We examine three strategic issues that have been frequently discussed and debated in e-tailing: early mover advantages, bricks and clicks combinations as compared with pure-plays, and generalizing versus specializing. We develop hypotheses and test them utilizing annual and quarterly financial data from 42 public online retailers. We use a multilevel repeated-measures model to analyze our data because of its flexibility and ability to handle unbalanced repeated measures. The results indicate that early movers in e-commerce do not have a significant advantage in market share, profit margin, or marketing efficiency compared with later entrants. The bricks and clicks combinations in our sample possess higher market share and higher marketing efficiency than do pure-plays. Last, while specialists have lower market share and lower marketing efficiency, they nevertheless can be successful because they command higher profit margins than do generalists. The managerial implications of our findings are discussed.
Presently, empirical research on the strategic levers that drive e-tailer profitability and success is limited (Grewal et al., 2004). The few studies that are reported are largely managerial and descriptive and generally do not use sufficient controls or measures of variables such as size of firm and product category that can impact the success of a particular strategy (Bughin and Zeisser, 2001). Case studies and stories about individual stars, such as Amazon.com and Dell abound, are suggestive but hardly generalizable (Zhu and Kraemer, 2002). At the same time, existing research on offline retailing is likely to apply to e-tailing in a limited fashion, given that there are unique operational issues, such as website design, privacy, and security when selling online (Grewal et al., 2004). Thus, research studying strategic marketing issues in the online setting is likely to uncover findings unique to e-tailing environments.
In this research, we address three important strategic marketing issues in e-commerce simultaneously. First, we examine whether there are early mover advantages in the e-commerce context. Writers have argued for and against their presence in e-tailing. For example, Porter (2001) argues that the first mover advantage in the Internet is a myth, specifically suggesting that, “switching costs are likely to be lower, not higher, on the Internet than they are for traditional ways of doing business…on the Internet, buyers can often switch suppliers with just a few mouse clicks” (p. 68). On the other hand, Reichheld and Schefter (2000) insist that “price doesn't rule the web, trust does” and claim that they have observed the presence of significant “loyalty effects” in e-tailing. If first movers use their early entry to determine who their profitable customers are and what their customers want, and then successfully fulfill promises to customers, then, first movers will be the recipients of loyalty effects.
The second strategic issue that we address in this paper is how bricks and clicks combinations perform in Internet commerce as compared with pure-plays. Many pure dotcom players viewed the relative newness of e-commerce as an opportunity to introduce a new business and brand to an innovative audience. They believed that their new businesses would be more efficient than the older offline businesses, offering lower overhead, better prices, and, thus, competitive advantages as compared with offline counterparts. Nevertheless, many industry analysts now predict that as the online channel evolves, “incumbents [bricks and clicks combinations] will have a golden opportunity” (Silverstein et al., 2001).
Another key research question is “Do specialists perform better than generalists do in e-tailing?” Online specialists carry narrow product lines with a deep assortment within each line. Generalists carry a wide product mix with varied product lines. Both strategies have been adopted and implemented online abundantly. The broad product line of generalists facilitates cross selling for e-tailers who have developed a trustworthy reputation. However, there may be advantages to specializing on the Internet because the web aggregates niche markets and offers consumers products that they may not be able to buy easily offline.
The main contributions of this study are twofold. First, we empirically test three widely discussed e-commerce strategies simultaneously. By doing so, we control a significant portion of variation in e-tailing performance. For instance, we test early mover advantage hypotheses, holding other important strategic variables constant, such as bricks and clicks, and specializing. Thus, we can more accurately assess the success of particular e-tailing strategies than do industry commentators. Second, we measure market share, profit margin, and marketing efficiency utilizing annual and quarterly financial data rather than focusing on intermediate performance measures, such as number of visitors or customer satisfaction, or on the penultimate outcome, survival. Thus, this study enriches the understanding of e-commerce strategies and their outcomes.
Who prevails in Internet commerce? The immediate
response might be that no one does. Indeed, the gross dollar
margin minus marketing and selling expenses for an average
public online retailer in the United States is negative for 1999
and 2000 in our sample. However, there is some good news:
Profit margin improves steadily over time. Moreover, our
research suggests that strategic decisions other than entry
timing affect online e-tailing revenue, profit margin, and
marketing efficiency. The study finds no evidence for early
mover advantages in Internet commerce. Bricks and clicks
have clear advantages over pure-plays. The advantages of
brand strength, cross-promotional opportunities, and the
ability to offer consumers multichannel shopping results in
bricks and clicks being more successful than are pure-plays.
Last, both generalists and specialists can be successful.
Generalists can leverage their product name across multiple
product lines, thus creating greater sales revenue and mar-
keting efficiency, while specialists can charge higher profit
margins for their products.
