Significant Insights onto the Challenges and Advantages of E-Commerce and Business Strategies - Essay Example

? | Word Limit 3000 Assignment Topic: Strategies for E-Commerce Candi number: Candi ment I hereby declare that this assignment is my own work and any use of materials from other sources has been referenced accordingly. Candidate Signature: Date: Tutor Statement I hereby confirm that this assignment, to the best of my knowledge, is the candidates own work and they have not collaborated in the production of this assignment with any other person. I also confirm that I have a record of this candidate’s progress tutorial/s. Tutor Signature: Date: Table of Contents Introduction 4 Theoretical Background 5 Advantages and Disadvantages of E-commerce 6 E-business strategies 8 Implementation Challenges 12 Conclusion 13 References 15 Introduction With the evolution of technology and introduction of the Internet, there is great change in the business environment. Every organization whether it is large or small scale, is trying to adopt and incorporate in business models based on technology into their system. This adoption of web based technology in the business lead to the emergence of E-commerce. In the current business scenario, e-commerce playing a crucial role and changed the way business is conducted around the globe. E-commerce is forcing the companies to find the new ways of expanding their market in which they compete (Plant 2000). To compete and sustain in the new markets, it become more crucial for the organization to not only attract the customers, but also to retain by tailoring the products and services according to their needs and demand. Apart from redefining the products and services, organizations are also forced to restructure their business processes in order to deliver the products and services more effectively and efficiently (Reynolds 2004). However, despite of rapid and large acceptance of e-commerce, most of the companies are still in the initial phase in which they are investing to build a brand image but yet to make profit. Presently companies are focusing of improving the quality of their websites with the main objective of increasing their customer base. But now it is the time when organizations are need to shift their focus from developing customer base to revenue growth and profitability for which they are required to develop new business strategies as per the nature of the e-commerce. In this report two business models has been used- McCarthy’s four marketing mix model and Porter’s five forces model to identify the strategies for organizations which want to enter in the field of e-commerce. The overall goal of this study is provide significant insights onto the challenges and advantages of e-commerce and business strategies. Theoretical Background (a) McCarthy’s Four Marketing Mix Model As per the McCarthy, a firm defines its marketing strategies after identifying the target market for its products or services. On the basis of the target market, organization then develops a marketing mix is a combination of product, price, promotion, and place designed according to the target market with the aim of enhancing the sales (Blythe 2009). The unique marketing mix allows the organization to sustain and compete more effectively, thus ensures the profitability and sustainability. For example, by offering different products with an attractive sales promotion and effective logistics, a firm can increase its sales and revenues. This concept is also applicable on the e-commerce, and organizations working in this field are required to develop strategies for their target market by taking the unique nature of online marketing into the consideration (Napier et al 2006). (b) Porter’s Five Competitive Forces Model This five competitive forces model of Porter’s says that every organization develop its business strategies with the aim of gaining competitive advantage over its competitors. Organization can develop its strategies by focusing on five primary forces: (a) threat of new entrants, (b) rivalry among existing firms within an industry, (c) the threat of substitute products or services, (d) the bargaining power of suppliers, and (e) the bargaining power of buyers (Werther and Chandler 2010). Every organization first assesses these five competitive forces in a given industry before defining and strategies. This assessment helps them to identify the points where the forces weak and develop strategies accordingly. Organization can work on each force according to its strength and market vulnerabilities (Schermerhorn 2009). For example, if the company is able to produce the product at lower price, than it can achieve the cost leadership in the market and can prevent itself from the threat of substitutes by choosing the powerful buyers. On the other hand a company can hinders the entry of new threats into an industry by using capital-intensive resources, which new firms can not afford or duplicates. This model provide a very strong base on which organizations can develop highly effective and focused strategies. These forces also work in the Internet based business environment and it is important for the organization to consider and assess them for the development of e-commerce strategies. In a recent study, it has been emphasized that it is very important for the organization to analyze these five forces for the organization in order to gain the competitive advantage (Hills and Jones 2009). Some of the business analysts argued that in this era of rapid technological changes, analyses of industry is less valuable. But in fact, due to these changes it become more important for the organization to evaluate these forces because this will help them identify the fundamental attractiveness of an industry, exposes the drivers of average industry profitability and also help them to make estimate how profitability will evolve in coming future (Shin 2001). Thus it is very important for the any business to analyze the industry while going for Internet based business model. Advantages and Disadvantages of E-commerce On the basis of the above discussed theories, certain benefits and disadvantages can be concluded. One of the major impacts of the e-commerce on the marketing mix and competitive forces is that it dramatically lowers entry barriers and make easy for the new competitors to enter in the market. This property of the e-commerce can be seen as the benefit for most of the small and medium sized organizations. E-commerce allows the companies to enter in the market with minimum sales force and manageable investment. Previously due to the lack of human power and investment such organization was unable to enter into the market because of which few large enterprises was enjoying and controlling the whole market (Kamel 2006). Numbers of internet users are increasing in every part of the world, which indicates that in coming days more and more organization will enter in the e-commerce, thus level of competition will be more (Varnali 2010). This increase in competition will increase the level of all competitive forces in the industry and companies will feel more pressure to sustain and maintain profitability. For example, because of the large number of competitors, suppliers will get more powerful in comparison to the offline market. This change in the balance of power in relationships with buyers and suppliers may make it more difficult for the organization gain competitive advantage. This can be seen as the one of the pitfalls of web based business model (Satterlee 2001). With the help of the Internet, customers now can easily make price comparison among the various products and services available in the market, thus it lowers search costs for the customer and they can switch from one company to other. This property of e-commerce resulted price competition among the existing competitors and difficult for the new entrants to sustain in the market. Customers are getting more benefits in comparison to the offline market, but it become more important for the organization to work more innovatively in order to gain competitive advantage (Vulkan 2003). Another threat which is created by Internet based business model is the creation of new substitutes. Advancement in the technology provided new different means through organization can meet the needs of the customers in new manner and can also perform business functions differently (Parazoglou 2006). These new approaches resulted increase in the substitution threat for the existing companies. Although there are certain benefits are associated with the e-commerce which makes it very effective way of performing business for the organizations. With the help of Internet, organizations now can easily manage their supply chain activities and improve the efficiency of distribution and delivery system (Berger and Gattorna 2001), which is an important aspect of the marketing mix defines by McCarthy. In his model of marketing mix, he said that promotion plays an important role in increasing the revenues for the organization as it attracts more and more target customers. Internet provided new platforms to the organizations through which they now can communicate with their target in more attractive and effective manner. E-commerce also facilitates strategic alliances and partnerships among the different business entities. E-business strategies A business strategy is can be defined as a game plan which is designed on the basis of the objective and long-term goals of the business. It is a detailed plan which include bundle of decisions and activities to achieve the success in the business. Business organizations take their strategic decisions on the basis of their internal strengths, market conditions and needs of their customers (John and Gillies 1996). On the basis of the McCarthy’s Marketing Mix Model, different strategic decisions that one e-commerce organization need to have take can be divided into different categories. In his model McCarthy described four components of a marketing mix-product, price, place, and promotion. An organization need to define its strategies for each of the component separately, so there will be four different types of strategic decisions. 1. Product Strategy: Every business organization provides a product or service to its customers in the exchange of which they pay to the organizations. This is the main offering of any organization which is designed in order to fulfill a particular need of its customers. As it is the main offering of the organization, so it becomes more important for the organization to have a strong product strategy to gain competitive advantage in the market (Epstein 2004). Previously in the offline market, it was not possible for the consumers to collect the information about the products of same category and comparing them. Consumers were highly dependent on the retailers and product suppliers because of which they have to pay high prices. However, this is not the case in e-commerce. Now consumers can easily search the products and compare them on the Internet and make best buying decisions. In such scenario it becomes more for the e-commerce organization to make their offerings more attractive to have the competitive advantage (Goi 2005). There are different kinds of product strategy an organization can adopt to make their offering more competitive and consumer friendly. Like company can go for product bundling. In this kind of product strategy, company sells some extra services in addition to it main offerings. This will help the organization in keeping buyers from comparing individual items. Product or service bundling will allow the company to mark higher prices and also help in counteracts the threat of substitutes and rivalry among the existing players. The other product strategy which an organization can adopt to counter the threats of new entrants, substitutes or existing competition is innovation. With the help of Internet, organization can collect more information about the needs and demands of its target market and can offer better to them (Botten 2009). By offering new and better products which fulfill the needs of the customer more precisely, then organization can go for higher prices. Expansion into related product line is another kind of strategy which an organization can adopt for its product or service offering. This strategy will help the organization to utilize its resources more effectively and achieve the economies of scale through sharing of different business activities. 2. Price Strategy: Due to the easy comparing of products and their prices across the suppliers, now consumers can easily shift from one organization to another. This feature of Internet resulted into the high price competition. The intensive price competition can eliminate the seller’s profit (Botha et al 2008). To counter this threat organization can adopt different kind of pricing strategy. Sellers can make difficult for the buyers to compare the prices of alternative product by using price discrimination strategy. For the implication of the price discrimination strategy, the organization needs to have information about the buyers. Under the price discrimination strategy, company can adopt two approaches of pricing- price lining and smart pricing. Under the price lining approach organization offers the same product at different prices. Price of product is varies at different point of purchase as per the needs of the customer (Pride and Ferell 2011). Whereas in smart pricing price of product varies from market to market, on the basis of the market conditions. To protect the profits, organization can also go for the cost leadership under which it sells its product or services at most possible lowest price. This strategy is mainly used by the organization when there is intensive competition and it is not possible for it to discriminate the price (Kornum and Bjerre 2005). 3. Promotion Strategy: Promotion plays an important role in the success of a business. With the help of promotion organization can communicate with its target customers and can attract them (Tellis 1998). Traditional means of promotion like discounts and coupons are not that effective in the case of the e-commerce. Due to the easily availability of information and very little differences in the products or services, customers now can easily shift from one organization to another; in such scenario right kind of promotion strategy become more vital for the growth of the company. There is a need of new kind of promotion strategies for the successful management of e-brands (Dave 2008). One promotion tactic that e-commerce organizations can adopt is dialogue-based marketing or one-to-one marketing. Through this approach organization can build a direct with their customers and enter into a dialogue with them. This will allow them to provide more detail and accurate information about their products to the customers, assessment of customer’s needs, etc. Detailed and accurate product information will lead to the development of loyal customer base as it will help the organization to earn their trust and loyalty. Direct marketing is more beneficial in comparison to the traditional marketing tactics because it allows the organization to tailored their products and promotions to specific customer groups. In the e-commerce business environment, customers are more powerful and they have large control over entire marketing process, so it becomes more important for the organizations to adopt more customer-centric promotion strategies. They only will be able to emerge as a brand when their promotion strategies are associated with beliefs and experiences of the customers like feelings, associations and memories. Revenue-market sharing is the other kind of promotion strategy that in e-commerce can be adopted by the organizations to gain the competitive advantage in which companies run affiliated marketing programs with partners based on commissions (Heinemann and Schwarzl 2010). 4. Place Strategy: Place strategy mainly deals with the distribution and delivery of the products or services. It is crucial for the organization to ensure that customers have their products or services at the right time to gain the competitive advantage. An e-commerce company can contract with the third-party providers instead on relying on wholesalers and retailers for the delivery of their products. Third- party contract will enable the organization to have fast and efficient delivery system because they have superior logistical expertise and economies of scale distribution (May 2000). Organization can also go for the integration of online and brick- and-mortar business, which will allow it to have fully automated distribution warehouses to meet the demand of the customers. These are the some possible strategies that an organization can adopt for its product, price, promotion, and place to achieve the competitive advantage by working on five competitive forces. Choice of strategy is highly dependent on the nature of the market and internal strengths of the organization, so it is not necessary the strategy worked for the one organization will also work for others. Organization has to choose and define their strategy according to their objectives and internal strengths. Implementation Challenges Today most of the organizations want to go online to perform their business activities, and it is easy to talk to discuss about the structure of e-commerce and its benefits but it is not an easy task to develop and deploy e-commerce systems. With the increase in the competition, expectations of customers are rising mercilessly. Even the internal customers and other business partners want to have quality e-commerce system. All these pressures and expectations made it important for the organization to have quality infrastructure for the e-commerce business system. E-commerce requires well designed and integrated distributes system based on the latest technology available in the market, which can perform the company’s core business processes. Some of the major challenges that organization face during the implementation of e-commerce are: (a) Value: The main objective of any organization to deploy the e-commerce is to add value to their business. It is the first challenges to ensure that the designed e-commerce system will be able to deliver and meet all the requirements of the business like lead generation, business process automation, and cost reduction. Businesses also need to be flexible so that new system can easily be incorporated into the existing one (Allee 2000). (b) Security: to ensure the security of the company’s assets from misuse or accidental damage is another challenge that an organization faces during the implementation of e-commerce. The major challenge is that the organization needs to make user friendly and easy to use while ensuring the security of the sensitive information (Mariga 2003). (c) Existing System: Newly designed e-commerce system should be able to integrate the existing system of the company, so that duplicity of the functions can be avoided and its usability, performance and reliability can be maintained (Newman 2009). (d) Interoperability: As it is already discussed that in e-commerce, there are various other business partners are associated with the organization. So it becomes very crucial for the organization to have that kind of system which supports and feasible with the systems of each business partner (Langer 2008). It is important that these systems must work together so that the business objectives can be achieved. For example, the order-management application of a business partner must be interoperate with the inventory application of its suppliers. This interoperation between the businesses helps in reduction of overall cost and improves the performance of the system. Conclusion With the increase in the numbers of Internet users and technological innovations, most of the organizations are now willing to enter into the field of e-commerce. On the basis of the McCarthy’s marketing mix model and Porter’s five forces model it can be said that e-commerce have certain benefits over the offline business approach. But there are certain risks are involved with the e-commerce which an organization can overcome with the help of the strong business strategies. Organizations need to work on each component of the marketing mix so that they can counter the each competitive force and gain the competitive advantage. It is also important for the organization to plan the implementation of e-commerce effectively to have an effective and efficient web based business system. References Allee, V. 2000. Reconfiguring the Value Network. Journal of Business Strategy, 21(4), pp. 1-6. Berger, A.J. and Gattorna, J. 2001. Supply Chain CyberMastery: Building High Performance Supply Chains of the Future. Gower Publishing, Ltd. Blythe, J. 2009. Key Concepts in Marketing. SAGE Publications Ltd. Botha, J, et al 2008. Managing E-commerce in Business. Juta and Company Ltd. Botten, N. 2009. Enterprise Strategy: Strategic Level. Elsevier. Dave, C. 2008. E-Business and E-Commerce Management. Pearson Education. 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