1.

0-Introduction

If you have a business, and want online marketing results that are successful, you
need to be a creative thinker and think outside of the box. The Internet is the perfect
place for small businesses to establish their marketing campaign. Using the Internet
for advertising is extremely cost-effective because it is so measurable and targeted
towards the people you want to reach. Internet marketing allows you to compete with
the competition and come out ahead.

This book will show you what you need to do to turn your online website into a
resource that your customers can trust. You’ll also learn how to get more customers
to visit your website. The main goal of this book is to teach you which online
marketing techniques are the most effective for your business. Some of the things
that you’ll learn include:

• How to design your website to that you attract the customers you want.
• How to reach your customers through e-mail marketing.
• Why co-branding is important.
• How to choose online partners that are right for you.
• How to create customized content for you website so that your customers visit
frequently.
• How to establish yourself as an expert in your specific industry.
• How to use your marketing budget without overspending.

This book will give you the latest information in marketing trends so that you make
the most of your marketing budget.

The Benefits of Marketing Online

Marketing rules are the same no matter how big or small your business is: (1) brand
your product, (2) determine who your target audience is, (3) get the sales, and (4)
establish repeat customers. Online marketing is very effective in managing all four of
these rules.

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Online Marketing Defined

The definition of online marketing is: Placing your business or product on the Internet
for millions of users to access so that you can turn your website into a strong tool to
maximize your sales and business potential.

But online marketing is much more than putting your advertising online. Marketing
online includes such areas as communicating with your customers, promoting your
business or product online, and making sure that your website content is useful and up
to date. The great thing about online marketing is that you don’t need to have a huge
budget to put together a marketing campaign that is effective. There are tools that you
can use to make your marketing techniques easy and profitable such website
templates, shopping cart templates, and online marketing templates.

What You Need for Online Marketing to be Successful

There are some important points to consider before you get into the strategies and
intricacies of online marketing:
• Communication. An important part of online marketing is how you respond to
your customer’s e-mail. You don’t want to lose potential customers after
you’ve made the effort to have them visit your website and then contact you
for more information. E-mail is a very effective and cost efficient way for you
to generate more sales. The key to this effectiveness is “consistency”. You
need to be consistent in your response to your customers. You’ll also want to
make sure that the tone of your e-mail corresponds with the tone you’ve set in
your website content.
• Human Resources. If you’re going to succeed online you need to have enough
people working with you. Efficient websites incorporate a personal touch
with a fast response time to customers. Your goal is to turn the visitors to
your website into customers. The standard time for a return e-mail is from 48
to 72 hours. If you wait any longer to e-mail back you risk losing the
customer. This means that if you don’t have the man power to return e-mail in
two to three days you need to take another look at your marketing strategy.
• Products people want to buy online. Before you start marketing online you
need to be sure that you have a product or service that people want to buy.
Customers need to find a value in what you’re selling. There are two
motivating factors when it comes to selling online: cost and convenience.

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 Ask yourself if customers will find it easier to buy online than finding a local
store. Is it cheaper for them to buy this from you online?

Online Goals

Once you’ve established that there is a need for your service or product you’ll be
ready to determine your business goal and whether or not you can meet this goal
online. If your main goal is to sell a product online you should decide how you want
to make those sales. For example, do you want customers to buy from you online or
do you want them to come to you to close the sale? You’ll need to decide what action
is needed for the sale to be finalized. Small businesses need marketing efforts that are
targeted and precise.

2.0-The Promise of Digital Marketing

2.1-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 over exuberance 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

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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.

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
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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. 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

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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 noted 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 (Deighton,
1997) foresaw the emergence of a new marketing paradigm that would bring
about a convergence between consumer marketing and business-to-business
marketing. 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 gameagainst
competitors”. Taking a similar view, Achrol and Kotler (1999) suggested that, as the

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hierarchical organizations of the twentieth century disaggregate into a variety of
network forms, customers will enjoy an increasing capacity to become organized, with
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 (eg an international hotel
chain) 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.

2.2-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

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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 and 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,
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, 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. The rest of this paper is organized as follows.

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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 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.

3.0 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.

3.1-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.

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, 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

9
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.

3.2 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
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customers from their traditional passive role as receivers of marketing
communications, giving them access to greater amounts of dynamic information to
support decision making.

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.
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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 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.

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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, 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
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some categories) and consumers’ need to have the product immediately.
3.3 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 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
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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.

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.

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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.
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, Häubl 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

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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.

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

Devices such as the recommendation agents in Häubl 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

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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. ‘shop bots’
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 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, Firefly.com, 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.

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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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