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Assessing the impact of the Internet on competitive forces in different industries

Bargaining power of buyers

The increase in customer power and knowledge is perhaps the single biggest threat posed by electronic trading. The bargaining power of customers is greatly increased when they are using the Internet to evaluate products and compare prices. This is particularly true for standardized products for which offers from different suppliers can be readily compared through online intermediaries such as search engines and price comparison sites such as Elko or Price runner.

For commodities, auctions on business-to-business exchanges can also have a similar effect of driving down price. Purchase of some products that have not traditionally been thought of as commodities, may become more price-sensitive. This process is known as commoditization. Examples of goods that are becoming commoditized include electrical goods and cars.

In the business-to-business arena, a further issue is that the ease of use of the Internet channel makes it potentially easier for customers to swap between suppliers – switching costs are lower. With the Internet, which offers a more standard method for purchase through web browsers, the barriers to swapping to another supplier will be lower. With a specific EDI (electronic data interchange) link that has to be set up between one company and another, there may be reluctance to change this arrangement (soft lock-in due to switching costs).

Commentators often glibly say ‘online, your competitor is only a mouse click away’, but it should be remembered that soft lock-in still exists on the web – there are still barriers and costs to switching between suppliers since, once a customer has invested time in understanding how to use a web site to select and purchase a particular type of products, they may not want to learn another service.

Lastly comment

A significant downstream channel threat is the potential loss of partners or distributors if there is a channel conflict resulting from disintermediation (see section on new channel structures below).

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