the Internet market, a complete search of product offerings is possible at virtually no cost.Because consumers can easily compare prices and find close substitutes, companies are forced to lower prices.Companies cannot achieve competitive advantage simply by exploiting consumers' search costs, as they did in the physical market.
An alternative is for companies to make consumers' product comparison more difficult by differentiating their products from others.One possible competitive strategy is product bundling.
Product bundling promotes the benefits of the whole package, thus keeping buyers from comparing individual items.For instance, Gateway started bundling its Internet services and computers in response to plunging computer prices (Sinha 2000).
AOL, recently merged with Time Warner, is strengthening its bundling strategy by adding interactive and on-demand television, music on computer, and email on mobile phone to its existing services.By adding more services to a bundle, the company could command a higher price for its bundling service.Moreover, adding services to bundles is financially attractive because it is less expensive to sell an additional service to an existing customer than it is to attract a new customer (Schiesel 2001).2This product (or service) bundling strategy counteracts the threat of product substitutes and rivalry among existing firms.
Another strategy is innovation or the introduction of niche products, which also counteracts the threat of product substitutes, new entrants into the market, and competition among existing firms.By using the direct access to consumers enabled by the Internet, companies can collect information, identify target consumers, and better introduce products or services to meet consumers' needs.Companies can also collect information on new products desired by small segments of the market.By creating products that meet the needs of consumers in these niche markets, companies can command higher prices (Sinha 2000).
Another strategy associated with niche products or innovation is customer-centric strategy.Compared to a product-centric strategy, which pushes products to

Promotion Strategy
One of the reasons why many dot.comcompanies do not realize profits is that they spend a great deal of money for mass marketing to promote their e-brands to consumers.One television executive recently said, "The dot comes spent like drunken monkeys trying to build their brands.They were willing to pay any price.
They were unsophisticated and in a hurry" (Elliott and Rutenberg 2000).The recent demise or downsizing of so many Internet start-ups has had a significant effect on television network revenues (Carter 2000).To manage e-brands effectively and efficiently, companies have to employ promotion strategies different from those used by traditional marketing.One tactic is to build a direct link with consumers and enter into a dialogue with them about products (dialogue-based marketing or one-to-one marketing).This allows companies to provide customers with information about their products, collect information about their customers, and engage in data mining.They can then customize products to meet customer needs and offer promotions tailored to specific customer groups.This process helps build a base of loyal and profitable customers (Sealey 2000).
Allan and Fjermestad (2000) also argue that the benefits of personalized promotions will be greatest when customers are interested in detailed product information or the product is marketed as state-ofthe-art.The Internet encourages companies to employ this marketing based on direct, personalized relationships with customers (so-called "relationship marketing").
According to Sealey (2000), the Internet also provides customers with an unprecedented degree of control over the entire marketing process.As consumers become proficient at using the Internet, they will only buy products that precisely match their needs.Thus, companies must formulate customercentric promotion strategies that respond to this new customer power.Allen and Fjermestad (2000) suggest that brand management will be successful Thus, Internet companies need to find a good balance between Internet promotion (one-to-one or many-tomany marketing) and traditional mass promotion (one-to-many marketing).

Place Strategy
For most companies, place refers to the supply chain (or value chain).The place aspects of the marketing mix are closely related to the distribution and delivery of products or services.The Internet and its associated application software have significantly changed the way companies" products or services are delivered by reducing transaction and distribution costs.
One way for companies to differentiate their products from rival companies is faster and more efficient delivery of products to their customers.The Internet allows companies to jump over parts of the traditional supply channel.Direct sellers like Dell Computer do not rely on wholesalers and retailers to deliver their products to consumers.
Instead they contract with third-party providers such as FedEx and UPS, which provide fast, efficient delivery because they have superior logistical expertise and economies of scale in distribution (Bakos 1998).
Delivery providers such as UPS also have programs to set up e-commerce sites for businesses that ship with them (Gosh 1998).
Another strategy related to faster and more efficient delivery is integration of online and bricksand-mortar businesses (clicks-and-mortar strategy How much integration should take place when traditional and online businesses merge?For traditional firms, one of the most serious challenges to going online is deciding how much to integrate their traditional operations with online business (Gulati and Garino 2000).The problem is that integration provides the benefits of cross-promotion, shared information, purchasing leverage, and distribution economies, but this often comes at the expense of speedy decision-making, flexibility, and creativity.Other challenges to integration include price competition and avoiding the problem of online and offline businesses cannibalizing each others" customers.Faced with these challenges, traditional companies need to develop unique business strategies in order to compete against Internet companies.In any case, corporate managers who best understand the impact of the Internet and e-commerce on marketing mix and competitive forces will be best prepared to meet the challenges of the e-business marketplace.
Traditional mass marketing using television commercials, trade allowances, discounts, coupons, and sweepstakes is no longer successful in the Internet market, even in consumer-packaged-goods segments, where rival products now differ very little, since consumers can easily acquire information on the price and characteristics of products (Sealey 1999; Hoffman and Novak 2000).Sales promotions with coupons and discounts seldom build customer loyalty to brands because customers conclude that the lower prices are a fair reflection of the company's costs.When the promotions are over, customers evidently believe the regular prices are excessive and turn to rival products (Sinha 2000).Thus mass marketing and sales promotions result in expensive, inefficient brand management.
when it is associated with beliefs and experiences such as feelings, associations, and memories.Thus, Internet promotion must also focus on presenting information about the experiences and beliefs of consumers associated with each brand.Another promotion strategy for gaining competitive advantage is revenue-sharing marketing strategy (Hoffman and Novak 2000).A revenuesharing marketing strategy is an affiliated marketing program with partners based on commissions.For example, Amazon.comlaunched its affiliate program in 1996 and now has some 400,000 affiliates.CDnow.com(the pioneer of revenue-sharing strategy), REI.com, and Dell Computers also have strong affiliate programs.As the Internet continues to mature, companies can seek out specific segments of potential customers and the corresponding Web sites, and then establish revenue-sharing marketing programs with Web sites that can deliver those potential customers.5Compared to traditional mass marketing, revenue-sharing programs allow companies to keep track of purchases made by customers and draw a direct line from marketing (expenses) to sales (performance).However, traditional marketing mechanisms such as television commercials are still important in that they can attract off-line customers.

Table 1 :
E-Business Strategies for Competitive Advantage: Product, Price, Promotion, and Place Strategies