E-commerce is a major contributor to the world’s economy.
By the year 2010, e-commerce may represent 25% of the world’s GNP (Business
Week). As a result, many companies will be competing for customers in this
arena. The top e-commerce companies in the industry utilize similar successful
strategies in order to gain a competitive advantage in this highly contentious
and rapidly evolving environment. These
strategies include: Innovative
warehousing, employment of new technology, dynamic pricing, low pricing,
formation of alliances, customized and personalized service, and acquisition of
the best and most innovative talent.
In order to keep up with the
frantic pace associated with “Internet time”, an e-commerce company must be
able to keep up with the customer’s expectations of perpetually shorter
delivery times. By warehousing their
most popular products, an e-commerce company can meet the needs of their
customers more rapidly than before.
Since the products are close at hand, the company can eliminate several
steps in the delivery process, thereby expediting product delivery cycles to
better service its customers.
Amazon.com has adopted this strategy, which allows them to ship most
orders within 24 hours of its placement.
Utilizing the latest
technological advances is an important necessity for an Internet company to
succeed in the e-commerce marketplace. If a company neglects to employ the
latest technological innovations, it’s competitors may gain a vital competitive
advantage. A good example of this is the advent of XML compatibility. XML (eXtensible Markup Language) has the
potential to make electronic communication between businesses faster and easier
(“XML compatibility: Looking for answers”).
IBM and Microsoft are leading the race to champion XML technology which
will offer businesses the portability that will be essential to conduct
business to business transactions in the near future.
A key distinction of top Internet companies is their ability to
compete on various pricing levels. The
first way that they compete is by using a low-price model. Many consumers now
turn to the Internet in order to find products at the lowest possible
price. In order for a company to
compete, they must provide products at a cheaper price, or provide superior
service. Buy.com actually sells some
products at below cost in order to attract customers, and then generates
revenues through advertising. Mercada.com organizes buyers to purchase bulk
orders at wholesale prices.
Another method of competing
on a price basis is through dynamic pricing. Priceline.com used both first
mover advantage and the benefits of dynamic pricing to forge its position as an
Internet powerhouse. By allowing consumers to bid on the excess inventory of
third parties, Priceline matches buyers and sellers, thus lowering the price
consumers pay and increasing customer profits. Furthermore, Priceline develops
a massive database that it sells to it’s customers, who data mine for product
pricing information.
Companies also gain a
competitive advantage by forming alliances with other companies, not
necessarily within their specific industry.
This benefits both firms in allowing them to gain a larger customer
potential. For example, Yahoo.com
provides hundreds of links to affiliated sites thus increasing the scope of
their own site, and the reach of the website of the affiliated company. As a result, Yahoo is better able to retain
their customers by offering access to a wide variety of information and web
sites that web-surfers demand.
Furthermore, the formation
of alliances with well positioned
established partners is another key strategic move currently being pursued by
many E-commerce businesses. This strategy
offers protection against similar competitors and allows the companies to
benefit from technological and branding synergy’s. Yahoo’s agreement with Palm
will pre-install Yahoo’s applications on future Palm Pilots. This will give Palm users a viable mobile
Internet host and insure both companies benefit from the increase in customers.
Customization is a
competitive advantage for E-commerce companies. It can take the form of
customized service as well as built-to-order buying. E-commerce companies collect relevant information from the user
through transactions and use this information to develop customer preferences
models. These models are used to
anticipate customer needs and customize future marketing efforts towards
them. Amazon has proven this strategy’s
ability to make it’s site “sticky”. It
keeps a record of previous customer purchases and tailors promotions to
them on subsequent visits; the customer is given more of what they want and
therefore spends more time on the site itself.
Built-to-order buying allows
a user to create a product that exactly fits his needs and desires. Two examples of this technology are Dell and
BMW, whose web sites allow their customers to pick the product exactly to their
specifications.
In order to remain
competitive in the market with the large players such as Amazon or Dell,
smaller companies must select niche markets to enter. This enables them to gain market share by allowing the customers
to go directly to the site which offers their product rather than sorting
through a larger site to find the product.
It can be much easier and
faster; the ultimate consumer desire.
Michael Dell put the
acquisition of good talent as the number one priority on Dell’s list of top ten
goals. More and more companies are
realizing that the dynamics of its leaders and its workforce are a powerful competitive
advantage if employed correctly. The
speed and scope with which new innovative ideas can change market dynamics
implies that the creative talent employed by a company may be its greatest
asset and the key to future success in the business world.
Interesting
Sites
http://www.ecommercetimes.com/small_business/getting_started/deadly-sins-a.shtml
http://www.businessweek.com/2000/00_09/b3670149.htm
http://www.businessweek.com/1999/99_22/b3631001.htm
http://www.zdnet.com/ebusiness/stories/0,5918,2466381,00.html
http://www.businessweek.com/2000/00_11/b3672063.htm
http://www.zdnet.com/ebusiness/stories/0,5918,2470009,00.htm
http://www.computerworld.com/home/news.nsf/all/9910122barrett