Competition and competitive strategies in e-commerce

Competitive strategies in e-commerce are essential to establish and manage a company in e-commerce markets in a sustainable and profitable way. The high intensity of competition in e-commerce requires a timely and regular examination of the development of the market and the most important competitors. This article presents the most important competitive strategies and a process for developing competitive strategies in e-commerce.

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Competitive strategies in e-commerce – special features of competition
As a communication and sales channel, e-commerce is characterised by a particular intensity of competition. This competitive intensity in turn leads to above-average dynamics in those markets in which e-commerce already plays a relevant or possibly even dominant role. The reason for this is that companies are trying to improve their position in the increasingly competitive environment with both conventional strategies and innovations, and are thus successful.

Causes for the high intensity of competition
In many retail markets, the intensity of competition has increased significantly with the development of e-commerce as an important sales channel. The reasons for this are, on the one hand, only low barriers to market entry and the elimination of geographical market boundaries, which previously characterised competition in stationary trade. Although the elimination of geographical borders has increased the size of the markets, it has also increased the number of competitors.

At the same time, competition for access to e-commerce markets is characterised by a few gatekeepers such as Google, Amazon and Facebook, which have organised this access competitively. For example, the first search results page on Google comprises a total of only ten places in the organic search results and about seven places for Google Adwords. Hundreds of companies that served a large number of geographically separated retail locations in stationary trade are thus competing for these limited places.

Another reason for the high intensity of competition and the resulting competitive strategies in e-commerce is the role of the market leader Amazon. Amazon, which is by far the sales leader in e-commerce not only in Germany (source: Statista), dominates due to its platform strategy, which is consistently oriented towards network effects and includes both online marketing and logistics. Finally, Amazon’s customer-centricity, which is far above average, is the reason for its particularly high customer loyalty and thus its share of e-commerce sales in Germany and other countries.

Characteristics of competition in e-commerce
The development of retail in the context of the digital transformation is characterised by a coexistence of pure online retailers, the so-called pure players, and so-called multichannel retailers who sell both stationary and online. The pure players are regularly more innovative due to their consistent focus on the online channel, so that they also dominate e-commerce. However, the pure players are also under high competitive pressure, which is mainly due to Amazon’s dominance.

The markets relevant to e-commerce, such as media or electronics, are becoming increasingly oligopolistic, i.e. the concentration of companies is increasing. The most important competitive factors are price, product range and delivery time, as these factors are the most important features of attractive e-commerce offers for customers (source: Statista). The exclusivity of products is a factor that can be used above all by manufacturers who develop their own e-commerce offers (so-called D2C, i.e. direct-to-consumer offers).

Lack of profitability as an expression of high competitive intensity
In particular, the high price pressure, but also the permanent pressure to innovate, which is generated above all by the innovative gatekeepers Google, Facebook, Apple and Amazon, leads to low profitability (source: Alexander Graf). This also limits the possibilities of many companies to sustainably invest in technology and innovations, which is likely to further intensify the problem of low competitiveness. Only those companies that find and pursue a clear focus in their competitive strategies in e-commerce are likely to be able to establish themselves permanently in e-commerce.

Competitive strategies in e-commerce – the strategy types
Strategy types are definable strategic concepts that companies pursue permanently and thus the focus described above. According to Porter, the central strategy types in any case include price leadership and quality leadership as so-called generic strategies. In the case of non-self-manufacturing companies, the term quality refers to the scope of the product range, its presentation and filtering options, as well as the quality of the product information and the online shop.

In e-commerce, online marketing and logistics excellence are further important competitive factors that form the basis for a growth or platform strategy (where profitability is initially neglected) via scale and network effects. Finally, the digital DNA of e-commerce is the starting point for an innovation strategy in which competitive advantages should and can be achieved with innovations at all levels of the supply chain. Finally, the brand strategy can be identified as a separate strategy type, in which above all the communication of the brand should achieve differentiation from competitors. Finally, a blue ocean strategy can also lead to new markets in e-commerce through extensive differentiation of the range of services, in which the competitive pressure is rather low in the initial market phases.

As a result, the consistent pursuit of competitive strategies in e-commerce leads to sustainable unique selling propositions. The following USP test for e-commerce shows whether and to what extent these are present.

Competitive strategies in e-commerce – the USP checklist
The following USP checklist illustrates an optimisation process for companies that are active in e-commerce and want to improve their competitive position there.

Is there a sufficient unique selling proposition in the overall market (online & offline)?
Yes
Can the unique selling proposition be expanded in the online channel?
Yes
No => Adaptation of the business model
No => Adaptation of the business model
For B/No and C: Selection of a competitive strategy to achieve USPs.
Blue Ocean Strategy
Quality leadership – exclusivity of supply relationships, long tail, free or freemium models
Price leadership through cost leadership through growth/scale economies
Service leadership through focus on customer relationships, channels and delivery quality
Brand and communication leadership through excellent product presentation and customer communication
Platform growth through scale and network effects
Development of innovations and patents
Determining the online competitive position
Who are the biggest competitors in terms of unique selling proposition, what is the distribution of online visibility?
What is the online marketing positioning
SEO – search market share
SEM, display, affiliate
Social Media
What is the quality & timeliness of the website-?
Date of launch/relaunch
Conversions
Features
WebDesign
Reputation & Security
Implementation of the competitive strategy against the background of the existing online competitive position
Identifying market share potential and setting a market share target
Setting the targets
In relation to the unique selling position
In relation to the online marketing position
In relation to system excellence
Implementation of the competitive strategy in key assets – required investments
System (online, existing IT, logistics)
Brand, licences, developments
Infrastructure and logistics
Implementation of the competitive strategy in Key Activities – implementation of focus
Personnel acquisition
Business and product development
Online Marketing
Operations & Logistics
Customer Care
Implementation of the competitive strategy through adaptation of the system
Deepening, system integration and interfaces
Optimisation of customer and order administration
Optimisation and expansion of payment
Backend optimisation: Service & Handling
Author and photo: Dr. Dominik Große Holtforth