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 Sell‑  side  threats

1

 

Customer power and knowledge

This is perhaps the single biggest threat posed by electronic trading. The bargaining power of 

customers is greatly increased when they are using the Internet to evaluate products and com-

pare prices. This is particularly true for standardised products that can be compared through 

price comparison engines. For commodities, auctions on business-to-business exchanges 

can also have a similar effect of driving down price. Purchase of some products that have not 

traditionally been thought of as commodities may become more  price-  sensitive. This process 

is known as ‘

commoditisation

’. Examples of goods that are becoming commoditised are 

electrical goods and cars. (The issue of online pricing is discussed in Chapter 8.)

In the business-to-business arena, a further issue is that the ease of use of the Internet 

channel makes it potentially easier for customers to swap between suppliers – switching costs 

are lower. With a specific EDI (electronic data interchange) link that has to be set up between 

one company and another, there may be reluctance to change this arrangement (

soft lock‑in

 

due to switching costs). Commentators often glibly say ‘online, your competitor is only a 

mouse click away’, but it should be remembered that soft lock-in still exists on the web – 

there are still barriers and costs to switching between suppliers since, once customers have 

invested time in understanding how to use a website to select and purchase a particular type 

of product, they may not want to learn another service.