The Status Quo of E-Commerce. A Theoretical and Practical Approach to Consumer-Bahaviour in E-Commerce

Table of Contents

List of Figures

List of Symbols

1 Introduction
2 Theoretical Approach
2.1 Definition of E-Commerce & Consumer Behaviour
2.2 Internet Characteristics

3 The Status Quo of E-Commerce
3.1 A General Overview
3.2 E-Commerce from Consumers’ Point of View
3.2.1 In General
3.2.2 Opportunities and Risks
3.2.3 Statistical Data

4 Closing Remarks

References

List of Figures

Figure 1: Market and Transaction-Segments of E-Commerce

Figure 2: The E-Commerce Hype

Figure 3: Top Ten Countries Online-shopping

Figure 4: Top-Down- vs. Bottom-Up-Modell

Figure 5: Internet-user vs. Online-Shopper in Germany

Figure 6: Intensity & Experience

Figure 7: Internet usage & age segments

Figure 8: Top Ten Internet-Products

Figure 9: Amount per purchase on average

List of Symbols

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1 Introduction

The environment companies are currently facing is often described by the famous white-water metaphor. Some decades ago, companies seemed to be ships sailing in calm and silent water. No waves disturbed their journey. Especially during the last decade this calm sea turned into a world of waves, the tips of the waves blinking white, a sign for a restless sea and a build up of higher waves. The internet brought many companies into permanent white water, as it is a permanently changing business environment. The internet is a rapidly growing phenomenon, so companies need to adapt in order to remain profitable and to secure survival. The present popularity of the internet is due to its ability to facilitate sharing of information and resources on a global level, and its potential to provide an efficient channel for advertising, marketing, and even direct distribution of certain goods and information services. The use of the internet allows companies to identify their customers, differentiate them, interact with them, and then customize programs that will heighten customer satisfaction and loyalty.^[1] The internet has radically changed the way companies do business.

Electronic commerce (short: e-commerce) is becoming more and more important in our world. In the beginning, only start-up companies had established online business, but nowadays, even the old economy has realized that e-commerce can be profitable and can make a company operate more efficiently. However, the reasons for or against going into e-commerce should not be discussed in this paper. Many companies have started e-commerce and still today many others try to start online business successfully. As a result, e-commerce has quite a big impact on companies and their customers.

This paper shall work out theoretical and practical insights into the behaviour of online consumers. Therefore, in chapter 2, definitions of e-commerce and consumers’ behaviour are presented and examined. After I have given some definitions to set the framework of this paper, I’d like to discuss the impact of typical internet characteristics on the behaviour of internet users. The focus of the practical approach (chapter 3) is directed at the present status quo of e-commerce in society. From consumers’ point of view advantages and disadvantages of e-commerce were analysed and the following questions were discussed: How many people buy online, who are these people and what are they buying most? Why do some segments not buy online? In order to answer these questions a brief look at several e-commerce studies is necessary. Chapter 4 repeats the main conclusions of this paper.

2 Theoretical Approach

2.1 Definition of E-Commerce & Consumer Behaviour

The term e-commerce is not subject to a uniform definition, as one could assume based on its spreading. The different interpretations can be classified by the used technology, the supporting processes and the involved participants.^[2] Beside close definitions, which describe e-commerce as "... digital preparation, negotiation and/or completion of transactions between economic subjects”^[3], there are quite wide definitions, in which the electronic trade covers" every kind of economic activity on the basis of electronic technology".^[4] The electronic trade creates a world, in which services of information, communication, transaction and entertainment are available by electronic media everywhere at any time.^[5]

Thus e-commerce can be regarded as a part of the entire electronic course of business (e-business). In principle, the participants within the e-commerce-segment can be consumers, companies and public agencies. Theoretically there are 9 possible combinations (see figure 1).

Figure 1: Market and Transaction-Segments of E-Commerce

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Source: Hermanns, A./Sauter, M. (1999), p. 23.

The most popular segments are the Business-to-Business segment (B2B) and the Business-to-Consumer (B2C) segment.^[6] The Business-to-Business segment contains transactions between companies^[7], while the definition of Business-to-Consumer logically describes transactions between companies and consumers. This differentiation is relevant, because within the two segments the transactions follow completely different rules and laws.^[8] In addition to that, it is important to distinguish between several basic e-commerce or shopping systems, like the online-shop, the shopping mall^[9] and auctions.

The focus of this work is directed towards the B2C-segment and the typical online shop.

The relevant factor for success in e-commerce seems to be the knowledge of consumer behaviour on the internet. “Consumer behavior is defined as the study of the buying units and the exchange process involved in acquiring, consuming, and disposal of goods, services, experiences, and ideas.”^[10] The consumer behaviour on the internet is of high importance for marketers because the exact knowledge of potential customers helps the marketer to satisfy the customer’s needs and wants. It is of substantial relevance for the understanding of the online consumer behaviour to deal briefly with the characteristics of the internet as the basic communication medium.

2.2 Internet Characteristics

In relation to traditional media the Internet, as the elementary medium of the e-commerce, exhibits specific characteristics. One crucial characteristic of the internet is its unlimited availability: All data and information can be accessed at any time, from each place of the world, whereby a virtual global expansion is reached.^[11] Since the internet is decentralized, it gives opportunities even for smaller companies to participate in the global competition.^[12]

Among the unlimited availability the interactivity is an important characteristic of the Internet.^[13] The consumer-interactivity is characterized by the possibility, to search for information and to determine the kind, the extent and the order of the information all by himself. The multi-functionality of the internet permits the companies mass communication as well as communication with selected target groups and individual communication and/or one-to-one marketing by e-mail. By the example of the communication by e-mail, the speed can be clarified as a further attribute of the medium: electronic transmissions are only seconds on their way.^[14]

Through the internet a high amount of recent information and transparency of the market is created, because consumers can, at least theoretically, get all relevant information about actual prices, products as well as services immediately.^[15] In response the companies are able to recognize and store consumer structures and demand behaviour.^[16]

Choi/Stahl/Whinston analysed similar characteristics with the result that e-commerce on the basis of the internet exhibits some similarities to the perfect market, which is characterized by the loss of market entrance barriers, complete transparency and homogeneous goods.^[17]

On the one hand all these attributes multiplies possible chances, but on the other hand have to be considered a lot of risks. In order to reduce the risks and to use the opportunities, the companies in the B2C-e-commerce take the four P’s^[18] of the marketing-mix into their consideration.

Furthermore, the increasing spreading of computer and internet plays a crucial role for the turnover of online shopping-companies.^[19] The more persons use the Internet, the better the accessibility of potential customers is (see chapter 3).

3 The Status Quo of E-Commerce

3.1 A General Overview

The worldwide development of electronic commerce was exposed to enormous fluctuations with the result of crucial changes for economy and companies.

Figure 2: The E-Commerce Hype

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Source: Presentation: Engel-Flechsig 2002

In relation to the end of the year 1998 the number of internet user in Germany became twice as many in less than 2 years. A substantial reason for the upswing and the acceptance of e-commerce was above all the rapid increase of supply and demand for information on the internet.^[20]

The establishment boom within the start-up-segment, however, in connection with a harsh break-down of the worldwide financial markets in spring 2000 showed that business models, which do not stand on a healthy basis, do not survive such economic crises.^[21] Thus approximately 70% of all internet businesses had to request insolvency in the year 2002.^[22] Especially large e-commerce companies (based on the clicking rates), like Ebay and Amazon as well as the multi-channel companies such as Otto, KarstadtQuelle or Neckermann survived. These companies differ from many of their competitors, who had failed, because they can offer sufficient logistic services, which in long-term constitute the crucial success factor on the online market. Despite the failure of many unprofitable internet companies in the last years, many businesses still see e-commerce as an opportunity. Therefore, lots of companies have already taken or want to take part in e-commerce. If it is not because of making profits out of the online business immediately, it is due to the fear of missing the train and being left behind, when all the other companies have successfully started selling their products or services over the internet.

In opposition to the negative trend in the traditional retail trade the turnover in the B2C-segment increased from 10.7 billion Euro in 2002^[23] to 12 billion Euro in 2003.^[24] The German Federation of the Retail Trade (HDE) prognosticates that the e-commerce turnover in the year 2005 can reach 14.5 billion Euro.^[25] That means an e-commerce-increase in sales from 2004 to 2005 of 13%. In accordance with the HDE study, the market research institute Forrester Research prognosticates a trend of constant growth for the period up to the year 2009, so that the online turnover sales in Germany will reach approximately 42.75 billion Euro.^[26]

Regarding the online shopping activity measured in relation to the internet use, Germany takes the third place in the world behind South Korea and the USA (see figure 5).^[27] It can be assumed that the distance to the two leading nations will be reduced in the next few years.

Figure 3: Top Ten Countries Online-shopping

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Source: See BMWI (2002).

3.2 E-Commerce from Consumers’ Point of View

3.2.1 In General

Bauer/Sauer differentiate between five main influence factors on the buying behaviour of internet users:^[28] Fast access and access problems of the technology, technology-involvement and experience (see p. 7 and 10), the interest in online marketing, demo-graphic factors (see p. 10 and 11) and the perceived risks of the transaction-process (see p. 7 and 8).

3.2.2 Opportunities and Risks

While in the conventional trade the "Top Down" model "producer-dealer-consumer" prevails, the electronic commerce model changes this strategy into a "Bottom Up" model "customer-dealer-producer" (see figure 4). This means that the customer gets the important factor with substantially more power, so that the seller market becomes finally a consumer market.^[29] The customer takes not only the role of its own salesman, but also the co-producer of the manufacturer with the result that a new balance of power develops.^[30]

[...]

^[1] See here and in the following Hermanns, A./Sauter, M. (2001), p. 8.

^[2] See Luxem, R. (2001), p. 5.

^[3] See Clement, M./Peters, K./Preiß, F. J. (1998), p. 49.

^[4] See Picot, A./Reichwald, R./Wigand, R. (1998), p. 17.

^[5] See Clement, M./Peters, K./Preiß, F. J. (1998), p. 49.

^[6] See Seebacher, U. (2002), p. 26.

^[7] See Garicano, L./Kaplan, S. N. (2000), p. 1.

^[8] See Zentes, J. (2002), p. 5.

^[9] A shopping mall is characterised by a common platform of several retailers.

^[10] See Mowen, J. (1998),p. 5.

^[11] See Krause, J. (2000), p. 208.

^[12] See Kröger, C. (2002), p. 17.

^[13] See here and in the following Hansmann, K.-W. (2001), p. 162.

^[14] See Krause, J. (2000), p. 212.

^[15] See Bliemel, F./Eggert, A./Adolphs, K. (2000), p. 209.

^[16] See Krause, J. (2000), p. 207.

^[17] See Choi, S.-Y./Stahl, D./Whinston, A. (1997), p. 27.

^[18] The four P’s consist of Product, Place, Promotion and price.

^[19] See Hermanns, A./Sauter, M. (2001), p. 29.

^[20] See Bliemel, F./Fassot, G./Theobald, A. (1999), p. 2.

^[21] See Hermanns, A./Sauter, M. (2001) p. 12.

^[22] See here and in the following n.a. (2003c).

^[23] See n.a. (2003b), p. 62.

^[24] See n.a. (2004d).

^[25] See here and in the following n.a. (2004f).

^[26] See n.a. (2004a).

^[27] See here and in the following n.a. (2004b).

^[28] See here and in the following Bauer, Hans H./Sauer, Nicola E. (2004), p. 43ff.

^[29] See Krause, J. (1999), p. 345.

^[30] See Riehm, U./Petermann, T./Orwat, C./Coenen, C./Revermann, C./Scherz, C./Wingert, B. (2003), p. 22.