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"

Threat of Substitute Goods

Despite attempts by Japanese electronic toy firms and the artistry of aquarium-style PC screen savers, nothing so far has proven itself as a direct substitute for a live animal. The only real threat would be at a species level, since most of the retailers do specialize in only a few types of pets (birds, fish, or reptiles). This would impact the individual retailer however, not the industry itself. This lack of appreciable substitutes includes the ancillary/complementary goods carried by the stores. Most animals have limited diets and set requirements and aren't going to accept much in the way of change. Even if a new technology were to produce, say, a new material for bird cages, this would only effect the wholesalers, not the retailers who would just add this item to their current stocks.

Porter sees the Internet as making the overall market more efficient while expanding in size and creating new substitution threats (2001). Again, in this instance, given the difficulty of shipping live animals, especially delicate ones, this force would seem to minimize the need for an Internet presence. After all, the market cannot expand beyond the reach of the goods themselves, no matter how good the technology.

Bargaining Power of Buyers

The bargaining power of buyers is low in almost every area indicated by Porter (1980): they purchase in small volume; the costs of the good represent a miniscule fraction of the annual income; products are highly differentiated; sellers face no switching costs and buyers don't have full information (although they theoretically could compare retail prices at low cost through the Internet). Two of the factors don't apply to individual purchasers (low profits of the buyer and the importance of item as an input to another good) and the last item is only a threat for those willing to expend some time and energy to experiment: credible threat of backward integration. In this case, buyers can become breeders and raise their own pets, cutting out the retailer. But it should be noted that most home-breeders would still approach the retailer for advice and ancillary goods.

Porter (2001) in examining this force splits it into the bargaining power of channels (not an issue in this case) and that of end users. He believes that power shifts to end consumers and the Internet reduces switching costs. But as we have already noted, the switching costs are not an issue for most buyers. And secondly, power would only shift to end users if a greater level of price/cost information were available on the Internet, but this would only be true if both the animal wholesalers and retailers started electronically publicizing that data. Considering the fragmented and very personal nature of this wholesaler/retailer relationship, this is not a likely outcome. So the third force also would indicate that the Internet might not be a viable channel for this industry.

Bargaining Power of Suppliers

With just two exceptions, the bargaining power of the suppliers of live animals is high in this industry (for ancillary goods this is much less true). Porter (1980) said that when the following conditions exist supplier power is high: sellers are more concentrated than buyers; no substitutes; supplier's product is an important input to buyer's business, and products are differentiated. The exceptions of Porter's (1980) conditions are that the industry is an important customer for the suppliers and the suppliers pose little threat of forward integration.Porter's analysis of the power of suppliers on industry structure shows this area to be one that most often weakens the industry (2001). He notes that Internet-powered integration and reduced barriers to entry will shift power toward suppliers. However in this case, again there appears to be little incentive to either link companies together in a form of EDI or use the Internet to bypass the retailer, especially given the nature of the prime good: live animals.