Applicability of Porter's Generic Strategies in the Digital Age

http://jom.sagepub.comJournal of Management

DOI: 10.1016/j.jm.2003.12.001 2004; 30; 569 Journal of Management

Eonsoo Kim, Dae-Il Nam and J. L. Stimpert Assumptions, Conjectures, and Suggestions

The Applicability of Porters Generic Strategies in the Digital Age:

http://jom.sagepub.com/cgi/content/abstract/30/5/569 The online version of this article can be found at:

Published by:

http://www.sagepublications.com

On behalf of:

Southern Management Association

can be found at:Journal of Management Additional services and information for

http://jom.sagepub.com/cgi/alerts Email Alerts:

http://jom.sagepub.com/subscriptions Subscriptions:

http://www.sagepub.com/journalsReprints.navReprints:

http://www.sagepub.com/journalsPermissions.navPermissions:

http://jom.sagepub.com/cgi/content/refs/30/5/569SAGE Journals Online and HighWire Press platforms):

(this article cites 35 articles hosted on the Citations

2004 Southern Management Association. All rights reserved. Not for commercial use or unauthorized distribution. at Univ of Ulster at Jordanstown on September 10, 2007 http://jom.sagepub.comDownloaded from

Journal of Management 2004 30(5) 569589

The Applicability of Porters Generic Strategies inthe Digital Age: Assumptions, Conjectures,

and SuggestionsEonsoo Kim

Department of Management, Korea University, 5-1 Anam-dong Sungbuk-ku,Seoul, 136-701, South Korea

Dae-il NamLG Economic Research Institute, LG Twin Towers, East Tower 33rd Floor, 20,

Yoido-dong Youngdungpo-gu, Seoul, 150-721, South Korea

J.L. StimpertDepartment of Economics and Business, Colorado College, 14 East Cache La Poudre Street,

Colorado Springs, CO 80903, USAReceived 16 October 2002; received in revised form 10 July 2003; accepted 16 December 2003

Available online 15 June 2004

Because current management theories evolved in the context of brick-and-mortar firms, thispaper examines three key questions raised by the advent of e-business: (1) Will the strategytypes found among e-business firms resemble Porters (1980) generic strategies? (2) Will wefind performance differences among e-business firms pursuing different types of strategies? (3)Will we find differences in the strategy-performance relationships of pure online firms (pureplays) and firms with both online and offline operations (clicks-and-bricks)? We conclude thatintegrated strategies that combine elements of cost leadership and differentiation will outper-form cost leadership or differentiation strategies. We also argue that, regardless of businessstrategy type, clicks-and-bricks firms that closely integrate their on- and offline operations willenjoy performance advantages over their pure play counterparts. 2004 Elsevier Inc. All rights reserved.

Enthusiasm for e-business has waned since the Internet boom of the late 1990s, but busi-ness activity on the Internet continues to grow. A recent Business Week article claimed theNet is actually delivering on many of its supposedly discredited promises . . . It is helping

Corresponding author. Tel.: +1 719 389 6418; fax: +1 719 389 6927.E-mail addresses: [email protected] (E. Kim), [email protected] (D.-i. Nam),

[email protected] (J.L. Stimpert).

0149-2063/$ see front matter 2004 Elsevier Inc. All rights reserved.doi:10.1016/j.jm.2003.12.001


570 E. Kim et al. / Journal of Management 2004 30(5) 569589

companies slash costs. It is speeding the pace of innovation and jacking up productiv-ity . . . Of the publicly held Internet companies that survived the shakeout, some 40 percentwere profitable in the fourth quarter of 2002 (Business Week, 2003b:44). Expedia.com isnow the top leisure-travel agency online or off, while 13 percent of all traditional travelagency locations closed in 2002. Expedia also has higher profit margins than AmericanExpress. Nearly every public Internet-based financial services company is profitable. And,while less than five percent of all shopping is done online, eBay will become one of the top15 retailers in the United States during 2003, and Amazon.com will move into the top 40(Business Week, 2003b). Andy Grove, chairman of Intel, has recently stated, Everythingwe ever said about the Internet is happening (Business Week, 2003a:86).

In surveying this new economic landscape, Scott and Walter (2003) concluded that In-ternet technologies constitute a major business innovation, and suggested that this is reasonenough for research into the challenges, problems, and opportunities facing e-businessfirms. And, based on their review of the e-business literature, Ngai and Wat (2002) notedthat e-business research is emerging as a major stream of management scholarship, and thatthe pace of e-business research is likely to quicken in the future.

One important question is how this new information age differs from the machine age ofthe last 100 years. Managers and scholars alike are struggling to understand how economicand business rules have changed and should change. Many have claimed that existing busi-ness and management concepts will not be applicable in this new environment. Others arguethat the Internet is nothing but a new business tool and that not much has really changed. Intheir review of the e-commerce literature, Amit and Zott (2001) concluded that researchershave not yet articulated the central issues related to the e-business phenomenon, nor havethey developed theories that address the unique features of virtual markets. They suggestedtwo important questions for future research and scholarship: (1) What are the sources ofcompetitive advantage in online markets, and how do they differ from the sources of advan-tage in offline markets? and (2) Are strategy perspectives and tools that were formulated in acompetitive landscape inhabited by offline firms still relevant in the new world of e-business?

This paper addresses these important issues by examining how existing strategy frame-works, models, and tools are, and are not, applicable in this new Internet age. We explore:(a) when the strategy types found among e-business firms resemble Porters (1980) genericstrategies, (b) when we will find performance difference among e-business firms pursuingdifferent strategy types, and (c) when we will find differences in the strategy-performancerelationships of pure online firms (pure plays) and firms with both on- and offline opera-tions (clicks-and-bricks). Although current management theories evolved in the context ofbrick-and-mortar firms, we propose that Porters generic strategy framework is still appli-cable, albeit in need of some modification, to competition in the digital age.

Background

Porters Typology

A major stream of strategy research examines the relationship between strategy type andfirm performance (Carter, Stearns, Reynolds, & Miller, 1994; Dess & Davis, 1984; Fahey &


E. Kim et al. / Journal of Management 2004 30(5) 569589 571

Christensen, 1986; Kim & Lim, 1988; Miller, 1987; McDougall & Robinson, 1990). Thesestrategy types, sometimes called generic strategies (Porter, 1980), archetypes, or gestalts(Robinson & Pearce, 1988), simplify a myriad of possible strategies into a limited set ofstrategy types.

Here, we focus on Porters framework of generic strategies for a couple of reasons. First,Porters framework of generic strategies is inherently tied to firm performance. Second,Porters framework overlaps with other typologies. For example, Porters strategy of differ-entiation resembles Miles and Snows (1978) prospector strategy, and Porters strategy ofcost leadership is similar to Miles and Snows defender and Hambricks (1983) and Dessand Daviss (1984) cost leadership strategies. Porters strategy of focus is very much likeMiller and Friesens (1986) niche innovator strategy.

Porters framework proposes that firms must choose whether to serve broad or narrowmarket segments and whether to seek advantage through low costs or perceived uniqueness.Firms choosing to serve broad markets and to derive advantage through low costs are termedcost leaders, while those that seek to derive advantage through uniqueness are termeddifferentiators. Firms may also pursue focus strategies by targeting narrow marketsegments and by emphasizing either low costs or uniqueness.

According to Porter, some firms do not pursue a viable business strategy, and he labelsthese firms stuck in the middle. According to Porter, firms become stuck in the middle forone of two reasons. First, they might fail to pursue successfully any of the generic businessstrategies. For example, a firm might fail to differentiate itself from its competitors, but itmay also fail to develop the capabilities or resources needed to be a successful cost leader.Porter has also suggested that firms can become stuck in the middle by trying to pursuemore than one generic strategy simultaneously.

Characteristics of the E-Business Environment

While Porters typology has received a good deal of empirical support in traditional busi-ness contexts (Dess & Davis, 1984; Hambrick, 1983; Miller & Friesen, 1986; Miller, 1988),we do not know whether Porters generic strategies or any other strategy typology can beapplied to e-business firms (Smith, Bailey, & Brynjolfsson, 1999). An extensive body of lit-erature has already described the essential characteristics of the e-business environment andhow it differs from and is similar to traditional business environments (e.g., Armstrong &Hagel, 1996; Bakos, 1997; Burke, 1996; Cross & Smith, 1996; Murphy, Hofacker, &Bennett, 2001; Porter, 2001; Schlauch, & Laposa, 2001). Here, we highlight aspects ofthe e-business competitive landscape that are most relevant to the concept of competitivestrategy.

How is e-business different? The Internet allows firms to overcome physical boundariesand distance and it also allows them to serve larger audiences more efficiently. At the sametime, and perhaps more importantly, Web technologies allow companies to target specificconsumer groups, which may be difficult to do in traditional markets due to the high costof obtaining information about a particular customer segment. Furthermore, traditionalmarketing methods usually emphasize only one-way communication from marketers toconsumers, while the Internet is an interactive medium (Yelkur & DaCosta, 2001). Since



information flows both ways between retailers and customers, firms can use the informationgathered through customer interactions to develop more effective marketing methods, torefine their product mix, and to offer better customer support (Wang, Head, & Archer,2002). As a result, the Internet allows firms to go beyond market segmentation to marketfragmentation, dividing their markets into ever-smaller groups of customers even tailoringtheir offerings to individual consumers (Robert, 1993).

Second, the Internet provides firms with more detailed and higher quality information oncustomer transactions. Information technologies making use of point of sale data have beenused to improve inventory management and customer analysis, but this information tendsto be rather crude since it usually includes only merchandise descriptions and quantitiessold. On the other hand, vast amounts of rich data can be collected, analyzed, and accessedthrough the Web by marketers and consumers. This gives e-business firms potentially veryimportant advantages in being able to target their product or service offerings to specificcustomers. For example, Amazon.com uses collaborative filtering software to offer its userscustomized page views based on past searching habits. The software also permits Amazonto engage in anticipatory marketing by suggesting titles that may appeal to customers. And,consumers gain by readily obtaining more market knowledge for criteria comparison (Head,Archer & Yuan, 2000).

The Internet also offers significant opportunities for reducing operating costs, particularlyfor service firms. A study by Andersen Consulting (as cited in Yelkur & DaCosta, 2001)provides examples of improved transaction efficiency for service industries such as traveland financial services. For example, the average cost of a banking transaction at a localbranch is $1.07. Use of an ATM machine reduces this cost to $.27, but performing this sametransaction over the Internet costs a mere $.01. A typical reservation made through a travelagent costs $10.00, but this same transaction made over the Internet costs only $2.00.

What has not changed? On the other hand, we believe many firms have been trappedby what we would characterize as the myth of lower cost and price that there are nolimitations to how much costs and prices can be reduced. If the dot.com bust proved anything,its that e-businesses must have viable business models. In fact, many e-businesses havefound that they must incur considerable costs and make sizeable investments to provide valueto their customers (Porter, 2001). Amazon.com has, for example, made large investments inits distribution facilities. Other companies have found that virtual activities do not eliminatethe need for physical activities, but often amplify their importance. The introduction ofInternet applications in one activity often places greater demands on physical activitieselsewhere in the value chain. For example, direct ordering makes warehousing and shippingmore important. Similarly, while Internet job-posting services have greatly reduced thecost of reaching potential job applicants, they have also flooded employers with electronicresumes. By making it easier for job seekers to distribute resumes, the Internet forcesemployers to sort through many more unsuitable candidates. The added back-end costs,often for physical activities, can end-up outweighing up-front savings (Porter, 2001).

Interestingly, Internet firms do not necessarily offer lower prices than traditional firms.Clay, Krishnan, Wolff, and Fernandes (2002) found that, on average, total prices were lowerin physical bookstores than at online bookstores because sales taxes tend to be less expensivethan shipping costs. Lee and Gosain (2002) reported a similar conclusion in the pricing of



CDs. The Internet marketplace continues to show price dispersion despite the apparentlynear-zero search costs for consumers.

Many products and services sold by online retailers are the same as those offered by offlineretailers. The primary attraction of online shopping is that customers enjoy rich informa-tion and convenience. At the same time, consumers can be overwhelmed by informationoverload, and they may actually perceive an increase in their search costs. Furthermore,consumers often view online shopping as being riskier than traditional shopping channels.Orders are contracted before consumers receive or physically evaluate merchandise, andthe delivery process may also generate risks if consumers do not receive their orders in thetime frame and condition expected. Consumers also risk privacy loss (Head et al., 2000).

The Internet provides an efficient means to purchase products and services, but cata-log retailers with toll-free numbers and automated fulfillment centers have been aroundfor decades offering a convenient, consumer-friendly interface and speedy delivery. TheInternet only changes the customer interface (Porter, 2001). In the context of electroniccommerce, the functions provided by Web sites can be classified into three phases pro-motion, online transaction, and after-sales phases and the activities associated with eachof these phases are not all that different from the activities that are associated with offlinetransactions. The promotion phase includes a companys efforts to attract customers byadvertising, public relations, new product or service announcements, and related activi-ties. Customers electronic purchasing activities occur during the online transaction phase,where orders and charges are placed electronically through a Web-based interface. As inany type of transaction environment, trustworthiness, dependability, and reliability are im-portant catalysts in triggering sales. The after-sales phase includes customer service andproblem resolution. This phase should generate customer satisfaction by meeting demand,addressing any concerns, and pleasing customers (Liu & Arnett, 2000).

Generic E-Business Strategies

Assumptions and Necessary Conditions for E-Business Competitive Strategy

We cannot say with certainty whether the new e-business environment represents a totallydifferent, discontinuous change from the old business environment or whether the old andnew environments will share many features and competitive challenges. We therefore makeseveral assumptions about the application of conventional generic strategies in e-commercesettings.

One critical assumption underlying this paper is that electronic technologies create aplatform to support existing business practices and that we have not advanced to the pointof precipitating a paradigm shift (Porter, 2001). As a result, we assume that firms still viewcustomers in terms of shared characteristics (i.e., market segmentation is possible), thatdifferent sets of customers have different needs and desires (i.e., opportunities for productdifferentiation exist), and that products and services exhibit different demand elasticities(i.e., firms may compete on price).

In addition to this assumption, at least two other conditions seem necessary for e-businesssuccess. First, online businesses must offer some minimally acceptable level of service, con-



venience, and quality. Companies offering products or services online must demonstratethat they provide real benefits (Porter, 2001). The demise of Priceline.coms reverse auc-tion business demonstrates that the benefits offered by any e-business must significantlyoutweigh any inconveniences suffered by customers.

Second, a broad range of factors can serve as sources of differentiation, and many factors,including reliability and convenience, can help online firms differentiate themselves fromother firms. At the same time, we believe that some factors, such as security, are simplynecessary conditions for the success of any online business. Customers will not pay forproducts or services over the Web if they do not believe their credit card information willbe transmitted securely (Liu & Arnett, 2000). Yang and Jun (2002) found that reliabilitywas the most important consideration for regular Internet customers, while those who donot shop on the Internet identified security as their most critical concern.

Our brief overview of the e-business landscape and these assumptions and necessaryconditions suggest two plausible scenarios of competitive strategy: First, due to the powerof search engines and the ease of making price comparisons, Internet retailers will beforced to charge essentially the same price, giving an advantage to successful cost leaders.Alternatively, firms will strive to compete on factors other than price, giving an advantageto firms that employ successful differentiation strategies (Clay et al., 2002). In the followingsections, we explore these strategic options and consider possible variations.

Cost Leadership Strategy

Cost leadership can be an obvious strategic choice for many e-business firms. Althoughlower costs do not necessarily mean lower prices, lower prices have been a key selling pointfor e-business firms like Expedia.com, CDnow, and many others, at least in the early stagesof their development. The cost leadership strategy may be particularly appealing to onlinebuyers who are price sensitive. In one study conducted in Korea, 71 percent of 500 first-timeonline shoppers indicated that price was their most important consideration (Kim & Kim,2000). The Internet also allows firms to adjust their prices quickly so they can enjoy greaterpricing flexibility and more efficient price competition (Bakos, 1998; Lee & Gosain, 2002).

The Internet also helps consumers overcome bounded rationality in terms of price scan-ning. The longstanding satisfying argument (Cyert & March, 1963) may be less applicablein the Internet environment since the speed and expansiveness of information search on theWeb enable consumers to quickly gather a wealth of data for price comparisons. Price com-parison sites can further reduce search costs, so sophisticated Internet users can benefit fromnearly perfect information acquired at little or no cost (Bakos, 1997). Internet technologiesalso provide buyers with easier access to information about products and suppliers, thusbolstering buyer bargaining power (Porter, 2001).

Another characteristic of e-businesses is the law of increasing returns (Arthur, 1996). Fora firm to enjoy increasing returns, it must secure a critical mass of consumers as soon aspossible. Competitive pricing is often the quickest and easiest way for a firm to secure thelargest number of consumers.

If the Web brings considerable pressure to bear on prices, firms may conclude that theyhave no choice but to pursue a strategy of cost leadership. Porter (2001) argues that it isdifficult for online firms to differentiate themselves, since they lack many potential points of



distinction such as showrooms, sales personnel, and service departments. Moreover, Internetbrands have proven difficult to build, perhaps because the lack of a physical store location ordirect human contact makes virtual businesses seem less tangible to customers. Despite hugeoutlays on advertising, product discounts, and purchase incentives, most dot.com brandshave not approached the power of previously established brands, achieving only modestlevels of customer loyalty and creating few barriers to entry (Phau & Poon, 2000).

Differentiation Strategy

As noted above, differentiation can be based on many elements or factors, includingdesign, brand image, reputation, technology, product features, networks, and customer ser-vice. Any successful differentiation strategy must be based on elements that are difficult forcompetitors to imitate. In spite of conditions that encourage e-business firms to compete onprice, we believe that many if not all of these differentiating elements can also be used bye-businesses to distinguish themselves from competitors.

The Internets lower switching costs should also encourage e-businesses to pursue astrategy of differentiation. In traditional businesses, consumers often tolerate mediocreproducts and services due to high switching costs. In the e-business environment, however,consumers can get access to information that was previously impossible to obtain or tocompare, and can, with just a few mouse clicks, easily switch to firms that offer additionalvalue through differentiated features (Kim, 2000; Porter, 2001).

As a result, e-business retailers will gain advantage if they can offer differentiated productsand services, and they must also seek additional ways to distinguish themselves (Kim &Lim, 1988; Miller, 1991). In addition to traditional differentiating factors such as brandimage, product features, and customer service, many e-businesses are also differentiatingtheir distribution channels by emphasizing speed of delivery, convenience, and the securityof transactions. Amit and Zott (2001) concluded that trust and security can be keys tolocking-in customer purchases and loyalty.

Liu and Arnett (2000) identified characteristics of Web sites that help online retailersdifferentiate their offerings, including the quality of information and the level of service pro-vided by the site, perceived quality of products and services, interactive feedback betweenthe retailer and customers and the level of customization offered to individual customers,Web site playfulness that promotes customer concentration and excitement, system de-sign features that offer well organized hyperlinks, customized search functions, high-speedaccess, ease in correcting server errors, and follow-up services to customers.

The few empirical studies that have examined the efforts of e-business firms to differenti-ate themselves have confirmed the importance of branding and other non-price factors. Forexample, a study of 13 online bookstores and two nationwide chains with physical storesfound that prices were essentially the same at all of the retailers and that online prices had notconverged to the lowest prices (Clay et al., 2002). In spite of its low-price claims, the studyfound that Amazon.coms unit prices were five percent higher than Barnesandnoble.comsprices and 11 percent higher than Borders.coms prices, providing some indirect evidenceof product differentiation. The two leading online retailers of CDs in the US that togetheraccount for more than 80 percent of the total market share are not the dominant price leaders(Lee & Gosain, 2002). These findings suggest that customers may be price rational but not



necessarily price obsessive, and that they have a strong inclination to be loyal to a retailerthat offers a satisfying shopping experience (though not necessarily the lowest prices).

Although popular sites like Amazon.com frequently advertise their low prices, manypeople are also attracted to these sites because of their brand reputation and credibility (Smithet al., 1999). Chang (1997) found that customers of Internet bookstores in Korea saw brand(of a company) as more important than the prices charged for books. He also reported thatmore people used these Web sites to search for information and to find certain books than tocompare prices. Lynch and Ariely (2000) found that, even in highly competitive e-businessenvironments, buyers are less sensitive to price when they were given more informationabout how a particular product or service might meet their wants or needs. Other studiesemphasize the importance of service and convenience as differentiating elements. Yang andJun (2002) found that customer loyalty comes from an Internet company offering betterservice than other firms. Reichheld and Schefter (2000) also found that convenience wasthe top priority for the largest single segment of online customers, and that these customerswere willing to pay more for greater convenience.

Focus Strategy

Firms pursuing a focus strategy target specific groups of buyers, product lines, or geo-graphic areas. Within their more limited market scope, they emphasize either low costs ordifferentiated products and services. Many Internet companies are new entrants, and theywill logically choose to compete against large, established firms by focusing on a particularmarket niche. In addition, the lower levels of investment required by many online businessesmeans that they enjoy lower break-even points than competitors with higher levels of fixedcosts. Thus, targeting even small market segments might be viable, and consumers may beeasily connected with companies that focus on niche markets due to the Internets searchadvantages.

Furthermore, the Internet allows firms to customize their offerings to meet the specificwants and needs of their customers (Bakos, 1998). Customers are identified every time theyvisit a Web site, and a great deal of information about each customer can be accumulatedover time. Based on this information, firms can customize products or services for particularcustomers. In fact, the Internet is the ideal medium for serving the fragmented nature oftodays consumer markets, and it is becoming increasingly viable for a firm to commu-nicate and deliver content over the Internet to small niche markets (Yelkur & DaCosta,2001).

As already noted, Internet businesses can face extreme price competition when productsand services are similar because other factors that moderate competition (e.g., store loca-tion) are not present. When products and services are capable of significant differentiation,however, the Internet can help segment consumers and direct them toward the appropri-ate product or service, as is the case in the hotel industry. The more specific the segment,the easier it is to estimate demand, and the Internet facilitates this micro-segmentation orfragmentation. As a result, e-businesses pursuing a focus strategy may have the ability tocharge higher prices by matching buyers needs with specific product or service offerings.In traditional business settings, this same degree of personalization would be relatively moreexpensive to offer (Yelkur & DaCosta, 2001).



Focused customer recruitment and retention are foundations of customer loyalty in anybusiness setting, but they are musts for any e-businesses. In fact, we believe that focus isa necessary condition for a successful e-business competitive strategy. E-businesses thatdo not take advantage of the focusing or fragmenting capabilities of the Internet willbe unlikely to establish a competitive advantage. Successful e-businesses should find thatInternet technologies make Porters (1980) competitive scope dimension infinitely scalable.As noted earlier, scalability and market scope flexibility the ability to serve simultaneously(or in quick succession) broad markets and very small market niches are hallmarks ofInternet technologies. As a result, we believe that the traditional focus strategy is not asrelevant or viable in the e-business business-to-consumer context. In short, the strategy offocus is more of a competitive imperative than a competitive option for e-business firms.

Generic Strategies and E-Business Performance

Cost leadership is widely practiced today among e-business firms that sell standard-ized products and services such as books (Barnesandnoble.com) and travel (Expedia.com).Indeed, among first-time online shoppers, price may well be the most important factor influ-encing their buying decisions (Kim & Kim, 2000). This may be partially attributable to theease of scanning and comparing prices on the Internet (Bakos, 1998). However, easy pricecomparisons and very low customer switching costs suggest that firms pursuing a strategyof cost leadership could easily become locked in a vicious cycle of price-cutting.

Because the Internet is an open system, companies have more difficulty maintaining pro-prietary offerings, thus intensifying the rivalry among competitors. Internet technologiestend to reduce variable costs, tilting cost structures toward fixed cost and creating signif-icantly greater pressure for companies to engage in destructive price competition (Porter,2001). In addition, firms pursuing cost leadership will turn to outside vendors that offer thesame products and services to other firms, so that purchased inputs become more homoge-neous, further eroding company distinctiveness and increasing price competition (Porter,2001). Since the Internet also mitigates the need for an established sales force or access toexisting marketing and distribution channels, barriers to entry are further reduced. Givenall of these drawbacks, Merrilees (2001) concludes that, while low prices are important tocustomers, a generic strategy of cost leadership has many drawbacks for e-business firms.Magretta also reaches a similar conclusion in a recent Harvard Business Review article:

It was precisely this kind of competition destructive competition, to use Michael Portersterm that did in many Internet retailers, whether they were selling pet supplies, drugs,or toys. Too many fledgling companies rushed to market with identical business modelsand no strategies to differentiate themselves in terms of which customers and markets toserve, what products and services to offer, and what kinds of value to create. (2002: 91)Therefore, differentiation, based either on customizable products and services, on a cus-

tomized online experience, convenience, or some combination of all of these factors, is likelyto be a more viable strategy. Firms like Amazon.com that reduce customer search costs,engender trust, and offer products, services, and online experiences tailored to end-usersneeds are likely to elicit initial and repeat purchases.



Traditionally, cost leadership and differentiation or their equivalents were regarded asequally effective strategies (Porter, 1980). We suggest otherwise. For obvious reasons, pricecompetition will almost certainly intensify in the Internet business environment, and firmswith commodity-like products and services will face great pressure to keep their prices aslow as possible. Therefore, the preferred strategy choice for firms wanting to survive on theInternet would be differentiation. Hence, we offer the following proposition:

Proposition 1: In e-business, the generic strategy of differentiation will be associatedwith higher performance than the generic strategy of cost leadership.

As discussed earlier, Internet technologies potentially give all online retailers the abilityto target both broad and narrow customer segments. Firms that pursue narrowly focusedstrategies are unlikely to be as successful as firms pursuing either cost leadership or differen-tiation strategies because those firms can take advantage of the infinite scalability of Internettechnologies to reach simultaneously both broad and narrow customer segments. So, unlikePorter (1980), who argued that firms could viably serve very narrow market segments, wepropose that firms pursuing strategies of focus cost leadership or focus differentiation willbe less viable than firms that take advantage of the scalability of Internet technologies:

Proposition 2: In e-business, the generic strategy of focus will be less viable than thegeneric strategies of cost leadership or differentiation.

Stuck in the Middle Versus Integrated Strategies and E-Business Performance

Porter (1980) argued that cost leadership and differentiation are such fundamentally con-tradictory strategies, requiring such different sets of resources, that any firm attemptingto combine them would wind up stuck in the middle and fail to enjoy superior perfor-mance. From a traditional business perspective, cost leadership and differentiation do seemincompatible. Cost leadership requires standardized products with few unique or distinctivefeatures or services so that costs are kept to a minimum. On the other hand, differentiationusually depends on offering customers unique benefits and features, which almost alwaysincrease production and marketing costs (Hitt, Ireland, & Hoskisson, 2001).

Subsequent studies have both supported and called into question Porters claims. Stud-ies by Dess and Davis (1984) and Kim and Lim (1988) found that firms employing onlyone of Porters generic strategies outperformed firms pursuing elements of more than onestrategy. Robinson and Pearce (1988), in their study of 97 manufacturing firms, found thatstuck in the middle firms showed lower levels of performance. Several other studies have,however, challenged Porters typology and questioned his claims about the exclusivity ofthe generic strategies (Booth & Philip, 1998; Glazer, 1991; Karnani, 1984; Wright, Knoll,Caddie, & Pringle, 1990). For example, Hill (1988) argued that sustainable competitiveadvantage rests on the successful combination of these two strategies. Murray (1988) criti-cized Porters typology, and noted that the development of any successful business strategymust reflect the larger competitive environment. He argues that since industry environmentsdo not specifically prescribe the need for cost leadership or differentiation, there is little



reason to conclude that only one strategy should be employed in response to any particularenvironment.

Furthermore, turbulent global environments require firms to adopt flexible combinationsof strategies (Chan & Wong, 1999; Kim & McIntosh, 1999). Any incompatibility betweencost leadership and differentiation may hold true in more stable environments, but rapidlychanging competitive environments call for more flexibility and the ability to combineelements of more than one generic strategy. Mass customization and the development ofnetwork organizations both demand and make possible the flexible combination of multiplestrategies (Anderson, 1997; Pine, 1993; Preiss, Goldman, & Nagel, 1996).

Evans and Wurster (1999) concluded that the Internet disassembles traditional valuechains, introducing new competitive imperatives and requiring new strategies. One doesnthave to agree completely with these sweeping observations to accept that the Internet hasreduced trade-offs between information richness and information reach, or that the Internetsuniversality and its ability to reduce information asymmetries and transactions costs havecreated opportunities to rewrite the rules of business strategy (Afuha & Tucci, 2001).

Merrilees (2001) observed that several online companies have successfully employed acombination of cost leadership and differentiation, and Amazon.com is offered as a case inpoint. Amazon.coms skills at branding, innovation, and channel management have success-fully differentiated it from its competitors, but the company routinely offers low list priceson much of its merchandise. As a result, it is difficult to classify Amazon.com into eitherstrategy type. Amazon.com does emphasize low prices and offers many discounts, but it hasalso been very innovative. Amazon.coms Web site was designed around a straightforwardfive-step process that makes the consumer shopping experience convenient and helpful.Prompt delivery is also a hallmark of the Amazon.com shopping experience.

While we do not want to minimize the very real challenges of pursuing a successful com-bination of generic strategies (Hitt et al., 2001; Porter, 1980), we believe that an integratedstrategy combining elements of cost leadership and differentiation is not only possible butis the most successful strategy for e-business firms to pursue. As discussed in the previoussection, the strategy of cost leadership suffers from many inherent disadvantages. It is thuslikely to offer lower performance than an integrated strategy that combines the best featuresof cost leadership and differentiation. We also expect that an integrated strategy will havehigher performance than a pure differentiation strategy, since a strategy of pure differenti-ation does not take advantage of the Internets potential for lowering costs. Thus, we offerthe following proposition:

Proposition 3: Integrated strategies combining elements of cost leadership and differen-tiation will result in higher performance than cost leadership or differentiation do individ-ually.

Pure Plays, Clicks-and-Bricks, and Firm Performance

Two broad types of Internet businesses exist: pure online firm (pure plays) and firmswith both online and offline businesses (clicks-and-bricks). During the earlier stages ofe-business, many observers believed pure plays would be in a stronger competitive position.



It was thought that pure plays would be more flexible and better able to leverage their firstmover advantages, and that they would not be hindered by conflicts between online andtraditional marketing channels. They would also enjoy greater flexibility in pricing. Netscapeprovides a good example of a pure online firm that was able to seize a dominant share ofthe browser market by ignoring conventional rules (Yoffie & Cusumano, 1999). Dell isanother company that gained significant advantages by pursuing an online strategy. In fact,traditional offline firms, which joined the Internet as second movers, did struggle at first.By the end of 1998, however, many of these firms were becoming market leaders. A recentmarket survey found that clicks-and-bricks firms such as Barnes & Noble, Toys R Us, andKBKids are among the largest Internet shopping sites (Bulik, 2000).

Advantages of Clicks-and-Bricks Firms

Since clicks-and-bricks firms are already familiar to customers and have credible brands,other things being equal, customers should prefer clicks-and-bricks Internet sites.Brynjolfsson and Smith (2000) concluded that the brand recognition, reputation, and credi-bility of clicks-and-bricks firms are important advantages that pure plays often lack. Further-more, clicks-and-bricks firms can offer product returns and other customer services throughtheir physical storefronts (Griffith, 1999). Zettlemeyer (1996) showed that clicks-and-bricksfirms could enjoy higher performance by properly combining their online and offline busi-nesses, whereas the ability of pure plays to provide information would be limited to theironline channel. In fact, recently many pure plays are realizing the advantages of addingoffline elements such as warehousing (Glover, Liddle, & Prawitt, 2001).

Modahl (2000) concluded that e-business would be dominated by clicks-and-bricks,particularly by established firms that expand online by leveraging their offline assets suchas distribution channels, brand reputation, and credibility. Support for this perspective comesfrom an empirical study by Uhlenbruck, Hitt, and Semadeni (2001), which found that oldeconomy firms could achieve positive market returns by acquiring Internet firms.

Office Depot has employed the Web to improve its catalog services. Without printing morecatalogs, the companys customers can access updated and accurate information throughthe Web and complete transactions online. Walgreens, which has established an online sitefor ordering prescriptions, has found that its extensive network of stores remains a potentadvantage, even as much prescription ordering shifts to the Internet. Fully 90 percent of thecompanys customers who place orders over the Web prefer to pick up their prescriptionsat a nearby Walgreens store rather than have them shipped to their homes, most likely tosave shipping costs. The Gaps online customers will find an almost seamless integrationbetween the companys Web site and the product offerings at its physical stores (Head et al.,2000).

Tight integration between a companys Web site and its physical store locations notonly increases customer value, but it can also reduce costs. It is more efficient to take andprocess orders via the Web, but it is also more efficient to make bulk deliveries to a localstocking location than to ship individual customer orders from a central warehouse (Porter,2001). A recent article in The Wall Street Journal noted that many clicks-and-bricks firmsare encouraging customers to pick up merchandise ordered online at their physical storelocations. Not only does customer pick up save what are often substantial shipping charges



(especially on large or heavy items), but companies also find that customer pick up leads tomore impulse purchases. The article cited an executive at REI who estimated that onlineshoppers who pick up their items in stores spend an additional $90 before they walk out thedoor (Xiong, 2003, D4).

It would seem that an obvious advantage for pure plays is the potential for lower costsdue to the absence of physical store locations or warehousing facilities, but Schlauch andLaposa (2001) found that pure play firms were not realizing significant real estate-relatedcost savings over their clicks-and-bricks competitors, perhaps because they must frequentlyincur substantial costs to develop elaborate supply chain networks. Furthermore, manycustomers have used the Internet as a source of product and service information, but stillprefer to make their purchases through traditional channels (Yang & Jun, 2002). If thiscustomer segment remains large, then clicks-and-bricks firms will enjoy further advantagesover pure plays.

Pure plays face a number of other drawbacks. First, their customers cannot physicallyexamine, touch, and test products, and they often get little or no help in using or repairingthem. In addition, knowledge transfer is restricted to codified knowledge, sacrificing thespontaneity and judgment that can result from interactions with skilled sales personnel. Itsalways possible that advances in Internet technology will allow pure plays to offer highlypersonalized customer service Amazon.com with its personalized customer recommen-dations offers an example of what is currently possible but the lack of human contactwith customers eliminates a powerful tool for responding to questions, providing advice,and motivating purchases. Finally, the lack of a physical storefront, fixtures, and amenitieslimits the ability of pure play firms to reinforce a brand image (Porter, 2001).

Potential Problems Faced by Clicks-and-Bricks

Clicks-and-bricks firms also face a number of drawbacks. First, unless on- and offlineoperations are tightly integrated, a firm will see few synergies from having both an onlineand a physical presence. For example, Barnes & Nobles decision to spin-off Barnesand-noble.com as a separate organization is now viewed as a mistake. It prevented the onlinestore from capitalizing on the many advantages provided by Barnes & Nobles network ofphysical stores (Porter, 2001). Similarly, visitors to the Web site of Angus and Robertson, anupscale Australian book retailer, are likely to be confused by the low prices emphasized bythe companys online store, since this theme is inconsistent with the upmarket positioningof the companys physical stores (Merrilees, 2001).

Old economy companies those that were not created to employ an Internet businessmodel but instead have added Web activities to their traditional operations face consid-erable hurdles in establishing online operations. Not surprisingly, Scott and Walter (2003)found that the most serious problem facing these old economy companies is strategy related,specifically, the need to effectively align their e-business and traditional strategies.

All in all, at this stage of evolution, it appears that clicks-and-bricks firms can enjoy anumber of advantages over pure plays, but to realize these advantages, they must effec-tively integrate their online and physical operations. Pure plays face all of the difficulties ofestablishing online operations (e.g., intense rivalry, pressure to lower prices, and the diffi-culty of establishing brand name recognition), without any of the opportunities to leverage



their online operations with offline assets that clicks-and-bricks firms enjoy. Based on thesearguments, we offer a final proposition:

Proposition 4: In e-business, the relationship between strategy and performance will bemediated by type of firm, with clicks-and-bricks firms that tightly integrate their on- andoffline operations enjoying performance advantages over pure play firms.

Conclusion

We raised three research questions at the outset of this paper: (1) Will the strategy typesfound among e-business firms resemble Porters (1980) generic strategies? (2) Will wefind performance differences among e-business firms pursing different types of strategies?(3) Will we find differences in the strategy-performance relationships of pure plays andclicks-and-bricks firms?

Addressing the first question, we argued that Porters generic strategies of differentiationand cost leadership will still be applicable to e-business firms in a broad sense. We alsoargued that, although cost leadership and differentiation strategies will be employed andobserved among e-business firms, a strategy of focus will not be as viable as it has beenin traditional business contexts. Regarding the second question, we propose that differen-tiation will show superior performance to cost leadership in e-business contexts. We alsoproposed that a third type of strategy will be observed and that it will outperform bothcost leadership and differentiation. We used the term integrated strategy to indicate thatthis strategy successfully combines cost leadership and differentiation (Hitt et al., 2001).It is distinguished from Porters stuck in the middle conundrum in that (1) while stuck inthe middle suggests no clear strategic focus, an integrated strategy is a desirable strategicposition in the e-business environment, and therefore, (2) it should be treated as one of thethree prototypes of strategy along with cost leadership and differentiation.

As a result, we suggest that the concept of generic strategy be modified as shown inFigure 1. Figure 1 is the traditional two-by-two Porter (1980) classification. Figure 1ashows the same classification, without the competitive scope dimension. We argued that,given the scalability of Internet technologies, e-business firms should necessarily be pur-suing simultaneously broad and narrow customer segments, thus rendering a strategy offocus less viable as a distinct strategic option. Furthermore, due to the characteristics ofthe Internet, we argued that the integrated strategy is not only a feasible but also a desir-able strategic option. Therefore, as presented in Figure 1b, we argue that the previouslydichotomous view of cost leadership and differentiation as incompatible strategies shouldbe modified into two extreme cases on a continuum with the integrated strategy bridging thetwo.

Regarding the third and last question, we proposed that clicks-and-bricks firms will out-perform pure plays with a condition: Recognizing the characteristics of clicks-and-bricksfirms and assessing both their advantages as well as their disadvantages, we suggest thatclicks-and-bricks firms will enjoy superior performance relative to their pure play counter-parts only when their online and offline operations are aligned and tightly integrated.



Cost Leadership

Differentiation

Focus

Cost Leadership Differentiation

Cost Leadership Differentiation

Integrated Strategy

Competitive Advantage Low Cost Uniqueness

Com

petit

ive

Scop

e

Broa

d

Nar

row

Competitive Advantage

Low Cost Combination of Both Uniqueness

Stuck in the middle

(a)

(b)Figure 1. Traditional classification of competitive strategies. (a) E-business classification of competitive strategieswith focus embedded. (b) E-business competitive strategy as a continuum.

Managerial Implications

When e-business was in its infancy, many firms were obsessed with the need to develop anInternet presence. Without a well thought-out strategy for pursuing e-business opportunities,many firms failed to develop distinctive strategies and failed to differentiate their onlineoperations (Merrilees, 2001). All too often, firms have pursued destructive, cost-basedcompetition rather than differentiation (Magretta, 2002). In short, many firms were attracted



to what we earlier described as the myth of lower cost and price, even though the Internetmakes a strategy of cost leadership especially difficult to sustain. We believe that manyfirms have pursued cost leadership not because it is more rational or advantageous, but as adefault for insightful strategic thinking. Porter (2001) reminds us that pursuing a distinctivestrategic position i.e., differentiation has been always more difficult and requires a gooddeal more creativity than pursuing operational efficiency or a strategy of cost leadership.

Merrilees (2001) emphasized that the strategy of cost leadership requires a fairly straight-forward set of integrating tasks vividly displaying low prices and running all companyoperations on a no-frills basis. The openness of the Internet, combined with advances insoftware architecture, Web development tools, and modularity, makes it much easier forcompanies to design and implement new applications. It is therefore more difficult to sustainpurely operational advantages in the Internet environment (Porter, 2001). By contrast, dif-ferentiation requires a complex integration of strategy, tactics, and capabilities. The rewardin the latter case, however, is that a unique set of competencies is created to help sustaina competitive advantage over a longer period of time. Differentiation is harder to achievebut, once achieved, it offers greater likelihood of sustained high performance.

This paper also proposes that a cost leadership strategy will not produce superior perfor-mance for e-business firms. Since the Internet can help all players drive down costs (andprices), a differentiated strategic position will prove to be a more viable way to develop andmaintain distinctiveness, offer superior customer value, and charge higher prices. Insteadof emphasizing price competition, firms should take advantage of the Internets ability tosupport convenience, speed, interactive service, and customization. Trust, credibility, andbrand name recognition which are at the heart of differentiation become even moreimportant in the e-business world where there is often little or no physical contact betweencustomers and company personnel. Firms have many ways to differentiate themselves:through marketing and advertising, Web site design, customer reviews, newsletters, giftservices, loyalty programs, convenience, and customized recommendations, to name justa few (Clay et al., 2002). Differentiation is possible even for seemingly undifferentiatedproducts and services. Amazon.com has demonstrated that, although books are homoge-neous goods, the book buying experience doesnt have to be. At the same time, it would, ofcourse, be foolish not to employ the Internets cost-cutting features. Thus, we suggest thate-business firms should move away from a pure cost leadership strategy toward differenti-ation or toward integrated strategies that combine the best features of cost leadership anddifferentiation.

We also propose that clicks-and-bricks firms that achieve a tight integration between theiron- and offline operations should enjoy performance advantages over their pure play counter-parts. This conclusion also offers some implications for practice. First, for clicks-and-bricksfirms, it emphasizes the importance of coordinating on- and offline activities. For pure plays,it suggests that performance might be enhanced by partnering or joining with vendors andother firms to develop products, services, or retail interfaces that improve the overall cus-tomer shopping experience. As we have noted throughout the paper (and address specificallyin the next section), many pure play firms have already moved in this direction and begunto function much more like traditional, offline retailers. Further, there are almost certainlyopportunities for pure plays to realize value by merging with, acquiring, or being acquiredby brick-and-mortar firms (Uhlenbruck et al., 2001).



Directions for Future Research

As researchers begin to empirically test this papers propositions, they will need to resolveseveral theoretical and methodological issues. The first issue is the classification of pureplay and clicks-and-bricks firms. We believe that simply classifying e-business firms intopure play and clicks-and-bricks categories could be misleading. Many pure play retailershave relied on alliances with other firms to provide warehousing and distribution services,while other pure play firms have begun to function more like traditional retailers, purchasinggoods from manufacturers and distributors and warehousing these products before they areshipped to customers. Amazon.com with its growing network of warehouses and distributioncenters is an example (Schlauch & Laposa, 2001). In many ways, this issue is a question ofvertical integration or how much of the value chain an e-business chooses to own. Some pureplays have chosen to own more of the value chain and have, for example, in-house physicaldistribution and order-fulfillment capabilities. These firms may be able to offer faster orhigher quality service to their customers, and they may also be able to blunt some of theadvantages clicks-and-bricks firms enjoy by having both online and offline operations.

We suggest, therefore, that pure play firms should be further divided into pure playsand vertically integrated online firms. Possible synergies and potential conflicts betweenonline and offline operations should be important considerations as incumbent firms developtheir Internet strategies. We also believe that potential performance differences across pureplay firms, vertically integrated online firms, and clicks-and-bricks firms should be signifi-cant enough to warrant research attention.

The second issue is the choice of performance measures. One obstacle to empiricalstudy of e-business firms is the lack of widely accepted performance measures. Manye-business-specific measures such as traffic and number of hits have been dismissed asunreliable indicators of long-term success. Porter (2001) has argued that dot.com suc-cess should be evaluated using traditional performance indicators such as profitability.Garbi (2002) countered, however, that if profitability is the sole criterion for firm perfor-mance, then many existing, but unprofitable, Internet companies should have died away bynow.

Garbi (2002) compared surviving and failing dot.coms along various performance mea-sures, including asset productivity, shareholder value, growth and survival, and an e-commerce-specific performance indicator (the number of unique visitors). Dot.com sur-vivors had significantly higher levels of asset productivity and unique visitors. Garbi alsofound that the e-business-specific performance measure number of unique visitors is significantly correlated with measures of market value and growth. This implies thatcyberspace-specific performance indicators, such as page views, stickiness, click-throughrate, and conversion rate, may be reliable performance measures in studies of e-businessfirms. We recommend that researchers adopt an eclectic, multidimensional approach toassessing the performance of e-business firms, relying on a combination of traditional per-formance yardsticks, measures that are routinely used to gauge the success of other typesof start-up businesses, and a variety of e-business-specific measures.

Regardless of how these methodological issues are resolved, we believe the implicationsof the new business landscape are profound enough to warrant considerable scholarly in-terest, theory development, and empirical research. We hope that this paper helps to lay



a theoretical foundation for studying firms in the information age and that it serves as acatalyst to stimulate future investigation as well.

Acknowledgments

Research support was provided by the Institute for Business Research and Education atKorea University and by the Department of Economics and Business at Colorado College.The authors appreciate the many helpful comments and suggestions provided by the re-viewers and the editor. We also acknowledge the assistance provided by Robin Satterwhiteand Marla Gerein.

References

Afuha, A., & Tucci, C. L. 2001. Internet business models and strategies, text and cases. New York, NY:McGraw-Hill.

Amit, R., & Zott, C. 2001. Value creation in e-business. Strategic Management Journal, 22: 493520.Anderson, D. M. 1997. Agile product development for mass customization. Chicago: Irwin.Armstrong, A., & Hagel, J., III. 1996. The real value of online communities. Harvard Business Review, 74(3):

134141.Arthur, W. B. 1996. Increasing returns and the two worlds of business. Harvard Business Review, 74(4): 100109.Bakos, Y. 1997. Reducing buyer search costs: Implications for electronic marketplace. Management Science, 43:

16131630.Bakos, Y. 1998. The emerging role of electronic marketplaces on the Internet. Communications of the ACM, 41(8):

3542.Booth, M., & Philip, G. 1998. Technology, competencies, and competitiveness: The case for reconfigurable and

flexible strategies. Journal of Business Research, 41: 2940.Brynjolfsson, E., & Smith, M. D. 2000. Frictionless commerce? A comparison of Internet and conventional

retailers. Management Science, 46: 563585.Bulik, B. S. 2000. Survival of the fattest. Business 2.0, July 11: 184187.Burke, R. R. 1996. Virtual shopping: Breakthrough in marketing research. Harvard Business Review, 74(2):

120131.Business Week. 2003a. Andy Grove: We cant even glimpse the potential. August 25: 86.Business Week. 2003b. The e-biz surprise (Asian ed.). May 12: 4449.Carter, N. M., Stearns, T. M., Reynolds, P. D., & Miller, B. A. 1994. New venture strategies: Theory development

with an empirical base. Strategic Management Journal, 13: 625634.Chan, R. Y., & Wong, Y. H. 1999. Bank generic strategies: Does Porters theory apply in an international banking

center. International Business Review, 8: 561590.Chang, J. S. 1997. A study of Internet bookstore marketing strategies in Korea. Unpublished M.A. Thesis, Yonsei

University.Clay, K., Krishnan, R., Wolff, E., & Fernandes, D. 2002. Retail strategies on the Web: Price and non-price

competition in the online book industry. The Journal of Industrial Economics, 50: 351367.Cross, R., & Smith, J. 1996. Customer-focused strategies and tactics: Interactive marketing weighs in for customers.

In E. Forrest & R. Mizerski (Eds.), Interactive marketing: The future present: 528. Lincolnwood, IL: NTCBusiness Books.

Cyert, R. M., & March, J. G. 1963. A behavioral theory of the firm. Englewood Cliffs, NJ: Prentice Hall.Dess, G. G., & Davis, P. S. 1984. Porters (1980) generic strategies as determinants of strategic group membership

and organizational performance. Academy of Management Journal, 27: 467488.



Evans, P., & Wurster, T. S. 1999. Blown to bits: How the new economics of information transforms strategy.Boston: Harvard Business School Publishing.

Fahey, L., & Christensen, H. K. 1986. Evaluating the research on strategy content. Journal of Management, 12:167183.

Garbi, E. 2002. Alternative measures of performance for e-companies: A comparison of approaches. Journal ofBusiness Strategies, 19: 117.

Glazer, R. 1991. Marketing in an information-intensive environment. Journal of Marketing, 55: 323335.Glover, S. M., Liddle, S. W., & Prawitt, D. F. 2001. E-business principles and strategies for accountants. Upper

Saddle River, NJ: Prentice Hall.Griffith, V. 1999. Branding.com: How brick-and-mortar companies can make it on the Internet. Strategy and

Business, 15: 5459.Hambrick, D. C. 1983. High profit strategies in mature capital goods industries: A contingency approach. Academy

of Management Journal, 26: 687707.Head, M., Archer, N. P., & Yuan, Y. 2000. World Wide Web navigation aid. International Journal of

Human-Computer Studies, 53: 301330.Hill, C. W. L. 1988. Differentiation versus low cost or differentiation and low cost: A contingency framework.

Academy of Management Review, 13: 401412.Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. 2001. Strategic management: Competitiveness and globalization

(4th ed.). Cincinnati: South-Western.Karnani, A. 1984. Generic competitive strategies: An analytical approach. Strategic Management Journal, 5:

367380.Kim, B. 2000. E-business myths and traps. Seoul: LG Economic Institute.Kim, E., & McIntosh, J. C. 1999. Strategic organizational responses to environmental chaos. Journal of Managerial

Issues, 11: 344362.Kim, L., & Lim, Y. 1988. Environment, generic strategies and performance in a rapidly developing country: A

taxonomic approach. Academy of Management Journal, 31: 802827.Kim, S., & Kim, C. 2000. Pricing strategy in the digital marketing age. Seoul: LG Economic Research Institute.Lee, Z., & Gosain, S. 2002. A longitudinal price comparison for music CDs in electronic and brick-and-mortar

markets: Pricing strategies in emergent electronic commerce. Journal of Business Strategies, 19: 5571.Liu, C., & Arnett, K. P. 2000. Exploring the factors associated with Web site success in the context of electronic

commerce. Information and Management, 38: 2333.Lynch, J. G., & Ariely, D. 2000. Wine online: Search cost and competition on price, quality, and distribution.

Marketing Science, 19: 83103.McDougall, P., & Robinson, R. B. 1990. New venture strategies: An empirical identification of eight archetypes

of competitive strategies for entry. Strategic Management Journal, 11: 447467.Magretta, J. 2002. Why business models matter. Harvard Business Review, 80(3): 8692.Merrilees, B. 2001. Do traditional strategic concepts apply in the e-marketing context? Journal of Business

Strategies, 18: 177190.Miles, R. E., & Snow, C. C. 1978. Organizational strategy, structure, and process. New York: McGraw-Hill.Miller, D. 1987. The structural and environmental correlates of business strategy. Strategic Management Journal,

8: 5576.Miller, D. 1988. Relating Porters business strategies to environment and structure: Analysis and performance

implications. Academy of Management Journal, 31: 280308.Miller, D., 1991. Generalists and specialists: Two business strategies and their contexts. In R. B. Lamb, P.

Shrivastava, A. Huff, J.Dutton, & H. B. Thorelli (Eds.), Advances in Strategic Management, 7: 341. Greenwich,CT: JAI Press.

Miller, D., & Friesen, P. 1986. Porters generic strategies and performance: An empirical examination withAmerican data. Organizational Science, 7: 3755.

Modahl, M. 2000. Now or never: How companies must change today to win the battle for Internet consumers.New York: HarperBusiness.

Murphy, J., Hofacker, C. F., & Bennett, M. 2001. Website-generated market research data: Tracing the tracks leftbehind by visitors. Administration Quarterly, 42: 8291.



Murray, A. I. 1988. A contingency view of Porters generic strategies. Academy of Management Review, 13:390400.

Ngai, E. W. T., & Wat, F. K. T. 2002. A literature review and classification of electronic commerce research.Information and Management, 39: 415429.

Phau, I., & Poon, S. M. 2000. Factors influencing the types of products and services purchased over the Internet.Internet Research, Electronic Networking Applications and Policy, 10(2): 102113.

Pine, J. 1993. Mass customization: The new frontier in business competition. Boston: Harvard Business SchoolPress.

Porter, M. E. 1980. Competitive strategy: Techniques for analyzing industries and competitors. New York: FreePress.

Porter, M. E. 2001. Strategy and the Internet. Harvard Business Review, 79(2): 6278.Preiss, K., Goldman, S. L., Nagel, R. N. 1996. Cooperate to compete: Building agile business relationships. New

York: VNR.Reichheld, F. F., & Schefter, P. 2000. E-loyalty. Harvard Business Review, 78(4): 105114.Robert, M. 1993. Strategy pure and simple. New York: McGraw-Hill.Robinson, R. B., & Pearce, J. A. 1988. Planned patterns of strategic behavior and their relationship to business-unit

performance. Strategic Management Journal, 9: 4360.Schlauch, A. J., & Laposa, S. 2001. E-tailing and Internet-related real estate cost savings: A comparative analysis

of E-tailers and retailers. Journal of Real Estate Research, 21: 4354.Scott, G., & Walter, Z. 2003. DELPHI findings about Internet systems problems, with implications for other

technologies. Technology Analysis and Strategic Management, 15: 103115.Smith, M. D., Bailey, J., Brynjolfsson, E. 1999. Understanding digital markets: Review and assessment. Working

Paper. http//ecommerce.mit.edu/papers/ude.Uhlenbruck, K., Hitt, M., Semadeni, M. 2001. Corporate strategy in the new economy: Outcomes of four types

of acquisitions. Presented at the annual meeting of the Strategic Management Society, San Francisco, CA,October.

Wang, F., Head, M., & Archer, N. 2002. E-tailing: An analysis of Web impacts on the retail market. Journal ofBusiness Strategies, 19: 7393.

Wright, P., Knoll, M., Caddie, B., & Pringle, C. 1990. Strategic profile, market share and business performance.Industrial Management, 32(3): 2328.

Xiong, C. 2003. Online stores try new pitch: Fetch it yourself. The Wall Street Journal, November 19: D1, D4.Yang, Z., & Jun, M. 2002. Consumer perception of e-service quality: From Internet purchaser and non-purchaser

perspective. Journal of Business Strategies, 19: 1941.Yelkur, R., & DaCosta, M. M. N. 2001. Differential pricing and segmentation on the Internet: The case of hotels.

Management Decision, 39: 252261.Yoffie, D. B., & Cusumano, M. 1999. Judo strategy: The competitive dynamics of Internet time. Harvard Business

Review, 77(1): 7181.Zettlemeyer, F. 1996. The strategic use of consumer search cost. Unpublished Ph.D. Thesis, Massachusetts Institute

of Technology.

Eonsoo Kim is Professor of Management at Korea University. Professor Kim received hisPh.D. from the University of Illinois, and his research interests include strategic change,process, and implementation. He has written on corporate and business strategy issues, in-cluding strategic responses to environmental change, downsizing and turnaround, networkand project-based organizations, and the application of the military art of war to strategicmanagement.

Dae-il Nam is Senior Consultant at the LG Economic Research Institute. Mr. Nam receivedhis Masters degree from Korea University. His research and consulting focus on strategyformulation and implementation, including industry consolidation, convergence marketing,



global market strategy, corporate venture incubation, corporate governance, leadership ap-praisal, and vision.

Larry Stimpert is Professor of Economics and Business at Colorado College. ProfessorStimpert received his Ph.D. from the University of Illinois, and his research interests in-clude top managers and their influence on strategic decision making and organizationalstrategies. He has written on many strategy issues, including managerial responses to envi-ronmental change and organizational decline, business definition and organizational iden-tity, the management of corporate strategy and diversification, corporate governance, andcompany strategies following deregulation.


The Applicability of Porter's Generic Strategies in the Digital Age: Assumptions, Conjectures, and SuggestionsBackgroundPorter's TypologyCharacteristics of the E-Business EnvironmentHow is e-business different?What has not changed?

Generic E-Business StrategiesAssumptions and Necessary Conditions for E-Business Competitive StrategyCost Leadership StrategyDifferentiation StrategyFocus Strategy

Generic Strategies and E-Business Performance"Stuck in the Middle" Versus "Integrated" Strategies and E-Business PerformancePure Plays, Clicks-and-Bricks, and Firm PerformanceAdvantages of Clicks-and-Bricks FirmsPotential Problems Faced by Clicks-and-Bricks

ConclusionManagerial ImplicationsDirections for Future Research

AcknowledgementsReferences

Documents

Applicability of Porter's Generic Strategies in the Digital Age