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Porter's five forces competitive framework - Online Retail Industry


Walmart.comâ??s sales are less than a fifth of, but a new division, @WalmartLabs, is experimenting with social media and mobile apps. Since Wal-Mart Stores first ventured into cyberspace 15 years ago, the Bentonville, Ark., company has struggled online. Early on, featured a clunky digital version of the greeter who welcomes shoppers at each store. still doesn't excel at features that are commonplace on other major e-commerce sites, such as personalization and recommendations.

The company doesn't disclose its online sales, but analysts say does about $6 billion a year in business, less than 2 percent of total sales and well below's $34 billion in 2010 retail revenue. For a long time, Wal-Mart's poor online performance didn't much matter. The retailer built hundreds of Supercenters every year in the late 1990s, and profits soared. Over the past two years, however, the company has cut its new U.S. store development by half. Sales at domestic Wal-Marts open for at least a year have declined in each of the last eight quarters. Over that time e-commerce has exploded, even among the lower-income households that are Wal-Mart's core customers.

Chief Executive Officer Mike Duke has recently focused his company's considerable firepower (and an $11 billion cash hoard) on improving its use of the Web. He bought a Chinese online merchant, is testing home delivery of fresh groceries ordered online in San Jose, and most significantly, has created @WalmartLabs. Run by Silicon Valley veterans Venky Harinarayan and Anand Rajaraman, the division is charged with bringing Wal-Mart up to speed with innovations such as smartphone payment technology, mobile shopping applications, and Twitter-influenced product selection for stores. Itâ??s an ambitious attempt at a technological makeover, but still might not be enough. One goal of @WalmartLabs is to use social media and mobile apps to get shoppers to spend more at Wal-Mart's physical stores. One-third of Wal-Mart customers own a smartphone, and the company is investing in tools for them. The plans for increasing online sales are more vague. The @WalmartLabs division is testing an app that allows Facebook users to give gifts without ever clicking away from the social network.

Based on the above abstract from the article, Wal-Mart's Rocky Path from Bricks to Clicks, how to apply the porter's five competitive forces framework to the online retail industry? Using the Resource Based View of the firm framework, discuss Wal-mart's online strategy? From the perspective of Competitive Advantage framework, what is Wal-mart's online strategy?

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Wal-Mart's Online Strategy
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Over the past decade the internet has shaped and changes the retail industry landscape. Online retail industry is quickly overtaking offline retail business with more and more people preferring to shop for products from the comfort of their homes. The online retail industry is currently the fastest growing and changing industry due to new technological innovations with the Forrester Research firm projecting that by 2015 the industry worth in the US will be $279 billion (Wauters, 2011). With Wal-Mart experimenting with mobile applications and social media as an online strategy to capturing the online market, it is important to be able to understand the online retail industry content in which the firm operates. This paper analyses the attractiveness and profitability of the industry using porters five competitive forces framework, analyses Wal-Mart's online strategy using the Resource Based View of firm framework, and identifies Wal-Mart's online strategy from the competitive advantage framework.
Porter's five competitive forces framework on the online retail industry
Porter's five forces framework analyzes an industry with the aim of determining the level of competition intensity and the attractiveness of the industry. Over the past decade the internet has shaped and changes the retail industry landscape. Online retail industry is quickly overtaking offline retail business with more and more people preferring to shop for products from the comfort of their homes. Analyzing the online retail industry using Porters five forces framework we can be able to understand the competition intensity in the industry and the attractiveness of the industry.
Rivalry among competitors
The intensity of rivalry among competitors in this industry is very high and more fierce since consumers are the ones in more control by buying goods from the comfort of their homes where they are able to compare similar and substitute commodities on the base of prices and features with only but a click. The number of online retail operators has increased significantly over the past two years and e-commerce has exploded with various online stores offering discounts which have enable even the lower income households, Wal-marts core customers, to move online. In this industry, online firms are battling to obtain customers, with competitors employing diverse strategies and relationships in doing so (Ehmke, et al, 2010). There is no established rule of the game and this has made competition very high in the industry. The industry life cycle is not yet mature but is accelerating at a high pace in development. Currently the main competitors in the industry are Amazon, Best buys and eBay. These are among the strongest competitors in the industry with Amazon leading the pack at $34 billion in revenue in 2010 (Boyle & Macmillan, 2011). Other Wal-Mart's rivals such as Target and K-Mart have already established an effective online retail ...

Solution Summary

Porter's five forces for competitive frameworks are examined for online retail industries are examined.