Sierra Bravo helps companies improve their existing website by offering an array of technology service such as Search Engine Optimization (SEO), Legacy Systems, E-Commerce, Customer Relationship Management (CRM), and other customize services. The company was founded by three programmers in 2003, headquarter located in Bloomington, Minnesota, and has grown 100% in staffing since. Sierra Bravo is the largest web development company in the twin cities and a fairly new company that has some entry barriers to overcome.
“New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources.” “The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitors that the entrant can expect.” (Pearce and Robinson, 2004 p 92) Barriers to entry has six major sources such as economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to distribution channels and government policy. Sierra Bravo currently faces three entry barriers.
The first one is related to product differentiation on company brand. Brand identification creates barriers for new companies to maintain customer loyalty. Based on the twin cities business magazine 60 web development companies listed in the twin cities. The product differentiations are not much different from other companies besides the services they offer. Branding is a challenge to overcome that will cost heavily to market their products. The second and third barrier is related to capital requirements and distribution channels. The company wants to expand nationally and need to hire talented sales group to increase sales. The company must spend heavily on advertising, hire and train new employees and purchase lead generation lists from outside source.
In the competitive market of web development, the company offers customize solutions for any requirements its clients need. In 2007, Sierra Bravo announced they are partnering with advertising and marketing companies to support their end clients (Sierra Bravo, 2008). Thus far there has been a significant amount of response to the partner program. Forming a strategic alliance with marketing companies is a good move to gain more customers. In this situation, marketing companies will come to Sierra Bravo for customize services tailored to its clients needs. The company is beefing up its account managers and lead generation team to market its partner program in major cities such as Seattle, New York, Los Angeles, Chicago, Boston, and San Francisco. This initiative will help improve partner program and eventually bring in new clients.
Buyer power is another entry barrier for Sierra Bravo to tap into the national market. This can force down bid prices due to quality of service and comparison of competitive pricing locally to the client. Pearce and Robinson wrote, “The products it purchases from the industry are standard or undifferentiated. The buyers, sure that they always can find alternative suppliers, may play one company against another, as they do in aluminum extrusion.” (Pearce and Robinson, 2004 p 95) Customers are bargaining their position in order to be cost effective for developing Web sites or systems upgrade. One of the company’s objectives is expanding the partner program nationally. Focus is a generic strategy to deal with barrier entrants. “Focus – a strategy that concentrates on such areas a particular buyer groups, industry segments, product lines, and geographic markets.” (Flower, 2004)
Sierra Bravo focuses on marketing agencies that will want successful results through cost effective solutions. However, going nationally to present products to marketing agencies from out state will be a challenge. The company will have a locality issue offering services to its partners due to an unfamiliar brand name. Bargaining powers on pricing from customers will be competitive and Sierra will need to find cost leadership strategies to compete with national competitors. Cost leadership is offering products or services at the lowest cost. For example, Texas instrument is a cost leader. The important message is to understand that one company can only be a cost leader no matter how many companies strive for this position (Speed, 1990).
Sierra-Bravo’s strategy adapting to this trend are resolving the success factor that companies didn’t receive from previous technology firms. By resolving a company issues and maximizing profits creating customize solutions to increase sales helps build company brand. Sierra has worked with Fallon Worldwide Advertising in Minneapolis, Minnesota to help with client multimedia programming and Polaris. The company is worked on Polaris e-commerce Web site to increase the sales in the automotive industry. Partnering with well known companies will help the company adapt to this trend and gain customer loyalty through successful track records.
Rivalries amongst competitors are competitive in the web development industry. Many companies are jockeying for the same position to be competitive in pricing, product and success factors. Some related factors due to intense rivalry between companies. Pearson and Robinson wrote: 1. Competitors are numerous or are roughly equal in size and power 2. Industry growth is slow, precipitating fights for market share that involve expansion minded members
3. The product or service lacks differentiation or switching cost 4. Fixed costs are high or the product is perishable 5. Capacity normally is augmented in large increments 6. Exit barriers are high. Exit barriers, like very specialized assets or management’s loyal to a particular business, keep companies competing even though they may be earning low or even negative returns on investment 7. The rivals are diverse in strategies, origins, and “personalities.” (Pearson and Robinson, 2004 p 96)
As industries growth continues the profitability decrease through time. Companies must be innovative on new products to uphold with current industry trends and remain competitive with other companies. Through increasing product differentiation and keep fixed cost low a company can gain competitive advantage with its competitors. In order for a company have monopolize its marketplace executives in the firm must identify and find solutions to answer four questions related to industry and competitive analysis. Question (1) What are the boundaries of the industry? (2) What is the structure of the industry? (3) Which firms are our competitors (4) What are the major determinants of competition? (Pearson and Robinson, 2004 p 97)
Sierra Bravo industry boundaries offer similar products as its competitors such web development, Search Engine Optimization, Content Management, E-Commerce, and additional customize services requested by clients. In the company situation, the company has no boundaries related to programming web services to enhance customer Web sites. All customers project are tailored to customers’ needs and help them maximize profits through effective programming. Sierra identify some competitors in the local twin cities areas are Arran Technologies, Inc., EDigita, Tenth Floor, Intercomm Technology and Design 53, LLC are few of the major players. The major determination of the competition is related to similar products. Similar products cause companies to compete fiercely for customers.
Sierra Bravo strategic game plan relates to its partner program. The company allow marketing and advertising agency become partner with the company and provides benefits through servicing clients. Marketing and Advertising will supply customers to Sierra Bravo through the partner program. Within the past year Sierra Bravo received positive responses through partner program locally and in Chicago. The company continues to strengthen its marketing tactics and pursuing other major cities.
Entry barriers, buyer power and competitive advantage are inter-related to one another. Entry barriers are important to consider due to customers buying power towards company products. Customers are selective due to pricing and quality in comparison to its competitors. Buyers are interested in reducing overhead cost through effective implementation and maximizing profits for its firm. Entry barriers and buyer power are part of competitive advantage by brainstorming strategies to compete within the market share. A company must be innovative in a new niche market to remain competitive and gain advantage over its competitors.