Competitive analysis: Porter’s Five Forces

39 of 87 Denmark is an environmentally conscious environment, which is committed to creating a greener future.

GDPR is still in full effect, and with the increase in the digitalization of society and the increase in the amount of data collected from online platforms, the EU legislation is a highly important external factor to consider. Consumers are worried about the collection and use of their personal data.

40 of 87 forces can be replaced by a classic SWOT or a stand-alone PESTEL, or through following the EBMC.

6.2.1 Threat of New Entrants

It is assessed that the development and potential within the Digital Loyalty Industry makes it a highly attractive market. As explained Chapter 5 – Industry and competitor

Identification, there are no clear-cut market leader within this industry. The increasing demand for digital loyalty solutions in a market of no leaders creates an environment where it is possible to differentiate comparably to other suppliers and create new and innovative solutions.

There are currently a medium to high complexity within creating digital loyalty solutions, especially if these solutions include payment integrated loyalty solutions. The complexity and legal requirements within the industry can make it difficult for smaller IT Service Providers to penetrate the market. There are hence medium to high development costs and a need for highly specialised and educated IT developers in order to create

competitive solutions within the Digital Loyalty Industry.

When we’re talking about digital loyalty for retail and restaurant chains, there are high requirements to security and operational stability of the IT systems that are developed.

This is a matter of trust, where MyLoyal’s gradually well-established reference list on created loyalty solutions to companies in Denmark is valued as a strength.

There also exists a high demand for service in the connection to implementation and operation of the IT solutions for the Danish customers, which can make it more difficult for international providers of loyalty solutions to penetrate Denmark, as they will not have a physical presence in the market.

Overall the entry barriers in the industry are assessed to being medium, which is an advantage for already established companies within the industry – herein MyLoyal, which can make it more difficult for potential new entrants to penetrate the market.

41 of 87 6.2.2 Bargaining power of buyers

The pandemic has hit very hard the retail and restaurant industries, meaning that their financial prowess has been dramatically reduced compared to prior to the pandemic. This means, that they have lowered financial possibilities to acquirer bigger loyalty solutions, as they often require substantial up-front payments in order to build the platforms. The

lowered financial resources decreases the bargaining power, but at the same time it also forces providers of loyalty solutions such as MyLoyal, to adjust their targeting of their solutions or restructure their pricing, if they hope to gain new customers during the

pandemic. On the other side of the coin the industry of digital loyalty solutions is in growth, and the restaurant and retail industry has been forced to adapt digital solutions during the pandemic, it is expected that MyLoyal. Due to the high complexity and IT security required for the loyalty solutions to be created and implemented successfully it is assessed to reduce the buyers bargaining power.

Once a customer has made an agreement with a digital loyalty provider such as MyLoyal, the customer’s tendency to change is very low. This is due to high shifting costs, low product exchangeability and the buyers high independence. The complexity of the

solutions, which are often integrated into the customers’ existing systems also means, that once the integrations has been completed and the solution is ready and going live, the shifting costs are very high, since very little of the build software will be able to be moved to another supplier – the new supplier of the loyalty solution would most likely have to build everything from scratch again to fit their existing ecosystem and software.

Overall the bargaining powers of the buyers are assessed to being low to medium. The medium aspect is based on the state of the world with the pandemic surging the industries of retail and restaurants, meaning that the financial resources are very limited for these.

6.2.3 Threat of Substituting Products

The IT industry is in high growth with new and disruptive technologies seemingly appearing out of thin air at record speed. New ways of working with IT, loyalty,

implementation, and data are booming. The ability to continuously innovate and develop new user centric loyalty systems determine, if companies such as MyLoyal has any growth

42 of 87 potential within the Digital Loyalty Industry. The threats of substituting products are split between web-only based e-commerce platforms, such as Zalando, or physical stamp cards and other physical ways of rewarding loyal customers. As MyLoyal currently

primarily creates for the end-user loyalty apps, and not any web based e-commerce loyalty such as webshops, this is still categorized as a substituting product to the needs of the user and customers. But MyLoyal is currently in development with Petlux to bridge this gap, of also providing some web digital loyalty, but as for now the primary focus and expertise for MyLoyal is loyalty apps. The threat of web based e-commerce platform developers who created for example Zalando and ASOS also lies in the future potential threat of them moving more deeply into developing loyalty technologies. As of today, they are not specialised within the loyalty space but e-commerce, yet they are among the companies who could potentially make technological moves that would make it difficult for startup loyalty providers to compete.

The threat is assessed to be medium to high, due to the uncertainty that lies in the threat of substituting products, as it is still highly difficult to expect the moves of the big players that operate within the space of loyalty.

6.2.4 Bargaining power of suppliers

As explained in Chapter 4 – Introduction to MyLoyal, the company creates IT loyalty solutions for Retail and Restaurant chains, but the development is based on a long connection of different technologies and partnership suppliers. Among the primary

technologies used are Drupal CMS, IBM Cloud, Sketch, and Zeplin – the complete list of suppliers will be described in Chapter 6.3 Revenue & Cost Streams. MyLoyal is subject to some standard IT-systems from the companies suppliers, which the company’s products and solutions must be built from. MyLoyal has a very low to almost non-existing chance of submitting demands to these suppliers, since alle the above mentioned companies are large and dominating multinational corporation, where MyLoyal is a simple and small player.

By partnership suppliers are meant suppliers of products and technologies which MyLoyal has a close relation to. Among them are the different companies, which MyLoyal integrates

43 of 87 with in order to create the loyalty solution with payment integration. Among these are; (1) point of sales (POS) providers FlexyBox and OnlinePOS, (2) PCI compliant payment gateway provider Reepay and (3) PCI compliant Storebox for credit card storage.

There strict legal requirements in order for MyLoyal to provide the payment integrated loyalty solution to its customers, since this solution includes storages payment card information. This part of the solution is where Storebox plays a big role, and they are the only Danish company which sells a solution for payment card storage and recognition across platforms in Denmark, which makes their bargaining power very high.

It is thus assessed that MyLoyal has a very limited bargaining power against their suppliers, which also results in a sometimes high pricing on the required technologies which can be hard to negotiate.

Figure 10 MyLoyal Integrations

Source: Own creation

6.2.5 Industry Rivalry

The industry rivalry within the digital loyalty industry is categorized as high. The size of primarily the IT consultancy firms has a big impact of the competition within a mostly zero sum game industry. It is a zero sum game in the sense, that a customer who decides to make a collaboration with a digital loyalty provider, will not work with any other loyalty provider, hence the zero sum game. There is generally a low similarity between the

44 of 87 different players within the industry, and the chance of getting an identically solution from two competitors are very low, due to the complexity of building integrated IT systems. As explained previously there is a domino effect regarding building up trust through a

reference list of developed loyalty solutions, which can make it difficult for new companies to compete within the industry. This fact further establishes the dominating players such as Netcompany, Nodes, and IBM as the forces to be reconned with in the industry. Their degree of knowledge in the industry is a very high competitive advantage compared to the different loyalty solutions in the market, where it can be difficult to break through the noise.