Achieving the Critical Success Factors

Product Offerings

Product offerings were found to be an antecedent of perceived usefulness of a virtual store in this study. To succeed in providing online consumers with attractive product offerings, a virtual store needs to focus on product integration to increase variety, product pricing to offer the best value, and product selection to improve profitability.

One recent consumer trend is that consumers demand one-stop shopping to save precious time and avoid dealing with the overwhelming number of choices (Kalakota & Robinson, 1999). Providing consumers with a great variety of products is a strategy proven to be successful. While some brick and mortar retailers strive to be the "one-stop life-needs providers," "one-stop lifestyle providers," and "one-stop life-path providers," this trend of product integration is also being spotted among online retailers. As Jarvenpaa and Todd (1997) found in their study, virtual stores are often more successful in offering large product selections to consumers than their physical counterparts, and this has attracted millions of consumers to turn to the Web for their daily shopping needs as well as for hard-to-find products. The advantage of virtual stores over brick and mortar retailers is the elimination of an expensive physical presence. A virtual store is built on technology. Its most valuable asset is its extensive product information and its promise to deliver a wide range of products and services to customers.

Although some virtual stores are able to operate profitably with a limited number of successful products, with the emergence of megastores and low-switching costs for consumers, the chances are that the prosperity will not last. How should virtual stores that do not have a wide selection of products sustain their competitiveness? The key is to start building a profitable e-business community (EBC). EBCs "link business, customers, and suppliers to create a unique business organism" (Kalakota & Robinson, 1999). The activities of EBC includes alliances between virtual store and suppliers to build diversified product lists to offer their customers, alliances between virtual stores to increase product variety, product availability, and cross-selling opportunities, and constant communication with online consumers for virtual stores to detect and react to market trends in a timely manner.

Consumers are price sensitive. A survey in 1995 found that 80% of the consumers surveyed were not willing to pay more than $1 premium for products and services in exchange for the convenience of shopping online (Rigdon, 1995). Hence, an effective pricing strategy is imperative for a virtual store to survive. A virtual store has minimal overhead costs due to the elimination of physical presence. While part of these cost savings should be spent on marketing related activities, virtual stores should also consider translating some of these savings into price discounts to offer great bargains for consumers. Jarvenpaa and Todd (1997) provided three suggestions for pricing strategies online. The three suggestions are (1) offering discounts, except for unique or hard-to-find products or services; (2) offering value-added services to justify prices; and (3) focusing on products that have a cost advantage over electronic channels due to lower distribution and delivery costs. Although consumers are price sensitive, cutting corners in areas such as service quality to offer competitive prices is not a smart move. Instead of focusing on prices alone, virtual stores should focus on the overall value of their products and services to consumers. As a study by ActivMedia Research found, 93% of online food and grocery buyers are seeking high quality products rather than lower prices and product and vendor loyalty also help to reduce consumer price sensitivity online (ActivMedia, 2000).

What are the products that can be marketed successfully on the Web? A study found that durable, standardized items requiring little customer service count for the majority of online purchases (Scansaroli & Eng, 1997). Analysts reported that the best performing products sold on the Web in the 1999 holiday season were books, compact disks (CD) and toys. While the sales of other products, such as clothing, are on the rise due to the support of large clothing chains, a number of issues associated with marketing these products still remain to be resolved. The most challenging issue is consumers' need to directly experience these products prior to purchasing. Online sales of some nondurable goods, such as food, are expected to rise as consumer confidence in online shopping increases. A survey among European food retailers reveals that home delivery will represent 20% of the groceries sales volume by 2005. Although the market trend suggests that more and more products will be sold on the Web, it is imperative for virtual stores to identify the most profitable and suitable products to be sold on the Web.

In his book, Popows (1999) proposed the "six Cs" approach to evaluate the appropriateness of a product to be marketed on the Web. The "six Cs" include choice, customization, consistency, convenience, community, and change. The rationale behind the "six Cs" analysis is that if a product exists in great variety, can accommodate a high degree of customization, is consistent in quality, increases convenience for consumers, generates strong community activity and affinity, and has a rapid rate of change, it has the potential to be sold successfully on the Web. While the "six Cs" analysis is a viable approach for virtual stores to evaluate different products, it is not an elimination rule. When a potential product does not meet the criteria stated in the "six Cs" analysis completely, it is the job of a virtual store to seek solutions to remedy the existing limitations of the product through innovative technologies or business practices.

Information Richness

Information richness is found crucial to the success of virtual stores. In order to ensure sufficient richness in product information, virtual stores must understand the depth of product information that is sought by consumers. The amount of product information required to make a purchase decision differs from product to product and consumer to consumer. Hence, virtual stores must understand the information needs of their target customers and be prepared to provide information as customers demand it. Information richness has proven to create value for virtual stores on efficiency, effectiveness and strategic levels. The efficiency in terms of consumer purchase decision making and virtual store operation is achieved through the use of Web-based interfaces and database technologies. Alba et al. (1997) described a virtual store as a "super sales associate." By reaching to its huge yet flexibly designed databases, a virtual store is able to provide customers with far more up-to-date product information than any human sales associate can memorize. The Web-based interfaces using hypertext technology allow customers to perform a wide range of searching operations such as drilling-down and branching-out. This capability saves consumers time and effort by providing a one-stop product information search, and at the same time, it reduces the operational costs for virtual stores by eliminating the needs for sales associates and physical showrooms.

In order to achieve effectiveness, virtual stores need to actively engage in research to find out what kind of product information consumers are looking for. Alba et al. (1997) found that the information provided by interactive home shopping methods including online retailing are abundant in quantity but relatively low in quality. One reason for this weakness is because interactive home shopping fails to offer consumers direct experience with products. Given this weakness, the richness of product information is crucial to a virtual stores' survival. The key is that if the product information is not sufficient for consumers' to predict their satisfaction with the product, the information is not rich enough. This requires virtual stores to truly understand what information is important for consumers to form their prediction.

One effective way to compensate for the lack of direct experience while shopping online is to provide extensive product comparison. The ability of a virtual store to perform price comparison, comparative product evaluation and in-depth analysis provides consumers with a more efficient market. A number of market leaders have created intelligent shopping assistants that specialize in searching the best deal for consumers. Among PC magazine's top 100 websites, five of them,, DealTime, Mercata, mySimon, and Productopia, were online shopping assistants (Willmott & Metz, 2000). However, product comparison should be seen as an effective way to enrich product information rather than a mere marketing pitch. The comparison should focus on the features that matter the most to consumers and provide objective portraits of products.

While providing rich product information is a requirement for survival, some virtual stores have taken it to a strategic level. Let us use the popular online bookstore as an example. When customers click on the title of a book, a great deal of information is displayed in front of them. The information includes the photo of the book cover, the table of contents, a short description of the book, a link to the biographic information about the author of the book and other books by the author, reader reviews of the book, the names of books that were bought together with the book by other readers, and so on. Such rich information about a book is hard to find in a brick and mortar bookstore, and it is this competitive edge that made the top choice for book buyers. Jarvenpaa and Todd's (1997) study found that virtual stores provide some value-added services that cannot be easily provided through traditional retailers. These value-added services include information, news, services, and subscriptions to augment the product or service that the customer is thinking of buying.

As Web technology advances and the network bandwidth increases, virtual store designers are equipped with more and more tools to entice online consumers while making storefronts more usable. One of the latest trends is the use of virtual reality (VR) on the Web. VR makes the storefront of a virtual store truly interactive. Consumers will be able to view a product from many different angels and some VR tools can even simulate user experience with a product. Although it provides consumers with much richer product information than traditional communication channels, VR on the Web is still a fairly new area for most virtual stores, and its full capability is somewhat impeded by the current bandwidth limitations. More studies are needed to investigate the potential of VR in increasing information richness and influencing traffic and sales for a virtual store.

A study by Westland and Au (1998) compared the shopping experiences across three different digital retailing interfaces: catalog search, bundling, VR storefront. They found that while VR storefront increased time that a consumer spent shopping in a virtual store, it had no significant advantage in the money spent or the number of items purchased over other digital retailing interfaces.

Usability of Storefront

The usability of the storefront of a virtual store is found to significantly influence consumers' perceived ease of use of the virtual store. This result reconfirms the finding of Venkatesh and Davis (1996), which hypothesized that objective usability of a system was an antecedent of perceived ease of use.

Usability is an important research topic in software engineering, and the physical planning of retail stores has also received enormous research attention in marketing research. Store features such as easy navigation and fast checkout are among the most important factors to increase retail store patronage. In the case of virtual stores, where the stores are information systems themselves, usability becomes an issue of great importance. A usability test is a widely accepted means of evaluating the objective usability of a system or website. It addresses Web design issues by providing data about the problems that people have interacting with the website and by attempting to diagnose the cause of these problems. If a website scores high in its usability, the chances of the site being accepted and used productively are good, and the findings of this study certainly confirms this theory. Today, the lack of usability in websites is preventing consumers from realizing the benefits and potential of virtual stores (Nielsen, 1998), hence, rigorous usability tests must be performed by virtual stores before they open their doors to consumers.

Recent studies on usability of websites/virtual stores are active among both practitioners and researchers. Among practitioners, Dr. Jacob Nielsen, a distinguished usability engineer from Sun Microsystems who later founded the Nielsen Norman Group, has been one of the most outspoken advocators of usability of websites and conducted a series of studies in the area. From these studies, Nielsen found that most commercial websites suffer from problems like bloated page design, internally focused design, obscure site structures, lack of navigation, and unreadable content. By studying Web users' reading behavior, he proposed that companies need to increase their websites' conciseness, scannability, and objectivity in order to enhance site usability (Nielsen, 1998). Nielsen's usability studies provided companies with a list of easy to implement dos and don'ts when developing usable websites.

Among researchers, Gerald L. Lohse and Peter Spiller have made substantial contributions to this area. Using cluster analysis, Spiller and Lohse (1998) classified 137 Internet retail stores into five distinct categories based on 35 observable attributes and features of the stores. The five categories include product listings, one-page stores, plain sales stores, promotional stores and superstores. The study provided designers with a snapshot of various online retail store designs and a checklist of store features. They pointed out that poor storefront design will adversely affect store traffic and sales, hence interface issues related to navigation, search, and ordering process need to be given special attention. In another study, Lohse and Spiller (1998) identified six categories of attributes that influence sales and traffic of virtual stores. Three of the six categories are relevant to the objective usability of storefront. They are convenience, checkout and store navigation. For enhanced convenience, Lohse and Spiller recommended that virtual store designers focus on designing store layouts for consumers with little computer experience and providing help for error recovery. To improve checkout functions, virtual stores are recommended to standardize their checkout procedure to avoid confusion and reduce the need for consumers to enter repetitive information about themselves. Since the quality of store navigation was found to explain 61% of sales and 7% of the traffic of a virtual store, Lohse and Spiller suggested that virtual stores seek opportunities to improve store navigation by providing consistent navigation aids throughout the site, supplying consumers with search functions, and increasing the use of hyperlinks to related products to reduce browsing effort.

Usability of storefront is an important issue for virtual stores. It influences online consumers' perceived ease of use of a virtual store, which affects the actual use of a virtual store. Therefore, designing a usable storefront with easy-to-use checkout capability is a task that requires strong commitment and ongoing efforts from a virtual store.

Service Quality

Service Quality was found to have the most significant impact on a consumer's attitude towards using a virtual store in this study. As a recurring research topic in both marketing and IS, service quality is critical to the success of an information system or a business entity. A virtual store's responsiveness to customers' needs was found to be particularly salient to consumers by Jarvenpaa and Todd (1997). If an online merchant fails to meet consumers' expectations in a timely manner, it simply will not be able to survive in this marketplace. While the classic principles of service quality, namely, tangibles, reliability, responsiveness, assurance, and empathy, are still valid today, self-service, logistic service and personalization are some of the areas that have great strategic implications for virtual stores.

One of the emerging market trends is that customers today are tired of dealing with intermediaries. They want to be empowered by 24-hour-a-day, seven-day-a-week self-service systems (Kalakota & Robinson, 1999). Consumers are embracing the online self-service systems with great enthusiasm today. Those services that were once only offered through traditional media are being offered through the Web. Consumers are able to access the service they need at any time from anywhere in the world. Electronic commerce empowers customers to serve themselves whenever possible, and at the same time, it lowers the operational cost for virtual stores. In order to provide great customer services while operating efficiently, a virtual store must explore the opportunities to offer its customers self-service. Currently, online self-service is widely implemented in service industries such as insurance and travel, and we will witness an increasing number of online retailers providing self-services in the form of FQA, technical support, online consumer decision support systems, etc. The Web has provided virtual stores with a cost-effective way to offer continuous services. The continuous services have the potential to improve the virtual store's value proposition and hence increase the lifetime value of each customer relationship. While focusing on creating self-service opportunities for customers, virtual stores should not ignore the traditional service channels. Telephone and e-mail are the dominant channels for customers to communicate with virtual stores today. The myth about virtual stores is that there is little human interaction; however, the "totally virtual" strategy will only hinder a companies' ability to respond to customer needs in a timely manner. In order to increase the "human touch," representatives of some innovative companies are engaging in live chat sessions with customers to handle questions and complaints instantaneously (King & Hamblen, 1999).

Virtual stores were put to the test during the 1999 holiday season. Some virtual stores failed tragically because they were unable to deliver. Logistic service is a crucial component of customer services offered by a virtual store simply because the merchandise in a virtual storefront is out of reach of customers. Becker et al. (1998) refers to virtual stores' ability to deliver products to the hands of consumers as the missing "logistical" link in electronic commerce. The logistical link is missing because while most virtual stores focus heavily on marketing their products and services, they fail to realize the importance of logistic services.

As Kalakota and Robinson (1999) pointed out, companies that simply established Web presence rather than reconfiguring their business practices are not going to succeed in today's marketplace. To get the right products to the right place at the right time and cost is achieved through continuous workflow redesign and supply chain reconfiguration. Companies successful in these areas often have two things in common. First, they have automated and integrated their internal workflow. An efficient workflow should automate and seamlessly integrate business operations including inventory and warehouse management, purchasing and manufacturing, demand forecasting and planning, delivery and transportation, and billing. The integrated workflow allows an organization to exchange vital information among major business units like a well-oiled machine. This is often achieved with a combination of workflow redesign and Enterprise Resource Planning (ERP) applications. EC has driven the demand for ERP because the success of new business models requires the replacement of fragmented legacy systems with integrated solutions, greater control over local and global operations, flexibility to handle industry regulatory changes, and improved decision making capabilities across the enterprise. Second, these companies have created strong alliances with organizations in the supply chain. Supply management focuses on establishing both electronic and physical linkages among entities in the supply chain. These entities include consumers, retailers, manufacturers, suppliers, shippers, just to name a few. The alliances among these entities require high levels of information visibility through interorganizational systems like Electronic Data Interchange (EDI) systems and extranets. Organizations in the supply chain are linked with these interorganizational systems to form a highly integrated virtual organization. The high level of information visibility in the supply chain reduces the cost of distribution and helps achieve faster and more accurate order fulfillment.

One of the latest trends in customer service is increasing the level of personalization. Recent advances in information technology, specifically the World Wide Web, data warehousing and data mining, and faster processors, have revolutionized the concept of micro-marketing. Instead of focusing on a specific market segment, merchants are focusing on the needs and wants of an individual customer to conduct one-to-one marketing. One-to-one marketing is defined by Peppers et al. (1999) as "being willing and able to change your behavior toward an individual customer based on what the customer tells you and what else you know about that customer." The idea behind one-to-one marketing is for a merchant to develop a personal relationship with each and every customer. The merchant conducts suggestive selling based on what they know about the individual. The implementation of one-to-one marketing not only improves virtual stores' bottom lines, but provides consumers with the greater pleasures of online shopping as well.

In a study of 25 virtual stores in 1998, 93% of those planned to launch personalized suggestive selling applications within one year. It was predicted that those applications could contribute 34% of total sales revenues within the first year of implementation (Lach, 1998). The essence of establishing one-to-one relationships with a customer is to keep learning about them. Gillenson et al. (1999) identified three primary types of data that a virtual store should learn about their customers. The three types of data include basic demographic information (e.g., age, education level, household or personal income), product interest or preference data, and sales history data.

Virtual stores must continuously go through the learning process illustrated in Figure 3 to better their ability to maintain a personal relationship with each customer. The ongoing learning is essential to the success of one-to-one marketing because it allows a virtual store to increase accuracy in predicting a customer's purchasing behavior and react to changes in a timely manner. Gillenson et al. (1999) also provided a comprehensive list of one-to-one techniques that are currently being used by virtual stores in their article. These techniques include personalized e-mail messages suggesting additional purchases, personalized e-mail messages about new products, sales, etc., personal gift lists, personal reminder/automated replenishment, personal dressing room, access to sales history, buying incentives, and customized products. They also suggested that combinations of these one-to-one marketing techniques would generate more innovative marketing strategies. As technology advances, new opportunities and techniques for one-to-one marketing will increase exponentially, those virtual stores that strive to become market leaders must continuously investigate what new information technology can do to nurture the relationship with their customers.

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Figure 3: Learning in One-To-One Marketing.

Providing excellent customer service quality is imperative for both the survival and success of virtual stores. As the marketplace becomes more and more efficient, service quality will remain as the only way to differentiate one virtual store from another. Becoming a leader in providing traditional customer services as well as self-services, logistic services and personalized services will secure a virtual store's competitiveness in this dynamic and volatile market.


Trust is found to be an antecedent of positive consumer attitude toward using a virtual store in this study. In their Internet Consumer Trust Model, Jarvenpaa et al. (1999) proposed and later validated that trust in a virtual store generates favorable consumer attitude toward shopping at that store and reduces risk perception about dealing with that store. In Ambrose and Johnson's (1999) Trust Based Model of Busying Behavior in Electronic Retailing, they speculated that a consumer's trust in a virtual store, along with a consumer's motivation to purchase give rise to the positive outcome for the virtual store. Trust is defined as the feeling of security or insecurity about relying on an entity. In the case of online shopping, consumers' trust in virtual stores is reflected in personal information privacy and security.

As Greene (1997) predicted, Internet retailing could receive a $6 billion boost if consumers believed their privacy was not at stake during transactions. Today, consumers are still leery about giving out personal and financial information to virtual stores. Hoffman et al. (1999) attributed this distrust to online consumers' lack of control over the actions and secondary information use of virtual stores. In a survey of 2,254 consumers in 1996, 75% of those surveyed believed that consumers had lost control over how their information was circulated and used (Kakalik & Wright, 1996). Consumers are concerned that too much data about them was collected, and they were vulnerable to improper use of the data and unsolicited communications from private business. Hoffman et al. (1999) suggested that trust "is best achieved by allowing the balance of power to shift toward more cooperative interaction between an online business and its customers." In other words, consumers need to gain more control over the information they give out in order to establish trust in virtual stores. This calls for virtual stores to develop a proactive strategy to be more responsible with customer data.

Smith et al. (1996) developed and validated an instrument measuring consumers' information privacy concerns. The scale has the following four dimensions of consumer information privacy concerns:

  • Collection: Is the virtual store collecting too much information from customers?

  • Errors: Are the data about a customer in a virtual store's database accurate?

  • Unauthorized secondary use: Is the virtual store using the customer data for other purposes that are not disclosed to customers (i.e., sell customer data to another company)?

  • Improper access: Are customer data accessed by unauthorized individuals (i.e., hackers)?

These are the four areas in which virtual stores need to shift some of the control to their customers. The control is given to customers by increasing the visibility of how customer data are being used and safeguarded by a virtual store. Virtual stores should be careful about what questions to ask their customers. Only the necessary questions should be asked and customers should be informed of how the data collected from them are used. Errors in customer data often cause consumers a great deal of inconveniences, especially when sensitive information (i.e., credit history, financial information) is involved. Measures must be implemented to ensure the quality of customer data stored in virtual stores' databases. A viable solution to increase the accuracy of data is to automate the data collection process to avoid human errors. Customers should also be given opportunities to review and verify the data stored in databases. Virtual stores should assume responsibilities for their customer data by limiting unauthorized secondary use of customer data. As customers entrust virtual stores with their personal information, virtual stores should not abuse this trust by using the data for other purposes. Virtual stores' adherence to ethical codes of conduct is crucial in gaining customer trust. The investigation of the Federal Trade Commission (FTC) has led to a number of lawsuits against websites that deceptively collected personal information (Benassi, 1999). While the legal resources for ensuring customer privacy are still insufficient today, virtual stores need to establish proper standards of behavior regarding the use of customer data. The standards of behavior should be disclosed to customers for public monitoring and calm down privacy concerns. By disclosing their privacy practices, virtual stores will significantly ease consumer privacy concerns and build a more trusting environment for online transactions (Benassi, 1999). In order to reduce the risk of customer data being accessed by unauthorized individuals, virtual stores must implement security technologies such as encryption, secure protocol, and public/private key protocol. Online transactions often involve the transmission of sensitive financial data such as credit card numbers. Virtual stores must keep improving security measures and communicate these data security features to their customers. Jarvenpaa et al. (1999) found that the reputation of a virtual store had a significant impact on customers' trust in the virtual store; therefore, maintaining a reputation of excellence in ensuring data security is the best way to nurture a trustful relationship with customers.

In order to reduce the level of government regulation, companies and advocacy groups encourage online businesses to self-regulate on privacy issues (Neeley, 1999). A non-profit privacy seal program named TRUSTe is able to address both consumers and government privacy concerns. Websites licensed by TRUSTe must meet the following requirements (Benassi, 1999):

  • Notice: The website must notify consumers about its information collection practices (i.e., what data are collected and how they will be used).

  • Choice: Consumers must be given the choice to restrict secondary use of their information.

  • Security: The website must implement reasonable procedures to protect personal information from loss, misuse, or unauthorized alteration.

  • Data quality and access: Consumers must be given the opportunities to correct inaccuracies in their information.

  • Verification and oversight: TRUSTe assures consumers that the website is following the stated privacy practices through periodic reviews.

Programs such as TRUSTe are beneficial for both consumers and virtual stores. For consumers, they monitor and report the privacy practice of virtual stores to consumers and help establish industry privacy standards. For virtual stores, these programs ease the privacy concerns of consumers and ultimately encourage business transactions on the Web. Nevertheless, only responsible virtual stores that actively build consumer trust will continue to succeed in this market.

Intelligent Enterprises of the 21st Century
Intelligent Enterprises of the 21st Century
ISBN: 1591401607
EAN: 2147483647
Year: 2003
Pages: 195 © 2008-2017.
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