2.5: bartering

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Module: Competing in the Network Economy

2.5: Bartering

• Bartering: – The exchange of goods and services with no exchange of

money.

• e-bartering:– Bartering conducted online, usually by a bartering exchange– Its advantage over traditional bartering is that it transcends its

limitations of location and variety.– Improves the matching process by attracting more potential

partners to the exchange.

• Bartering exchange:– A marketplace in which an intermediary arranges barter

transactions.

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• Online negotiating– 3 factors that may facilitate online negotiation:

• The products and services that are bundled and customised

• The computer technology that facilitates the negotiation process

• The software (intelligent) agents that perform searches and comparisons, thereby providing quality customer service and a base from which prices can be negotiated

2.5: Negotiating Online

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2.6: EC in the Wireless Environment: M-Commerce

• Mobile computing: – Having fully portable, real-time access to information

applications and tools that in the past were only accessible from a desktop computer.

• Mobile commerce (m-commerce):– E-commerce conducted using wireless devices

• M-Business: – The broadest definition of M-commerce, in which E-

business is conducted in a wireless environment

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DoCoMo’s (nttdocomo.com) i-Mode

• Pioneering wireless service

• With a few clicks on a handset, i-Mode users can conduct a large variety of M-commerce activities

– Shopping guides

– Maps and transportation

– Ticketing

– News and reports

– Personalised movie service

– Entertainment

– Dining and reservations

– Additional services

2.6: EC in the Wireless Environment: M-Commerce

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2.7: E-Market Issues: Liquidity, Quality, and Success Factors

• Early liquidity: – Achieving a critical mass of buyers and sellers as fast as

possible, before a start-up company’s cash disappears

• Quality uncertainty: – The uncertainty of online buyers about the quality of

non-commodity type products that they have never seen, especially from an unknown vendor

• Microproduct: – A small digital product costing a few cents

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2.7: E-Market Success Factors • Product Characteristics

– Digitisable products can be electronically distributed to customers, resulting in very low distribution costs, allowing order-fulfillment cycle time “to be minimal”

• Industry Characteristics– Electronic markets are most useful when they are able to

directly match buyers and sellers

• Seller Characteristics– Electronic markets reduce search costs, allowing consumers

to find sellers offering lower prices

• Consumer Characteristics– E-markets require a certain degree of effort on the part of the

consumer, e-markets are more conducive to consumers who do some comparison and analysis before buying.

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Exhibit 15.9 Cost Curve of (a) Regular Products (b) Digital Products

Behavior of average costs as quantity changes: Generally, as quantity increases, average costs decline. But as quantity increases more, the cost goes up due to variable costs (e.g., administration and marketing) and fixed costs in the short run

With digital products, the average cost per unit declines as quantity increases, because the fixed costs are pro-rated over more units.

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An equation indicating that for the samequantity of production, Q, companies either can use a certain amount of labor or invest in more automation

Agency costs: Incurred in ensuring that the agent performs tasks as expected (also called administrative costs)

Exhibit 15.10 The Economic Effects of EC: The Production Function and Agency Costs

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Transaction costs: Costs that are associated with the distribution (sale) and/or exchange of products and services including the cost of searching for buyers and sellers, gathering information, negotiating, decision-making, monitoring the exchange of goods, and legal fees

Exhibit 15.11 The Economic Effects of EC: Transaction Costs

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2.8: Economics of E-Marketplaces

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2.9: Competition in the Digital Economy

• Internet ecosystem: – The Internet economy is like a web of interrelationships

– Like an ecosystem, activity in the Internet economy is self-organising - revolves around profits & value to customers.

– The Internet economy has low barriers to entry and so it is expanding rapidly.

– Some of the old rules of competition no longer apply, such as “size” is no longer a significant competitive advantage

• Competitive factors– Lower search costs for buyers– Speedy comparisons for customers

• Companies that sell online and provide information to search engines will gain competitive advantage.

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• Competitive factors (cont’d)– Differentiation and personalisation

• Differentiation: Providing a product or service that is unique • Personalisation: The ability to tailor a product, service, or

Web content to specific user preferences

– Lower prices • Due to lower operating costs and larger business volume

– Barriers to entry are reduced • Setting up a web site is relatively inexpensive but can be view

as a threat (eg., Where will the next competitor come from?)

– Virtual partnerships multiply

– Market niches abound• Reap profitable niches before the competition does so.

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• EC supports efficient markets and could result in almost perfect competition

• Characteristics necessary for perfect competition are:– Many buyers and sellers must be able to enter the market at

little or no entry cost (no barriers to entry)– Large buyers or sellers are not able to individually influence

the market– Products must be homogeneous (commodities). (For

customised products, there is no perfect competition) – Buyers and sellers must have comprehensive information

about the products and about the market participants’ demands, supplies, and conditions.

• Competition between companies is being replaced by competition between networks and between business models.

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1. Strength of Barriers to Entry • How easy is it for new rivals to enter the industry?

2. Extent of rivalry between existing firms• How competitive is the existing market?

3. Supplier power • The greater the power, the less control the organisation has on

the supply of its inputs.

4. Buyer power• How much power do customers in the industry have?

5. Threat from substitutes• What alternative products and services are there and what is

the extent of the threat they pose?

2.9: Porter’s Five Competitive Forces Model

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• From Porter’s model, a negative impact means that the competition will intensify in most industries as the Internet is introduced, causing difficulties to a competing company.

• Thus the impact of Internet on competitive forces• Creates a stronger competition as companies shift towards doing

more business online

• Reduces barriers to entry – Enables new substitute products and services– Shifts bargaining power to customer– Raises firm’s bargaining power over suppliers– Suppliers benefit from reduced barriers to entry and from

elimination of intermediaries– Widens geographic market, increases number of competitors,

reduces differentiation among competitors

2.9: Impact of Internet on Competitive Forces

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2.9: Generic Strategies: Developing a Sustained Competitive Advantage

• Analysing the forces that influence a company’s competitive position will assist management in crafting a strategy aimed at establishing a sustained competitive advantage. To establish such a position, a company needs to develop a strategy of performing activities differently than a competitor.

• Cost leadership strategy: Produce products and/or services at the lowest cost in the industry.

• Differentiation strategy: Offer different products, services, or product features.

• Niche strategy: Select a narrow-scope segment (niche market) and be the best in quality, speed, or cost in that market.

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• Growth strategy: Increase market share, acquire more customers, or sell more products.

• Alliance strategy: Work with business partners in partnerships, alliances, joint ventures, or virtual companies.

• Innovation strategy: Introduce new products and services, put new features in existing products and services, or develop new ways to produce them.

• Operational effectiveness strategy: Improve the manner in which internal business processes are executed so that a firm performs similar activities better than rivals.

• Customer-orientation strategy: Concentrate on making customers happy

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• Time strategy: Treat time as a resource, then manage it and use it to the firm’s advantage.

• Entry-barriers strategy: Create barriers to entry.

• Lock in customers or suppliers strategy: Encourage customers or suppliers to stay with you rather than going to competitors.

• Increase switching costs strategy: Discourage customers or suppliers from going to competitors for economic reasons.

Our goal is to perform activities differently than a competitor. Those activities can be linked in a Value Chain Model.

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2.9: The Value Chain

• The initial purpose of the value chain model was to analyse the internal operations of a corporation, in order to increase its efficiency, effectiveness, and competitiveness.

• We can extend that company analysis, by systematically evaluating a company’s key processes and core competencies to eliminate activities that do not add value to the product.

• A firm’s value chain is part of a larger stream of activities, which Porter calls a value system. A value system includes the suppliers that provide the inputs necessary to the firm and their value chains (Basis for supply chain management.)

• Many of these alliances and business partnerships are based on Internet connectivity are called interorganisational information systems (IOSs).

2.5: bartering

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