Porter s: WebOrganic

Transcription

1 Porter s: WebOrganic Alex Zaldastani Ben Lee Taylor Wilson Trip Goff Class 14 Team Post Assignment 6/9/2016 DSV 1) The industry WebOrganic operates in is primarily subsidizing internet, electronics, and e learning products to level out the educational playing field in Hong Kong. Many of Hong Kong s families with a lower income do not have access to resources like internet and computer technology that those a little better off do. For that reason, the children in those families traditionally were more prone to falling behind in the classroom, and WebOrganic s work is about eliminating that trend. 2&3) Threat of Substitutes Factor Score (0 5) Explanation Beneficial Alternative 1 It seems that WebOrganic already has a strong offering for the customers it serves, providing low prices and quality service that would give customers little incentive to switch to one of the few alternatives. The reason we chose to give it a one as opposed to a zero is because competitors do exist. Low Cost Switching 3 On this front, the risk of substitutes is relatively high for WebOrganic because the products WebOrganic provides are not unique, and their value is really in the service and education they provide. However, once the customers are educated on the product, there really is little that holds them back from switching to another offering later. There is some difficulty with this, however, because WebOrganic locks customers into annual contracts which reduces the window of switching.

2 Cheap Alternative 1 Due to their government subsidies and discounts from major hardware companies, WebOrganic is able to provide their products at a much cheaper rate than their competitors; they are simply the cheapest provider in the market. The existence of Net com rock n roll on the east side of Hong Kong justifies the 1 ranking over the 0 ranking. Threat of Entry Factor Score (0 5) Explanation Distribution Accessible 2 WebOrganic s main distribution channels are schools/districts. Since WebOrganic is already established in these channels, it will be more challenging for competitors to utilise the same ones. Schools are unlikely to switch to a newer company or to invest in multiple when WebOrganic can fulfill their needs. Incumbents Acquiescent 1 On this front, WebOrganic has a low threat by means of new competitors entering the market because the process of starting a company like WebOrganic, obtaining government funding, getting discounted electronics, and finding distribution and customers are all difficult hurdles to get over. Little IP Involved 5 Due to the industry it is in, WebOrganic has created no IP in providing its services because that is not relevant to this industry. Little Regulation 3 The threat of new entrants into the industry due to regulation is fairly middle of the road. In order to receive the government funding that WebOrganic did, any competitors would have to prove they are solving a problem in the space and that they will use the funding

3 appropriately. However, because WebOrganic and the competitors are private entities, there is not overbearing regulation that would severely limit 1 entrance into this industry. Low Fixed Costs 2 Selling electronics is a capital intensive business, and will result in high fixed costs, especially in the entry stage. Low Cost Switching 3 WebOrganic offers some subscription based models. Also, schools would have to go through a good amount of work to go through with another provider. Market Growth 3 As WebOrganic is currently serving an underserved market of the electronics needy poor, the industry potentially has room for new entrants. However, it could be the case that, because the market is the intersection between the poor populace and those in search for an electronic device, the need for this service will begin stagnating over time. Scale Unimportant 2 As WebOrganic grows, it will be able to access distribution levels that it was unable to access previously by reaching entire school districts, neighborhoods, etc. Suppliers Accessible 1 Due to the need of entities in this industry to obtain subsidized products in order to be viable and competitive with the established brands like WebOrganic, the threat of entrants receiving comparable subsidies from these suppliers is fairly low. Undifferentiated Product 5 The products that WebOrganic sell are not unique to their company, as they just 1

4 sell subsidized products from large international suppliers of technology such as Lenovo and Apple.Their rivals are supplied by the same businesses. Weak Brands 2 WebOrganic s brand is well established within school districts. They were the first players in their industry in Hong Kong, therefore other brands will have difficulty becoming recognizable. Rivalry Factor Score (0 5) Explanation Low Growth Industry 3 WebOrganic s market are poor people in need of electronics, a group which would decrease if some got more wealthy and increase if the economic gap spreads. This group is slowly increasing. Low Barriers to Entry 1 There are high barriers to entry in the industry WebOrganic deals in. As WebOrganic has established relationships with the government and corporations to provide products at a cheaper rate, they have a significant competitive advantage to potential competitors, especially those contemplating entry without access to those networks. Number of Players 1 There is a low number of players in WebOrganic s industry. In addition, their largest competitor, Net Com rock n roll service centers, does not share the same territories. High Storage Costs 4 Because WebOrganic is dealing with technology that has a pretty short shelf life where better versions are

5 coming out often, there is a high incurred storage cost that leads to a necessity to turn over wares quickly in order to stay up to date. Irregular Orders 3 Peaks in order volumes will vary with the schedules in the different school districts in which they are involved. Order volumes will increase at the beginning of terms when people are renewing their membership or joining for the first time. So, while the volume of their orders will not remain constant throughout a given year, it is likely that if we compared yearly order charts, we would see similar patterns. Price Opaqueness Between Firms 3 To figure out the price of the electronics sold, one would have to dive a little deep into a school that has worked with the rival or search on the internet. However, it would not be overly difficult to find the 2 information of WebOrganic s prices. Irrational Moves 2 Because of the influence of the government in subsidizing, there is only a little amount of oddities that could occur, but WebOrganic is probably not going to do anything irrational on its own as it is trying to provide low cost solutions to those in need. Low Cost Switching 3 Weborganic has subscription based models creating a pain point while switching. Also, schools would have to go through a good amount of work to go through with another provider. Low Marginal Costs 4 As firms buy products to distribute in bulk, marginal costs decrease. With low marginal costs accompany a higher threat of rivalry. 2

6 Hard to Exit 2 This industry is not particularly hard to exit, as its purpose is to provide those in need with technology to assist in their education, so WebOrganic could theoretically exit if they wanted to. Lack of Product Diversity 4 WebOrganic does not provide very many different products, and their offerings are basically technology, broadband internet, and e learning, so their risk from rivals here is high, though not a five because they do have some variance in their offerings. Undifferentiated Products 5 Because WebOrganic s offerings are fairly generic in terms of product, they can easily be obtained elsewhere. Buyer Power Factor Score (0 5) Explanation Backwards Integration 1 WebOrganic s primary buyers, underprivileged students, likely do not have any means to create high tech electronics devices for themselves. Product Dispensability 1 WebOrganic s offerings are meeting a customer need of affordable technology. Therefore, they are willing to pay for the subsidized technology WebOrganic is offering which they wouldn t be able to afford otherwise. Buyer Volume 1 Because the customers are primarily families, very few will buy more than a couple computers at most, so there is little risk that customers will demand lower prices citing bulk purchases as their defense Low Cost Switching 3 WebOrganic offers subscription based models with their products, and therefore that locks customers into staying with WebOrganic at least until the contract

7 ends. However, after that there is not much of a cost to switching away from WebOrganic, and for these reasons together the overall risk is moderate of customers leaving. Buyer Concentration 1 The market WebOrganic is targeting is diverse and not concentrated so there is not much risk of buyers becoming more concentrated and demanding lower prices because of that. Price Sensitivity 5 The demographic WebOrganic deals with, underprivileged students, has little to no disposable income. Therefore, any upward change in price could be the difference between ability to pay and inability to do so. Undifferentiated Product 5 The products that WebOrganic is distributing are not unique to their company and could be bought from other suppliers. Buyer Independence 2 The entire premise of this industry is to provide cheap electronics to individuals who have no other channel through which to purchase them. Thus customers are inherently dependent on the company that provides them with this access. In addition, WebOrganic uses a yearly subscription model and provides IT help to users which makes them increasingly dependent on these services. Buyer Information Availability 4 As buyers begin to understand how the industry is run, they will know that the electronics are subsidized and might bargain for a cheaper price

8 Supplier Power Factor Score (0 5) Explanation Forwards Integration 2 There is a relatively small risk of the supplier trying to provide the service WebOrganic provides themselves, as they manufacture and sell computers and tablets for a profit, so the industry of providing subsidized goods to low income families would not be something they would want to take on directly. Input Indispensability 4 The suppliers that provide electronics to WebOrganic are not selling them to make a large profit, they are selling them for charity and because it allows them to put a public service badge on their company. The only reason we decided that it was not a five was because if a supplier were to stop selling to WebOrganic they would lose face which would have a negative impact on publicity which serves as a deterrent when it comes to ending their relationship with a company like WebOrganic. Low Volume 2 There will be few instances when WebOrganic will want to purchase at low volume unless there were many irregular orders. High Cost Switching 4 WebOrganic s risk from suppliers here is pretty high because they do not have many suppliers and switching to a new one would require re negotiating price discounts altogether in order to stay viable in selling discounted technology. Supplier Concentration 4 WebOrganic has a limited number of suppliers, which increases the importance of each individual supplier to

9 WebOrganic s goal of providing discounted technology. Price Insensitivity 5 Because WebOrganic relies on subsidized technology from the suppliers in order to offer low cost technology to the consumer, they are dependant on the suppliers keeping the prices low to be able to stay in business, leading to a high score. Differentiated Input 2 This threat is relatively low because WebOrganic has been choosing suppliers from the beginning based on their ability to provide low prices. They are branded on providing low cost electronic so no supplier who is hoping to make a large amount of money is going to engage in a relationship with them. Secondarily, WebOrganic does not need differentiated products. They just need suppliers who can supply up to date, simple electronics. They can swap to different suppliers that can provide that. Supplier Independence 1 As stated previously, the suppliers that are in business with WebOrganic are in business with them for the feel good factor. It s more like charity work than business. They did not come into it with a large eye for negotiating, The likelihood that WebOrganic would be negotiating for a lower price than they are already receiving is low. Limited Supplier Information 1 Information regarding consumer electronics can be easily found, which reduces the threat of supplier power significantly. Threat of Substitution average score: 1.67 Threat of New Entrants average score: 2.64 Threat of Rivals average score: 2.75

10 Threat of Buyers average score: 2.56 Threat of Suppliers average score: &5) Porter Factor 1: Suppliers Explanation: The suppliers must work with the subsidization of the industry for WebOrganic to thrive. The importance of the buying price of suppliers like Lenovo and Apple dictate if this industry even exists. Strategic idea: By diversifying the company s suppliers, WebOrganic can decrease supplier concentration creating a less risky endeavor. Also, with the help and leverage of additional suppliers, WebOrganic can expand their area of distribution, allowing for more students to have access to electronic and e learning. Porter Factor 2: Rivals Explanation: Although there is currently a low number of players and high barriers to entry in the industry, the high storage costs, low marginal costs, undifferentiated products, large market size, and lack of product diversity make it possible for WebOrganic s competitors to affect WebOrganic s business. Strategic idea: Establishing a relationship with suppliers to secure an exclusivity deal in exchange for a seal of approval for charity would allow for elimination of many rivals. If WebOrganic becomes the only distributor of Lenovo and Apple products in the districts they serve, competitors will have a difficult time finding comparable products to sell to WebOrganic s target market. Porter Factor 3: Buyers Explanation: The buyers are an important factor that affect WebOrganic because WebOrganic has to satisfy their needs in order to stay in business. For example, WebOrganic must keep prices low enough to be affordable by the low income families they are targeting. If WebOrganic is not cognizant of the customer s needs, then they could have trouble staying in business, and therefore they must cater to the customer to remain viable. Strategic idea: In order to deal with the needs of the buyers of WebOrganic services, because their main concern is with affordability of products, offering additional features at a reduced price that the customers can opt into buying such as a Lynda.com subscription, Adobe products, Microsoft Office, etc. increases the value of WebOrganic s offerings and motivates customers to continue buying from them.