External analysis of Overstock.com

External Analysis: Overstock.com

Porter's Five Forces Model

Porter's framework, as Hill and Jones (2009) point out, concerns itself with forces (five in number) that configure or structure competition within a given industry. These, according to the authors, include: "(1) the risk of entry by potential competitors; (2) the intensity of rivalry among established companies within an industry; (3) the bargaining power of buyers; (4) the bargaining power of suppliers; and (5) the closeness of substitutes to an industry's products" (Hill and Gareth, 2009, p. 42). The subsequent sections of this text will apply Porter's Five Forces model in an evaluation of Overstock.com's operating environment.

Discussion

Overstock.com is "a technology-based retail company offering customers a wide variety of high-quality products, at great value, with superior customer service" (Overstock.com, 2014). Some of the products the company offers for sale include, but they are not limited to; jewelry, furniture, handcrafted items and products, electronic goods, books and magazines, etc.

The risk of entry by potential competitors

Essentially, no regulations prevent new entities from entering the Catalog & Mail Order Houses industry, the industry in which Overstock.com operates. As a matter of fact, new entrants encounter low fixed costs. The fact that there are numerous suppliers also means that goods are easily available. It is, however, important to note that brand royalty happens to be of great relevance in e-retailing. Customers feel more comfortable doing business with a firm they have done business with before, mainly for security reasons. Given that this section of the industry already has well-established players, new entrants might find it challenging to build a formidable brand name. This, despite the fact that entering the industry isn't as difficult, significantly brings down the threat of new entrants. I would, therefore, classify the threat of new entrants as moderate.

The intensity of rivalry among established companies within the industry

The Catalog & Mail Order Houses industry is large and fragmented. It should also be noted that several large players such as eBay and Amazon control a significant chunk of the market. The significant diversity of the industry, however, avails numerous opportunities for differentiation -- thus effectively bringing down the rivalry level. Essentially, entities that offer for sale different products do not compete directly. In the final analysis, therefore, rivalry could be said to be somewhat low. This is particularly the case for segments that report a high level of diversity.

The bargaining power of buyers

Essentially, "the power of buyers is the impact that customers have on a producing industry" (Quick MBA, 2010). Buyers, in this particular industry, are regarded the end-customer. The bargaining power of buyers could, therefore, be moderate. It should be noted that as the industry continues to mature, the number of firms gaining entry into the industry and making an impact remains few, and the number of online shoppers continues to increase, buyer power will be reduced significantly. Even so, it should be noted that the costs of switching between retailers, as of now, remains low -- thus on one hand significantly increasing the power of buyers. The fact that a wide range of products are available for sale over the internet, thus making it somewhat easy to meet customer demands, further enhances the power of buyers.

The bargaining power of suppliers

Suppliers, on this front, include all those entities and individuals that avail the various products and items to internet retailers like Overstock.com. In that regard, therefore, the bargaining power of suppliers is likely to significantly vary from one company to the next. Generally, however, taking into consideration the entire industry, supplier power remains moderate. This is particularly the case for internet retailers that offer for sale generic products, as the switching costs from one supplier to the next are particularly low. The leverage such retailers have over those who supply them with various products and items is, therefore, high.