Porter’s generic strategies as applied toward e-tailers post-Leegin
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Pricing strategy & practice Porter’s generic strategies as applied toward e-tailers post-LeeginMarianne K. Collins Department of Marketing, School of Business, Winona State University, Winona, Minnesota, USA, and Brian Winrow Department of Business Administration, School of Business, Winona State University, Winona, Minnesota, USA Abstract Purpose – The purpose of this paper is to evaluate the applicabilit y of Porter’ s model of generic strategies as applied toward online retailers following the United States Supreme Court’s decision in Leegin, which appears to signal greater tolerance for minimum vertical price maintenance agreements. Design/methodology/approach – The paper is based on a review of the literature and examines cases relating to minimum resale price maintenan ce agreements. Relying heavily on Porter’s framework, it explores the strategic implications of the recent decision in Leeginfor on-line retailers, many ofwhom rely on a cost leadership competitive advantage. Findings – Since the increased likelihood that vertical minimum price maintenance agreements will be permitted, thereby lowering the barriers to entry, online retailers may be deterred from utilizing low costs to under-price traditional retailers. As a result, the Leeginholding has devalued the feasibility ofpursuing a cost leadership strategy, and e-tailers may need to adopt alternative or integrative strategies for securing a competitive advantage. Originality/value – The paper incorporates literature pertaining to Porter’s model of generic strategies, online pricing strategies, as well as recent court cases. Keywords Pricing, Anti-trust law, Cost accounting, Electronic commerce Paper type Conceptual paper I. Introduction The US Supreme Cou rt’ s deci sion in Leegin[1] appea rs to signal greater tolerance for vertical resale price maintenance (RPM) agre ements , in whi ch the man ufac turer impose s a minimum pric e lev el on its resell ers. A bra nd seller would li kely pursu e suc h an agr eeme nt in order to prot ect it s resell ers’ margin s, thereby attractin g qualifi ed downstream retail ers; to prot ect brand image and excl usivit y; and to prevent free riding by low price retailers who take advantage of the promotional activities of others. Further, a minimum RPM agreement will suppress intrabrand price competition, whi le enhanc ing the procompeti tiv e eff ect s of int erbr and competition. Within the context of increased likelihood that vertical minimum price agreements will be permitted, bricks- and-cl icks (mixed channel retail ers) and pure play retail ers (e-tailers) may be constrained in mounti ng tradit ional defenses against competitive forces, such as retaliatory price cutting. The Leegin decisi on could have import a nt s t ra t e gic implic ati ons for on- line ret ail ers, man y of whom sec ure a competitive advantage through a classic low cost leadership st rategy (Port er, 1980). With a verti cal mi ni mum RPM agreement in place, e-tailers may be deterred from using their low cost structure to under price brick-and- mortar traditiona l compe titors. This article explores the implic ations for on-lin e str ate gies in thi s post- Leegin env ironment in whi ch pric e competition is restrained. In additi on, this article will address the feasibility for online retailers to pursue an int egrated strategy , combi ni ng both the low cost l ea de r s hip a nd differentiation strategies. This article begins with a discussion of Porter’s model ofgeneric strategies as currently applied. Section III provides a brief history and legal background of the Sherman Act, and includes an explanation of the basis for proh i bi ti ng ant ico mpe tit ive behavi or. Thi s sec tion als o ana lyz es the nature of vertical price maintenance agreements to ascertain the antico mpetit ive and/o r procompetitiv e effect s that result from the respective price maintenance agreements. Section IV of the article focuses on the Leegin cas e, which shi fte d the standard of review from the per se prohibition to the rule ofreason. Section V will explore the competitive implications ofthe Leegin case, and how it alters the feasibility of Porter’s low cost leadership strategy for e-retailers. We conclude with a discussion of the current outlook for the sustainability of the Leegin holding. II. Porter’s generic strategies Porte r enumerat ed a ser ies of generic strategie s that a bus ine ss could imp lement in order to secure a compet iti ve The current issue and full text archive of this journal is available at www.emeraldinsight.com/1061-0421.htm Journal of Product & Brand Management 19/4 (2010 ) 306–311 q Emerald Group Publishing Limited [ISSN 1061-0421] [DOI 10.1108/10610421011059 621] 306
Porter’s generic strategies as applied toward e-tailers post-Leegin
