Click and mortar firms have the advantage in areas of existing business models and products. In these cases it is better to retain ties to your physical company. This is because they are able to leverage their competencies and assets, including:
- Leveraging their core competency
Successful firms tend to have oneor two core competencies that they can do better than their competitors. It may be anything from new product development to customer service. When a bricks and mortar firm goes online it is able to use this core competency more intensively and extensively.
- Leveraging existing supplier networks
Existing firms have established relationships of trust with suppliers. This usually ensuresproblem free delivery and an assured supply. It can also entail price discounts and other preferential treatment.
- Levering existing distribution channels
As with supplier networks, existing distribution channels can ensure problem free delivery, price discounts, and preferential treatments. - Leveraging brand equity
Often existing firms have invested large sums of money inbrand advertising over the years. This equity can be leveraged on-line by using recognized brand names. An example is Disney.
- Leveraging stability
Existing firms that have been in business for many years appear more stable. People trust them more than pure on-line firms. This is particularly true in financial services. - Leveraging existing customer base
Because existing firms alreadyhave a base of sales, they can more easily obtain economies of scale in promotion, purchasing and production; economies of scope in distribution and promotion; reduced overhead allocation per unit; and shorter break even times.
- Leveraging a lower cost of capital
Established firms will have a lower cost of capital. Bond issues may be available to existing firms that are not available to dot. coms. The underwriting cost of a dot com IPO is higher than an equivalent brick and click equity offering. - Leveraging learning curve advantages
Every industry has a set of best practices that are more or less known to established firms. New dot coms will be at a disadvantage unless they can redefine the industries best practices and leap frog existing firms.
Pure dot.coms, on the other hand, have the advantage in areas of new e-business models that stress cost efficiency. They are not burdened with brick and mortar costs and can offer products at very low marginal cost. However, they do tend to spend substantially more on customer acquisition.
