Microeconomic Competitive Analysis Essay
Sierra Bravo will be impacted by the brand recognition and diverse client based Digital River acquires. Some barriers Sierra Bravo will be faced are product differentiation and services. Based on the twin cities magazine 60 web development companies listed in the twin cities in addition to over 50 marketing companies (Twin Cities Business Arrow, 2008). The products are similar to competitors and other small companies. Branding is a challenge to over come that will cost heavily to market the product. Another challenge is market development. Expanding nationally will be a challenge to gain customer loyalty due to remote location in comparison to local markets.
Although expanding into national market will be a challenge it creates a wealth of opportunity for the company. The company will be able to increase its brand recognition and open other locations across the U.S. Other opportunities can also expand into the global market once staffing and business increase. Prices will fluctuate for web development base on company needs. In today current market it cost more for sophisticated websites such as E-commerce or implementing SEO or SEM (Search Engine Marketing), (Carmichael, 2000). Basic websites are declining because it’s difficult for customers to search for a general company.
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The macroeconomic forecast of economic indicators shows that the rating is 9 out 10 rating from the Economist Intelligence Unit (EIU, 2008). The forecast in five years for technology services will be 2.7 for real GDP (% change pa) and 3.0 for 10 years. The growth shows for IT services is significantly high and the company has a high potential for long-term growth. The company will survive through research and development and innovation. The macroeconomic stability shows a rating of 7 out 10. This shows that IT services will either be continuously changing every year. The report also shows that United States consumers will spend 205 billion dollars in 2009 and increase to 232 billion in 2012. Constant change in technology and demanding is increasing as every business is dependent on IT services.
The non-economic factors will have a major impact in the web development and Information technology industry. More people are using the web such as for communicating, shopping, navigating, researching, learning, selling, promoting, educating and more. People are dependent on technology to help them get through the day. As the baby boomers are retiring and new generations are growing up with new technology, everyone will rely on technology for normal day routines and necessities. The increase in online learning schools and students is becoming popular to accommodate more flexible lifestyles. Employers are offering employees work from home through the usage of computers.
More people are becoming internet savvy and e-commerce is growing globally. “Changing lifestyles and shopping habits turning for convenience and large number of people and merchants becoming internet savvy will be primary reasons for pushing up e-commerce transactions” (Country watch, 2008). Country watch presented that e-commerce alone will increase $55 billion dollars in spending Products such as books, jewelry, music, movies, hotel bookings, airline reservation and more is becoming popular. With the demand and increase of online users e-commerce is an essential for many employers.
The political impact that technology has are the tax laws for international transactions for companies. Many companies are expanding overseas and selling products internationally. This type of transactions complicates the integrity of revenue reporting from various sites. “A big political issue at many companies is whether Web development and content management should be centralized at headquarters or controlled locally in the individual countries” (Betts and Silwa, 2001). Web development also impacts foreign labor too. For example, in Europe if a company wants to recruit and hire someone the individual must wait two the three months before they can leave the company. (Betts and Silwa, 2001). Fifty-nine percent of online websites are dominated by the English language, means that Web development is moving from a luxury necessity.
The impact of technological change has increase social networking opportunities for users. “Organizations increasingly transcend national boundaries, profoundly affecting such crucial areas as security, the environment, and currencies” (Falk, 1998). The use of websites helps meteorologist predict longer weather forecasts and provide early warnings to the public. Minorities are able to communicate and view their relatives overseas through the computer on web cam. Phone calls can be conducted through the internet web site by offering a lower service fee for consumers. Television shows can be watch on demand on certain television network systems at the user convenience. Websites has reshaped the way company’s conduct businesses, publicize its product, and communicate to customers. With the special technology companies are able to grow and expand globally.
The demographics for online users are typically ages are getting younger as the baby boomers retire. “The 2002 North America Online Report published by eMarketer estimates that almost 24 million pre-college age students (ages 9-17) are already shopping online and gaining valuable e-commerce purchasing experience. Estimates of online shopping usage project steady growth, the number of young adults buying online will increase proportionally” (Dillon and Reif, 2004). Company’s such as Best Buy and Target has a sophisticated tool to sell its product online. Both companies have reported that online sales are increasing and profits continue to increase. During the holiday more shoppers are prone to buy items online to prevent long lines and searching for parking. An article by Dillon and Reif, reported that marital status has no impact on online sales. They discovered young college educated users withstanding high income are 75% of online purchasers.
Digital River is the primary competitor for Sierra Bravo. DR is well known for the e-commerce product and pricing. The average e-commerce web development range from $8,000 -$20,000. Some web development services can cost more depending on various features added. Features such as SEO, SEM, Pay Pal payment Options, credit card transaction, licensing, number of pages, copyright materials and many more. Other costs can range from $30,000 -$50,000 depending on the other content and number of products being added. E-commerce websites are designed by skill web developers that understands CRM (customer relationship management) database.
Sierra Bravo has similar pricing structure that range $5,000-$15,000 for E-commerce websites. Depending on how a company want to integrate other technology as part e-commerce website it could go up to $25,000-30,000. Sierra Bravo still is challenge in the market and has a high potential to double its staff in five years. The company targets small to medium businesses owners, meanwhile Digital River clients includes big corporations. Digital River is a global company and continues to expand. Sierra Bravo is growing strong and focuses on the national market. In the future the company could expand globally.
Internal Environment SWOT Analysis: Strength: Sierra has three strengths that they can capitalize on to remain competitive. The company focused its project on client needs and reduces cost. All projects are customized to an organization and not one cookie cutter method. The company has already made successful reputation and brand recognition in the Minneapolis and suburbs. They are connected to community and collaborated with some of the major companies in advertising. The company is growing strong with top programmers and account executive that provide new clients everyday to improve brand recognition nationally.
Weaknesses: Weaknesses may include the brand recognition at a national and global level. Digital Rivers is already a global leader in e-commerce and well recognize around the world. Another weakness for the company is limited locations. The company wants to expand nationally however, has only two offices with an office in Bloomington, Minnesota and Chicago, Illinois, The other weaknesses the company has is buyer power. Competitors in major cities and it will be difficult for Sierra Bravo to gain loyal customers.
Opportunities: Some opportunities the company can capitalize on its customer cycle process. One of Digital Rivers’ weaknesses involves a longer process before a project can be done due to high decisions level makers. It takes them approximately 6-12 months before a project can get started. Sierra focusing on its market for small businesses and medium business has a good opportunity to shortened its customer cycle and discuss projects directly with decision makers. Most of Digital Rivers’ partners are corporations and very minimal marketing/advertising agency. By Sierra Bravo to partnering with agencies is a major opportunity to support its end clients. Sierra Bravo can reduce cost for marketing and capitalize on agencies customers.
Threats: Threats for the company include the competitive nature of e-commerce in the technology industry. Many businesses are looking for ways to implement e-commerce, however, with many competitors this can result the company to reduce its prices to compete. Another threat is in relation to the economic downturn for many businesses. Due to the uncertainty of the economy this can impact in revenue and delay expansion in other states. The other threat involves growing too fast or a small company. Although a high market out for e-commerce sometimes growing to fast can impact customer service and employees. The company needs to have a long-term plan in place to ensure staffing power is readily to take on additional work.