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Future Media Research Programme MARKETING AND THE INTERNET A RESEARCH REVIEW Future Media W

Future Media Research Programme MARKETING AND THE INTERNET A RESEARCH REVIEW Future Media W
Future Media Research Programme MARKETING AND THE INTERNET A RESEARCH REVIEW Future Media W

Future Media Research Programme

MARKETING AND THE INTERNET:

A RESEARCH REVIEW

Future Media Working Paper

No. 01-801

Version 1.3

May 2002

Patrick Barwise, Anita Elberse and Kathy Hammond

To be published in Weitz, B and R. Wensley, Eds. Handbook of Marketing, Sage, 2002.

This document is available at:https://www.doczj.com/doc/175668552.html,

Please send comments to: mati@https://www.doczj.com/doc/175668552.html,

The Future Media Research Programme was set up in 1996 with support from the Markle Foundation, New York, and is funded by a consortium of around thirty companies.

Patrick Barwise is Professor of Management and Marketing and Chairman of the Future Media

Research Programme at London Business School. Anita Elberse is a PhD student at London

Business School and is currently a Visiting Doctoral Fellow at The Wharton School, University

of Pennsylvania. Kathy Hammond is Assistant Professor of Marketing and Director of the Future

Media Research Programme at London Business School.

We would like to thank everyone who contributed to this manuscript, especially Tim Ambler,

Kent Grayson, Bruce Hardie, Arvind Sahay, Craig Smith and Naufel Vilcassim (all at London

Business School) who provided detailed comments on an earlier version and many colleagues

across the world who gave comments and suggestions about relevant literature.

London Business School, Regent’s Park, London NW1 4SA, U.K

Tel: +44 (0)20 7262 5050 Fax: +44 (0)20 7724 1145

https://www.doczj.com/doc/175668552.html,/marketing

Copyright ? London Business School 2002

MARKETING AND THE INTERNET

Abstract

This paper reviews the research to-date on how the Internet is impacting marketing. It focuses mainly on academic research published in US journals, but includes selected material from other sources. It covers internet adoption and usage; online purchasing behavior; internet advertising; internet economics and pricing; channels and intermediaries and online marketing strategy. The final section gives overall conclusions and briefly lists some opportunities for future research.

Contrary to earlier hype, the Internet does not change the fundamental principles of marketing. Nor has its impact to-date – e.g. on consumer behavior, advertising, pricing, channels, intermediaries, strategy and globalization – been anything like as dramatic as predicted. Nevertheless, it has already had some effect on all of these areas. For instance, it is emerging as a flexible, fast-growing advertising medium and as a significant direct channel in many markets (PCs, books, music, travel, and even cars). It has led to some reduction in average prices and in price dispersion. It is bringing into the mainstream previously exotic business models such as auctions, electronic markets, and brand communities. Most of its successes have come from established businesses with ‘bricks and clicks’ strategies which use the Internet to supplement existing activities but rarely to generate much direct revenue

We expect its impact to increase steadily over the next ten years, as the technology improves, its availability and usage continue to grow, and businesses learn better how to use it within their wider marketing strategy. Earlier expectations about the Internet were so overblown that the reality was bound to disappoint. But by any normal standards, it is a fast-growing young medium with wide-ranging effects across the whole marketing spectrum.

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MARKETING AND THE INTERNET:

A RESEARCH REVIEW

Contents

1.Introduction: The Promise of Digital Marketing (3)

1.1How Important is the Internet in Marketing? 3

1.2Aims and Scope of this Review 6

2.Internet Adoption, Usage, and the Consumer Experience (8)

2.1Predictors of Internet Adoption and Usage 8

2.2Adoption of the Internet as an E-Commerce Channel 10

2.3Service Quality, Fulfillment and Site Design 13

2.4Software Agents 17

3.Online Purchasing Behavior (19)

3.1Retailer/Brand Choice and Loyalty on the Web 19

3.2Brands, Trust and Customer Relationships 23

3.3Using Community to Reinforce Loyalty 26

4.Internet Advertising (28)

4.1The Role of Advertising Online 28

4.2Consumer Attitudes Towards Advertising on the Web 29

4.3Advertising Effectiveness Online 30

5.Internet Economics and Pricing (32)

5.1Frictionless Markets? 32

5.2Price Levels and Price Dispersion 33

5.3Bundling and Versioning 36

5.4Auctions 37

5.5Conclusion: Little Impact To-Date and Brands are Not Dead 39

6.Channels and Intermediaries (40)

6.1Disintermediation 40

6.2Reintermediation and ‘Cybermediaries’ 41

6.3Business-to-Business (B2B) Markets 44

7.Online Marketing Strategy (45)

7.1Strategy and the Internet 45

7.2How Firms Should Prepare for the New Economy 47

7.3Business Models 48

7.4International Perspectives 50

7.5Online Marketing Strategy: Tentative Conclusions 51 8Conclusions and Research Opportunities (53)

8.1Overall Evaluation: The Impact of the Internet on Marketing 53

8.2Specific Insights from the Research To-Date 54

8.3Future Research Opportunities 56 References (59)

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1. Introduction: The Promise of Digital Marketing

1.1 How Important is the Internet in Marketing?

The Internet has become one of the most discussed topics in business and academia. The speed of development of electronic marketing has been fast by any standards, and especially compared with the slow process of academic research and publication.

At the time of writing, however, business and financial markets are recovering from earlier overexuberance about the Internet. It is now recognized that the fundamentals of business have not changed; that most pure-play dotcom business models were wildly overoptimistic, especially in business-to-consumer (B2C) markets; and that the future role of the Internet in marketing will be largely as part of an integrated combination of ‘bricks and clicks’.

Despite this necessary reassessment, the Internet remains the most wide-ranging and significant area of current development in marketing:

? It allows faster, cheaper, more personalized interactions (and raises more privacy concerns) than any previous medium.

? It can dramatically reduce customer search costs and even support purchase decisions made on behalf of the customer by intelligent software agents.

? It allows seamless communication over any distance, local or global.

Eventually, it will also support effective automatic language translation.

? It is becoming ubiquitous, allowing ‘24x7’ communications with customers at home, at work, at the point of purchase, on the road, or anywhere else -

including location-sensitive communications.

? Increasingly, it is evolving beyond a single, limited channel (a PC connected to

a regular telephone line) to exploit a range of new, high-capacity fixed and

mobile networks and ‘convergent’ devices such as interactive digital television

(iDTVs), online games computers, next generation cellphones and PDAs, in-car telematics, online vending machines, and utility meters.

These capabilities have the potential – in principle – to transform many aspects of marketing: segmentation and targeting, bundling, pricing, customer service and customer relationship management, marketing communication, promotion, channels and value chains, brand communities, global marketing, and the importance of brands.

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Marketers are still trying to discover the long-term implications for strategy and execution, but it is possible to draw some initial conclusions, including on many of the topics just listed. Our overall assessment is that, despite the earlier hype, the Internet remains the most important development in B2C markets since the growth of television and supermarkets 50 years ago, and the most important in business-to-business (B2B) markets since the railroad and telegraph 100-150 years ago.

Hoffman (2000: 1) described the Internet as “the most important innovation since the development of the printing press”, with the potential to "radically transform not just the way individuals go about conducting their business with each other, but also the very essence of what it means to be a human being in society”. Peppers and Rogers (1993; 1997) argued that digital marketing represents a complete transformation of the marketing paradigm from a predominantly one-way broadcast model to a model of totally interactive, totally personalized one-to-one relationships. However, the extent to which digital media such as the Internet will revolutionize business, home life, and the relationship between marketer and consumer is still controversial. Earlier innovations such as the electric telegraph, the railroad, electricity, the telephone, the automobile, the airplane, radio, and television have all had widespread impact on both business and everyday life, although perhaps only electricity quite matches the combined speed and scale of the Internet’s impact (Barwise & Hammond, 1998).

Many of the features associated with the Internet have appeared before in the context of technologies such as the electric telegraph (Standage, 1998) and radio (Hanson, 1998; Hanson, 2000). Ethnographers such as Venkatesh (1985) have long studied people’s everyday use of technology in the home. Mick and Fournier (1998) and Fournier, Dobscha & Mick (1998) found that much so-called technophobia among consumers is entirely rational and based on their previous experience of technology making life more complicated – not simpler, as claimed. Certainly many of the early claims about the likely speed of the Internet 's impact, for example on the use of other media (Gilder, 1994; Negroponte, 1995) have turned out to be wide of the mark. Exaggerated visions of a wired society go back at least to EM Forster writing in 1909 (Baer, 1998).

What is clear is that the Internet combines many of the features of existing media with new capabilities of interactivity and addressability, as well as making it much easier for both companies and individuals to achieve a global reach with their ideas and products.

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By the start of the 21st century the Internet had already been adopted on a massive scale, especially in North America, Australia/NZ and Northern Europe, and its effects will continue to be felt in almost every market and on almost every aspect of marketing. These effects range from the most micro (such as ad agencies needing to experiment with the design of interactive advertisements) through to the most macro (such as whether corporate profitability will be lower in ‘frictionless’ markets).

A few researchers were quick to recognize the potential of new interactive media to affect all aspects of marketing. Blattberg and Deighton (1991: 8) noted that, by the early 1990s, technology was already allowing interactive marketing to take place to individually identifiable consumers: “When a firm can go back to a customer to respond to what the customer has just said, it is holding a dialogue, not delivering a monologue”. They suggested that good database design was key, that profiles of customer histories should be collected, and that privacy concerns would grow. Deighton built on this work by gathering together a collection of thoughts from marketing academics and industry experts on how interactivity might reshape the marketing paradigm (Deighton, 1996). He also foresaw the emergence of a new marketing paradigm that would bring about a convergence between consumer marketing and business-to-business marketing (Deighton, 1997). He suggested that, “the discipline of marketing, whose stock of knowledge amounts to a fund of insights on how to compensate for the imperfections of two kinds of tools – broadcast tools and sales agent tools – now has a new tool without some of those imperfections but with a whole new set of imperfections yet to be discovered” (Deighton, 1997: 348).

Hoffman and Novak (1996; 1997) identified the unique ‘many-to-many’ property of computer-mediated environments such as the Web. They suggested that marketing activities will be difficult to implement in their traditional form and predicted the evolution of a marketing paradigm compatible with the increased role of the consumer and of interactive technologies.

Other researchers have suggested similar far-reaching changes in business: Haeckel (1998: 69) proposed that the collaborative potential of information technology and the Internet might recast business as “a game with customers, rather than... a game against competitors”. Taking a similar view, Achrol and Kotler (1999) suggested that, as the hierarchical organizations of the twentieth century disaggregate into a variety of network forms, customers will enjoy an increasing capacity to become organized, with

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marketers becoming agents of the buyer rather than the seller and adopting the role of customer consultant rather than purveyor of goods and services. They cite examples such as Baxter Travenol in hospital supplies, McKesson in pharmaceuticals, Travelocity in flight booking, and Amazon (Achrol & Kotler, 1999: 157-8). Similarly, Nouwens and Bouwman (1995) explored the conditions likely to give rise to ‘network organizations’ such as the recorded music retail industry. They concluded that the role of a system integrator is crucial, but that a dominant actor (e.g. a copyright holder) could hinder the effective use of industry-wide communication networks.

In exploring the research agenda for marketers, Winer et al. (1997) examined the potential for marketing research associated with computer-mediated environments (CMEs). They suggested that the CME provides a new context in which to study existing theories as well as being an entirely new phenomenon meriting research in its own right. They identified five key areas of choice research likely to be impacted by the development of CME technology: decision processes, advertising and communication, brand choice, brand communities, and pricing. This review covers research on all five as well as on other topics.

1.2 Aims and Scope of this Review

Our aim is to review the research to-date on how the Internet is impacting marketing. The speed of development and the shortage of new theory to support hypothesis testing necessarily mean that our review deals more with empirical research than with theory. There has, however, been a growing stream of theoretical development and discussion from early essays on marketing in an information-intensive environment (Glazer, 1991), on the nature of interactivity in both marketing (Blattberg & Deighton, 1991; Rust & Oliver, 1994) and communication (Dutton, 1996; Morris & Ogan, 1996; Neuman, 1991; Pavlik, 1996), through ethnographic work which explores household-technology interactions (Venkatesh, Dholakia, & Dholakia, 1996) to the work of Hoffman and Novak (1996) – the main pioneers of Internet research in marketing – who proposed one of the first models of consumer behavior in computer mediated environments – and to Bakos and Brynjolfsson (1999, 2000a, 2000b), and their work on online pricing strategies.

The Internet impacts marketing strategy, channel management, pricing, marketing communications, customer service, decision support systems, database marketing,

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global marketing and business-to-business marketing. We here focus on research which looks at how the Internet is, or can be, used by both firms and consumers to support the marketing process. We concentrate on research in consumer behavior, advertising, pricing, channels and marketing strategy, because empirical research is most advanced in these areas. We aim to provide an overview of the current state of research and briefly to identify opportunities for further work. We do not cover the extensive literature on supply chain management, information management, organizational behavior, or the broader impact of the Internet on productivity, profitability, employment, and international trade.

We searched for relevant literature in a number of ways. First, we used databases such as JSTOR, ABI Inform/ ProQuest Direct and Web of Science, searching for key terms covering the topics under investigation. Second, we browsed volumes of relevant marketing journals (e.g. the International Journal of Research in Marketing, Journal of Consumer Research, Journal of Electronic Commerce, Journal of Interactive Marketing, Journal of Marketing, Journal of Marketing Research, Management Science, and Marketing Science) published after 1994 – roughly the time at which articles about the Internet started to appear. Third, we searched for articles on the Internet, usually starting at popular search engines, web pages published by academic institutions (e.g. the MIT E-commerce Forum, Wharton's Forum on Electronic Commerce, and references on UCLA's Anderson School website), as well as individual researchers' personal web pages. Fourth, we collected literature based on suggestions by colleagues who had read an earlier draft of our manuscript (which we had made publicly available on the web). In our search, we did not limit ourselves to published articles, book chapters and books; given the dynamic nature of the topic, we also sought to include working papers and manuscripts under review. In total, we collected nearly 400 publications1.

The rest of this paper is organized as follows. Section 2 concerns Internet adoption, usage and the consumer’s experience. Section 3 builds on this to discuss the evidence on consumers’ online purchasing behavior. Section 4 covers Internet advertising. Section 5 then explores wider issues related to Internet economics and pricing, including the evidence on whether the Internet is, as is often claimed, leading to

‘frictionless’ markets characterized by fierce price competition. This leads into Section

1 Just over half these publications are referenced in this review.

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6, on the impact on channels and intermediaries. Section 7 reviews the strategies and business models that firms are developing in response to the new threats and opportunities created by the Internet. Finally, Section 8 briefly summarizes our findings and discusses future prospects and research opportunities.

2. Internet Adoption, Usage, and the Consumer

Experience

In this section we start by reporting research on the factors that influence customers' adoption and usage of the Internet in general. We next discuss its adoption specifically for e-commerce, and factors such as site design, service quality and fulfillment that can affect its continued use as an e-commerce channel. Finally we introduce the relevant literature on software agents.

2.1 Predictors of Internet Adoption and Usage

The use of the Internet as a marketing channel depends both on the growth in general Internet penetration and usage and on how the Internet then influences the adoption and diffusion of other products and services. In both these contexts, there is the usual caveat that one must be careful not to assume that the predictors of early adoption will also hold for later adopters.

Rangaswamy and Gupta (1999) draw on the adoption and diffusion literature to propose how the Internet will develop. They use the GVU database 2 and other surveys to explore early adopters’ attitudes towards the Internet and perceptions of online versus offline vendors. They found that, among very early adopters, especially those who were heavy users, the primary reason for using the Web was for shopping.

Hammond, Turner & Bain (2000) compared Internet users and non-users to determine if there were differences between these two groups in their attitudes towards technology,

2 The Graphics, Visualization & Usability (GVU) Center at Georgia Institute of Technology ran a series of WWW User Surveys from 1994 to 1998. The data from these surveys were made widely available for research and many studies mentioned in this chapter made use of one or more of these datasets. For more information see: https://www.doczj.com/doc/175668552.html,/gvu/wwwinit/survey.html

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ownership of different technologies, and information versus entertainment needs. They found that, compared to non-users, Internet users were more interested in technology in general and the benefits it provided, especially if they thought it would save them effort or time. They were also more likely to think that technology was both important and fun. Internet users were primarily motivated by communication/information needs but this did not appear to be because they felt ‘time-pressured’ compared to non-users. A tentative implication of these findings is that the Internet may need to become more entertainment-oriented in order to attract a broader active user base.

Emmanouilides and Hammond (2000) used logistic regression to explore four successive waves of survey data on Internet users. They found that the main predictors of active or continued use of the Internet were: time since first use (very early adopters were the most likely to be active users, but this relationship was curvilinear, with middle adopters more likely than other groups not to have used the Internet in the previous month); location of use, particularly at home; and the use of specific applications, such as information services. However, the main predictors of frequent or heavy Internet use were: use of email for business purposes; time since first use of the Internet; and location of use (either at work or at home with two or more other people).

As the Internet matures as a consumer medium we are starting to see studies which evaluate how it is used and, what makes for a compelling experience. Novak, Hoffman & Yung (2000) built on Hoffman and Novak's (1996) discussion of ‘flow’ to develop a model of the components of a compelling online experience. The model was validated using a web-based consumer survey. A compelling experience was found to be positively correlated with fun, recreational and experiential uses of the Web, with expected use in the future, and with the amount of time consumers spend online, and negatively associated with work-related usage. Faster download and interaction were not, per se, associated with a compelling experience.

Other evidence supports the importance of the fun or hedonic aspect of Internet use. Hammond, McWilliam & Diaz (1998) explored the differences between novices and more experienced users and their appreciation of the Web’s informational and entertainment value. They found that, while prior experience was an important moderator of users’ attitudes towards the Web, its influence was nonlinear. The heaviest users were enthusiasts for the medium, while moderate and light users perceived it as a source of information, but not for entertainment or fun.

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Exploring the different reasons people have for using the Internet, Hoffman, Novak & Schlosser (2000) used the locus of control (LOC) construct to study differences in usage between those with an internal versus an external focus. They found that those who use the Web as a substitute for other activities tend to have an external orientation, whereas those with an internal focus use it in a more goal-directed manner as a supplement to other information gathering activities.

Applying the uses and gratifications perspective to Web users, Eighmey and McCord (1998) found similarities to the uses and gratifications reported for other media. However there were additional factors related to personal involvement and continuing relationships that were associated with users’ reactions to websites. As Venkatesh (1998) notes, consumers not only consume new technology and its products but are also consumers of the market processes which are themselves affected by new technology, and all these processes can affect the social order. Related to the experience of consumers in online environments, Gould and Lerman (1998) analyzed early consumer-to-consumer (C2C) exchanges on an online discussion forum, NetGirl, in a bid to describe and understand, in phenomenological terms, the consumer experience.

These adoption and usage studies treat the Internet as an additional medium in consumers’ lives. We now turn to research which specifically evaluates its adoption and use as a channel for commerce.

2.2 Adoption of the Internet as an E-Commerce Channel

Hoffman, Novak & Chatterjee (1995) were the first researchers to propose a framework for examining the commercial development of the Web. They explored its role both as a distribution channel and as a medium for marketing communication, evaluated the resulting benefits to consumers and firms, and discussed the barriers to its commercial growth from both supply and demand side perspectives. Their classification scheme categorized websites as either destination sites (online storefronts and other content sites) or as Web traffic control sites (malls, incentive sites, and search agents). They proposed that the interactive nature of the Web freed customers from their traditional passive role as receivers of marketing communications, giving them access to greater amounts of dynamic information to support decision making.

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In an early study comparing Web shopping with buying through other channels, Palmer (1997) tested the buying of 120 different products across four retail formats: in store, catalog, cable television, and the Web. Total product cost did not vary significantly between the four formats, but there were significant differences in product description, availability, delivery, and time taken to shop.

Consumer substitution between online, traditional retail, and direct mail has been explored by Ward and Davies (1999) using a transaction cost approach. Ward and Davies developed a model to investigate distribution channel choice and tested it using survey data, finding that consumers considered online shopping and direct marketing to be closer substitutes than either of them with traditional retail. Degeratu, Rangaswamy & Wu (1999) hypothesized how online and traditional grocery stores differ in their influence on consumer choice. They found that brand names were more valuable online in categories where information on fewer product attributes was available; that ‘non-sensory’ attributes (e.g. the fat content of margarine) had more impact on online choice than ‘sensory’ ones (e.g. visual cues such as paper towel design); and that price sensitivity was higher online because online promotions were stronger signals of price discounts. The combined effect of price and promotion on consumer choice was found to be weaker online than offline.

Other research has covered the battle between bricks-and-mortar and Internet companies. Interesting in this regard is a study by Goolsbee (2000) on competition in the computer industry. Based on Forrester Research survey data covering 90,000 households, he constructed a price index measuring the offline costs of a computer in different cities, and then calculated how likely a computer buyer would be to purchase online, taking into account prices of computers offered by offline retailers. He found that if local (offline) and online prices were initially equal and local prices were to rise by 10%, bricks-and-mortar retailers would see their share of unit sales fall from 68% to 63%, assuming the total volume of purchases remained unchanged. Although the precise effect may vary among sectors and products, and the findings indicate that online and offline purchases are to some extent substitutes, this suggests that there is less rivalry between offline and online retailers than between retailers operating nearby stores.

Building on the channels literature, Morrison and Roberts (1998) explored the determinants of consumer consideration of new delivery channels for existing services

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in terms of preference for the service, preference for the delivery method, and the fit between the service and the delivery method. They suggested that adoption of new channels was being slowed by consumer doubts over the relative advantage of these new channels and also the lack of fit between the service (their example was banking) and the new channel. They concluded that consumer e-commerce firms need to spend more effort explaining to consumers the fit and appropriateness of new delivery methods for their goods and services.

Using US survey data from the GVU Center (see footnote 2), Bain (1999) examined factors related to the adoption of the Internet as a purchase medium. A strong negative relationship was found between consumer perceptions of the risk of web-shopping and purchase behavior, but not between perceptions concerning information privacy and purchase behavior. This suggests that consumers will not buy online if they are worried that there is a financial risk but that they are less concerned about their personal details being kept, used, or traded by retailers.

The most likely candidates to be early adopters of retailer websites have been found to be consumers who were familiar with the Internet and already used to other modes of home shopping (Balabanis & Vassileiou, 1999). Consumers in higher income groups were more enthusiastic about shopping on the Internet, but for this segment strong brands were key to shopping online. Li, Kuo & Russell (1999) found that education, experience, views on convenience, channel knowledge, perceived distribution utility, and perceived accessibility were robust predictors of the extent to which an Internet user was a frequent online buyer.

Bellman, Lohse & Johnson (1999) surveyed over 9,000 online users and used logistic regression to identify factors that predicted whether an online user bought products online, and if so, how much they spent. The best predictors were ‘time starvation’ (how many hours a week the user worked) and the extent of their ‘wired’ lifestyle. Lohse, Bellman & Johnson (2000) re-surveyed the same respondents to test whether and how their attitudes and behavior had changed over time. They found that the average annual spend per purchaser had increased over time; time starvation and a wired lifestyle were still major determinants of the amount of online spending; but time starvation no longer appeared to influence whether a person chose to buy from an online store. A further finding was that, while the percentage of respondents who made a purchase online increased over time, a significant minority (14%) who had previously bought online,

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had ceased to do so. The authors suggest that this was mostly due to respondents having had bad experiences with online retailers.

Swaminathan, Lepkowska-White & Rao (1999), using an email survey of GVU Center respondents, found that concerns about privacy and security had minimal effect on consumers’ online purchasing behavior, but that those who purchased frequently online were more likely to support new laws to protect privacy (perhaps because they knew more about what companies do with the data). The main determinant of online purchase frequency was perceived vendor characteristics, especially price competitiveness and the ease of canceling orders. Another factor was that consumers motivated by convenience (mostly men) were more likely to buy online than those who valued social interaction (mostly women).

Another key factor that has been found to determine whether consumers buy online is whether this fits into their lifestyle, and the extent to which they perceive it as easy and convenient (Becker-Olsen, 2000). She found that those not buying online felt that traditional shopping was easier, quicker, cheaper and more convenient for their particular lifestyle. Even those who did buy online did not perceive it as quicker or less expensive, nor did they feel that they received better service. Neither group (online buyers and non-buyers) seemed strongly concerned with security risks, although the overall credibility of the company/site was seen as important, especially by those who had not purchased online. Other factors were the need to see/touch the product (in some categories) and consumers’ need to have the product immediately.

2.3 Service Quality, Fulfillment and Site Design

Building on Hoffman, Novak & Chatterjee’s (1995) framework for classifying Internet commerce sites, Spiller and Lohse (1998) surveyed 44 website features across 137 women’s apparel retail sites. Using cluster and factor analysis they identified five distinct web catalog interface types: superstores, promotional stores, plain sales stores, one-page stores, and product listings. Differences between online stores centered on size, service offerings, and interface quality.

Again building on the Hoffman and Novak framework, it has been proposed that there are three major components to a consumer's online shopping experience: interface quality, encounter quality, and fulfillment quality (Chang, 2000). We can think of these

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as process, experience, and results, although in the online world these elements are often more intertwined than in traditional retail channels. To build brand equity, it is suggested that firms need to ensure excellence on all three dimensions. We now consider empirical research findings in these areas.

One key aspect of the online experience investigated by researchers is the time taken for consumers to access the information they require. Dellaert and Kahn (1999) investigated whether the waiting time experienced by consumers (e.g. while pages downloaded), affected subsequent evaluation of the web content. They found that the potential negative effects of waiting can be neutralized by improving the waiting experience. Consumers may feel negative affect as a result of waiting, but this did not necessarily impact on their evaluation of the web material itself, as long as the waiting time was signaled and expected.

This finding was amplified by Weinberg (2000), who showed that the perceived waiting time could be significantly influenced by providing a waiting time anchor lower than the actual waiting time. In an experiment where all subjects experienced an actual wait of 7.5 seconds, those given the message “Please wait about 5 seconds” on average estimated the wait was 5.6 seconds; those told “Please wait about 10 seconds”estimated 8.7 seconds. In a second experiment, subjects exposed to a 5-second wait anchor rated the quality of the homepage higher, and were more likely to continue searching the website, than those exposed to a 10-second wait anchor.

Related to consumer perceptions of the time they spend waiting for information to download is the time spent waiting for a response to an information request. Voss (2000) reported a survey of different sites’ responsiveness to email inquiries. It was found that, in both the US and Britain, websites’ response tended to be poor for web startups and even worse for established businesses. There was, however, wide variation, with some sites never responding and others having an excellent auto-acknowledge function followed by relatively fast full response. This paper proposed a set of key metrics in areas such as trust, response time, response quality, and navigability. Similarly, in the context of complaints, Strauss and Hill (2001) found that customer satisfaction was enhanced by quick responses to complaint emails. They, too, found a huge range in company response.

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As many web startups discovered, service quality also includes fulfillment, which, for physical products, requires expensive bricks-and-mortar logistics. In many markets this can be subcontracted at low cost, but in some, notably groceries, home delivery is likely to be the limiting factor. Two articles in McKinsey Quarterly (Barsh, Crawford, & Grosso, 2000; Bhise et al., 2000) and another in Booz Allen's Strategy and Business (Laseter et al., 2000) explored the issue of fulfillment. Barsh, Crawford and Grosso describe how most e-tailers lose money on every transaction. The articles conclude that successful online retailing requires a scalable national sales and distribution channel, and that the main discriminators between those companies that succeed and those that fail will be large order volumes and deep reserves of capital.

The online experience has also been related to interface quality, specifically to website design. Ghose and Dou (1998) found that the more interactive the website, the more likely it was to be rated a 'top site'. Against this finding, however, are the crucial issues of simplicity, navigability, and especially the download and response times, as described above.

Bellman and Rossiter (2001) introduce and test the concept of a web ad schema, defined as the consumer’s set of beliefs about information locations, and routes to those locations, for a web advertising site. They argue that consumers already have well-developed schemata for finding useful information in traditional media (e.g. they expect to find detailed product specifications towards the back of a brochure, and to see or hear the brand name in the final frames of a TV commercial). But on the Web, some consumers are much better than others at finding information from an advertising website. Bellman and Rossiter contend that these adept consumers have web ad schemata which are both well developed and congruent with the structure of the site. Their paper reports a series of three studies which support the existence of web ad schemata and their influence on communications effectiveness (brand knowledge). The results also suggest that these schemata are motor-associative – acquired by exploring the site one click at a time – rather than map-like. The implications are first, that the site structure should be as simple as possible and second, that (except for a very large site) in-site navigation should also be simple and motor-associative, providing ‘local’ information about the pages immediately accessible from the current page and not a

‘menu’ of the overall site structure, which is the usual approach (Hofacker, 2001). Although this research focuses only on advertising sites, the conclusions about navigability seem likely to generalize to other types of site.

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Research by Mandel and Johnson (1999) showed that even minor peripheral cues such as background color and pictures could influence consumers’ response to a site. For example, in one experiment, subjects who were shown a ‘money’ background gave more weight to price when asked to evaluate products than those who were shown a different background. Such priming effects were found to affect both search order and choice.

Another element of site design is the tools that are provided to help consumers choose between different products/brands. Building on the extensive literature on consumer information processing and consideration sets, H?ubl and Trifts (2000) explored the impact that interactive decision aids have on consumers’ decision-making. In a controlled experiment they introduced users to two decision aids. The first was a recommendation agent to allow consumers to screen a large set of alternatives and reduce these to a short list or consideration set. The second, a comparison matrix, helped users make in-depth comparisons among the selected alternatives. The study found that both these interactive decision aids had an impact on consumer decision-making, enabling consumers to make better decisions with less effort. The findings also suggest that the use of such tools can lead to an increase in the quality (but decrease in the size) of consumers’ consideration sets.

Also on this topic, early work by Widing and Talarzyk (1993) on how consumers use decision aids suggested that not only did they like computer assistance and feel that it helped them to make better decisions, but that aids which enabled them to weight the importance of rated attributes (such as ease of use, or performance) and obtain a personalized rank order of brands, were more useful than other types of decision aid.

Airely (2000), used a series of experiments to explore the characteristics and likely impact of information control on consumers’ decision quality, memory, knowledge and confidence. He found that controlling the flow of information can help consumers better match their preferences, have better memory and knowledge about the topics they are exploring, and be more confident in their judgments. However, he warns that controlling the information flow can create additional demands on the consumer’s ability to process information and so may not be suitable for situations where the task is difficult or novel.

16

Almost all the previous research focuses specifically on B2C interactions. Berthon et al. (1998) developed a conceptual framework for evaluating web communication activities (e.g. number of active users as a percentage of hits, number of purchases as a percentage of active users), and suggested how this might be applied to the B2B industrial purchasing decision making process.

2.4 Software Agents

Devices such as the recommendation agents in H?ubl and Trifts’ (2000) study, discussed above, focus on improving the navigability and convenience of choosing a product or service from a range supplied by the site owner. We now turn to the more advanced intelligent agents which act on behalf of individual consumers, knowing their preferences and searching the Web for products that best meet their needs. Such an agent could significantly influence brand choice and/or which distribution channel is chosen to supply a particular brand. If requested, it can negotiate price and/or delivery, possibly by inviting suppliers to bid (‘reverse auction’) and/or by forming a cartel with other consumers (or their agents) to negotiate the best price (Dolan & Moon, 2000). Finally, the agent may be empowered in some contexts to make the actual purchase on behalf of the consumer. Initially, agents (or bots, e.g. ‘shopbots’ in the case of those aimed at shopping applications) were controlled through the consumer’s PC. Increasingly, they will also be controlled through mobile phones and interactive digital TVs, eventually by voice rather than a keyboard or keypad (Barwise & Hammond, 1998).

The best known center for research on agent technology is the Media Laboratory at MIT. Patti Maes, who heads its software agent group, expects agent technology to have dramatic effects on the US economy (Maes, 1999). She predicts the disappearance of existing intermediaries and the emergence of some new types of intermediary, a reduction in the capital required to set up a business (and therefore more scope for small niche businesses), and efficiency gains for both buyers and sellers by dramatically reducing marketing and selling costs, but with a clear overall shift in the balance of power from sellers to buyers.

Guttman, Moukas & Maes (1998) summarize the Media Lab’s research on e-commerce agents. These include: C2C ‘smart’ classified ads, merchant agents that provide interrogative negotiation, agents that facilitate expertise brokering and distributed

17

reputation facilities, agents for point-of-sale comparison shopping, and agents for mobile devices. The Media Lab research has focused on the development, prototyping and evaluation of the agent technology itself, including the launch of an agent-based business, https://www.doczj.com/doc/175668552.html,, which was bought by Microsoft in 1998 but shut down in 1999 in preparation for Microsoft's Passport service. Other researchers have sought to explore the potential and likely impact of agent technology from a marketing perspective (discussed below). Some of this research overlaps with work on buyer search costs and information economics, and on disintermediation, discussed in Sections 5 and 6.

Recommendation systems are assessed by Ansari, Essegaier & Kohli (2000) who investigate the two main methods of gathering recommendations: collaborative filtering (based on other users’ weighted preferences) and content or attribute-based filtering (based on information provided by the user). Researchers at the Sloan School at MIT have investigated the use of recommendation agents as ‘trust based advisors’ in both

B2B and B2C contexts. Urban, Sultan & Qualls (1999) described a prototype trusted agent system and reported that consumers who are not very knowledgeable about the product, who visited more retailers, and who were younger and more frequent Internet users had the highest preference for a virtual personal advisor.

Other researchers have proposed frameworks for thinking about the design of electronic agents. Gershoff and West (1998) and West et al. (1999) suggest a set of goals for agent design that include both outcome-based goals (e.g. improving decision quality) and process goals (e.g. increasing consumer satisfaction and trust). Kephart, Hanson & Greenwald (2000) describe an IBM research program into the potential impact of dynamic pricing agents on the economy. Iacobucci, Arabie & Bodapati (2000) focus on intelligent agents that compare a user’s profile to data on other users to determine which users in the database are similar in order to develop relevant recommendations of value to the focal user. Iacobucci and her colleagues characterize this as ‘rediscovering the wheel’ of cluster analysis and therefore draw from the cluster analysis literature to begin to address the questions being posed in this new application area.

All these decision-making aids and recommendation agents are provided with the aim of supporting purchase and repeat-purchase. The next section reviews the evidence on consumer purchase behavior online.

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3. Online Purchasing Behavior

3.1 Retailer/Brand Choice and Loyalty on the Web

The impact that interactive shopping might have on consumer behavior, and therefore on retailer and manufacturer revenue, was addressed by Alba et al. (1997). They considered the relative attractiveness to consumers of alternative retail formats. They noted that technological advances offered consumers unmatched opportunities to locate and compare product offerings, but that price competition may be mitigated by the ability of consumers to search for more differentiated products better fitted to their needs. The authors examined the impact of the Internet as a function of both consumer goals and product/service categories, and explored consumer incentives and disincentives to purchase online versus offline. They also discussed implications for industry structure in terms of competition between retailers, competition between manufacturers, and retailer-manufacturer relationships. They concluded with a list of research questions raised by the advent of interactive home shopping.

Continuing the theme of the impact that interactive shopping might have on consumers, Peterson, Balasubramanian & Bronnenberg (1997) suggested that many predictions regarding the growth of the Internet for consumer retail were overstated because they failed to consider the heterogeneity and complexity of consumer markets. Peterson, Balasubramanian and Bronnenberg analyze channel intermediary functions that could be performed on the Internet, classify its potential impact by category type, and discuss how price competition might evolve. They propose a consumer decision-making process that takes account of the Internet as both an information channel and a purchase channel. They give a detailed list of questions to motivate and guide the development of research into the use of the Internet and its implications for marketing theory and strategy.

As Rubini, Tarlton & White (1996: 70) argued, even with the arrival of new technology, “ the process of shopping remains unchanged. The underlying basis for all retail, whether physical or virtual, remains a problem-solving process with a value-for-value exchange at its heart”. They discuss consumer shopping behavior from a design perspective, stressing the role played by problem recognition, search and evaluation of alternatives, navigation, purchase, content, identity, infrastructure and social space. They propose further exploration of these issues using a test virtual world through

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