E-TAILING: AN ANALYSIS OF WEB IMPACTS ON THE RETAIL MARKET Fang Wang Milena Head Norm Archer McMaster University Hamilton, Ontario, Canada Abstract The Web has been changing the retail market in many ways. Following a new marketframework, this paper analyzes the unique characteristics ofthe Web for retail applications, examines its market effects, and presents two perspectives for business response strategies. The Web can either be used as a marketing tool, which is integrated into traditional business strategies, or can be viewed as a new marketplace, which demands new business design. Differences between these two views will have strategic and implementation implications for both traditional and startup retailers as they adapt to Web marketing. Finally, we propose some research issues and challenges that should be addressed to better our understanding and promote the Success of this new marketplace. A Web Market Framework Electronic retailing, which involves the selling of goods and services to the consumer market via the Internet, is also called e-tailing, e-retailing and electronic commerce (EC) in the business-to-consumer (B2C) market. The emergence of this electronic retail market has been rapid. Dramatically expanding reach (people! location) and range (variety) of information, the World Wide Web can create benefits for both marketers and consumers. For consumers, the Web can provide access to a wide range of products and services with low cost (Bakos 1997), extensive and tailored information, at-home convenience for product comparisons, enhanced interactivity (Cross & Smith 1995), and facilitate the formation of virtual commu- nities (Internet users with common interests) (Armstrong and Hagel 1996). Market- ers can benefit from lower real estate-related expenses (Schlauch & Laposa 2001), improved market research (Burke 1996; Murphy et aL 2001), new retail models, increased sales, and enhanced consumer relationships. During the past few years numerous e-tailing startups have appeared, seeking new market opportunities. However, market development has not been as suc- cessful and rapid as expected. Troubled with a lack of profitability, many e- 74 Journal of Business Strategies Vol. 19, No.1 tailers, such as valueamerica.com, pets.com, Iiving.com and furniture.com, were forced to close their businesses. Unfortunately, these are not isolated cases, as other e-tailers may soon face this same fate. Researchers have examined various aspects of B2C interactions to help busi- nesses realize the potential benefits of e-tailing. To understand online consum- ers, Wolfinbarger and Gilly (2001) examined consumer motivations for online shopping, and Bellman et al. (1999) addressed the personal characteristics that predict online buying behavior. To understand business techniques, Web-based strategies are examined (Graham 2000; Griffith & Krampf 1998); marketing techniques, such as interactive marketing and database marketing, are researched (Jackson & Wang 1995); the future of virtual shopping is analyzed (Burke 1997; Pellet 1996); new business models are reviewed (Werbach 2000; Gulati & Garino 2000); and Web-based information systems (WIS) that facilitate online businesses, are emphasized (Isakowitz 1998; Wang & Head 2001). Before utilizing the above detailed research findings for strategic advantage, businesses first need to understand the basic Web impacts on the retail market. To understand the opportunities and threats of this evolving retail marketplace, we present a new Web market framework, shown in Figure 1. This framework outlines the Web characteristics that impact the retail market, the market effects from utilizing the Web, and the business response strategies. The framework shown in Figure 1 serves to organize the discussion of this paper. Figure 1 Web Market Framework Web Market The Web • Technology Infrastructure • Channel integration • Information intensity Business Retail Market • Service perspective • New market participation model • Changed distribution channels • View the Web as a marketing tool • View the Web as a new marketplace Spring 2002 Wang. Head & Archer: E-Tailing Characteristics of the Web for Retail Applications 75 Studying the characteristics of new media technology provides a struc- tured context for understanding its social effects and a basis for media comparison (Williams et al. 1994). The Web is widely recognized for its openness, informality, and interactivity features (Berthon et al. 1996). Re- searchers have examined Web characteristics from various points of view. Deighton (1997) focused on the addressibility and responsiveness of the Web for digital networked communication. Hoffman and Novak (1996) re- viewed objective characteristics of communication media and developed a media typology along two dimensions: impersonal to personal, and static to dynamic. This paper addresses the major characteristics of the Web for retail applications. These characteristics may differ from the features outlined in previous research, since we focus on those aspects that have the greatest potential to affect the retail marketplace. Compared to the traditional market, the Web market differs along three main dimensions: i) technology infrastructure; ii) channel integration; and iii) infor- mation intensity. Table 1 summarizes these differences, which are discussed in the following subsections. This discussion is not meant to be complete and comprehensive, but rather a summary of some important characteristics that retailers should understand about the Web market. Technology Infrastructure Advances in technology have provided useful supportive tools in the conven- tional market. For example, television and radio have greatly facilitated one- way communication. Various information systems can be used to process trans- actions, collect and analyze data. Technology-based tools have helped market- ers perform their marketing strategies more efficiently and effectively in the traditional marketplace. Table 1 A Comparison of Web and Traditional Markets Web Market Traditional market Technology is a determinant for serves as a supportive tool market development and business strategies Channels integrated separate Market information intensive limited The Web-based marketplace serves as a platform for advanced technology and applications. Marketers who pioneer new Web-based technology and com- mercial applications can gain substantial competitive advantage. 76 Journal of Business Strategies Vol. 19, No.1 The Web opens a new space, cyberspace, for retailing. Customers can visit virtual stores, browse through product offerings, and place orders as they do in traditional stores. In this new space, Web technology supports market features inexpensively, such as 24x7 availability, fewer/no geographic boundaries, inter- active two-way communication, customization, automation, search facilitation and information/knowledge sharing. These features help to attract customers and stimulate new market growth. The Web impacts the market through cus- tomer satisfaction, product design, value generation, and decision processes. This helps marketers to serve larger audiences more efficiently. The Web also helps to target specific consumer groups, which may be difficult in traditional markets due to high costs or an insufficient customer base. The availability of information gathered through customer interaction allows marketers to produce business intelligence to better support their customers. Through the Web, con- sumers can access more market information, by ways of company sites, inde- pendent evaluator or advisor sites, and through communities with other consum- ers that share their knowledge and experience. In an electronic environment such as the Web, advanced technologies, such as multimedia, virtual reality, and software agents, may not only be employed as supportive tools, but can be the foundation for long-term mar- ket development. Technology development may further change the market structure, expand the types of products or services suitable for Web markets, affect consumers' behaviors, and dictate effective marketing strategies. Dis- advantages of Web retailing, such as the inability to physically see and touch the merchandise, or concerns about security and privacy, may be alleviated through new technology development, application design, and improved policies and procedures. For example, a clothing retailer can provide a personalized virtual model that can tryon garments to aid consumer deci- sion-making, and clearly stated privacy policies can help alleviate consumer concerns. Developing and employing new technologies and applications may provide marketers with new business opportunities and advantages. Marketers may explore new business models and target new market niches by developing new applications. Early adoption of advanced technologies may build sustainable advantages, such as brand name recognition. For example, Amazon was first to take large-scale advantage of the cyber-book- store market. Adopting the Web as its storefront, Amazon was able to list more than 10 million titles in its electronic catalog in spring 2000 (Turban et al. 2000) and provide customers with extra service through its effective search engines, customer communities created through book recommenda- tions and affiliate marketing, and reminder services using push technology. Similarly, Yahoo! was first to offer an extensive Web directory, and provides users with the ability to personalize content. Early and successful adoption of Web technology has made Amazon and Yahoo! household names. Spring 2002 Wang, Head & Archer: E- Tailing 77 Channel Integration The powerful integrated environment of the Web can affect the marketplace in many ways. Many business models, such as those similar to TV and catalog shopping, can be implemented readily online. Different business tools and functions can be integrated. Consumer orders can be automatically processed and routed to suppliers. Information channels are integrated, with information flowing both ways between vendors and customers. This facilitates the gather- ing and sharing of market knowledge. For consumers, competitors are just a click away, allowing easy comparison of product offerings. More fundamen- tally, the Web is a combined communication medium and distributionltransac- tion channel, which is quite different from traditional marketplaces. Many researchers have recognized the Web's basic characteristic as a commu- nication medium (Pellet 1996; Griffith & Krampf 1998). Compared to informa- tion push from marketers to customers through traditional media such as televi- sion, the Web is a "pull" medium where customers purposely search for desired information. The Web can empower micro-segmentation marketing, even one- to-one marketing, unlike traditional communication mediums such as telephone, television, radio and newspaper. The Web as a communication medium can be simplex (one-way), duplex (two-way), or multi-plex (multiple-way). The com- munication can be one to one, one to many, many to one, and many to many with the same or different time dimensions. The Web may also serve as a distribution/transaction channel. The Web is often considered a distribution channel for digital assets only, since physical goods must be handled offline. The underlying argument is that distribution and transaction functions are often differentiated (Peterson et al. 1997), where the distribution channel is used for logistic operations and the trans- action channel for sales. Such a division helps to explain some business models in the conventional market, such as brokerages, where the brokers never physically handle or take title of products. According to Walters (1977), distribution channels carry out two tasks: title movement and physical move- ment. This distribution channel principle includes both distribution and transaction concepts. After a customer completes an order and provides payment through a commercial Web site, the title movement is completed. Physical movement is the process of delivering products or services to the purchaser, which mayor may not happen through the Web, depending on the nature of the product. In the electronic marketplace, more and more services and digital/information product providers employ the Web as a full distribu- tion channel. In the case of physical goods, while the Web can not actually deliver the products, an important part of the distribution task, title move- ment, occurs at the Web site. The Web can also serve to facilitate the delivery process by allowing customers to access information such as delivery status. Also, from the consumer's perspective, distribution and transaction chan- nels may tend to converge. Even in cases where merchandise is directly 78 Journal of Business Strategies Vol. 19, No.1 delivered from manufacturers and virtual retailers do not handle the goods, customers assign merchandise quality and delivery responsibility to the retailers. For these physical goods, the Web may be considered a transac- tional channel or a (partial) distribution channel. The Web marketplace is a unique combination of a communication me- dium and a distribution/transaction channel. This combination makes the Web an integrated interactive environment, where consumers' communica- tion and purchasing behaviors can be carried out through the same infra- structure. This differs from television and catalog sales, which serve as communication tools rather than marketplaces. The integrated Web channel also facilitates consumer interaction and favors interaction marketing. This interaction includes information exchange (communication) before, during and after the purchase behavior (distribution). Throughout the decision mak- ing process, manufacturers can interact directly with consumers and apply advanced marketing techniques. For example, the "made to order" concept, which was traditionally reserved for special product transactions in the business-to-business (B2B) market, can now be applied through mass customization in the Web retail market. Information Intensity Information availability is limited in the traditional market. While electronic techniques, such as POS, have been used to collect information for inventory management and customer analysis, they have limited potential. First, the infor- mation collected through these systems does not tend to be extensive, since it simply includes merchandise descriptions and quantities sold. While some stores also collect customer account data, valuable information generated through personal interaction with customers, such as their preferences, is typically lost. Surveys and analysis by stores and brand manufacturers are generally con- ducted, if at all, on a limited sample basis. Second, information collection and analysis in the traditional market is primarily performed from the marketer's point of view and for the marketer's use and purpose. Information that directly facilitates consumers' information searching or market evaluation is not as easily available. Electronic techniques used in the traditional retail market tend to be supportive tools, and do not emphasize the customers' views, roles or power. The Web is a truly information-intensive environment. Vast amounts of in for- mation can be collected, integrated, processed, presented, and accessed through the Web by both marketers and consumers. Marketers now can track detailed information for all e-tailing consumer interactions, not just select samples. However, soft market features, such as reputation and reliability, may be more difficult to gather and evaluate. Consumers can gain more market knowledge for criteria comparison, however potential problems of information overload may increase perceived searching costs (Head et al. 2000). Marketers may provide Spring 2002 Wang. Head & Archer: E- Tailing 79 tools to facilitate consumer information collection, but may have to redesign their marketing strategies since competitors can also accumulate market knowl·· edge and match price differences. Market Effects The Web characteristics outlined in the previous section can create some fundamental changes to the retail market. This section analyzes these effects on the retail market, as shown in Figure 1. The Web adds an e-tailing service element, leads to a new market participation model, and can alter distribution channels. The Service Perspective What are the differences between buying online and offline? Many products sold by online retailers are the same as offline merchandise. A book is a book and a toy is a toy. The primary attraction of online shopping is the service value perspective, where customers claim to enjoy rich information and convenience. Service components are embedded in the online shopping channel. Some researchers have realized the service components of product design in e-tailing and indicated that e-tailers are faced with a unique set of challenges in the management of their customers' perceptions (Kolesar & Galbraith 2000). Ser- vice components are most prominent in information/knowledge and delivery aspects of e-tailing. E-tailers are faced with the challenge to design usable and useful Web storefronts to facilitate customer navigation. Many e-tailers feature a large portfolio of products, requiring powerful search tools/methods to tailor to the heterogeneity of consumer information requirements. The Web encour- ages after-sales service by facilitating access to rich information and customer interaction. Customer relationship management (CRM) systems have become popular tools to support these relational interactions. CRM systems can auto- matically record detailed consumer activities and can be used to build consumer profiles from various tangible and intangible activities. By understanding con- sumers better, marketers can employ relationship marketing techniques in the retail market to provide personalized services. Consumers often view online shopping as being more risky than traditional shopping channels. Orders are contracted before consumers receive, or in many cases physically evaluate, the merchandise. The delivery process may generate risk if consumers do not receive their orders in the time and conditions expected. Consumers may also risk higher privacy loss. While enjoying personalization and enhanced service, most consumers view the misuse of market information as a violation (Head & Yuan 2001). Marketers should solicit consumer permis- sion to use market data, and must not compromise consumer privacy concerns. The value added from service components must outweigh the perceived risk of shopping online. 80 Journal of Business Strategies Vol. 19, No. I New Market Participation Model Due to its channel integration and information intensity features, a new participation model has emerged in the Web market. Figure 2 (a) illustrates a traditional market interaction model and Figure 2 (b) shows the new Web market participation modeL Marketers and consumers interact through communication mediums and distribution channels. Both the marketers and consumers perform information-processing and decision-making tasks. Market participation is de- termined by interaction and information-processing/decision-making activities. Figure 2(a) Traditional Market Participation Communication Medium Consumers Information processing and decision making (passive) Market Participation active Information processing and decision making (active) ~~ L..- --' pasSi~ Marketers Distribution Channel As Figure 2(a) shows, in the conventional marketplace, the market partici- pation of marketers is active while the participation of consumers is passive. Information is pushed by marketers to consumers through traditional mass marketing mediums such as newspaper, television, and radio. Consumers' information acquisition and processing are mostly passive and restricted. Due to communication limitations, consumers tend to make decisions indi- vidually, or in small family groups, and then actively deliver their purchas- ing decisions to the distribution channeL Marketers then passively receive feedback information. Several key points must be emphasized. First, it may be difficult to accumulate rich and valuable consumer information in the traditional market, since the communication medium and distribution chan- nels are usually separated. Second, the dashed line indicates that consumers seek information and marketers seek feedback actively, but to a limited extent. Consumers may have limited access to valuable information, since most information in the traditional market is designed for the masses rather than the needs of the individual. Seeking relevant and personalized informa- tion can be time- and cost-consuming, resulting in consumers' largely pas- Spring 2002 Wang, Head & Archer: E-Tailing Figure 2(b) Web Market participation 81 passive The Web active IMarketers I.. .. Communication medium .. "Iconsumersl Distribution channel sive access of information. On the other hand, marketers are active during the communication phase but mostly passive during the feedback phase. Consumers determine the amount of feedback they wish to provide, and this feedback may be buffered, distorted, and delayed as it must often pass several distribution layers. Although there are some passive marketer activi- ties, overall we consider marketers as active participants in the conventional market, which implies their greater power to influence this market. Figure 2(b) shows the new participation model in e-tailing. The Web is an integrated channel, which greatly facilitates information access, collection, and analysis for all market participants. Both consumers and marketers can actively participate in the market in all interaction phases. While consumers can dramatically increase their market power, various marketers can also enhance their market capabilities. The communication medium and distribu- tion channel are not market buffers but serve as an interaction carrier. Both marketers and consumers can establish direct contact with each other. There- fore, the capability of the communication medium and distribution channel does not limit the power of market participants. Timely and accurate feed- back can be delivered to manufacturers, and consumers can find information that fits their specific needs. Changes in Distribution Channels The Web empowers manufacturers. Due to the communication ability of the Web market, manufacturers can connect to large consumer bases without location limitations, which may allow them to vertically integrate retailing functions and eliminate distribution layers. Avoiding traditional wholesale and retail channels may reduce the final consumer price and facilitate quicker service. Customers may be able to interact with manufacturers during the entire marketing cycle, from product design to post-purchase service even to old product recycling. Direct interaction benefits manufacturers by enhanc- ing market understanding and building consumer relationships through pric- ing and personalization. Dell Computer Corporation (www.det1.com) is an example of efficient online retailing through shortening the distance be- tween manufacturers and consumers. 82 Journal of Business Strategies Vol. 19, NO.1 However, with fewer distribution layers, there may exist a value gap (Gallaugher 200 1). Distribution layers add value, which may be lost through disintermediation. For example, retailers perform certain functions in distribu- tion such as delivery, storage, and insurance. They have some advantages that manufacturers may lack, such as larger product profiles, retailing expertise and market knowledge. Retailers are product collectors and market organizers in certain industries, such as the grocery sector, providing convenience to consum- ers that manufacturers could hardly substitute. Customers may search and com- pare products more easily at a one-stop site without interacting with various individual manufacturers. The success of disintermediation will depend on appropriate adjustments of the generated value gap by decreased costs or pro- viding additional services. In non-commodity industries that have few manu- facturers and carry similar products, such as the PC industry, the benefits pro- vided by retailers may have less value. New intermediaries are also appearing that may expand distribution channels. Auto-By-Tel and Charles Schwab's OneSource mutual funds network are among many successful efforts that have created market makers by displacing an exist- ing weak point in the distribution chain with a technology-driven value enhance- ment (Gallaugher 1999). In these cases, online marketers can design products and services for customers' needs, which can not be effectively provided in traditional markets. A good example is Garden.com (Welles 1999), which is an e-tailer for garden supplies. This company distributes knowledge, takes orders online, and ships products directly from its suppliers to its customers. In this way, Garden.com becomes a sole marketing and customer service company for its suppliers and targets a special group of customers who value time and product knowledge. The Internet allows for the re-organization of distribution channels to better match consumers' needs. It may decrease distribution layers, possibly lowering costs and facilitating direct interaction. It may induce online and offline compe- tition. And it may create additional distribution layers to provide service and value for consumers. Response Strategies The Web has the power to fundamentally influence the retail market. Facing this challenging and changing market phenomenon, retail businesses are adapt- ing their strategies to take advantage of new opportunities. This section ad- dresses the business response strategies shown in Figure 1. Retailers can consider the potential impact of the Web from two perspectives. The first perspective considers the Web as one of many tools available for marketers to communicate and sell their products to customers (Peterson et a1. 1997; Deighton 1997; Burke 1997). The second view recognizes the potential power of the Web to create a new marketplace (Mahajan & Wind 1989). We have Spring 2002 Wang, Head & Archer: E-Taiting 83 developed a summary, shown in Table 2, that outlines the main differences between these two views. To the best of our knowledge, such a comparison has not been adequately defined in previous work. It is important to note that although we separate these two perspectives, various combinations are also possible. However, it is of value to separate and clearly outline the two views in order to provide a basis for further investigation. Separating the role of the Web as a tool and as a marketplace is similar to the concept of separating sustaining and disruptive technologies (Christensen 1997). We propose that by using the Web as a marketing toot, businesses are actually adopting a sustaining approach to employ new technology. By view- ing the Web as a new marketplace, business strategies are more disruptive, and may thus lead to more dramatic changes in the organization. Different views will generate different strategies, which will have different implemen- tation implications. The Web as a Marketing Tool Peterson et al. (1997) argues that the Web will have major effect on communication, will influence transactions, but will have no effect on distri- bution unless the good is based on digital assets. Businesses, which view the Web as a marketing tool, mainly employ it as a communication tool to take advantage of its benefits in lower costs, interactivity, personalization, digi- tization, automation, and constant communication. Most traditional retailers who do not currently sell their products/services through their sites hold this view. Many traditional retailers construct their site to foster better commu- nication and public relations. Consumers can obtain corporate information, and may be encouraged to subscribe to customized electronic flyers/news- letters. Many businesses, which sell through both traditional and Web chan- nels, such as Business Depot (www.businessdepot.com). also follow this model. The Website of Business Depot is simply another store front or interactive catalog. When viewing the Web as a marketing tool, value proposition focuses on improving existing products and services by expanding their reach and range. The communication power of the Web allows companies to effectively provide information to consumers without geographical or time limitations. From the consumer's point of view, their information access is dramatically expanded and decision making is facilitated. Customers can easily evaluate competing offers through available tools or services. For example, Realtor.com offers a Web- based mortgage financial calculator (www.realtor.com/ResourceCenter/ FinanceCenter), which is not available through traditional channels. Employing the Web marketing tool will not tend to dramatically change the organization's customer groups or advertising criteria. Companies can better serve the same group of customers. For example. Office Depot employs the Web to improve its existing store and catalog services. Without opening more stores 84 Journal of Business Strategies Table 2 Different Views of the Web Vol. 19, No.1 The Role of the Web Characteristic A Marketing Tool A New Marketplace Value provided Improve existing New definition of value product/service value Main function Communication tool A channel that facilitates a fun range of interaction Competitive strategy Expanding reach/range Seeking new market nicheslboundaries and appropriate strategies/ business models Effect on consumers More efficient and Increased growth of complete information customer power access Target customers Existing, with same value New/existing group, with UJ criteria different value criteria-0 Strategic focus A technology tool that can New Web-supportedQlc. UJ facilitate existing strategic actions < 0 strategies C) Business functions Facilitate implementation Facilitate existingQl-a:l affected of existing marketing functions and seek new...- functions value/opportunities(/) Main relationship with Complementary and Co-existing and existing marketplace integrating, one of several competing, a new marketing tools marketplace with distinct characteristics and structure Product selling potential Limited Unlimited Marketing implication Improved interaction, Integrated interactive market micro- channel, new marketing segmentation, possible campaign under new one-to-one marketing market strategy Market structure effect Not obvious Fundamental Strategic potential Short-term Long-term Spring 2002 Wang, Head & Archer: E-Tailing Table 2 continued Different Views of the Web 85 The Role of the Web Characteristic A Marketing Tool A New Marketplace Implementation Realistic, based on the Developing, based on feasibility major current market substantial analysis of capability future markets Organizational effect Structural or functional Re-organization of the change in communication- entire organization 1Il related departments-uCll Major function of the Web communication Web sellingQ. 1Il Webc( c:: Marketing plan Marketers Both marketers and0 +: m participants consumer-c Cll Market researchl Normal DifficultE Cll prediction Q. .E Uncertainty Low High Business process covered 82C B2C, 828, C2C, intra-8 Complexity of Web Low to medium Highly complicated and information systems complexity integrated used Relationship between Well researched Trial-and-error. strategy and implementation strategies guide emphasis on feedback scheduled and adjustment implementation or printing more catalogs, customers can access updated and accurate informa- tion through the Web and complete transactions online. The Gap's (www.gap.com) target customers are not dramatically different online than offline. However, their online customers can be better served through more extensive information and product availability, and service integration between their online and traditional stores. As a new technology tool with strong communication power, the Web can be used to support existing strategies by facilitating the implementation of existing marketing functions. The Web serves as one of many marketing tools, such as television, and marketers try to benefit from the strengths provided by different media. The functions of these media are often complementary, and most market- ers use them simultaneously to enhance results. The Web is particularly power- ful for consumer interaction. Companies can acquire more consumer informa- 86 Journal of Business Strategies Vol. 19, No.1 tion and feedback through the Web channel and deliver targeted messages more efficiently. Businesses with this view do not expect the Web to create dramatic structural changes in the market. Major distribution chains remain relatively stable. The potential to use the Web as a marketing tool to seek strategic advantage is often limited and short-termed, since competitors can quickly copy the strategy. Nec- essary resources, such as technology and corresponding marketing expertise, may be easy to gain with existing strategies and consumer base. This sustaining approach to Web utilization has minimal effects on strategy formulation, and thus implementation tends to be relatively easy and realistic. Without major shifts in consumer characteristics and industry relationships, companies Can adjust their practices gradually. It is not difficult to open a Web site to provide company and product information or for catalog sellers to intro- duce an online catalog. Since this view facilitates existing marketing strategy, structural or functional changes are mostly expected in communication-related departments. The suitability of the Web for product selling depends to a large extent on the characteristics of the products and services (Peterson et al. 1997) and is limited to certain product categories. Generally, products that have a low outlay, are frequently purchased, have an intangible value proposition, and can be highly differentiated, are more likely to be purchased through the Web (Phau & Poon 2000). As industry practice shows, products such as books and toys are among the best selling products online. Thus, it is necessary to explicitly consider product characteristics when evaluating Web strategies. Marketers are major players in the implementation of communication- related changes. They help open the Web channel, design available func- tions, collect market information, promote interaction, and offer more alter- natives to consumers. Without major market or consumer changes, existing business expertise may be readily applied to new media. With business expertise, financial stability, and existing branding, traditional retailers can implement online channels with relatively low risk. The major business process influenced by this implementation is B2C communication. Other relationships, such as business procurement, may not be affected. The Web information systems (WIS) used to implement this marketing tool will be of low to medium complexity, depending on the level of Web service provided. For the case of Business Depot, which had catalog selling experience and an existing infrastructure, less market research and organizational changes were needed to initiate its online business. With an existing market and customer base, the uncertainty and risk involved in this venture was relatively low. Using the Web as a marketing tool, companies can design a well-researched strategy through their understanding of the market, configuration of media effects, and cost allocation. Such a strategy will help guide a scheduled imple- mentation to ensure success. Spring 2002 Wang, Head & Archer: E-Tailing 87 The Web as a New Marketplace Mahajan and Wind (1989) consider the Web a "market discontinuity" Businesses, which explore the Web channel as an emerging new marketplace that facilitates a full range of interaction, may find that it co-exists and competes with traditional markets. Online retailers must provide incentives for consumers to change their shopping patterns or explore new markets. New value must be defined and appreciated by consumers to compete with existing market channels. For example, customers must value the flexibility and convenience of Web shopping. Businesses need to explore market niches/ boundaries to fit the new value with customers' needs, and seek appropriate business models to achieve these needs. Target customers will be new and existing groups with different value criteria, which may be difficult to achieve through traditional channels. For example, ThePeachTree (www.thePeachtree.net). an online grocery-shopping provider, contracts with local grocery stores and provides shopping convenience to consumers. For consumers of thePeachTree, an additional distribution layer is added. ThePeachTree, using the Web communication advantage, seeks the market niche for customers who have time constraints or who will pay extra for the convenience of this service. In addition to using the Web for information searching, consumers can increase their market power through high involvement in business processes and virtual communities. These are new Web-centered strategies, which are restricted in traditional markets by fixed physical assets and slow transfer of information (Werbach 2000). Some researchers have noted the commercial effects of Web groups (Wotring et at. 1995; Armstrong & Hagel 1996; Kozinets 1999). Communication convenience allows consumers to form communities outside their traditional work or family groups. Such commu- nities accumulate information or knowledge by learning from the experi- ences of individual community members. Information collection costs and times are often reduced for individuals within a community. Opinions from other consumers are often more valued than messages from marketers, espe- cially in a Web market, where trust is critical and more difficult to build. Not only do groups have a strong effect on purchasers' decision-making, but they may also affect market variables such as products and prices. For example, stocks that capture the attention of participants in chat rooms can move noticeably in price (Bruce 1997). The Web, as an interactive marketplace, also gives the consumer data selection and personalization power. Custom- ers can select information of interest and personalize presentation forms for their own use. Personalized Web pages, which can be constructed fairly easily, increase customer power (Rousseau et al. 1999). Customers on the Web have greater control over what they view and examine. They can select their own path through the information network, process the data, or initiate communication with marketers. 88 Journal of Business Strategies Vol. 19, No.1 While businesses still need to consider product/service characteristics to design proper strategy, viewing the Web as a new marketplace dramatically expands the possible product categories suitable to online selling. Busi- nesses are not limited by traditional models and strategies, but actively seek new value and strategies. Many business functions are affected when trying to achieve value in the Web marketplace. For example, some e-tailers may hold minimal or no inventory, and mainly handle information. The range of information goods can still be greatly expanded. Marketers may also design new marketing campaigns that substantially differ from traditional ones. Market structures may fundamentally change in the new marketplace. Old intermediaries may disappear and new ones emerge. Consumers may have different decision making patterns and market participation roles. Major industry relationships may be redefined. Since these e-tailers are realizing new value definitions and constructing new operational structures, strategic advantages may be longer lasting. Most retailers with this view focus on Web selling. Consumer groups with new value criteria and shopping patterns are forming and expanding. They must actively play their new role in Web shopping. On the other hand, industries will continue to evolve and companies will fe-organize to adopt new business models. Werbach (2000) outlines many of these organizational changes, such as relationship structures and outsourcing roles. A focus of outsourcing in the traditional marketplace is to gain efficiency. In the elec- tronic marketplace, outsourcing is facilitated by the domination of informa- tion manipulation, and a focus may be to assemble virtual corporations. Organizations may need to reconfigure not only their business-to-consumer perspectives, but also their B2B and intra-business (intra-B) operations. Facilitating and managing consumer-to-consumer (C2C) communication and knowledge sharing may become a major aspect of business intelligence. Therefore, Web information systems will be more complex due to integra- tion and interaction requirements. Information should be seamlessly trans- ferred among the parties involved. These strategies are still developing and are mostly based on prediction and analysis of future markets. Since the new market is still in its early formation stage, businesses and consumers need to learn and evolve with this new Web marketplace. Market prediction and analysis is difficult due to shifts in market forces (Mahajan & Wind 1989) and the speed at which Internet-related changes are occurring (Peterson et al. 1997). Thus, the strategy formation and implemen- tation processes are largely trial-and-error based. Feedback from early imple- mentation is needed and used for strategic adjustment. The success of each view depends on the current market situation, the matu- rity of technology and the readiness of consumers. Even within the same market, either strategy may lead to success when targeted at different customers. Spring 2002 Wang. Head & Archer: E-Tailing Conclusions and Future Research 89 This paper presented a general Web market framework to guide our dis- cussion. We outlined three main Web characteristics (technology infrastruc- ture, channel integration, and information intensity) that impact the retail market. The effects of these impacts include an increased service perspec- tive, a new market participation model, and changed distribution channels. Retailers may respond to these impacts and effects by either viewing the Web as a marketing tool or as a new marketplace. We have examined these two perspectives along several strategic and implementation dimensions. The success of these response strategies will depend on the types of products and services being marketed, corporate and market culture, technology ma- turity, and consumer readiness. The development of e-tailing accelerates competition. The online channel has to compete with offline stores and new entrants with innovative prod- ucts, services or business designs. To survive, businesses must possess cer- tain significant competitive factors. Brand, economies of scale, and size seem to be important to e-tailers (Gallaugher 1999). Further research needs to systematically analyze competitive factors for e-tailers in order to provide effective guidelines. Currently, with competitors being a click away, loyalty and trust are harder to build in the Web environment. However, e-tailers need to build consumer loyalty to survive and thrive in this highly competitive landscape. Guidelines to develop and build this loyalty and trust should be addressed in future research. Further research is also needed in applying new technology development to business processes and strategies. As previously outlined, technology is essen- tial to market development and marketers may gain substantial benefits from early adoption. Web-based information systems serve as the storefront for con- sumers and must be easy to use. E-commerce usability is a new area in human computer interaction and critical to online business success. Consumer information is viewed as an important asset to businesses. Using this information, marketers may provide superior products and services at better prices. However, consumers are demanding more control on the use of such information. There is a delicate balance between perceived value and cost (Wang et aL 2001). Further research may explore the factors, such as trust, which may serve as the threshold (Long et al. 1999) of value for information and privacy concerns. E-tailing is a market practice that is still in its infancy. Viewing the Web as a marketing tool, marketers incorporate the Web into their traditional strategies. Viewing the Web as a new marketplace, businesses emerge with new product! service designs, targeted customers, and strategies. Traditional methods to evalu- ate the success of a business seem insufficient in the new economy. Despite 90 Journal of Business Strategies VoL 19, No. 1 increasing sales, many e-businesses are not profiting. 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Currently, she is a Ph.D. student in the area of Management Information Systems in the Michael G. DeGroote School of Business at McMaster University. Her research interests include electronic commerce, marketing and finance. Milena Head is an Assistant Professor of Information Systems in the Michael G. DeGroote School of Business at McMaster University. Her research interests are in topics that relate to electronic commerce and human-computer interac~ tion, including Web-based agents, EC trust and privacy, e-tailing, and interface design. She has published in International Journal of Human-Computer Studies, Interacting with Computers, Journal of Internet Research, Human Systems Manat:ement, among others, and has presented at several international confer- ences. Norm Archer is the Wayne C. Fox Chair in Business Innovation and Professor of Management Science and Information Systems in the Michael G. DeGroote School of Business at McMaster University, where he is also the director of the McMaster E-commerce Research Centre. His research interests are in topics relating to electronic commerce, including business-ta-business implementa~ tions, intelligent agents, and the human-computer interface, and he has pub- lished over 45 refereed journal articles. E-Tailing: An Analysis of Web Impacts on the Retail Market