Porter and the Internet: An Empirical Assessment of Porter's Strategic Thinking as Applied to Online Strategies for Pet Supply Stores in the San Diego, CA Metropolitan Area

Journal of Applied Management and Entrepreneurship, Jul 2003 by Stretch, Robert T "Bob"

The final category is the service providers. These come in two main types: veterinarians and grooming/boarding service providers. A very limited selection of dry goods such as medicines, toys, foods and treats are offered as convenience goods at a high mark-up. Purchases are normally made impulsively at the point of sale and require either excellent positioning/product display or suggestive selling by the service provider.

The major difference between the last category and the previous two is the focus on providing a service as opposed to products. Given the small number of goods carried by these service providers, this final category will not be examined in order to avoid masking potential results for retail outlets.

Assessment of the Pet Supply Industry Using Porter's Five Forces Model

This model (Porter, 1980) examines the five forces which impact competitiveness within an industry and therefore the average profitability within that industry. The forces are barriers to entry, threat of substitutes, bargaining power of buyers and sellers, and the rivalry among existing competitors. Additionally potential Internet influences based on these forces as described in Porter (2001) will be discussed.

Threat of New Entrants

Porter (1980) identified six barriers to entry and reactions by existing firms as the indicators of this force. Of the six barriers to entry, most are low as there are few economies of scale to gain, minimal capital requirements, switching costs for buyers are almost nil, and access to distribution channels is fairly open.

Two of the barriers are important to the industry however: product differentiation (described earlier: live animals) and cost advantages independent of scale. These cost advantages primarily revolve around the three of the five factors identified by Porter (1980): proprietary product technology, favorable access to raw materials, and the experience curve. Much of the information relating to animal breeding, care, and treatment is still unpublished and held in the minds of expert hobbyists worldwide. The more a store's owner/operator knows about the care of many types of unique animals, the lower the loss of life within the store, and the greater potential product variability that can be effectively carried resulting in a larger draw of clients and the ability to increase prices. Wholesalers of pets will often offer these more experienced stores the more unusual creatures both because they have less risk of immediate death and a greater mark-up since the store's clientele are already willing to pay somewhat higher prices.

Therefore the barriers to entry in terms of everything but expertise and differentiating product selection are low, but in these two critical areas they can prove to be quite high. Porter (2001) in examining this force claims the Internet will reduce barriers to entry by reducing needs for salespeople, access to channels and physical assets. However in this particular industry it appears the opposite would be true, that this force argues against the strategic use of the Internet.