Barker 1 Layton Barker Instructor: Malcolm Campbell English 1103 H 10/2/2013 Fast Draft: New Niche Formation vs.

Creative Destruction Shopping online is the best, right? It makes shopping a breeze. One can simply sit at their computer and compare millions of products from a multitude of stores. It makes what could have been hours of shopping and instead, turns it into a brief 30 minute session in front of the computer. A person does not even have to leave the comfort of their home because the product can simply be delivered to their doorstep. In addition to saving time and effort, this access to online shopping can, also, save an individual a substantial amount of money. Since businesses do not have to pay for shipping and fees for the store the product would have been in, they can lower the price when they sell it online. Online shopping saves time, effort, and money, so it is no wonder that so many businesses, within the retail sector, are making the transition to electronic commerce, which the Merriam-Webster dictionary defines as activities that relate to the buying and selling of goods and services over the internet. What possible negative could this shift to e-commerce have? For one, a prevalent concern about businesses transition to e-commerce is that they will force traditional stores out of business. With the convenience of e-commerce, more and more people are seeing little reason to actually physically visit a store to buy a product. Why would someone drive out to a store, walk around the store to find the product, and then, wait in line to purchase the product, when they could just type the products name in on the stores website, instantly find it, and have it delivered to their house? In some cases, people even visit stores to

Barker 2 look at products and then, simply return home to order the product online. This kind of change in behavior is leaning in e-commerces favor. However, traditional stores do have advantages over online stores. In traditional stores, an individual can purchase the item and immediately, have it in their hands, while e-commerce requires a person to wait for the product to be delivered. Although they can have it delivered the next day, that will cost a person extra money. Also, traditional stores allow a consumer to physically see the product and feel it, test it, or try it on depending on the product. All e-commerce can do is offer a picture and maybe a video of how the product works. It is apparent that traditional stores have both their advantages and disadvantages, in regard to e-commerce. However, the true question is what kind of effect is e-commerce having in the market? Has the introduction of e-commerce to businesses within the retail sector caused the development of a new market segment that until now had been unfilled or is it in direct competition with traditional businesses and will eventually drive them out of business? Two theories have arisen to directly address scenarios, such as, this one. The new niche theory states that changes in environment may create a new niche that has not been occupied by incumbent firms or may not fit well with existing organizational structures or business models of incumbent firms to occupy it (Islam, Lertpittayapoom, Tangpong 133). The opposing theory, called creative destruction, is the process by which entrepreneurs make their entry into established markets through inventions and innovations, which have greater appeals to buyers, and creatively destroy the existing market structure of incumbent firms (Islam, Lertpittayapoom, Tangpong 133). These two theories directly oppose one another, but which, one accurately reflects the effects of the transition to e-commerce. So, is the retail sectors transition to business-toconsumer e-commerce causing new niche formation or creative destruction?

Barker 3 The new niche formation theory suggests that e-commerce is not in competition with ecommerce, but is rather filling what use to be a void within the market. Factors that typically lead to new niche development are changes in technology and/or changes in consumers culture. In the case of e-commerce, both these factors are present. Advancements in technology, have given businesses the ability to offer this kind of service to its consumers. E-commerce was not possible, until progressions were made in network communication technology, computermediated tools, and information technology. These developments in technology have, also, affected the consumers culture. Most people these days have computers or smartphones and access to the internet, whereas in the past computers and the internet were not so readily available. The consumers culture has shifted with the advancements in technology and most consumers are fully equipped to take advantage of the services offered by e-commerce. The new niche formation theory points out, that not all aspects of e-commerce are in direct conflict with traditional businesses. Businesses can use e-commerce to advertise and market for their store. Many people will look at products on the businesses website and then, go to the store to actual purchase the item. According to the Journal of Leadership and Organizational Studies, 51% of consumers, who conduct online product research, still go to the traditional store to actually purchase the product, despite the availability of the ability to purchase the item online (Islam, Lertpittayapoom, Tangpong 133). Business can, also, advertise deals or allow coupons to be printed off, which will in turn encourage consumers to visit their stores. In addition, e-commerce provides a new option for consumers, who are unsatisfied with a traditional stores hours, physical stores, prices, and lack of information. In this way, consumers who normally would not have purchased a product from these traditional stores, anyways, are instead willing to buy the products online. For these reason, the new niche formation theory advocates the idea that e-

Barker 4 commerce firms and traditional firms can coexist or even complement one another because the two exist within different niches of the market (Islam, Lertpittayapoom, Tangpong 133). On the other hand, the creative destruction theory posits that the transition to e-commerce is in direct competition with traditional businesses and destroying the existing market structure of these traditional businesses. Factors that typically lead to creative destruction normally arise from entrepreneurs innovations that replace existing ones. This factor could apply to the transition to business-to-consumer e-commerce because the creation of the ability to sell products online could be directly competing with traditional business and eventually, replace them. The introduction of e-commerce is considered a threat to those businesses that do not possess the ability to adapt to the change by either altering their service or participating in ecommerce themselves. E-commerce provides businesses with the opportunity to bypass the middle man and cater directly to the consumers. By not having to go through the middleman, businesses can offer their product at lower prices. In addition, e-commerce offers access to online stores that are not subject to store hours. Many online stores, also, allow consumers who have used a product to comment on its performance. This gives consumers a chance to determine what others think of a product before they purchase it for themselves. E-commerces advantage of time, money, and effort gives it what appears to be a sizable advantage over traditional businesses. In this way, the creative destruction theory suggest that the transition to business-to-consumer e-commerce is taking sales away from traditional businesses and could eventually, force these traditional businesses out of the market (Islam, Lertpittayapoom, Tangpong 134). . By looking at the two theories, it is apparent that both theories seem to possess some merit to them. The vast frontier that is e-commerce is definitely an area that has not been tread

Barker 5 on before. Both theories agree that e-commerce is the introduction of a new style of business, but the question is does this new style coexist with traditional businesses or hinder them? A study done by Chanchai Tangpong, Muhammad Islam, and Nongkran Lertpittayapoom examined this issue. They gathered retail sales figures made through e-commerce and traditional retail stores from the U.S. Census Survey and statistically analyzed the data. Their study split the retail sector into a digitally-unrelated retail sector and a digitally-related retail sector. Their results showed that the theory that applied varied between the two types of sectors. In the digitally-unrelated retail sector, the new niche formation theory applied, while in the digitallyrelated sector, the creative destruction theory applied. This means that businesses in the digitally-unrelated retail sector can engage in e-commerce if they possess the resources, but if they do not, then they should not be adversely affected. However, businesses in the digitallyrelated sector should engage in e-commerce, otherwise they will lose sales and potentially, be driven out of business in the future (Islam, Lertpittayapoom, Tangpong 138). So, is the retail sectors transition to business-to-consumer e-commerce causing new niche formation or creative destruction? Well, the answer appears to be that it is dependent on whether you are considering the digitally-related or digitally unrelated retail sector. The new niche formation theory applies to the digitally-unrelated retail sector, while the creative destruction theory applies to the digitally-related retail sector. It seems that e-commerce is affecting some businesses negatively, while others are unaffected. However, it appears that ecommerce is here to stay. Therefore, businesses with the resources to engage in e-commerce should do so because it will aid most businesses within the retail sector. For digitally-unrelated businesses, it will aid in economic growth and for digitally-related businesses, it is becoming a

Barker 6 necessity to survive. In the end, it appears that e-commerce is a benefit to consumers, so we can continue shopping from the chair in front of the computer.

Barker 7 Works Cited Tangpong, C, M Islam, and N Lertpittayapoom. "The Emergence of Business-toConsumer E-Commerce: New Niche Formation, Creative Destruction, and Contingency Perspectives." Journal of Leadership & Organizational Studies. 16.2 (2009): 131-140. Print.
http://www.oecdilibrary.org/docserver/download/5kzdcc6tnfmp.pdf?expires=1380677895&id=id&accname=guest&chec ksum=75A18DE472FEC49FFE4366F037FAB772 http://www.merriam-webster.com/dictionary/e-commerce http://www.nytimes.com/2013/10/20/technology/to-catch-up-walmart-moves-to-amazonturf.html?_r=0 http://www.slate.com/articles/business/moneybox/2013/10/_walmartlabs_why_walmart_won _t_succeed_in_e_commerce_even_if_it_does_everything.html