The value of promotional marketing and word-of-mouth (WOM) is well recognized, but few studies have compared the effects of these two types of information in online settings. This research examines the effect of marketing efforts and online WOM on product sales by measuring the effects of online coupons, sponsored keyword search, and online reviews. It aims to understand the relationship between firms' promotional marketing and WOM in the context of a third party review platform. Using a three-year panel data set from one of the biggest restaurant review websites in China, the study finds that both online promotional marketing and reviews have a significant impact on product sales, which suggests promotional marketing on third party review platforms is still an effective marketing tool. This research further explores the interaction effects between WOM and promotional marketing when these two types of information coexist. The results demonstrate a substitute relationship between the WOM volume and coupon offerings, but a complementary relationship between WOM volume and keyword advertising.
The existence and persistence of price dispersion for identical products in online markets have been welldocumented in the literature. Possible explanations of this price dispersion, derived mainly using hedonic price models, have seen only modest success. In this paper, we propose a competitive model based on online retailers' differentiation mainly in service provided and recognition enjoyed to explain price dispersion. Our exploratory empirical analyses, using cross-sectional data, demonstrate that the competitive model provides a better explanation of the association between prices and online retailers' service and recognition levels. In addition, our competitive model is able to explain observations that are seemingly inconsistent with the hedonic model such as the negative association between service and price. This paper contributes to the literature on price dispersion by offering a differentiation model that provides a good fit with data and by proposing a theory that explains previous counterintuitive observations of prices. Our model also helps an e-tailer to choose a desirable position in the competitive market.
Electronic commerce has grown rapidly in recent years. However, surveys of online customers continue to indicate that many remain unsatisfied with their online purchase experiences. Clearly, more research is needed to better understand what affects customers' evaluations of their online experiences. Through a large dataset gathered from two online websites, this study investigates the importance of product uncertainty and retailer visibility in customers' online purchase decisions, as well as the mitigating effects of retailer characteristics. We find that high product uncertainty and low retailer visibility have a negative impact on customer satisfaction. However, a retailer's service quality, website design, and pricing play important roles in mitigating the negative impact of high product uncertainty and low retailer visibility. Specifically, service quality can mitigate the negative impacts of low retailer visibility and high product uncertainty in online markets. Website design, on the other hand, helps to reduce the impact of product uncertainty when experience goods are involved.
To cut costs, companies have chosen to deliver a variety of service offerings online. However, the digital systems providing such services (e-service) have always been complemented with or supported by humanbased service (h-service). Whereas h-service has total costs that increase with the demand for services, e-service mainly requires a fixed investment upfront, which can be amortized over the totality of customers served. Considering the different nature of the costs of h-service and e-service and the heterogeneity of customer preferences for services, we derive the optimal mix of h-service and e-service for a service-providing company vis-à-vis its competitor. Our theoretical analysis finds the subgame-perfect Nash equilibria that determines the optimal positions in a duopoly setting. We further study the competitive dynamics of the system to examine how firms stay on the equilibrium paths. Using simulation, we investigate the effects of starting positions, small adjustments in h-service and/or e-service, and monotonic expansions of e-service on the final positioning and profits of the firms. Our results demonstrate that when firms follow a local best-reply strategy, they may end up in a position of low profitability, and when only monotonic expansions of e-service are allowed, both firms may end up overinvesting in e-service.
The capabilities of network technologies have facilitated the growth of electronic commerce. Major issues--notably, security and product quality uncertainty--still pose serious challenges to the further adoption of electronic commerce. Traditional market transactions have a long history and well-understood protections for buyers and sellers. In the electronic markets, formal and informal mechanisms such as trusted third parties (TTP) have emerged trying to ensure safe transactions . In this paper, we investigate under what conditions people will stick to the traditional market and face-to-face transactions, and under what conditions electronic transactions will be the convention of the future. Of particular interest is the role of TTPs in facilitating online transactions. Using evolutionary game theory, we present an analytical model of buyer and seller choices and examine which patterns of transactions can be sustained. We further study how the traders' adaptive behavior may influence the outcome of the market evolution. Through this analysis, we demonstrate that the market will show divergence: for commodity products, electronic transactions through TTPs will get established as the convention for market transactions when traders use historical information about other traders' past strategies. For "look and feel" products, the market evolution depends on the initial distribution of the transaction strategies in the population.
Despite the wide use of reputational mechanisms such as eBay's Feedback Forum to promote trust, empirical studies have shown conflicting results as to whether online feedback mechanisms induce trust and lead to higher auction prices. This study examines the extent to which trust can be induced by proper feedback mechanisms in electronic markets, and how some risk factors play a role in trust formation. Drawing from economic, sociological, and marketing theories and using data from both an online experiment and an online auction market, we demonstrate that appropriate feedback mechanisms can induce calculus-based credibility trust without repeated interactions between two transacting parties. Trust can mitigate information asymmetry by reducing transaction-specific risks, therefore generating price premiums for reputable sellers. In addition, the research also examines the role that trust plays in mitigating the risks inherent in transactions that involve very expensive products.
Prior research has generated considerable knowledge on information systems design from software engineering and user-acceptance perspectives. As organizational processes are increasingly embedded within information systems, one of the key considerations of many business processes--organizational incentives--should become an important dimension of any information systems design and evaluation, which we categorize as the third dimension: incentive alignment.Incentive issues have become important in many IS areas,including distributed decision support systems (DSS), knowledge management, and e-business supply chain coordination. In this paper we outline why incentives are important in each of these areas and specify requirements for designing incentive-aligned information systems. We identify and define important unresolved problems along the incentive-alignment dimension of information systems and present a research agenda to address them.
The article discusses the paper "Technology Adaptation: The Case of a Computer-Supported Inter-Organizational Virtual Team," by Ann Majchrzak, Ronald E. Rice, Arvind Malhotra, et. al.