A theoretical evaluation of the Internet's potential as a shopping channel/ Un estudio teorico del potencial de Internet como canal de compra.

Author:Arce-Urriza, Marta
Position:Report
 
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Introduction

The aim of this paper is to do a critical revision of the capabilities of the online channel (Internet) to commercialize products and its current importance and potential in the world of business. We do so by means of a comparison of the unique characteristics of the online channel to the offline channel (also frequently referred to as traditional, conventional, physical or in-store shopping), what consequently shows its advantages and disadvantages as a shopping medium, as well as its a priori better or worse suitability to commercialize certain types of products. This helps to understand the profile of the typical online shopper and the increasing importance of concrete products online. As an empirical support to this theoretical reasoning, the paper presents an application to a Spanish grocery retailer.

In less than a decade, the Internet has engaged a striking role in business due to its benefits for consumers and firms as a commercial media. On the one hand, the online channel allows consumers to purchase from anywhere and anytime (Kalakota and Whinston, 1997). On the other hand, firms are enabled to update the information about their business anytime, and customize their marketing strategies to each consumer. These benefits have motivated both agents to participate and interact in the online market. In March 2007, the Internet contained over 86 million active domains, from which the most important top-level domain corresponded to .com (74.32%) (www.domaintools.com 2007). Similarly, by that time, the Internet population was 1114 million people, which implies a growth rate of 208.7% between 2000 and 2007 (www.internetworldstats.com 2007). More importantly, several figures provide evidence of the Internet having increased its weight in the world of business. In the US, online sales accounted for 0.9% of total sales in 2000, whereas for 2.0% in 2004 and for 2.3% in 2005 (US Department of Commerce News 2002, 2006).

The paper is organized as follows: Firstly, we examine the characteristics of the Internet as a shopping channel and identify its advantages and disadvantages compared to the traditional offline channel. Secondly, we study the suitability of the Internet to commercialize different types of products attending to the particular characteristics of products. Thirdly, we outline the characteristics of the typical Internet shopper. Then, we present an empirical application to a Spanish grocery retailer that provides some empirical support for the former theoretical analysis. Finally, we conclude with a summary and some comments.

Characteristics of online and offline channels

"A marketing channel can be viewed as a set of interdependent organizations involved in the process of making a product or service available to consumers for consumption or use" (Stern and El-Ansary, 1996). To reach this aim, a marketing channel performs three key functions: to operate as a communication channel as a transaction channel and as a distribution channel (Peterson et al., 1997; Kiang et al., 2000). In this sense, both online and offline channels allow information exchange, sales activities and physical exchange of products/services--the latter somehow limited in the case of the online channel (Kiang et al., 2000). However, each channel has unique characteristics that makes it satisfy these functions differently.

The existing marketing literature has documented the characteristics, and, therefore, the advantages and disadvantages of online stores compared to offline stores. For instance, online stores offer the consumers the convenience of being available anytime and anywhere, whereas offline stores provide consumers with face-to-face communication (Grewal et al., 2004). We characterize each channel following the works from Hoffman and Novak (1996), Alba et al. (1997), Peterson et al. (1997), Otto and Chung (2000), Kiang et al. (2000), Krishnamurthy (2003) Roman (2005), Martin and Quero (2004), Grewal et al. (2004), Lozano and Fuentes (2005), Cristobal (2006), Flavian and Guinaliu (2007), Ruiz and Sanz (2007), and Perez (2007). In concrete, we present the advantages of each channel relative to the other, classified into the three functions a marketing channel can perform. We adopt the perspective of consumers.

The online channel:

By definition, the Internet has been designed to deliver information efficiently and foment connectivity (Peterson et al., 1997). Hence, it is not surprising that many of its most striking advantages follow from the communication function.

As a communication channel:

* For accessing, searching, organizing and communicating [written and visual (i.e., images)] information (Peterson et al., 1997; Alba et al., 1997; Kiang et al., 2000; Otto and Chung, 2000; Krishnamurthy, 2003; Grewal et al., 2004). The online channel allows for a more effective and efficient exchange of information. The Internet has the ability to store vast amounts of information. At the same time, it provides useful search engines that allow consumers to examine the entire assortment carried by a retailer with minimal effort, inconvenience and time investment. Besides, consumers can check product availability and compare product features and prices across different retailers efficiently. It is also a communication without geographical frontiers.

In any case, it might be considered that, although the online channel offers this advantage, it will be only available if the online channel guarantees a good design of the store with regard to its graphic design (i.e. it could be used by disabled), its usability (i.e. use of simple language) and accessibility (i.e. for consumers with any type of Internet connection). (Cristobal, 2006).

* Interactivity and the ability to provide information on demand (Hoffman and Novak, 1996; Peterson et al., 1997; Alba et al., 1997; Kiang et al., 2000). Firstly, the Internet enables two-way communication between retailers and consumers; in the sense that both parties can put information about the products online. Retailers can inform consumers about the characteristics of their products and services. Analogously, consumers can provide an evaluation of these products and services online, making it easy for retailers to gather information about the level of satisfaction of the consumers. Secondly, while doing this, consumers can also communicate valuable information for other consumers not experienced with such products and services. Finally, the Internet allows an immediate communication with retailers, who can be asked by consumers anytime from anywhere.

* It facilitates a good relationship with customers: Actual firms do not only search for sales but also for customers' satisfaction, as well as for the establishment of a relationship with customers that would be satisfactory for both parts (Roman, 2005). For all firms it is very important to maintain a good relationship with profitable customers because this warrants the firm's future. The online channel, under the perspective of the Website, appears as a good relational tool (Martin y Quero, 2004).

As a transaction channel:

* Retailers can reach a much bigger customer base, since there is no geographic limitation (Kiang et al., 2000, Otto and Chung, 2000). Online retailers can offer their products to anyone with access to the Internet. For instance, a consumer living in Europe could obtain the American edition of a book directly ordering it from Europe at an American bookstore.

* Convenience (Otto and Chung, 2000; Krishnamurthy, 2003; Grewal et al., 2004) Online channels are open 24 hours a day, 7 days a week and do not require consumers to leave their location to conduct transactions. Busy consumers and those who simply do not enjoy the shopping experience may value the convenience of shopping online. They do not have to get dressed, worry about traffic, search for a parking lot, deal with crowds and/or feel like they have wasted time if the store is out of the product they need.

Ruiz and Sanz (2007) recognize that convenience is one of the most important reasons why consumers use a direct channel, such as the online channel, to shop. However, in an empirical application they observe that convenience is not one of the main reasons for this kind of purchase. This can be due to the fact they studied teleshopping instead of online shopping, which is obviously a more convenient purchase.

* It reduces task complexity, paperwork and transaction costs (Kiang et al., 2000). A good example of this advantage for the online channel is the reservation of flights. The Internet has enabled consumers to directly book their flights with the airline, not having to pay travel agencies for this service.

* Individualized experience (Otto and Chung, 2000; Kiang et al., 2000). The Internet enables online retailers to collect a large amount of information about online consumers such as their name, address, etc., as well as their buying patterns. Hence the possibility of online retailers to offer an increasing personalized shopping experience with customized promotions and sales techniques.

As a distribution channel:

* A broader inventory selection (Otto and Chung, 2000). Online retailers can generally offer larger inventory of products because they are not constrained by physical store space. They can also offer niche products that might be uneconomical to stock in an offline store. This way they would fulfill the needs of some consumers not finding the product they search for offline.

* It serves as a physical and immediate distribution medium for certain goods -e.g. software, music or books in electronic format- (Peterson et al., 1997; Kiang et al., 2000). These products can be sent to customers' computers directly at a small cost and time spending.

As we can observe, the online channel presents important novelties and advantages compared to the offline channel. In any case, an online retailer must take into consideration that the online...

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