Introduction to the Special Issue: Marketing in the E-Channel

P. K. Kannan, Guest Editor
International Journal of Electronic Commerce,
Volume 5, Number 1, Fall 2000, pp. 5.

It is impossible to look back at the frenzied two-year roller-coaster ride of the valuations of dot-com companies without wondering how so many reputable analysts, industry experts, and practitioners came to overestimate the promise of e-commerce. In hindsight, one could claim that the overestimations arose from focusing on the Internet as an insular channel not affected by happenings in other, more traditional channels. Now that realism has set in with the inevitable shakeout occurring in the e-business realm, it is a good time to examine the impact of the Internet on business, using a tried-and-trusted framework. This Special Issue takes a channels perspective on the Internet in order to accomplish this objective. The papers in the issue share a common ground in considering the Internet as another channel of distribution, albeit a special one, in examining marketing issues of key importance. The Internet is seen as complementing the traditional channels in some applications, acting as a substitute in others, and in some cases creating new opportunities.

As a distribution channel, the World Wide Web facilitates information flow, negotiation flow, product/service flow (for digital products and services), transaction flow, and promotion flow. The characteristics of the Internet sometimes make these flows quite different from those that occur in traditional channels. In some instances, the different flows afford new marketing opportunities that do not exist in the traditional channels: researching consumer information-seeking and search behaviors, using the speed of the Internet to get feedback from consumers, creating communities on-line and using them to market products and services, and so on. The characteristics of the e-channel change consumers’ expectations, and these interact with expectations formed in traditional channels to affect their behavior not only in the e-channel but also in the traditional channels. In many cases, the e-channel complements the traditional channels, but it does so in interesting ways-some flows (e.g., ownership flow, product flow) may be substituted, and others (information and promotion flows) may be complemented. In consequence, the papers in this Special Issue collectively focus on the two main research issues that emerge when the Internet is viewed from a channels perspective:

Each of the papers focuses on different flows in examining the above issues: from information flow, search patterns, and search behavior, to promotion flow, to pricing (negotiation) flow, to service flow, and then to social transaction/commercial transaction flow in virtual community settings. The papers view these issues from several perspectives (economics, consumer psychology, sociology) and use the tools of several disciplines (artificial intelligence, economic analysis, marketing science) to arrive at a series of propositions and results. The authors of the papers, all renowned scholars working in the area of consumer behavior, marketing science, economics, and information systems, bring together a unique blend of com- plementary perspectives to provide valuable insights into the two main research questions.

The first paper, “A Model of Consumer Choice of the Internet as an Information Source,” by Brian Ratchford, Debabrata Talukdar, and Myung-Soo Lee, focuses on the use of the Internet as an information source for consumers. The authors develop a conceptual framework, viewing information search and acquisition as a production process, for predicting who will use the Internet channel, what types of information they will seek in the e-channel, and what other channels it might compete with. The paper presents results concerning the use of the Internet as an information source for purchases of new automobiles, obtained from a survey of the search and purchase process decisions of a sample of new car buyers. Internet users searched more extensively than non-Internet users and tended to use the different channels and sources, except advertisements, as complements.

The second paper, “Identifying Locations for Targeted Advertising on the Internet,” by Amit Bhatnagar and Purushottam Papatla, also focuses on the search behavior of consumers, albeit with the specific objective of guiding businesses to identify ideal paid advertising, banner exchange, and affiliate partner locations in the e-channel. Based on the assumption that consumers on the Internet are likely to be interested in a small focal group of products, the model offered here segments consumers into focal groups that have idiosyncratic centroids. The authors calibrate their model with empirical data obtained from consumer searches of information in 18 different categories and identify the demographics associated with the various focal groups.

The third paper, “Application of Decision-Tree Induction Techniques to Personalized Advertisements on Internet Storefronts,” by Jong Woo Kim, Byung Hun Lee, Michael Shaw, Hsin-Lu Chang, and Matthew Nelson, examines the technical aspects of targeting consumers in the e-channel. Based on purchase-transaction data and machine-learning techniques, the authors propose a marketing-rule extraction technique (decision-tree induction technique) for personalized recommendations for consumers. The paper also evaluates the effectiveness of the proposed techniques, using experiments.

The fourth paper, “Dynamic Pricing on the Internet: Importance and Implications for Consumer Behavior,” by P.K. Kannan and Praveen K. Kopalle, compares the emerging dynamic pricing practices in the e-channel with the conventional pricing practices in traditional channels, and examines the impact of dynamic pricing on consumer expectations and behavior. The authors focus on the dynamic pricing of posted prices and reverse-auction pricing used by Priceline.com from the perspective of consumer price expectations and consumer learning. They develop several propositions regarding consumer behavior in the e-channel and its implications for the success of the pricing models.

In its purest form, the e-channel is a conduit for interactive, personalized information service. In the fifth paper, “E-Service and the Consumer,” Roland T. Rust and Katherine N. Lemon argue that the true nature of the e-channel, which they term e-service, will be the key to marketing effectively to the consumer. The paper focuses on three crucial characteristics of e-channel-based service: true interactivity with the consumer, customer-specific, situational personalization, and the opportunity for real-time adjustments to the firm’s offerings to the customer. The authors examine how successful e-service strategies increase the overall value of the firm. They also identify a series of research questions that will provide greater understanding of e-service and consumer behavior.

One of the unique developments associated with the e-channel is the emergence of on-line virtual communities. In the sixth paper, “The Economic Leverage of the Virtual Community,” Sridhar Balasubramanian and Vijay Mahajan examine the theoretical perspectives and guidelines that can be applied to the management and economic leverage of virtual communities. They propose that the strategy for marketing to a community-based opportunity group in the e-channel should be very different from the strategies employed to market to need-based opportunity groups in traditional channels, and they identify the dimensions where the strategies differ.

The last two papers focus on the use of e-channels for marketing-research purposes. In their paper “On-line Market Research,” Thomas W. Miller and Peter R. Dickson provide an exhaustive review of the technologies and methods of on-line research and areas of innovation based on their close affiliation and experience with the A.C. Nielsen Center for Marketing Research. They discuss the emerging issues in on-line research and evaluate it from two perspectives: orthodox thinking about the validity of research, and out-of-the-box thinking about its potential impact. Finally, they outline areas where academic research is critically needed.

The concluding paper, “Radically New Product Introduction Using On-line Auctions,” by Xianjun Geng, Maxwell Stinchcombe, and Andrew B. Whinston, showcases the critical role that the e-channel can play in bringing radically new products and technologies to the market quickly and successfully. The authors argue that the new marketing research methods needed to reduce the risks associated with radically new products should be unbiased and prompt. Toward this end, they propose a two-round, second-price, sealed-bid auction mechanism to be implemented in the e-channel, to estimate the demand function and appropriately price the new product. They prove that this mechanism is a full-revelation mechanism, which is crucial for unbiased market research, and show how the e-channel can accelerate the marketing research process.

Collectively, the papers included in this Special Issue provide a better appreciation of the strengths and weaknesses of the e-channel in marketing products and services to consumers, and reflect the new realism that has dawned in the world of e-commerce.

P. K. KANNAN (pkannan@rhsmith.umd.edu) is Safeway Fellow, associate professor of Marketing, and associate director of the Center for E-Service in the Robert H. Smith School of Business at the University of Maryland, College Park. He received his Ph.D. in management from Purdue University. His current research focus is on e-commerce, centering around marketing information services on the Internet, pricing information products, e-promotions, and marketing and product development in virtual communities. He has been working with IBM Institute for Advanced Commerce and National Academy Press on these projects. His papers in this area have been published or are forthcoming in Management Science, Communications of the ACM, and International Journal of Electronic Commerce. His other research interests center around consumer loyalty, competitive market structures, variety-seeking and reinforcement behaviors, and the effects of promotions on competition and competitive structures, with publications in Marketing Science, Management Science, Journal of Academy of Marketing Science, Journal of Business Research and International Journal of Research in Marketing. Dr. Kannan is an associate editor of Decision Support Systems and serves on the editorial boards of the International Journal of Electronic Commerce and of the Journal of Service Research. He is the chair-elect of the American Marketing Association Special Interest Group on Marketing Research. Prior to joining the University of Maryland, he was on the faculty of the University of Arizona, Tucson.