Lecture Mail: Lesson 3 Day 4
Did you know that E-bay has emerged as the number one seller of used cars? It sold 300,000 vehicles last year. This doesn’t sound like many, but the used car market is highly competitive and fragmented. E-bay has taken advantage of the splintered market by providing info and photos of cars to buyers and simplifying the sales process for sellers. Of course E-bay’s success is suddenly attracting lots and lots of competitors. It will be interesting to see who survives.
We alluded to competitive intensity
in the previous lesson during the discussion of Porter’s Five Forces.
Today we’ll look at this topic in a little more detail.
Think of three concentric circles similar to Exhibit 3.10. In the center circle
is a group of competitors who make the same product or provide the same service.
The members in the center are called direct competitors. Moving outward, the
second circle contains substitute producers whose goods or services could be
replacements for those of the center circle members. Finally, in the outer ring
are indirect competitors who do not directly compete with the center circle
but could.
Let’s use grocery stores as an example. Put Kroger, Publix and Winn-Dixie
in the center. In the next ring, place outlets such as 7-Elevin and Quickie
Mart. While they are not in direct competition with the stores in the center,
they do offer some overlapping products and services. In the third and outer
circle place all the venues that don’t currently provide groceries but
could. What if Amazon.com decided to get into the grocery ordering and delivery
business? Presently, it belongs in the outer circle, but it could move into
the arena occupied by substitute producers.
There is a real temptation for the center circle members to ignore members of
the outer circle. Yet, it is often from indirect competition that future competitors
emerge. The Internet has been rich source of indirect competition. One of the
reasons that Toys R Us and Mattel floundered was because they ignored the threat
that was developing from Internet providers such as Americangirl.com. Barbie
finally met some serious competition in the form of Felicity, a doll from the
American Girl collection, and she never saw it coming.
Just for fun, compare the web-sites for Barbie and American Girl. Do you have
a preference for one versus the other? (Men students: We promise the later examples
will focus on “manly” interests!)
****Key Links*****