Internet Retailing and the Physical World: Insights from Academia

I’m on the e-commerce/retailing team, and one of the issues we’ve been looking at is the impact of virtual world commerce on brick and mortar retailing, and vice versa. A recent article in Knowledge@Wharton entitled “Geography Lesson: Why Internet Retailers Should Pay Attention to Where Potential Customers Live” (free registration may be required for access) shares findings from two recent academic articles to come out in this area. Both papers find that there is a strong symbiotic relationship between online and offline commerce, or in the authors’ words, “understanding local geography still matters a good deal for 'borderless' retailing.”

The first paper, “Traditional and IS-enabled Customer Acquisition for an Internet Retailer: Why New Buyer Acquisition Varies by Geography and by Method,” compared traditional methods of reaching customers (e.g. word of mouth among friends and neighbors, magazine advertising) and web-based methods (e.g. blogs, virtual communities and keyword searches). It finds that offline word of mouth had a higher impact on Internet customers than online word of mouth, and concludes that “geo-targeting will be vital to the success of Internet retailers, especially those with limited resources.”

The second paper, “Preference Minorities and the Internet: Why Online Demand Is Greater in Areas where Target Consumers Are in the Minority,” studied people whose shopping needs differed from the majority of folks in their physical area (e.g., “young parents living in a zip code populated mostly by elderly people”). The paper suggests that these so-called “preference minorities” are underserved by their local brick and mortar retailers, and finds that Internet retailers “draw more sales from regions that contain them, holding the absolute number of target customers per region constant,” that preference minorities are less price-sensitive, and that this effect is stronger for niche (as opposed to popular) products, which “draw a greater proportion of their total online demand from high preference minority regions.” It thus comes to the managerial implication that “selling niche brands in high preference minority markets is an especially attractive proposition for an Internet retailer.”

The full text of both papers is available at the link above for those who are interested in the complete details of the studies. Insightful and timely research!