After many years of debate and discussion (often quite
meaningless) about e-commerce – there is till no clear view
about a crucial question that was obvious from the beginning.
How does selling and buying online influence prices and profits?
For over twenty years (and long before there was
widespread use of the internet) there has been serious
discussion on the fact that the “balance of power”
is shifting in favor of the buyer (both in the case of
mass-market consumers and distributors or of large or small
companies organizing their purchase systems more
effectively.) With expanded net access it was quite obvious,
six or seven years ago, that there were greater opportunities
for customers to control and compare prices – and that was
part of an increasing “customer empowerment.”
That raised an obvious question: will competition turn
into a cutthroat price war or will there still be room for
quality and service values?
The surprising fact is that there is still no clear
answer and the subject is still debated with a variety of
conflicting opinions.
An article in the July 2002 issue of Social Trends
reported the observations of some American economists, such
as Edward Learner who believes that increased productivity
generated by the internet may be a reason for declining
profit in the ’90s because the net reduces company profits in
favor of customer savings. This may indeed have happened in
some sectors in the US, such as the hotel business. But
another economist, Doug Henton, argues that hotels benefit by
using the internet because they fill rooms that otherwise
could have remained vacant. There are equally contradictory
observations on other industries. More broadly, Florian
Zettermayer believes that the internet helps companies in
many ways, allowing them to personalize their products and to
compete in a wider geographic area. And so on...
There is little, if anything, in these discussions that
wasn’t debated in the early days of e-business – and even
earlier, in the late Seventies or early Eighties, when there were
discussions on the emerging “information age.”
A pretty obvious fact is that the impact of the so-called
“new economy” on corporate débacles was not
caused by customers demanding lower prices but by financial
adventures in a heavily drugged stock market where
“customers” (in this case shareholders and
employees) were the victims.
Another obvious fact is that (except for a few individual
and well developed cases of online business) the picture is
still very blurred and confused. Most companies, large or
small, still don’t understand if and how they can benefit
from online communication – or be hurt by developments that
don’t fall into the pattern of their consolidated experience.
While economists and analysts of all sorts fail to agree
on anything, the case for a single company is far less
complicated and distressing.
The fear of a “price war” could be one of many
reasons why companies stay away from a real commitment online
and try to “get by” with superficial cosmetic
solutions, based on appearance and gimmicks, with no real
service or useful content. But avoiding the issue doesn’t
solve the problem.
Let’s assume that a company, by offering its products and
services online, makes it easier to compare quality and
price. Let’s assume that customers find the time to check and
think before they buy. If the system works well, there is an
advantage for the “consumer.” But tat doesn’t
damage the economy – and it isn’t a problem for companies
that offer real quality and service at a fair price.
Avoiding the issue, or trying to confuse it, may work for
a while. But if companies lose sight of value and service
they can run into all sorts of unexpected problems with
management and staff that are unprepared to face reality.
Competition is a fact in every market that isn’t warped by
monopolies or privileges. Competitive advantages are obtained
by understanding competition and by using it as a tool for
improvement – not by avoiding it.
Is the net a tool for competitive advantage? Of course it
is. But simply wedging (or avoiding) “price wars”
is rarely an effective solution.
The best way to use networking is not to work on a single
factor. A company can improve its efficiency and quality by
managing synergies. Improving efficiency, quality and service
as well a reducing costs. By doing that before the outbreak
of a price war or a market confusion a company is much better
prepared to weather the storm and use some of the turbulence
to its advantage.
This approach is conceptually simple. But it takes time,
commitment, consistency, learning, testing and experimenting.
In many companies it implies a change of mentality,
organization and process. And a vision beyond the nervous,
short-term hipshooting that has become dominant in many
environments.
Companies shouldn’t be afraid of “empowered”
customers. They should work with them to improve quality and
service and encourage choices based on value, not just price. The net
(not by itself, but in active combination with all other company
activities) is a particularly effective tool for that purpose.
Summary
