According to Porter (2001) the internet is an enabling technology that can be used within the context of a good business strategy in any industry. Although the Internet alters industry structures and levels the competitive ground often dampening profitability in the industry, it can be used to encourage and promote greater profitability if properly implemented. The five forces that impact competitiveness which are outlined in Porter’s 1980 work are: barriers to entry, threat of substitutes, bargaining power of buyers and sellers, and the rivalry among existing competitors. In 2001 Porter considered these factors in light of the internet technologies. The influence of the internet has been profound especially in the hotel industry. According to Porter each factor has a different relevance or impact on different businesses so they are presented below in order of impact for hotels. Porter indicates that the great paradox of the internet is that the benefits it creates such as making information easily available, reducing purchasing hassles, and marketing which allow customers to find what is of interest are the very things that make it more difficult for companies to “capture those benefits as profits.” (2001). The most important determinant of a marketplace’s profit potential is the intrinsic power of buyers and sellers.
Threat of Substitute Goods
In the hotel industry there is usually another hotel just around the corner. They appear in all price ranges, with varying levels of service and amenities. The constant challenge will always be to get the guest to choose your hotel over the competitor. The internet makes the overall market more efficient while expanding the size of the potential market and creating new substitution threats. Given the potency of this threat a superb internet presence is vital.
Another ongoing threat is that another hotel chain may erode your customer base with a newly formulated internet approach or marketing campaign. This is supported by the following quote from Luck and Lancaster (2003):
“The development of value chain process analysis, supported by collaborative event management over the Internet, the structuring and the sharing of customer focused value chain data, powerfully enhance the performance of value chains and of electronic commerce.”
Bargaining Power of Buyers
Business persons choosing a hotel for business travel are savvy consumers and they are comfortable with computer technology. It has become very simple for them to go online and book a hotel. They no longer need travel agents, corporate travel consultants or middle men of any kind to determine where they will stay. Porter’s model predicts this elimination of intermediaries.
Tourists are more and more capable of using the internet in the same way but in another fulfillment of Porter’s model, they are more often bonding together in a novel way. They are finding internet businesses like cheaphotels.com which will negotiate or discover bargains for them. Both of these processes shift the bargaining power to the end user as the Porter model predicts and these same freedoms reduce the cost of switching so that loyalty is a thing of the past unless a particular hotel uses its one time opportunity when a customer stays at the hotel to deeply impress the customer with a unique and valuable differentiator.
Rivalry among existing competitors
The rivalry among competitors in the hotel industry is fierce. When potential customers can learn about a hotel on line, the internet reduces the differences among competitors. People tend to seek the best price for the best experience and the tendency is to reduce price to be competitive. The internet covers wide geographical areas so the market is widened increasing the number of competitors. For example, someone who wants to spend the day in the historic town of Niagara-on-the-:Lake can easily choose a hotel in a near by town if the amenities or the price are better....
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