We just inherited our grandfather’s café located downtown. It has been around for the last 50 years, but unfortunately it is run the same way that it was 50 years ago. It needs some modernization. We need to give it a competitive advantage and develop a plan to bring it into the 21st century through an e-business plan. Now we are left with the huge task of figuring out how exactly to do that. The first thing we need to do is to figure out how to give our café a competitive advantage. We need to begin to develop a plan by looking at 1) buyer power, 2) supplier power, 3) the threat of substitute products or services, 4) the threat of new entrants, and finally 5) rivalry among existing competitors. The first of these things is buyer power, which is defined as: “How easy is it for buyers to drive prices down” (“Porter’s five forces”, n.d.). If buyers have many choices of competitors to buy from, the buyer power is said to be high, alternatively if there are very limited suppliers that buyers can get what they want from, the buyer power is said to be low. Ideally, businesses want to reduce buyer power, or reduce the number of suppliers from which customers can obtain the product they want. Technology has enabled us with many tools that help reduce buyer power. The most common of these is a loyalty program. This rewards the customer for buying from your company. We see these everywhere from airlines that give out frequent flyer miles to the burger joint down the road that allows you to buy 6 burgers and get the 7th one free. There are many different variations of loyalty programs but the focus of each of them is to encourage the customer to do business with your business in exchange for some sort of reward. The second thing that we should look at is supplier power. This is the reverse of buyer power. Supplier power is high when buyers have few choices, and low when they have many choices. The problem with this is that suppliers can drive up the cost of coffee and we either have to pass along the cost hike to our customers or we have to take the added cost out of our profit. A common way that businesses ensure high supplier power is engaging in a business-to-business marketplace. This is an internet-based service that brings buyers and sellers together on the Internet. Typically a buyer will post an ad detailing what exactly they need, then sellers will bid for the job and each supplier will try to get the job by bidding lower than the last forcing many suppliers to drop out due to the low prices. This is very advantageous to the buyer who ensures that they are getting the best possible price. The next thing we have to look at is the threat of substitute products or services. When there are many alternatives to our product the threat of substitute products is said to be high or when there are few alternatives to our product the threat is said to be low. Most companies overcome the threat of substitute products by using a switching cost. A switching cost is some form of benefit that is lost when they switch. An example is when cell phone companies offer you a new phone after two years. If you leave the cell phone company you no longer get a free phone and likely end up having to buy a new one that will work with your new provider. That is an example of a switching cost. We also need to consider the threat of new entrants. When the threat of new entrants is high it is very easy for new companies to enter the market; when it is low it is very difficult for competitors to enter the market. Many industries make it naturally difficult for new competitors to enter. Look at the oil companies. It is very costly to enter the oil industry since there would be so much start-up costs that most people simply cannot afford to enter. When a new company is able to overcome these barriers its customers expect the same thing they get from their competitors. An example is Wal-mart. If you shop at Wal-mart you can buy online, over the phone, and pretty much any way that you want and still get their really low prices. If a new company enters the market they will have to allow their customers to buy online, in the store and over the phone for the same price or lower than Wal-mart. Finally we need to look at rivalry among existing competitors. Our café faces competition from places like Starbucks. In every industry there is competition and in most cases the only way to keep up is to do what the competitors are doing. Most stores price match or offer a lower price to keep ahead of the competition, and you would be hard pressed to find a store that didn’t price match. So how does all this transfer to our café? It gives us five things that we need to look at to determine how best to bring our shop into the 21st century. I think that if we are to have a fighting chance we should implement at least one thing from each of these categories. We could start with a loyalty program, such as for every 5 drinks (coffee, latte, etc.) that they buy they get the 6th one free. We would need to buy cards that customers could carry in their wallet and buy a hole punch that has a design on it so that it is not easily replicated to keep customers honest. That would lower buyer power. Next we should shop around and make sure that we are paying the absolute lowest price for our quality coffee. When we get it we should call out suppliers and if they refuse to match the price we should put an ad online, have them ship small sample quantities to our store and give the contract to the supplier with the best price/quality combination. Thus we have taken care to lower supplier power. Then we have to deal with the threat of substitute products. I think this will be taken care of through our loyalty program since they will incur a switching cost by forfeiting their free coffee if they choose to switch to another café. To keep rivalry competition low we could do several things. First we could have a drive thru for people in a hurry and we could offer bags of our coffee, coffee presses and thermal mugs for sale both in our store and online so people can have our coffee without having to leave their house. Unfortunately there is little we can do to deter new entrants. By having a plan for four of the five forces we would be able to gain and keep a significant amount of business. Now that we have covered the Five Forces we need to move on to e-business. To conduct e-business we must first decide what type of model we will need to use. The four types of models that are used are 1) business-to business, 2) business-to-consumer, 3) consumer-to-business and 4) consumer-to-consumer. It would be most beneficial if we used the business-to-consumer model since we have already touched on the idea of selling our product to consumers via the Internet. The most common way to get our product to consumers is through an eshop, which is simply an online extension of our store since we will be selling our products (coffee, coffee presses) in our physical store also. If we had chosen not to sell our products in our store we would have a pure play, a store that is solely online with no “brick and mortar” location. Another good idea would be to advertise via emall; these are just malls on the internet where businesses pay a small fee and the emall serves as a gateway for customers to access our shop along with tons of other supplier stores. Now that we have decided which model to use we need to figure out how we will market our new store to customers. The obvious answer is that we can tell customers as they come in about our online ventures, but the problem is that there are millions of people who are not able to walk into our store and we need to tell them about our new venture as well. So how do we do this? We advertise. When it comes to advertising on the Internet your imagination truly is the only thing that holds you back. We could have an online ad on social networking sites such as Facebook and Twitter as well as creating a page on both Facebook and Twitter for customers to find out more information about our company and what products we offer. Another great idea would be to have an associate program where businesses could earn a commission for sending potential customers to our site. Finally we would need to personalize. The most common way for us to do this is to track what our customers order and what they look at then send them suggestions the next time they log on, or we could send them emails about products we think they will like. We also should have a place in our store for customers to leave feedback about what they thought of our store, products and customer service. The most important question in our new business venture is how we expect people to pay for goods over the Internet so we can get them their product as quickly as possible. We could use a service like PayPal, which is a financial cybermediary or “an Internet-based company that facilitates payments over the Internet” (Baltzan & Phillips, 209, p. 107). We also should be able to accept credit cards and electronic checks so that customers could pay directly from their checking or savings accounts. The next thing we will need to address is customer service. Customer service is something that can make or break a business and is very easy to deal with in person but bring in the internet and you’ve got to deal with not only how to make sure customers have a pleasant interaction but also that they are well protected. For basic customer service we should have a toll-free number customers can call into as well as a chat online feature and of course the option to email us about any problems they may be having. We also need to make sure that when customers are paying that it is a secure electronic transaction and that their information is encrypted. “Encryption scrambles information into an alternative form that requires a key or password to decrypt the information” (Baltzan & Phillips, 2009, p. 109). Once we get our e-business up and running and implement our marketing strategy to bring customers our high quality products we must make sure that we market, keep our customers happy and secure, and that we are able to receive payment safely. This will lead to increased revenue via our online store but also, hopefully, increased foot traffic in our “brick and mortar” store as a result of more people hearing our name and tasting our great coffee. I think once we implement our Five Forces strategies and get our e-business off the ground business will soon be booming.

References

Baltzan, P., & Phillips, A. (2009). Business driven information systems. Untied States: McGraw-Hill Publishing

Recklies, D. (2001). Porter’s five forces. Retrieved from http://www.themanager.org/models/p5f.htm

Porter’s five forces: Assessing the balance of power in a business situation. (n.d.). Retrieved November 1st, 2011, from http://www.mindtools.com/pages/article/newTMC_08.htm

Porter’s five forces: A model for industry analysis. (n.d.). Retrieved November 1st, 2011, from http://www.quickmba.com/strategy/porter.shtml