Despite many success stories, B2B e-commerce penetration remains low. Many firms introduce electronic channels in addition to their traditional sales channels but find that buyer usage of the e-channel over time does not keep up with initial expectations. Firms must understand the underlying factors that drive channel usage and how these factors change over time and across buyers. Using panel data pertaining to the purchase histories of 683 buyers over a 43-month period, we estimate a dynamic discrete choice model in a B2B setting that (i) recognizes how price, channel inertia, and inventory change over time; (ii) allows buyers to dynamically trade off these factors when making e-channel adoption decisions; and (iii) takes into account buyer heterogeneity. We find that channel usage is both heterogeneous and dynamic across buyers. Our findings reveal the dynamic tradeoff between channel inertia and the adverse price effect, which interact in opposing directions as the e-channel grows more popular over time: price increases resulting from more bids deter buyers, whereas channel inertia built from sampling experience helps retain repeat buyers for the new channel. Second, we find that the buyers' size and diversity influence purchase decisions, and the e-channel appears more attractive to small and/or diversified buyers. Based on our analysis, we postulate that the seller's allocation decisions of products across channels, if not aligned with buyer behavior, can alienate some buyers. Based on the parameter estimates from the buyer response model, we propose an improved channel allocation that enables firms to selectively attract more buyers to the e-channel and improve revenues. Channel acceptance increases as a result of smart allocation when firms understand and account for individual buyers' channel usage behavior.
A great deal of controversy exists about the impact of information technology on firm performance. While some authors have reported positive impacts, others have found negative or no impacts. This study focuses on Electronic Data Interchange (EDI) technology. Many of the problems in this line of research are overcome in this study by conducting a careful analysis of the performance data of the past decade gathered from the assembly centers of Chrysler Corporation. This study estimates the dollar benefits of improved in formation exchanges between Chrysler and its suppliers that result from using EDI. After controlling for variations in operational complexity arising from mix, volume, parts complexity, model, and engineering changes, the savings per vehicle that result from improved information exchanges are estimated to be about $60. Including the additional savings from electronic document preparation and transmission, the total benefits of EDI per vehicle amount to over $100. System wide, this translates to annual savings of $220 million for the company.