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Online Shopping Research Paper

Introduction

The emergence of web-shopping some twenty-seven years ago is a milestone in commerce in marketing. The basic idea – creating virtual marketplaces for tangible goods – has evolved into new concepts of doing business, new threats and opportunities for both sellers and buyers and even new products and services, many of which, such as web-based Video on Demand (VOD) services, are being sold and consumed as a whole within the World Wide Web.

This paper analyses Internet shopping from the demand side point of view. That is, its main aim is examine the consumer behaviour factors behind this phenomenon by using recent empirical data regarding the means by which people use Internet shopping.

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In addition, the paper will reflect on recent advancements in this field by applying critical thinking and presenting several views of leading authors.

2.1 Background of the Research

In order to understand in its contextual framework, it should be noticed that one should Internet shopping is merely a fraction of what economists define as the “new economy”: the contemporary globalized, volatile and rapid-growing world, which evolved to a large extant from the increased use of IT communications (Triplett & Bosworth, 2002). As discussed below, this form of economic restructuring, whose importance can be compared to the Industrial Revolution of the late 18th and early 19th centuries, has brought about significant changes in the roles, behaviour and functioning of consumers and businesses.

The advantages of E-commerce go far beyond the average buyer or the multinational company. In fact, Internet users from both sides of economic transactions have created a unique trade atmosphere, where buyers and sellers of all sizes can communicate so freely, that even extremely small businesses can engage in web-marketing. Furthermore, marketplaces such as eBay give everyone the opportunity to deliver some value to other users, hence making them small-scale or even one-time sellers.

Referring to the capabilities that the Internet gives to companies, Kotler & Keller point out several major issues: (2006)

  • The technical capacities and geographical distribution of the Internet provide companies the opportunity to communicate marketing and sales messages without the boundaries (e.g. place constraints) of traditional advertising methods
  • Online marketing research tools, the infinite flow of information and direct Business to Consumer (B2C) communication networks allow companies to collect valuable about trends, participants, prospects and intentions of competitors (e.g. via want ads) in a fast and efficient fashion
  • Customer Relationship Management (CRM) and other forms of customer service can be done much more effectively on the Internet, bringing about better satisfaction and higher sales
  • Virtual shops minimize to a large degree the need for holding multiple inventories, logistic centres, etc.

2.2 Research Objectives

As discussed above, this paper assumes that Internet shopping is to be considered as the most important development in retailing of the past two decades. Therefore, this matter calls for further investigation regarding both sides of economic transactions. As my primary focus would be consumer behaviour, the paper will address several main issues:

  1. Segmentation: who are the Internet shoppers? Are there any patterns (e.g. demographic, psychographic) that distinguish them? What they usually buy in an online shop?
  2. Sources of motivation for Internet shopping: why do people use the service? What motivates them to choose online shops instead of traditional retailing methods?
  3. Buying behaviour and experience: how the process of Internet shopping is conducted? What characteristics distinguish online shops from other forms of retail?

 

The study presented here is based on secondary sources, some of which analyse the main phenomena in this field and others survey empirical findings, which address the research questions. Special attention is put on Meta analysis studies, which provide a comprehensive overview and findings regarding the main consumer-oriented issues in the study of Internet shopping.

3. Literature Review

As of 2008, about 1.6 billion people, or 24% of the world population, are using the Internet; the Internet penetration rates in North America and Australia exceed 70 and 60 per cent, accordingly, while in Europe the rate is estimated to about 50% (Miniwatts Marketing Group, 2009). Since the beginning of the new millennium, more than 800 million people acquired Internet access, representing a growth rate of more than 360 per cent (ibid.). Nonetheless, online shopping did not grow at similar rates. In fact, revenues and profits results of Internet retailers are much lower than expected, suggesting that online shopping “failed to live up to its promise and has not even reached the take-off point of the diffusion ‘S’ curve” (Changa, Cheungb & Laib, 2004).

3.1 Practical and Theoretical Approaches in the Study of Internet Shopping

The main motivation in studying this consumption phenomenon is not merely derived from academic curiosity, of course. As in any research in consumer behaviour, existing and prospective sellers need high-quality information to remain competitive, attract customers, build effective CRM techniques and optimize their marketing and sales communication channels. Generally speaking, this field of study can be divided into two main schools, namely the consumer-oriented and the technology-oriented views.
Zhou, Dai & Chang identify the main investigation paths within the consumer-oriented view: (2007)

  • Demographics (gender, age, income education and culture)
  • Internet experience (WWW apprehensiveness, frequency of Internet usage and comfort with the Internet)
  • Normative believes
  • Shopping orientation
  • Shopping motivation
  • Innovativeness
  • Online experience (emotion and flow)
  • Psychological perception (risk perception, benefit perception and WWW apprehensiveness)
  • Online shopping experience (frequency on online purchases and satisfactory levels about past online transactions)

Other scholars, who focus on the technology-oriented views, use the information regarding the nature of potential customers and the available IT tools to optimize the design of web pages in order to attract surfers, prolong the duration of their stay in the website and to improve customers’ experience in a manner that should increase the probability buying (Zviran, Glezer & Avni, 2005).

3.2 Key Drawbacks and Dilemmas of E-commerce

The advantages of Internet shoppers for consumers and companies were discussed earlier and are rather clear. However, this unique retailing medium has several distinctive problems, which add to the usual dilemmas in modern marketing management. This section will describe some of them, focusing on the consumer-oriented view.

Building Consumer Trust in an Online Shop

It is safe to assume that trusted vendors will gain more occasional and repetitive purchases compared to those who are perceived as less trustworthy. A major concern in building trust online deals with the issue of privacy, mainly because it is practically impossible to remain completely anonymous when buying online, whereas in most purchases of most products (except large purchases such as cars) one can enter a shop, pay in cash and avoid any disclosure of personal details or even her name.

Internet vendors must receive some information about their clients. Typical disclosure includes name (though the use of pseudonyms is possible), email and home address, credit card number and purchasing history. Consumers may fear that their personal details will be used for other purposes (e.g. unwanted “junk mails”), that their purchases will leak, that someone will use their identity and so on. Thus, trust is much more related to the perceived risks involved in Internet shopping (i.e. the probability of post-purchase misuse) than to the conventional determines of customer loyalty.

Kim (2005) defines two levels of trust, namely cognition-based and affect-based trust.

  • Cognition-based trust is based on cognitive reasoning and interpretation of prior encounters with the company. Simply put, one will build his perception regarding the trustworthiness of a company (in terms of e.g. the latter’s level of information security) according to general and/or specific impressions from different factors prior (e.g. press coverage), during (e.g. design) and after (e.g. efficiency of the delivery service) the purchase.
  • Affect-based trust is, by definition, an emotional process, in which non-cognitive mainly emotional and social) factors are built beyond the rational impressions described above. For example, a customer may develop a deep level of relationship with a vendor according to some points of affection with the latter’s image.

High levels of trust, in particular affect-based trust, also support other marketing efforts such as up-selling (i.e. upgrading a purchase) and cross-selling (i.e. adding unrelated products in the same purchase). It is clear, thus, that building and maintaining trust is a major concern for an online vendor.

3.2.2 Cross-cultural Differences in a Global Network

Not surprisingly, trust-enhancing “cues,” as many other factors in the virtual environment, are highly influenced from cultural aspects. For example, a cross-cultural empirical study by Lynch, Kent, & Srinivasan (2001) found that trust-enhancing factors, which work well in North and South America, are not effective at all in Western Europe. Referring to this finding, Zhou et al. suggest that such differences “may be attributed to the fact that the quality and trust provided by Western European online shopping sites are already very high” (2007).

It is therefore imperative not only to understand and respect the specific cultural variables of the target market, but also to conduct careful segmentation of the various customers. Furthermore, and perhaps more important as a preface to the next section, it must be understood that there is no such thing as a uniform segment of Internet consumers; though that must be treated separately from other target markets (Kotler & Keller, 2006).

4. Methodology

The general impression coming out of the preceding sections is that a systematic analysis of the Internet shopping phenomenon must be based on a customised set of tools. Some of those tools are modified version of existing marketing research methods, whereas others are new and sometimes controversial (Chang et al., 2004). This paper, however, is not concern with validity issues, as its scope is merely to describe findings, not to criticize them.

Therefore, while conducting the literature research for this paper, I focused on solid and measureable data. Table 1 details the sources used for the findings in the proceeding section, commenting on the sources whenever necessary.

Topic Source Comments
Internet usage statistics Miniwatts Marketing Group (2009)
Internet retailing revenues Vertical Web Media (2009);Business Wire (2009); Including 4-years’ revenues of Amazon.com as a study case
Demographic factors Chang et al. (2005); Zhou et al. (2007) Meta analysis studies

Table 1: Sources used

The literature search was conducted on June 2009, using the databases ProQuest ABI/INFORM and Google Scholar. Special effort was put to use updated data, partially by conducting a “snowball search,” i.e. backward and forward search of sources who are cited by or citing a given source in use.

5. Research Findings

The findings presented below are organised according to the research questions, as they were defined in the introduction. As discussed in chapter 2, the research questions cannot be fully answered due to cultural differences other unique characteristics of Internet shopping. The findings should hence be viewed in the light of those differences.

5.1 Market Volumes and Top Players

Internet sales continue to grow at phenomenal rates in both developed and developing markets. Its success can be primarily related to the growth of worldwide Internet usage, which brings about trust, experience and awareness to the market offerings of online retailers.

5.1.1 Global Internet Usage

According to Miniwatts Marketing Group (2009), the total number of Internet users around the world has grown by 342.2% over the last eight years. Looking closely at the data, it is possible to describe a general negative relation between a region’s economic performance and growth of Internet penetration rates; these rates are extremely high in the Middle East (1,296.2% growth between the years 2000-2008), Africa (1,100.0%) and Latin America (860.9%). Figures 1 and 2 depict Internet penetration rates according to continents and their share of global Internet usage as of March 2009.

5.1.2 Trends in online retailing

The total volumes of web sales in the US are estimated to more than $156 billion in 2009 (a growth rate of about 11% over 2008), which accounts for 6% of all retail sales in the country (Business Wire, 2009). As can be seen in Table 2, the top US online retailer in 2008 was Amazon.com, whose sales are accounted for more than 10% of all sales in the Internet.

Taking Amazon.com as a study case for the growth of consumers’ online shopping expenditure, Figure 3 illustrates the development of Amazon’s revenues between the years 2005-2008, in which the company’s revenues have grown by 125.7%.

Similar results can be found among many other players; for example, the 2nd ranked company, the office supplies retailer Staples.com, reported more than 100% growth in revenues during the same years (Vertical Web Media, 2009).

5.2 Segmentation: Who are the Internet Shoppers?

5.2.1 Demographic Variables

Although it is impractical to describe Internet shoppers as a uniform segment, and findings from several studies are not always consistent, some possible consumer trends can be found. This section will present some of those trends and will focus on the factors that may indicate higher acceptance of online shopping as a substitute for other means of retailing. Table 3 compares and contrast findings from two meta-analysis studies, which relate to demographic factors are determines for significant differences in online shopping patterns.

Demographic factor Key findings from Chang et al. (2005) Key findings from Zhou et al. (2007)
Gender Male consumers make more online purchases and spend more money online than females; they are equally or more likely to shop online in the future, and are equally or more favorable of online shopping. Three studies found that males purchase more online,while the other did not find any difference
Age There are mixed findings on the relationship between age and online shopping intention.
Income level Income is positively related to online shopping tendency. Five studies found a significant positive impact,while the other two did not find any impact
Education Education level produces mixed effects ranging from no effect to a positive effect on online shopping. Most studies find a significant positive impact of education on purchasing.
Culture Consumers from an individualistic culture are more likely to use the Internet for e-commerce than those from a collectivistic culture No significant impact was found

Table 3: Findings from meta-analysis studies

5.2.2 Typical Purchases in Online Shops

Examining the top ten US online retailers mentioned in Table 2, it seems that there is no significant dominance of one product category over the others, as it also demonstrated in a US analysis by Mulpuru, Johnson & Hult (2008). However, cultural differences may be highly decisive, as inconsistent results from different countries may suggest (Farag, Weltevreden, Rietbergen, & Dijst, 2006).

5.3 Sources of Motivation for Internet Shopping

Comparing to their state of affairs before Internet penetration, online consumers choose this platform for several main reasons: First, thanks to increased access to the media and Consumer-to Consumer (C2C) information exchange platforms (e.g. consumers’ forums), modern consumers are considered as more knowledgeable regarding potential sellers and their market offerings. This easily-accessible information includes, for example, users’ testimonials, product specifications, prices of different retailers and availability of alternative and/or complementary products and services.

Second, there are almost no consumer goods that must be purchased within one’s geographical boundaries. As a consequence, consumers are not only more aware to market offerings and businesses, but also enjoy greater variety of goods and services they can actually purchase, especially in those countries and regions where commerce is not sufficiently developed.
Third, and perhaps the major force behind the global consumption boom, “traditional” buyers differ from Internet shoppers by the latter’s efficient and comfortable manner of buying. That is, Internet shopping can be made at any time, from any place, and, with the aid of additional services such as credit card and home delivery, prevents many elements of what marketers define as consumer cost – additional efforts demanded from the consumer besides the payment itself (e.g. driving to the store and wasting time on shopping).

5.4 The Internet Shopping Process

5.4.1 Locating a Product

The three main ways to find a product in an online retailer service are direct browsing in the retailer’s website, shopping search engines (such as Google Product search), price comparison websites (such as PriceGrabber.com).

As not all surfers have clear buying intentions, retailers often use their technical capabilities to encourage purchase of specific products and even to create a general interest without an actual buying intention to a purchase. Such promotion means include online auctions, up- and cross-selling techniques (e.g. “people who bought this product also bought…”) and direct CRM techniques such as email notifications and ”price-drop” alerts. As suggested by Mulpuru et al. (2008), the latter is the most effective and used promotion method of the major online retailers.
Virtual Shopping Carts

Just as in the supermarket, online shopping carts are used within a single retailer’s website. In the consumers’ level, shopping carts are comfortable means to collect different items without the need to pay for each one separately. Using various technologies (primarily “Coockies”), websites “remember” one’s shopping cart and allow purchase at a different occasion. From a marketing perspective, shopping carts create a sense of affection to the product (which one has already chosen and almost own), which can significantly increase the probability of buying (Kotler & Keller, 2006).

5.4.2 “Checkout” and Payment

The checkout process may be rather long or extremely short, as in Amazon’s 1-Click ordering technology. As this point may expose the buyer to the risk of privacy infringement and thus may diminish the purchasing intention, online retailers are typically very concern with information security measures, primarily through Secure Sockets Layer (SSL) protocols.

The payment methods depend on the abilities of the buyer and the seller as well as on domestic banking policies. Unlike conventional shops, cash and cheques are naturally less accepted on online purchases. In addition to account-based payment techniques (i.e. credit cards, debit cards and bank transfers), online money transfer services such as PayPal and Google Checkout allow safe and convenient money transfers and are highly popular among small vendors.

5.4.4 Product Delivery

When dealing with physical products, most companies outsource their delivery services to logistics companies such as DHL and UPS. Many companies offer separate delivery of the product and the receipt, allowing shipments of gifts in a convenient manner directly to the recipient’s address. Moreover, logistics companies can serve vendor in many other ways; among the services UPS are packaging, inventory and even customer service, repair and insurance (Friedman, 2005).

Conclusion
The IMRG Capgemini Index, which measures trends in electronic retailing, “has recorded growth of over 5,000% since it launched in April 2000 — while the ONS Retail Sales Index for high street sales has recorded growth of 21%” (Clark, 2009). Indeed, Internet shopping allows anyone with Internet access to buy and sell in a comfortable and efficient fashion.

This paper presented a great variety of directions for research and practice in this field. Clearly, Internet shopping has several unique characteristics, which should be dealt with in other means than conventional retailing. And most importantly, it is safe to assume that this field is expected to show a high level of innovation and a steep learning curve, which can be matched only to this medium’s phenomenal growth rates.

Bibliography
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