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CAMBRIDGE, Mass., December 6, 2004 — With Christmas sales about to peak, new research by an MIT Sloan professor has debunked the conventional wisdom that the Internet has triggered a wave of fierce price competition and that price alone motivates careful Internet searchers in their online shopping decisions.
Photo: Erik Brynjolfsson, director of the Center for eBusiness at the MIT Sloan School of Management
To the contrary, such serious surfing shoppers are influenced by a range of factors other than price, including retailer reliability, delivery time, and brand names, according to Erik Brynjolfsson, director of the Center for eBusiness at the MIT Sloan School of Management.
“A common assumption has been that the more time people spend searching, the more price sensitive they are,” said Brynjolfsson. “But there's more to a product than its price. We found that consumers weren't searching just for lower prices, but for other characteristics. In fact, when given a choice of retailers for the same book title, less than half the consumers picked the cheapest retailer. The important lesson for retailers is that just because you're on the Internet, you don't always have to be especially price sensitive. Smart businesses will use the Internet to highlight other differences as well.
For their study, Brynjolfsson and his co-authors, Astrid Dick and Michael Smith, examined more than 10,000 actual searches by shoppers looking for a particular book using DealTime.com, a prominent Internet “shopbot,” the label given to the burgeoning online comparison-shopping services.
Over the 12 months of the study, the consumers faced nearly 461,000 separate retailer offers. The researchers found that shoppers who only considered the first screen displayed by DealTime were price sensitive — they tended to pick their book based on the lowest price. But for those who spent more time and effort searching — by scrolling down to more screens, for instance — price became less of a deciding factor.
“For people who searched into lower screens, branding and delivery time exceeded price as deciding factors in their purchase,” said Brynjolfsson. “People will skip right over the lower cost retailers and go for the branded ones. They were willing to pay more for the same product in exchange for the reliability of a retailer's brand name or because of its favorable shipping policies.”
“Some people have predicted that ‘perfect competition’ on the Internet would destroy the value of brands,” he said. “However, we found that consumers actually care more about a company's brand and reputation on line than in a physical store. If they are directed by the shopbot to some online site they don't know, they may not want to plunk down their credit card. But we found that people are willing to pay a premium to get an item from a site like Amazon because of its reputation for reliability and quality.”
Brynjolfsson said his study demonstrates how the ability to track patterns of online shoppers has opened new avenues of research into retailing and other areas.
“This study shows the power of this new tool to analyze consumer behavior in a way that we never had before,” he said. “We can track not only overall sales, but we now have an incredibly powerful magnifying glass into the different ways individual consumers behave when they each make purchasing decisions.”
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