2.1.4 How the digital economy affect markets and firms Flashcards
Digital economy
An economy built on digital technologies
Structural change
Reallocation of resources, concerning raising and falling demand
Viral marketing
Spreads product information from person to person as individuals respond to rhe message and pass it on via social media, text or email
Social media
Based on digital communication devices where online communities are created to share info
Micromarketing
Businesses target small groups of consumers via social media with personalised recommendations or promotions
what are features of a digital economy
Digital economies have:
Infrastructure (hardware, software, networks)
E business
E commerce
Use of social media for business purposes
how does the digital economy affect markets and firms
- Provides easy access to markets → opens up channels to connect buyers and sellers
- Drives economic growth and creates wealth
- Structural change: given more power to buyers and consumers against big producers
- Creative destruction is mostly positive but market power can be a problem (google, amazon domination)
viral marketing
Price comparison sites have increased the power of the consumer
- Internet provides information on products and prices
- Consumers can identify the best deal and maximise spending power
- Traditional retailers review pricing strategies or develop other ways of achieving competitive advantage like customer service
social media
- People are more inclined to buy specific brands in the future because of the brand’s social media presence
- Platforms allow businesses to promote awareness and increase sales, but to get valuable feedback from customers
micro marketing
- Using digital tech makes it easier to identify small groups of potential customers and keep in touch with them
- Eg analysing buying and browsing history to generate individual recommendations
- Storage costs are lower in warehouses than in high street shops so online suppliers can supply a higher range of products, esp if the market is limited
online retailing and distribution
- Traditional retailers are finding ways to adapt and retain customers
- Keeping shops open so customers can look at stock and interact with employees
- Encouraging online ordering, from supermarkets
recruiting and retaining staff with digital skills
- Easier with online platforms like linkedin
- Online training is also good for IT training
- Can make useful contacts all around the world
the long tail
‘Future of business is selling less of more’
- Long tail is about the mass market is turning into a million niches (more products in the market)
- Hit: best seller eg a blockbuster vs a niche = lesser known, specific market
- The long tail shows there are more niches than hits in modern days + the cost of reaching those niches is now falling dramatically
- When there is an expanded variety of niches and filters to sort through them (consumers can find specific niches) the demand curve flattens
- Revenue from niche markets may outweigh the hits → consumers have more choice as the internet encourages creative approaches to specialised interests
how does the internet benefit consumers (distance)
The internet reduces the effective distance between producers and consumers: they can tailor products better to customer desires, create more niches and make a profit tailoring to these niches
wider geographical markets for small firms
Online access markets makes it possible to gather customers worldwide
- Smaller businesses can have global reach
- econmies of scale helps them grow
- Location may be much less significant than it has been in the past
