The intensity of rivalry among existing competitors The threat of new entrants The threat of substitute goods or services The bargaining power of buyers The bargaining power of suppliers Consider how the rise of the Internet has impacted the five forces for music retailers. Traditional music retailers scrambled to invest in selling music online out of what is perceived to be a necessity. Their intensity of rivalry increases because they not only compete based on the geography of where brick-and-mortar stores are physically located, they now compete online as well. Investments online are expensive and uncertain, prompting some firms to partner with new entrants such as Amazon. The process of buying a plastic disc now faces substitutes as digital music files become available on commercial music sites. Various choices that are available gives consumers (buyers) bargaining power. They demand cheaper prices and greater convenience. The bargaining power of suppliers, the music labels and artists, also increases. The changes that impact one industry do not necessarily impact other industries in the same way. It is often suggested that the Internet increases bargaining power of buyers and lowers the bargaining power of suppliers. This suggestion is true only for some industries like auto sales and jewelry where the products are commodities and the price transparency of the Internet matters. But not true across the it’s board. In cases where network effects are strong or a goods are highly differentiated, the Internet can seller’s strengthen supplier bargaining power. Switching costs also weaken buyer bargaining power. Switching costs help cement customers to the company even when rivals offer more compelling rates or services. Tech plays a significant role in shaping and reshaping these five forces, but not the only significant it’s force that can create an industry shock. Government deregulation or intervention, political shock, and social and demographic changes can all play a role in altering the competitive landscape. Questions and Answers What is operational effectiveness?
The intensity of rivalry among existing competitors The threat of new entrants The threat of substitute goods or services The bargaining power of buyers The bargaining power of suppliers Consider how the rise of the Internet has impacted the five forces for music retailers. Traditional music retailers scrambled to invest in selling music online out of what is perceived to be a necessity. Their intensity of rivalry increases because they not only compete based on the geography of where brick-and-mortar stores are physically located, they now compete online as well. Investments online are expensive and uncertain, prompting some firms to partner with new entrants such as Amazon. The process of buying a plastic disc now faces substitutes as digital music files become available on commercial music sites. Various choices that are available gives consumers (buyers) bargaining power. They demand cheaper prices and greater convenience. The bargaining power of suppliers, the music labels and artists, also increases. The changes that impact one industry do not necessarily impact other industries in the same way. It is often suggested that the Internet increases bargaining power of buyers and lowers the bargaining power of suppliers. This suggestion is true only for some industries like auto sales and jewelry where the products are commodities and the price transparency of the Internet matters. But it’s not true across the board. In cases where network effects are strong or a seller’s goods are highly differentiated, the Internet can strengthen supplier bargaining power. Switching costs also weaken buyer bargaining power. Switching costs help cement customers to the company even when rivals offer more compelling rates or services. Tech plays a significant role in shaping and reshaping these five forces, but it’s not the only significant force that can create an industry shock. Government deregulation or intervention, political shock, and social and demographic changes can all play a role in altering the competitive landscape. Questions and Answers What is operational effectiveness?
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