Marketing Research of Internet Bookstore
In the coming decade, the performance of computer chips will improve thirty fold, and communication and storage capacity will experience even bigger improvements. The number of businesses and consumers connected to the Internet will easily surpass one billion. The application of technology, however, will not drive the new generation of e-business. Instead, it will be powered by the transformational possibilities created when traditional companies successfully incorporate e-business practices (2001).
In the last 50 years, people seem to be connected to the Internet for good reasons in conducting business online which claims to be the new method of marketing. However, many marketers jumped in with less knowledge on how to do business in the right way. Therefore, anyone who is interested in doing business on the internet should take time to learn about what they will be getting into.
The inexorable worldwide spread of the Internet and unprecedented rates of adoption of computer and telecommunication technologies by firms in North America, Western Europe, and selected parts of Asia continue to erode the relevance of traditional strategic weapons such as geographic location and favorable physical resources. The Internet now allows firms located anywhere in the world to project their influence in distant markets without creating a physical presence. Likewise, computer and telecommunication technologies are making the possession of heretofore advantageous physical resources increasingly irrelevant.
Generic Strategies and E-Business
Academicians have long been interested in the concept of strategy types (1986). Previous research on strategy types includes studies offering new typologies based on empirical analyses (1980; 1978: 1988; 1980), replication studies (1995; 1993; 1986), and studies adding new variables (1983; 1988; 1988). The most widely used strategy types are those developed by and
Cost leadership is believed to be a viable strategic choice in Internet commerce as in off-line businesses. Lower price has been a key selling point of e-business firms like expedia.com and CDnow in America and Yes24 (an Internet bookseller) in Korea. The cost leadership strategy may be particularly appealing to online buyers who are price sensitive. In one study conducted in Korea, 71 percent of 500 first-time online shoppers indicated that price was their most important consideration (2000).
The Internet eliminates many traditional time and spatial barriers. Early movers’ strategies are easily imitated and entry barriers are much lower than in conventional businesses. As a result, lower costs can be an effective defensive measure against competitors, since firms can be profitable even in the face of fierce competition if their costs are low enough. And, the low prices offered by market leaders (based on their lower costs) can serve as an effective entry barrier against new entrants. The Internet also allows firms to adjust their prices quickly so that Internet firms can enjoy a higher level of pricing flexibility and more efficient price competition ( 1998).
The Internet also helps consumers overcome bounded rationality in terms of price scanning. The long held Cyert and March’s (1963) satisfying argument may be less applicable in an Internet environment since the speed and expansiveness of information search made possible by the Internet enable consumers to quickly gather a wealth of data on price comparisons. Price comparison sites drastically reduce search costs, so consumers may approach near-optimal price comparison ( 1997).
Another characteristic of e-businesses is the law of increasing returns (1996). For a firm to enjoy increasing returns, it must secure a critical mass of consumers as soon as possible. Competitive pricing often offers the quickest and easiest way for a firm to secure the largest number of consumers.
A successful differentiation strategy can be built on many factors, including design, brand image, reputation, technology, product features, networks, and differentiated customer service, and true differentiation should be hard for competitors to imitate. Many of these differentiating elements are applicable to an Internet business. (1997) found that customers of internet bookstores in Korea saw brand as more important than price as their buying criteria. He also reported that more people used these Web sites to search for information and to find certain books than to compare prices. (2000) found that price might be ignored as long as the product-customer fit is enhanced. They also found that buyers became less sensitive to price when they were given more information about how a particular product might meet their needs.
A key aspect of Internet marketing is not just offering differentiated products and services, but also differentiating the channel ( 1988;1991). According to one recent study by Netsmart America, brand is becoming more and more important, with 65 percent of the respondents to the firm’s survey indicating that brand is the most important determinant of Website visits (8/3/2000). The survey also found that price was an important factor in purchasing decisions for relatively low price items such as books, entertainment, and toys, whereas brand was a more important consideration when purchasing computers, automobiles, furniture, banking, and security investments.
Lower switching costs on the Internet also encourage differentiation. In traditional businesses, consumers often tolerate mediocre products and services due to high switching costs. In the e-business environment, however, consumers can get access to information previously impossible to obtain or to compare. As a result, consumers can more easily switch to firms that offer additional value through differentiated features (2000).
In the e-business environment, in addition to the traditional factors such as brand image, product features, and customer service, speed of delivery, convenience, and the security of transactions are important elements of any differentiation strategy. Although popular sites like Amazon.com do not always offer the lowest prices, people are attracted to these sites because of their brand reputation and credibility (1999). This suggests that many e-business consumers are more concerned about security or delivery than price.
Firms pursuing a focus strategy target specific groups of buyers or product lines. Within their more limited competitive scope, they emphasize either low costs or differentiated products and services. Many Internet companies are new entrants. These new entrants may choose to compete against large, established firms by focusing on a particular niche. Concentrated management of a niche market should not only increase their chances of success, but should also serve as an entry barrier. In addition, the lower levels of investment required by many online businesses means that they enjoy lower break-even points. Thus, targeting even small market segments can be viable, and consumers may be easily connected with producers that focus on niche markets due to the Internet’s search advantages.
Furthermore, the Internet allows firms to customize their offerings to meet the specific wants and needs of their customers ( 1998). Customers are identified every time they visit a Website, and a great deal of information about each customer can be accumulated over time. Based on this information, firms can offer customized products or services for a particular customer.
Types of Strategies and Their Performance Implications
It is still uncertain whether the new e-business environment represents a totally different, discontinuous change from the old business environment or whether the old and new environments will share many features and competitive imperatives. Therefore, several assumptions have been made about the application of conventional generic strategies in the e-business environment.
One critical assumption underlying this study is that electronic technologies create a platform to support existing business practices and at this point have not advanced to the point of precipitating a paradigm shift. Although the Internet provides an efficient means to order products, it is not entirely a new way of doing business. For example, the catalog retailers with toll-free numbers and automated fulfillment centers have been around for decades. The Internet only changes the front end of the process (2001). (2000) argue that, just as in off-line commerce, e-business firms should attract customers in the pre-sales phase, make purchasing happen in the on-line sales phase, and provide customer service and problem resolution in the after-sales phase. Finally, one of the most obvious advantages of e-business seems to be lower cost due to the absence of physical locations. However, (2001) found that pure on-line firms were not realizing real estate-related cost savings over their retailing competitors (brick and mortars and clicks and bricks).
As a result, an assumption has been made that firms still view customers in terms of shared characteristics (i.e., market segmentation is possible), that different sets of customers have different needs and desires (i.e., opportunities for product differentiation exist), and that products and services exhibit different demand elasticities (i.e., firms may compete on price). And, as suggested in the previous section, it is assumed that each of Porter’s generic strategies can be applied to explain the behavior of Internet business firms.
(2000) found that hospitals, facing a complex environment, with higher strategic complexity outperformed those with lower strategic complexity. In their study, higher strategic complexity means that a firm pursues “competitive advantage through a wider range of strategic activities (i.e., both cost leader and differentiator type activities), representing a more complex strategy ( 2000:). (2001) argues that some e-business firms have successfully employed a combination of two generic strategies. For example, Amazon.com is very competent at all activities involving differentiation elements branding, innovation, and channel management as well as lowering costs. It is hard to classify Amazon.com into either strategy-type.
The major contribution of this paper is to provide early, preliminary data suggesting that the important existing strategy concept of generic strategies is relevant to and can be applied to a new business environment. Considering the predominance of case studies in the e-business field, we hope this study can provide a useful platform for further rigorous, empirical studies that draw on large samples of e-business firms. The lack of performance measures and data may have prevented systematic empirical studies of e-business thus far, so another contribution of this study is its adaptation of existing subjective measures (1988) and use of an objective measure for assessing the performance of e-business firms. We also found our online questionnaire to be a useful way of gathering survey data, superior to conventional mail surveys in terms of time, costs, and convenience.
This paper also offers some tentative implications for management practice. First, the results provide support for the viability and success of hybrid strategies for e-business firms. The study also suggests that the choice of strategy depends on firm type (pure play vs. clicks and bricks). Possible synergies and potential conflicts between online and off-line operations, as suggested by this study, should be important considerations as incumbent firms develop their Internet strategies.