3. How the Internet Is Affecting the
Five Competitive Forces
The Threat of New
Entrants
The Bargaining Power
of Buyers
The Bargaining Power
of Suppliers
The Threat of
Substitutes
The Intensity of
Competitive Rivalry

4. The Threat
of New
Entrants
New Entrants will be a bigger threat now because the Internet lowers barriers
to entry.
Business that exist in cyberspace can create an appearance that makes them
seen like strong competitors, regardless of their actual size or the quality of
their operation.
A New Cyber Entrant can use the savings provided by the Internet to charge
lower prices and compete on price despite the incumbent’s scale advantages.
A New Entrant may be able to serve a market more effectively, with more
personalized services and greater attention to details.
A new firm may be able to build a reputation in its function and charge
premium prices.
It can capture small pieces of an incumbent’s business and erode profitability.
Another potential benefit of Web-based business is access to distribution
channels.

5. The Bargaining
Power of
Buyers
The Internet may increase buyer
power by providing consumers with
more information to make buying
decisions and lowering switching
costs.
Internet sales activity that is First, a large amount of consumer information is
labeled “B2C” (Business to available on the Internet.
Consumer) is likely to increase the
power of these buyers for several Second, an end user’s switching costs are also
reasons. potentially much lower because of the Internet
The bargaining power of
distribution channel buyers may
decrease because of the Internet.

6. The Bargaining
Power of
Suppliers
Use of the Internet to speed up and streamline the process of
acquiring supplies is already benefiting many sectors of the
economy.
Internet technologies make it possible for suppliers to access more
of their business customers at a relatively lower cost per customer.
Supplier may not be able to hold onto these customers because
buyers can do comparative shopping and price negotiations so
much faster on the Internet, and can turn to other suppliers with a
few clicks of the mouse.
One of the greatest threats to supplier power is that the Internet
inhibits the ability of suppliers to offer highly differentiated
products or unique services.

7. Other factors may also contribute to stronger
supplier power.
Third, the use of
Second, suppliers proprietary
may be able to software that links
Finally, supplier will
First, the growth of create Web-based buyers to a
have greater power
new Web-based in purchasing supplier’s website
to the extent that
general may create arrangements that may create a rapid,
they can reach end
more downstream make purchasing low-cost ordering
users directly
outlets for suppliers easier and capability that
without
to sell to. discourage their discourages the
intermediaries.
customers from buyer from seeking
switching. other sources of
supply.

8. Disintermediation and Reintermediation
Traditional Intermediation
Disintermediation Process
Reintermediation

9. The Threat of Substitutes is
heightened because the
Internet introduces new ways
to accomplish the same tasks.
The Threat
of
Substitutes
The economies created by the
Internet technologies have led
to the development of
numerous substitutes for
traditional ways of doing
business.

10. The Intensity of Competitive Rivalry
Internet creates more tools and means
for competing, so rivalry among
competitors is likely to be more intense.
The Internet tends to increase rivalry by
making it difficult for firms to
differentiate themselves and by shifting
customer attention to issues of price.

11. How the Internet is Affecting the Competitive
Strategies
To stay competitive, firms must update
their strategies to reflect the new
possibilities and constraints that this
phenomenon represents.
Three
Overall Cost
Competitive Leadership
Differentiation Focus
Strategies

12. Overall Cost Involves managing costs in
Leadership every activity of a firms
value chain and offering
no-frills products that are
an exceptional value at
the best possible price.
Managing costs, and even changing the cost
structures of certain industries, is a key of the
internet economy.
The internet reduces the costs of traveling to a
location to search for a product or service.
Internet is creating new opportunities for firms
to achieve low-cost advantages.

13. Involves providing unique,
Differentiation high quality products and
services that promote a
favorable reputation and
strong brand identity and
usually command a premium
price.
Internet technologies have created new ways for firms
to achieve a competitive advantage.
The internet is creating new ways of differentiating by
enabling mass customization.
Internet capabilities are changing the way differentiators
make exceptional products and achieve superior service.

14. Focus
Involves targeting a narrow market segment
with customized products and/or specialized
service.
Internet offers new avenues in which to compete
because they can asses markets less expensively,
and provide more services and features.
Achieving competitive advantage will depend on
how effectively firms use internet technologies
and deploy focus strategies.