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Strategic management can be characterized as a managerial perspective providing powerful explanations to account for managerial practices and their consequences.

Strategic management deals with the performance of business enterprises. The fundamental question in the field is, how do firms achieve and sustain competitive advantages?

“Strategic management, in both theory and practice, tries to understand how firms may improve their performance in competitive interactions with other firms” (Sanchez and Heene, 1997: 303).

Firms in the changing environment are mostly unable to be successful any more and cannot achieve sustainable competitive advantages by just reacting passively to their environment(s).

The objective of strategic management in this context is to help firms actively to organize or design internal structures, as well as the relations to the external environment, in a systematic fashion.

This objective of strategic management is the starting point for this book. It is the aim to generate explanations of the realization of competitive advantages for a specific range of firms doing business on the Internet.

These explanations should enhance the lacking theoretical knowledge in this area and help organizations to find optimal internal structures in relation to their specific Internet environment.

It is the objective of this book to analyze and furthermore explain the generation of competitive advantages for one specific group of Internet firms, namely such firms that provide products and services in the B2C segment that can be directly consumed via the PC, such as online news or stockbroking.

Firms doing business in the Internet environment have attracted much interest from practitioners as well as academics from many different fields in recent years.

However, it does not seem possible to come to general conclusions with regard to the realization of competitive advantages for all firms doing business on the Internet, because very different firms do very different things via the web.

It is obvious that there will be major differences between strategic necessities for firms coordinating their supply chains via Internet solutions and competing in, say, the automobile industry, and firms such as Yahoo that offer a portal and thus a rather virtual Internet service.

Before thinking about the creation of strategic value in the Internet age a clear understanding about types of firms competing in this area has to be created in order to explain which firms are included here and achieve a clearer image of these firms.

One possibility to achieve such clarification is to segment “Internet activities” into different groups of firms which produce different outputs (i.e. services or products with various characteristics).

In the following paragraphs an initial broad categorization of firms doing business on the Internet takes place to come to a deeper understanding of the variance in this field. In the first step, four different output categories for Internet firms can be differentiated:

1. Physical products.
Internet firms such as Amazon.com offer physical products, such as books or CDs.

Traditional booksellers like Barnes and Noble also sell their books via the web (as well as in brick-and-mortar stores).

Physical products such as cars (e.g. sold by cars.com, carsdirectcom, autobytel.com) or children’s toys (e.g. sold by etoys.com, toysrus.com or mytoys.de) are also offered via the Internet.

Further examples in this category are firms selling furniture (e.g. sunlandimports.com), consumer electronics (e.g. abtelectronics.com) or clothes (e.g. the-clothesstore.com) via the Internet.

Firms in this group use the Internet to distribute physical or material products and to show and market their products (e.g. in virtual showrooms).

After buying such a product, the consumer receives delivery of a physical product that could also usually be bought in a “real-world” store. The product has to be physically transported to the customer.

2. Real world services.
These services can be arranged via the web but cannot be directly consumed via the Internet.

Examples would be a booking process for a hotel room, which can be finalized via the Internet – nevertheless the service itself obviously is consumed at the actual location of the hotel.

Other examples in this category are the booking of flights or car rental via the Internet.

Firms offering such real world services via the Internet are, for example, expedia.com, travelocity.com and T-online-travel.de in the area of flight and travel services, as well as sixt.com, europcar.com and avis.com in the area of car rental.

For the provider the Internet complements or substitutes other established means of marketing their services and fulfilling adherent transactions.

3. Non-material products.
These products do not require physical transport; they call be directly “consumed” via the Internet.

Examples include downloadable software, music and computer games. Firms offering non-material products via the Internet are, for example, Adobe Systems (publishing PC software), McAfee Security (anti-virus PC software) and Apple with its iTunes Music Store (downloadable music).

The products are delivered and initially consumed via the Internet.

4. Non-material services.
These services are directly “consumed” on the Internet. Web services are, for instance:

Search possibilities in databases (e.g. the Genios database of the German Handelsblatt, the Pro-Quest database to access various academic journal articles and the Gettyone.com database to search and download various images and pictures);

Search functions for news delivery (e.g. offered by Yahoo.com, the Wall Street Journal Online and the German weekly magazine Spiegel.de);

And information delivery with regard to stock prices as well as direct opportunities to trade stocks (e.g. offered by ameritrade. com, cortalconsors.de and etrade.com) or

Home banking functionalities (as offered by banks like Axa Bank, City Bank and Deutsche Bank);

Non-material products and services are difficult to differentiate from each other. Non-material or intangible products could be defined as products that are digitally transferred to the customer’s PC and afterward saved on the customer’s PC.

Non-material services could be defined as services that call be itself via the PC online but are usually not saved on the customer’s.

Non-material or intangible set-vices thus function differently if looked at from a process perspective, since they are exclusively consumed online, i.e. no data have to be transferred (permanently) to the customer’s PC which go beyond authentication.

This minor difference does not justify differentiating between intangible products and services.

Accordingly, the definition used in this book does not distinguish between non-material products and services.

Summarizes the initial system of classification of Internet firms in terms of their output. The focus of the remainder of this work is exclusively on Internet firms providing non material products and services.

Analyzing the possibilities of gaining competitive advantages in this area is especially interesting because direct product and service-providing firms on the Internet, such as Yahoo, have to struggle to overcome decreasing expectations of the financial community and dramatically falling stock prices.

Because most non-material products and services have been delivered for free in the past, it seems difficult to charge the customer for them today.

This situation implies that there are real difficulties involved in attempting to create value and appropriate the resulting income for firms offering such products and services via the Internet.

Internet publishers or portals have to struggle with a high cost for their web presence and at the same time decreasing income from advertisements on their sites.

Provides further insight into the differences between the sellers of material and non-material products or services via the Internet.

Firms providing non-material products and/or services via the Internet are different from the other groups in especially one relevant respect, namely that their products and services are directly consumed via the web.

The added value because of online selling for customers of the goods offered by these groups goes well beyond the value added by the firms providing material products and real world services with regard to the exploitation of the possibilities the Internet offers.

Firms providing non-material products or services enable a direct and complete interaction between businesses and customers, wherein the whole buying and consumption process is web-based.

This makes these firms interesting for research. They deal with products or services that can come directly to the customer because of the existence of the Internet.

Only such goods are taken into account here for which the whole transaction process from the initial to the final phase is completed via the Internet.

For these goods the market space provides sufficient context for the entire procurement process.

Thus, the special Internet attributes have to be taken into account when analyzing the possibilities to reach competitive advantage for firms selling non-material goods via the web.

Examples of firms selling non-material products or services via the Internet are:

Electronic auction houses such as eBay;
Portal providers such as Yahoo, Lycos or Callisto Germany.net;
Sellers of downloadable music such as Apple’s Mines Music Store or OD2-Music Portal; pure search engines such as Google;
Databases of different providers (e.g. the Genios database by the German quality newspaper Handelsblatt);
Online stockbrokers (e.g. Consors);
Online banking functionalities (e.g. offered by the City Bank); and
Various others such as online encyclopedias (e.g. online versions of the Encyclopaedia Britannica);
Support databases and technical chat rooms (for example at Microsoft.net);
Legal or medical advice sites;

How a firm becomes successful in this specific environment has not been clear up to now, because the relevant environment for firms offering non-material products and services via the Internet is different from traditional environments in certain respects that will be described and analyzed in this book.

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