Internet Distribution Conflicts and Challenges - Essay Example

Internet Distribution Conflicts and Challenges Inserts His/hers Inserts Grade Inserts 04, 12, 2011 Introduction Fundamentally, the core value of the internet for e-commerce is efficiency. It has revolutionized the way products are sold to consumers. This has been brought about by the advances in communication, computing and logistics technologies that made it possible for enhanced distribution, logistics and purchasing activities. From the manner by which the public are informed about products, how payments are tendered to the provision of after sales services – the opportunities are certainly very promising. In the electronic exchange many of the stages and intermediaries in the process are eliminated, paving the way for a streamlined and faster distribution and sales activities. Bovet and Martha (2000) explained this in their value net, wherein the distribution centre provides bought products on a just-in-time basis. (p58) What this means is that the Internet significantly reduced the cost of distribution, while making the process faster and responsive to the needs and requirements of the consumers. Now, this is the ideal landscape. Several years have passed and a wealth of experience has been collected. There are some sectors who argue that the Internet has created new distribution challenges, which are dominated by the emergence of channel conflicts. This paper will explore this theme. Particularly, the investigation will focus on the tourism industry. Background: Internet For some, the Internet is considered one of the greatest developments in the history of mankind, if not ever. (Katz and Rice, 2002, p2) This claim may have some ring of truth to it since the technology has almost single-handedly reduced the world into a global village, effectively eroding the effect of time difference, geographical location and national borders in the way people interact and consume goods. The platform became popular because it allowed easy and inexpensive communication of one to one, one to many, many to one, and many to many – an achievement that is unparalleled in history. (Sullivan, 2002, p177) It has helped globalization to achieve its purposes and, in turn, is encouraged by that economic phenomenon in a mutually reinforcing relationship. This is the basis of the emergence of the so-called e-commerce concept, a new model that significantly challenged the traditional bricks and mortar model. Through the internet technology, people can sell products and services over the internet network without having to worry about store space and intermediaries. According to Gay, Charlesworth and Esen (2007), the technology allowed the linking of front and back office operations across functions and any location through systems integration, which proved critical in the effective internal and external operations for product or service delivery. (p443) To demonstrate this, there is the case of online shopping. A wide variety of products are available on many online stores and sites, one can do their shopping from the convenience of their homes using a credit card to pay for purchases. Both business organizations and individuals can sell their merchandise directly to shoppers, maintaining very few staff for website administration, distribution and after sales support. The responsibilities of these individuals are further made easier by the mechanization of their job function owing to the database technologies, which could process many information-related functions. It is clear, hence, that e-commerce is beneficial since it can remove the intermediaries in the chain of processes and transact directly with the client, making the roles of intermediaries obsolete. (McDonald and Wilson, 2011, p117) Intermediaries contribute to the prices of goods and services because they require additional cost for overhead expenses in addition to the fact that they also claim a significant amount of time in the distribution process. The Internet has also paved the way for the expansion of products. Besides tangible goods, new products such as services, cultural artefacts and ideas are now also being sold. Furthermore, there is also the cased of digitized products such as films, games and music. Games, movies, videos, and many more software can be downloaded by Internet users for their enjoyment. In addition to product delivery, sellers can also provide more customer value by providing real-time and efficient support. Through instant messaging technologies, social networking websites, and other related platforms and softwares, they can communicate with consumers regardless of where they are from, ensuring the best possible relationship. Unarguably, there are several benefits and advantages for enterprises to have the so-called online store and online presence. In its most effective aspect, the Internet has facilitated market exchange and product distribution significantly. However, the involved system and technology are far from perfect. This reality created several problems that impact distribution. Channel conflict and Distribution Challenge Online medium has brought separate participants closer together and, in the process, caused conflicts and problems. In the internet driven businesses, channel members when operating as separate and independent forces can create conflict and interrupt the efficiency of the total system. (Sahaf, 2008, p314) This phenomenon is known as channel conflict. A concrete example is when e-commerce is integrated with the physical channels. In this event clashes often arise. According to Bidgoli (2004), “when the alternative means of reaching customers (e.g., a Web-based store) implicitly or explicitly competes with or bypasses existing physical channels, a conflict will emerge as a consequence, particularly when a channel impedes the operations of the other. (p187) For example, an online store can cannibalize the sales of the company’s physical store. This example is another facet of the previously cited channel conflict that involved people. Fellenstein and Wood (2000) describe channel conflict as “a scenario whereby one member of the distribution channels considers other members as a rival capable of injurious, thwarting or advantageous behaviour to better themselves at the expense of another member.” It is also known as disintermediation and is a problem that resulted from many in the e-commerce devising an online strategy. As a result, the business protocol became confusing and scrambled. Many firms have suffered the channel conflict dilemma. A Massachusetts –based research firm, for example, found out that 66% of the surveyed manufacturers mentioned channel conflict as a critical barrier to online sales although it appears to have a mantle of inevitability at the moment as many people continue to set up online shops. (Rosenbloom, 1999) It is foolhardy to ignore or underestimate the impact of channel conflict. If a firm fails to devise an effective strategy that could work around e-commerce without inviting channel conflict, the consequence will be disastrous. For example, General Motors Corp. in Detroit tried to redeem some franchises with an aim of direct selling via the internet. However, dealers protested strongly that both the GM and Ford Motor Co. in Dearborn have to spend a good measure of time and effort to reassure dealers that the automakers would not sell directly to consumers. (Computerworld 1999) In organizations wherein traditional intermediaries are still important, channel conflict can lead to a spike in transaction cost of monitoring existing channels. (Fletcher et al., 2004, p248) Channel conflict is not a new phenomenon. It has existed in linear distribution networks, when manufacturers and distributors identified and pursued sales and distribution channels toward a similar customer base. But with the emergence of the Internet, the problem took a more complex for. The proliferation of the medium, as individual companies sought to obtain more value from their sales by having direct link with the customers, has contributed greatly to the dilemma (Rosenbloom, 1999). Nonetheless, Channel Conflict still touches all the areas of tension and involves roughly the same element s as in traditional distribution networks. Partnerships in early stages are healthy but they eventually give rise to channel conflict especially in bricks and mortar businesses trying to become e-merchants. Channel conflict in e-commerce is so devastating simply because the internet’s capability to allow for extremely comprehensive and faultless coordination between partners. Tourism Distribution success The tourism sector is also heavily engaged in e-commerce today. Such development is not surprising since the Internet provides several tools that are perfect for many tourism-related commercial initiatives. First, the tourism industry capitalizes on the Internet’s capability to radically expand market. It allows for reaching a wider public and new segments of customers. It operates within 24/7 and can reach users regardless of their location. In addition, the costs of drafting and negotiating agreements are significantly reduced in the Internet channel as tourism companies can deal with their target market directly. (Fletcher et al., p248) Collectively, these variables create value not just for the merchant but also for the consumers. When an individual, for example, decides to travel, the very first consideration he or she will be concerned about is the place to stay. Recently, through the Internet, the tourism industry has developed sophisticated Internet-based applications, mechanisms and tools that allow for the communication, promotion and the provision of a whole set of services to assist almost all of customers’ travel needs, from trip planning to booking. (Miesenberger, 2010, p346) There are excellent websites to demonstrate this. The website Expedia is a case in point. It enables its users to find accommodations, learn information about them and choose from several service options such as booking hotels, restaurant reservations, trip arrangements, and so forth. Merchants with specialized e-commerce presence include travel agencies and hotels. There is also the case of airline companies. For example, the British Airways sells airline seats through www.britishairways.com in a system that offers seamless service delivery wherein a client could book a flight, choose a seat, and learn of other value-added services such as promotional rates and holiday information for clients who are doing the transaction from the comforts of their desks. This is the most common e-commerce transaction, which is more popularly known as Business to Consumers or B2C. The airline industry is also credited to have introduced the Global Destinations Systems, (GDS) an airline reservation system introduced in the 1990s. (Brymer, 2000, p407) The GDS became a precursor of the wider and more sophisticated system used by many in the tourism industry, the Destination Management Systems. It is a marketing tool designed to promote tourism products in particular destinations and is composed of several components such as product database, customer database, and, booking and reservation system. (Buhalis and Scherter, 1999, p120) It is safe to say that e-commerce has changed the way the tourism firms conduct their businesses. Since information is the backbone of the tourism industry, the Internet became crucial in the way it provides diverse and new ways of disseminating information-based products and services, in addition to the proprietary marketing information communicated to the customers at their convenience. E-tourism and Problems As with the other forms of e-commerce from other industries, e-tourism entails the creation of a number of new distribution channels and the intermediaries that they entail. This is best explained in the concept called “destination mix.” Oliver, Romm-Livermore and Sudweeks (2009) explained that it is the “combinations of facilities, attractions, transport and hospitality services found at a particular location.” (p89) Because of the Internet and its enabling capacity for tourism merchants, these destinations crowd the online marketplace, cannibalizing the market within one location. Here, the location is the fundamental product. But channels such coming from hotels, restaurants, transport system – though they may not directly compete with each other, they serve as channels that take away the market from the others. This is still separate from the host of travel agencies, advisors and intermediaries that traditionally have existed. Simply put, since e-tourism is still consisted of several distribution channels, it will always be at risk from channel conflicts. In addition, the Internet can also be faulty and prone to technological failures. Another problem involves the relevance and accuracy of the Internet content. Customers may retrieve much information on the Internet but that does not actually mean the data are helpful. Wrong information can be frustrating for consumers, affecting a company’s image in the process. Another problem is the cost and access of Internet. It requires a computer, which is quite expensive to purchase, and the internet connection which can cost an additional sum, making it impossible for the target group to access information. This greatly discourages the usage of internet in the sector of tourism. It is also perceived that e-commerce is expensive and unsecured. But the beauty of e-tourism is that its products are intangible. As previously mentioned most are information-based products and could, hence, very well be sold online. A merchant, hence, can afford to have an online system to dominate the product selling aspect. A hotel will not suffer as much as General Motors or Ford when its dealers and intermediaries raise strong objections about its online channel. Tourism intermediaries are not as critical in the equation especially in comparison with online stores. In addition, the concept of synergy is much easier to accomplish in e-tourism. Integrating an online store with its physical store-front is not as problematic as in other industries. This should solve the problem about channel conflict within an organization. Some call it a strategic alignment of functions and objectives so that the activities of one channel complement those of the other. Conclusion The internet has commanded big expectations from merchants in the past. The potential of communication and computing technology has provided the reasons for this. And in most respects, it is true. As the above discussion demonstrated, the Internet has solved many distribution problems. The manner by which it streamlines processes to the point that merchants can now directly sell to its consumers underscore the degree of efficiency unrivalled in more traditional distribution systems. However, it also creates new problems. This is especially true in industries that produce tangible products, wherein channel conflicts are more pronounced. But the case of e-tourism is markedly different because its marketplace is dominated by information-based products. It complements with what the Internet platform has to offer. Whatever tensions or conflicts that occur within its many distribution channels are easier to be negotiated. This is the reason why e-tourism is much more successful and developed than other online marketplace. References Bidgoli, H 2004, The Internet encyclopedia, Volume 1. John Wiley and Sons, Hoboken, NJ. Bovet, D and Martha, J 2000, Value nets: breaking the supply chain to unlock hidden profits. John Wiley and Sons, Hoboken, NJ. British Airways. (2011). 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