Customer Relationships and Electronic Commerce:
“Key to the (R)evolution”
Carlson
School of Management
University
of Minnesota
lwanning@umn.edu
This chapter asks us to recall what we learned in Marketing
and Advertising 101: "every contact between your business and each
customer has a net positive or negative impact on the image of your Brand and
your Organization with that customer."
It is obvious that the new technologies associated with electronic
commerce offer great potential for business.
However, as with all new technologies successful electronic commerce
applications require learning from experience about how and how not to apply
the new technologies. What is clear is
that without a solid business model and focus for electronic commerce
applications, it is possible to harm your organization in the eyes of your most
important constituency - your customers.
We find it helpful with all new technologies to identify
metaphors from other situations that can serve as a starting point and provide
a conceptual understanding of what is required to apply the new technologies
for net gain. The metaphor we selected
for electronic commerce is that of a catalog company. Catalog companies have long conducted business remotely, relied
upon building customer relationships, and built their business processes with a
focus on both customer relationships and profitability.
We also follow a second, even more basic metaphor, which is
to consider electronic commerce from the perspective of the consumer product
metaphor. That leads us to have our
primary focus on customers and their needs, wants and behaviors. That in turn causes us to focus our internal
attention on the business processes and systems to address those customer needs,
wants and behaviors for mutual benefit based on relationships.
Our research suggests that one key aspect of a business
model for electronic commerce applications is to understand how the new
technologies can impact relationships with customers. Our most surprising findings involve what we call the “electronic
servicescape image” dimension, which consists of personality attributes and the
generation of emotional responses. We
define the electronic servicescape concept below. For a first reading, consider a web site as one form of an
electronic servicescape. A second
information dimension consists of relative value, the level of information
quality, access and navigation. A
relationship dimension consists of factors from the disciplines of sales, customer
service, and interpersonal communications, including trust, commitment,
disclosure and cooperative intentions.
We present in this chapter
a cross-disciplinary conceptual framework for understanding electronic
commerce, which we define as the use of combinations of computing and
communications technologies in some or all aspects of the interactions between
a business and its customers. The concept of service relationships is suggested
as the basis for profitable commerce, whether electronic or conventional. The
metaphor of making, accepting, and keeping promises is at the heart of mutually
beneficial relationships between a business and its customers. The functional
capabilities of the technologies enable the compression of time and space into
an electronic servicescape through which customers can interact directly with
the company. Formerly distinct functions of commerce such as marketing
communications, sales, transactions and fulfillment can literally occur
simultaneously and in real-time.
Interpersonal communication is considered critical in the
overall relationship between a business and its customers. Communication with
customers in traditional commerce is based on principles from advertising
communications, interpersonal relationships, sales, customer service, and
fulfillment. To design effective electronic commerce applications and
businesses, it will be necessary to integrate these same principles. This is a
new consideration for those organizations that have communicated with their end
customers through combinations of broadcast advertising and intermediaries.
Retail food and consumer products companies are two major examples of this.
Incorporating interpersonal communication into information systems is also
beyond the domain of experience of most information systems organizations.
It is a theme of this chapter that electronic commerce
should be approached as an evolutionary process of applying new information
technologies to basic business principles, particularly in the key functions of
advertising, sales, relationship marketing, and fulfillment. The principles
aren’t changing, but their application and the resulting practices will be
different and possibly revolutionary as new technology capabilities are applied
creatively to those functions. Our work
has been based on this idea of (R)evolution, given that the period between
technology invention and profitable adoption is typically several decades.
Key Concepts
How should you approach electronic commerce applications to
enhance your business and to minimize the risk of undoing some of your Brand
image? What should your primary objectives be for a web site? What about PDAs,
cell phones and other mobile devices?
Our research suggests you should focus on several key concepts.
The catalog industry is a major segment of the $300 billion
plus direct marketing industry. The direct marketing industry has a rich
history of leading edge use of technology and databases to identify customers
with whom they can build relationships. The industry began in the 1880s with
John Patterson of NCR developing leads for his sales force. Richard Sears
mailed an offer of gold watches to railroad agents in the early 1900s. Sears
and Arron Montgomery Ward developed a mail order catalog and then extended
credit cards to farmers by 1910. Post World War II saw the introduction of
Book-of-the-Month Club, Diners Club and American Express Cards. Fingerhut invented the computer letter to
sell auto seat covers to individuals they identified from Dept. of Motor
Vehicles databases as having recently purchased a new car. The introduction of
postal ZIP codes and 1-800# phone numbers in the 1960s were used by the
industry for computer segmentation of customers, telemarketing, the
introduction of a wide range of catalogs, and the rebirth of the catalog
industry to its current form of relationship marketing. The 1980s saw the
industry adopt VCRs, Cable TV, Fax, Home Shopping TV, PCs, and on-line
information services.
Stone [26] defines direct marketing as "an interactive
system of marketing, which uses one or more advertising media to effect a
measurable response and/or transaction at any location". At the heart of
the catalog industry are the concepts of relationship selling and the use of
prospect lists, use of a catalog as a media of presenting "offers" to
specific segments of customers and prospects, and a complex and expensive
fulfillment operation. The customer receives a targeted catalog by mail, places
orders to a 1-800# Call Center, and receives the merchandise and invoice from
the fulfillment center. The customer service person in the Call Center is
supported by extensive computer databases on products and customer.
"Scripts" are provided to aid in selling and service. Our definition
of electronic commerce is close to Stone’s definition of direct marketing. Much
of the potential of electronic commerce is in the capability to build
one-on-one relationships with customers, to offer specific products or services
or information to them, and to execute and/or support transactions at least in
part electronically in real time.
The catalog industry has demonstrated that many specific
products and services traditionally sold at retail can also be sold,
profitably, without direct physical contact between the customer and the
product or service. As such, an understanding of how electronic commerce can be
applied within the catalog industry can serve as a starting point for the
examination of electronic commerce in other industries. The catalog industry is
clearly very different from retail in the service encounter and fulfillment
operation. The catalog industry is
different from other industries and situations that practice electronic
commerce. However, we suggest that many of the principles involved in
transactions and interactions between customers and businesses apply across
industries and situations.
In the catalog industry, both the customer and the business
are interested in a relationship. Figure 1 presents a high level schematic of a
typical catalog company. The process of
a purchase transaction, although part of a continuous cycle, can be thought to
begin with the marketing function, called here relationship marketing.
Relationship marketing is concerned with developing offers (part of the
promise) in the form of catalogs and other print media for specific sets of
customer segments. The customer segments are determined by matching a proposed
offer with characteristics of existing customers who have purchased similar
products in the past and characteristics of prospects on external
"lists" that are thought to be similar to the existing customers of
the business.
Relationship marketing has three primary components that
must work closely together: massive databases with operational and customer
data, a variety of analytical tools for use with the databases, and integrated
links to the supporting infrastructure and servicescape. Customer databases in
significant relationship marketing businesses often include 5,000 fields per
customer. The specific data items included in the database are determined from
the underlying principles of building relationships and sales, which require
the business to have the same kind of information about each customer as does
an expert sales person. An important
aspect of the customer database design is the requirement for simultaneous use
by the Call Center servicescape, fulfillment, and marketing functions.
Catalog marketing professionals utilize a variety of
analytical tools to analyze the customer databases and product trials as an
integral part of developing the offers that result in successful customer
relationships. Use of statistical based techniques such as multiple regression,
factor analysis, conjoint analysis, and analysis of variance are common within
the relationship marketing function.
The process of building relationships with existing
customers is similar to that of finding new customers, with the difference
being the business has much more specific and appropriate information about
each existing customer, as does an expert sales person. Identification of new
customers begins when external “lists” are purchased from list owners and
brokers. "Lists" of customer
prospects contain only general information about a customer, much of which is
inferences based on such demographic information as census tract data. The lists are “merge/purged” with the
existing customer database and then analyzed to match prospects from the list
with existing customers with similar characteristics. A trial offer is then
sent to a sample of the matched list. Results of the trial are measured and
analyzed to determine if the combination of product offer and customer segment
is likely to result in a profit. The trial-measure-analysis process is repeated
until a likely profitable combination is found, at which point a large rollout
of the offer is conducted.
Relationships
We address the topic of customer relationships with two
questions. First, what is the role of relationships between a business and
individual customers? This section will summarize literature from the
disciplines of the service industry, relationship marketing and advertising
communications. Second, what is the role of communications in the
business-customer relationship? This section will summarize literature from the
advertising and interpersonal communications and organizational communications
disciplines.
There is an extensive literature on advertising communications, interpersonal communications, service relationships, and relationship marketing. While this literature is rich with both concepts and applications within each individual discipline, there is very little at the intersection of the disciplines that applies directly to the buying and selling of goods and services, i.e. commerce.
We consider customers from a multi-disciplinary perspective:
advertising, interpersonal communications, sales, marketing, service, and
operations. Each of these perspectives provides understanding of customers as
individuals and segments in terms of their motivations and values. Customer
motivations will be examined in categories of benefits, rewards and
relationships. Customer values will be examined in terms of an individual’s
value assessment of risk and benefit, particularly as those values relate to the
use of electronic commerce technologies.
Levitt [13] expresses the definition of a product with a
question "what's the product?" Levitt goes on to explain that a
successful product or service provides certain benefits for each customer and
that therefore the product or service is defined in terms of those benefits as
viewed by individual customers. It follows that the company must think of its
products very broadly from the perspective of its customers.
Wells [32] describes a product or service in terms of the
rewards the customer receives from purchasing that product or service. These
rewards are based on individual customer values, which can be categorized as
functional, sensory, emotional, and expressive. Functional rewards or benefits
include the basic offering of a product such as calories provided by food, or
warmth from clothing. Sensory rewards include flavor, texture, or odor as
perceived by our senses. Emotional rewards include security provided by an
insurance policy, or a range of feelings provided by art and music. Examples of
expressive rewards include a sweater with a recognizable logo, or shopping in a
mall.
Bitner [7] describes an encounter between a business and a
customer and the associated relationship building around the concept of
"promises". Bitner poses three components of promises: making
promises; enabling promises; and keeping promises. Berry [4] is the first
person to use the term relationship marketing in the service literature. Bitner
indicates the heart of Berry’s contribution is "his identification of
emerging perspectives and trends in the fields of service relationship
marketing: targeting profitable customers, multiple levels of relationship
marketing, marketing to employees and other stakeholders, and trust as a marketing
tool."
Figure 2 illustrates our extension to electronic commerce of
Bitner's concept of a service encounter and promises. We define the three
components of promises for commerce as: making promises; accepting promises;
and keeping promises. These components translate roughly to the marketing,
advertising, and sales functions; the electronic servicescape for direct
customer interaction; and the fulfillment process and supporting
infrastructure. The overlap indicates that these are three separate but partially
intersecting domains. In fact, part of the uniqueness of electronic commerce is
the opportunity for an entire transaction process - advertising, purchasing
decision, and order fulfillment - to occur within one customer interaction at
the electronic servicescape.
Stone [26] describes "relationship marketing" not
only as a benefit to a direct marketing industry company, but as a necessary
condition to profitability. Stone recognizes that the first sale to a direct
marketing customer is not profitable when considering all of the costs
associated with acquiring that customer. Given the investment in acquiring a
new customer, it is logical and essential to develop and maintain a long-term
mutually beneficial relationship with that customer that results in repeat
sales. This is the business rationale behind the practice of database
marketing.
This recognition of relationships as a necessary foundation
for profitability in an industry that has direct contact with individual
customers is at the heart of the proposed conceptual framework for electronic
commerce. The catalog industry is considered a precursor of electronic
commerce.
The above factors are traditional customer considerations in
marketing and advertising communications. Electronic commerce involves an
additional customer value consideration involving individual customer adoption
of advanced computing and communications technologies. McKenna [16] describes
individuals as innovators, early adopters, late adopters, and laggards in terms
of their rate of adoption of new technologies. An investigation of imaging
technologies indicates individuals self-categorize on the basis of their
personal value assessment of the perceived risk of adopting the new technology
vs. the perceived benefit provided by the technology [29]. It is particularly important in the early
history of electronic commerce to realize that the initial customers of
electronic commerce will come primarily from the innovator and early adopter
categories. The fact that they assess the perceived tradeoff of risks and
benefits optimistically may well not translate to the much larger groups of
late adopters and laggards.
The purpose of suggesting relationships as the basis for
electronic commerce is to provide a conceptual basis for designing and
evaluating the primary components of an electronic commerce application. The
components are defined as the "electronic servicescape" for direct
communication and interaction with the customer, the supporting infrastructure,
and the database and analytical tools necessary for the relationship marketing
function. Anderson and Wanninger [2] define a service encounter as the service
that is implicit in any transaction between buyer and seller. The servicescape
is the physical environment in which the service encounter takes place. A
service encounter can be viewed from three perspectives: what the encounter is
to accomplish, the expectations of all parties about the encounter, and the
underlying concepts involved in accomplishing those objectives and meeting
expectations.
A service encounter typically occurs for one or more
customer purposes. These purposes include gathering information in preparation
for a potential purchase, making a purchase, getting information after a purchase,
or obtaining customer service to resolve some problem following a purchase.
From the business perspective, a service encounter includes the immediate
purpose of satisfying the customer and the longer-term objective of building
and maintaining a relationship with that customer. Of course, the desire for
such a relationship must also be part of the customer’s expectations of the
encounter if a relationship is to result from the encounter. The service
encounter metaphor is intended to relate to the entire transaction surrounding
that product, service, or information. For example, one encounter might be an
exposure of an advertisement, another might be contact with a sales or service
person, and another might be the return of a previous purchase.
Customers want an encounter with the service provider to be
friendly, helpful, courteous, respectful, timely, include interactive
discourse, remember previous encounters, and to be goal oriented among other
situation-based expectations. In addition to their expectations about a service
encounter, customers also bring their expectations of computers and the
Internet, specifically: computer capabilities of storage and retrieval,
any-to-any connection, ubiquitous access and use, fast interaction, and
tailored and appropriate to the individual. These expectations may be part of a
set of implicit promises.
In the marketing literature, Solomon et al [25] and Solomon
and Suprenant [24] conceptualize service encounters as "role
performances" defined as "the dyadic interaction between a customer
and service providers. These definitions focus on the interpersonal connection
between the customer and service provider. Shostack [23] has a broader
definition, "a period of time during which a consumer directly interacts with
a service". Bitner, Brooms and Tetreault [6] indicate that Shostack's
definition "does not limit the encounter to the interpersonal interactions
between the customer and the firm, and suggests that service encounters can
occur without any human interaction."
Building on Shostack's and Solomon's definitions this
proposal characterizes interaction between buyers and sellers as service
encounters. Electronic commerce, like a service encounter, presents a
servicescape described by Bitner [5] as an environment in which interaction
occurs. Retail service encounters, for example, occur in real-life physical
space with face-to-face communication. Electronic commerce encounters occur
through constructed interfaces with computer-mediated communication. More
specifically, electronic commerce servicescapes are characterized by variations
on the six interactivity dimensions as described by Heeter [12] and Anderson
[1] with computer intelligence to provide levels of personalization.
While the actual execution of the buyer-seller encounter
differs in different executions of commerce, the core objectives and
expectations do not. For example, in both electronic commerce and more
traditional service encounters, customers need to be greeted, listened to and
engaged. More specifically, customers need to be able to express their needs
and when necessary receive help translating a general expression of need into a
particular product or service. In this sense, Anderson & Wanninger [2]
suggest that customers are looking for effective buyer-helpers.
One can also examine the classic role of a sales person with
insights and observations that could be applied to a service encounter and
electronic servicescape environment. While various authors may use a different
number of stages and call the stages by different names, there is universal
agreement that selling is a process. Churchill, et al [9] presents a classic
six stage selling process: prospecting for customers, opening the relationship,
qualifying the prospect, presenting the sales message, closing the sale, and
servicing the account.
The important point to
note is that the actual sale is only one part of the process. There are
numerous steps that precede the sale and the sale itself does not end the
process, but simply changes the emphasis of the repeated contact or interaction
with the customer. The change in emphasis could involve providing post-sale
service (step 6). Alternatively it could involve recycling through the process
by repeating the sales process all over again with the goal of proposing a
repeat purchase of the same product, selling different products or services to
the existing customer, or getting referrals for new customers. In many
instances, post-sale service activity will lead to future sales. In other
words, the salesperson's job is to identify potential customers, close sales,
and provide follow-up service that can lead to identification of additional
selling opportunities. A good salesperson can be described as having the
ability to correctly classify any person into the correct stage of the selling
process. Having done that, the best sales people have the ability to deliver
specific activities and actions that are tailored to fit that particular
person's needs.
Crosby et
al [10] found that future sales opportunities depend mostly on relationship
quality (i.e., trust and satisfaction) and that relationship selling behaviors
such as cooperative intentions, mutual disclosure, and intensive follow-up
contact generally produce a strong buyer-seller bond.
Once the offer of a product or service is determined for a
specific set of customers, the next step in the relationship cycle is to
develop a variety of media to communicate the product offer to the defined set
of customers. In the instance of the catalog industry, advertising develops a
catalog and other print media to present the offer and associated benefits to
the customer segment. The customer, upon deciding to make a purchase, calls the
1-800# Call Center and conducts the transaction with the operator. The Call
Center operator has real-time on-line access to the customer and operations
databases during that phone call, and so is able to verify product
availability, cross-sell, promise delivery date and mode, verify account
information and credit, handle return merchandise, and provide service
information. Scripts are provided by marketing for the Call Center operators to
use in interacting with the customer to enhance their ability to sell,
advertise, and build a relationship.
In broadcast and print media, the role of advertising is to
communicate a product’s competitive advantage, be it an intrinsic attribute or
an image, to a pre-defined target audience. The competitive advantage is
expressed in terms of the target customer’s motivations, benefits, and rewards.
Broadcast advertising strategy is based on the idea that exposure to a message
is separated in time and place from the opportunity to respond. Advertisers
work hard to increase "reach", the percentage of unduplicated
audience members who are exposed to a message. Messages are intended to
influence future purchase decisions and to build overall brand awareness and
image. Wells [32] indicates often these messages literally ‘wash over’
consumers as they are not current prospects for the product or service being
offered.
By contrast, advertising in a digital and interactive medium
involves a different set of assumptions and strategies. One primary difference
is that consumers can interact with a message and respond in one time and
place. Closing the gap between exposure and response fundamentally changes
advertising’s role in the sales process.
Wanninger, Anderson and Hansen [31] indicate that in the
electronic servicescape, the principles of advertising are integrated with
customer service, relationship marketing and sales. It is not effective to
think about advertising as removed from immediate interaction with the product
or company. Advertising can be viewed as a process of bringing consumers as
close to a real-time purchase as possible. That is, advertising is about
facilitating quality interaction.
How does interactive advertising within the servicescape
work? A perspective is proposed based on concepts of interpersonal
communication. Keith Reinhard, CEO of DDB Needham, describes interactive
advertising as being similar to door-to-door personal selling [22]. Both involve two-way communication. Both are
intended to persuade and complete a sale. Both need to focus on the immediate
individual consumer and not on winning creative awards. The analogy of
interpersonal communication directs advertisers’ attention to particular types
of variables. Like broadcast and print advertising, the product category
variable directs strategy planning. In the servicescape, an important product
categorization is whether the product can be sold in real or delayed time.
Advertising for real-time products has the objective of completing a sale and a
measurable return on investment. Advertising for delayed-time products has the
objective of qualifying leads. Measurement of return on investment is more
indirect with delayed-time products.
In interpersonal communication, there is an explanatory
concept known as the immediacy principle as identified by Mehrabian [17]. It is proposed to apply the immediacy
principle to explain consumer behavior (whether they engage in an interactive
dialog) within the servicescape. That is, consumers will approach and avoid
servicescapes based on their unique evaluations. Advertisers should ask themselves,
what types of consumers will approach and what types will avoid our efforts at
interaction? Some possible factors that influence consumers’ perceptions of
whether servicescape are more approach- versus avoidance-oriented include ease
of access, complexity of choice, responsiveness and social presence.
Of course, consumers’ perceptions of whether the
servicescape facilitates approach or avoidance depend upon the individual.
Goal-oriented consumers, for instance, may initially evaluate the servicescape
positively. However, experiential consumers who are more intrinsically
motivated may evaluate the same servicescape negatively. Peppers and Rogers [20] indicate that the
communication principle "know your audience" needs to evolve in
practice to "know the individual consumer". This leads to the next step in the advertising process -
leveraging interactivity to execute real-time segmentation.
The idea behind real-time segmentation is to match the
rendering of content (what to say in a dialog) with the unique characteristics
of a consumer. It also makes sense to adjust how you say it. The message
strategy should vary by the type of consumer. This is a radical notion insofar
as in more traditional media the target audience, what to say, and how to say
it is fixed before the message is presented to consumers.
The ability to ask customers questions within the
servicescape sparks such questions as "What information is relevant in
terms of deciding what to say?" "Will customers disclose this
information?" In the interpersonal literature there are theories of
reciprocity. However, the basic idea is that disclosure begets disclosure. This
is a die-hard reminder that the dialog needs to be customer-centered. There
needs to be motivation for the customer to participate and disclose.
The advertising research literature provides some clues for
segmentation variables that can help direct content rendering and predict
response. Two are suggested as particularly pertinent to an electronic commerce
servicescape - prospect status and product knowledge. Advertisers can ask
customers to self-identify themselves on these dimensions or they can infer
their status from activity within the servicescape. Knowing to what degree a
customer is a prospect tells the advertiser what communication step to take
next in facilitating a sale. Similarly, knowing how much knowledge a customer
has about a product directs how and what to say in the dialog. As an example,
suppose customer X has little knowledge on laptop computers. The advertiser can
capitalize on this information by temporarily limiting the degree of
interactivity in the servicescape so the advertiser can tell the story of
laptops in a coherent, linear fashion. However, if customer X has much more
product knowledge, then the provision of flexibility such as hyperlinks to seek
more advanced diagnostic information would be appropriate. That is, the
servicescape should maximize interactivity and open communication.
Figure 3 presents a high
level schematic of the key business processes and interactions in a typical
electronic commerce application. This
model is essentially that of a catalog company after which it is
patterned. An Electronic Servicescape
replaces the Call Center. The
Fulfillment component is almost exactly the same in both models. The same advertising, marketing and sales
functions occur in both models, although some are practiced differently. The key observation to be derived from this
model is an understanding of the business processes required for electronic
commerce applications.
Figure 4 presents a model derived from our research
depicting how a combination of design and infrastructure choices impact
information, relationship and image dimensions, which in turn impact the overall
components of the individual relationship.
Our catalog industry partners urged us to consider the overall
relationship with each customer in terms of attitude, behavior and intentions. They measure these overall components
regularly and indicate to us that they pay the most attention to behavior. They tell us attitude is important but not
necessarily crucial, and intentions are nice but are not good predictors of
future behavior.
The factors within the information, relationship, and image
dimensions have been discussed above as part of the literature review. What is interesting is that these
principles, derived from traditional business settings, still apply and can be
measured in electronic commerce applications.
Consider for example the image factors.
Tracy identified [27] what is now well known that over 75% of people
leave web sites in frustration due to a variety of design and infrastructure
choices. This is a predictable human
emotional response. We also recognize
that some web sites delight us – a positive emotional response. Chen and Wells [8] found that web sites
exhibit personality characteristics of humans and brands. It may be obvious after the fact, but there
are still a great many web sites that exhibit personality characteristics that
have nothing in common with their corporate expenditures on building a
Brand. The operational answer to this
finding is to have the advertising and marketing functions responsible for the
design and resulting images generated by their electronic servicescapes. This is quite a leap from MIS people
designing the input and output for users of an information system.
The information dimension measures are the ones that people
focused on for the early electronic commerce applications. Our research suggests that one dimension,
relative value, is essential.
Information quality is also very high in importance, which of course
contributes to relative value.
The relationship dimension measures are not all surprising
to sales and service people. They
indicate these are principles that are key to their success in developing
relationships. However, this is new
territory for MIS professionals to consider in the design of electronic
commerce applications.
Customer direct contact in the catalog industry is with the
Call Center, which is where the "acceptance" of the promise occurs.
The Call Center operator performs the direct functions of order taking,
provision of information and service, handling returns, and interactive selling
and advertising. The indirect functions of the Call Center are to meet the
customer expectations of the service encounter and to build a relationship with
that customer.
Call Center operators leverage the ability to customize
messages and the delivery of messages. When a customer calls the Center,
operators combine their interpersonal communications skills with tools -
databases and scripts - to tailor queries toward the consumer and enhance
sales. Scripts that are pre-defined by marketing provide the knowledge that the
database can provide to the Call Center operator during an interaction. These functions and communications skills of
the Call Center operator become the basis for designing the servicescape of
electronic commerce.
The fulfillment function is responsible to "keep"
the promise, by delivering the order to the customer, complete, on time, and as
expected. A complete understanding of the activities of the catalog fulfillment
function provides the basis for designing the supporting infrastructure of
electronic commerce. Fulfillment involves all of the operations and "back
room infrastructure" and is critical in conducting profitable commerce.
Fulfillment receives the order via the operations database, assembles and packs
the order, ships the order, and invoices the customer. Fulfillment also
conducts the other activities necessary to support the sale of goods to and
meet the expectations of customers such as purchasing, inventory management,
credit, accounting, and information systems. Fulfillment maintains the customer
database as well as the operations database. Fulfillment is a very complex,
capital and labor intensive and demanding business function tied to warehouses,
sophisticated computer systems, and assembly operation. The requirements of the
supporting information infrastructure for fulfillment are equally complex,
expensive, and demanding. Moran [18] indicated the importance of the expertise
of the catalog industry in all of the critical aspects of "fulfilling an
order", and in understanding the costs and margins by product at the SKU
(unit) level.
Practitioners of broadcast and print advertising spend
significant time testing the effectiveness of advertisements before they go
public. Often times, advertisements are tested as an isolated unit from the
overall sales process. That is, the copy and visuals within the advertisement
are tested for such dependent variables as attitude toward the product,
attitude toward the ad, recall and physiological response. The weakness
inherent in these surrogate measures of effectiveness is the inability to
accurately gauge the actual behavioral response. Advertisers and their clients
can be left wondering - What did customers do (behavior) as a result of being
exposed to the advertisement? By contrast, the effectiveness of advertising
within the electronic servicescape can be measured using the actual behavioral
response resulting from interaction. For example, advertisers can record
whether customers made a purchase, disclosed personal information (qualifying a
lead), or perhaps their browsing habits. Furthermore, advertisers can correlate
three variables: responses to the segmentation questions, the content and
execution of the interaction, and customers’ behavioral responses to identify
patterns. If advertisers discover that a particular segmentation question is
not useful in predicting customer response, they can edit the servicescape.
That is, advertisers can think about the servicescape as a research site, where
they can continually collect and analyze data to refine ‘what to say’ and ‘how
to say it’. Technology has made possible the intelligibility and manageability
to handle this process.
The service literature, in particular Zeithaml, Parasuraman
and Berry [33], has consistently emphasized the notion of service quality as a
judgment that is influenced by both the level of expectation regarding a
service encounter and the perception of the encounter The ServQual model
highlights the role of five attributes that are critical in perceptions of
quality: the tangible elements, the level of empathy of the provider, the
reliability of the service provision, the responsiveness of the provider and
the level of assurance that the customer has that the service provided has been
delivered appropriately. While there has been considerable support for this
framework in actual face-to-face service situations, the applicability of this
view to the electronic servicescape has not been examined. In particular, it is
likely that the perceptions of empathy, responsiveness and assurance are likely
to be quite different in face-to-face and electronic contexts. Apte and Mason
[3] indicate such contexts are often characterized by the spatial and temporal
dis-aggregation of service delivery components. A clearer articulation of these
perceptions, the antecedents and consequences for customer behavior and
attitudes in electronic service encounters is a critical issue that has a
significant bearing on the acceptance and adoption of electronic commerce.
Let's examine successful examples of electronic commerce web
sites that illustrate the development of customer relationships and extend the
Brand image.
Cisco Systems was experiencing a customer service problem
where only about 80% of orders were correctly configured. Cisco products are complex and
must fit with existing systems. It is very difficult for a customer or sales
person to specify exactly all of the required options and components. For
example, a missing cable or a cable with the wrong connectors can render a new
system unworkable. Cisco's solution was to develop a web site with a software
configurator that examined the customer database for existing systems and then
determined the necessary components and options for each order. The results
were impressive: a significant increase in order accuracy, greatly improved
customer satisfaction due to reductions in frustration and time in getting the
initial order to work, and cost savings exceeded $500 million per year. Cisco
is now doing the majority of their sales through their web site because this
became a preferred method of ordering.
Distressed merchandise is a major factor in profitability
for a cataloger. Fingerhut developed "Andy's Garage", a web outlet
for distressed merchandise targeted at a separate customer from Fingerhut to
keep this distribution channel separate. Fingerhut reports a loyal set of new
customers is regularly visiting and purchasing these mutually beneficial
low-priced products.
UPS
and FedEx both developed web sites to allow customers to track their packages.
Both companies experienced a substantial reduction in phone calls to track
packages, increased customer confidence in their package delivery capability,
and a significant reduction in "packages that are temporarily
misplaced." The web sites are also a reinforcement of their Brands -
"you can count on us to get your packages delivered at a reasonable
price."
Amazon.com designed a number of customer relationship
capabilities into its web site. First, it remembers who a customer is so that
they need not re-register each time they access the site and place an order.
Second, Amazon uses "recommendation engine" software that suggests
books to each customer on the basis of their previous orders and information
collected from their other customers who have ordered similar books.
Amazon is not yet profitable, due to a combination of
development expenses, advertising costs, and the costs of fulfillment of small
orders to individual customers. This
lack of profitability reinforces the need to understand the catalog industry
business processes.
Another example is to
relate a conclusion from a research study by Wackman et al [28]. This study
shows that the single most important factor in client retention is the personal
relationship between the advertising agency representative and the primary
client representative. The personal relationship outweighs agency creative work
and pricing. There are two important reasons to note this study. The first is
to remember that as we design our "electronic servicescape" we are
replacing communications between expert sales people and their customers. The
second reason is to remember that commerce begins with people and depends upon
relationships. The challenge is thus to build the capability for relationship
formation into our electronic commerce applications.
Business-to-business commerce is also formed on
relationships, which consist of both individual and organizational criteria.
Researchers focus on processes determined by norms created over multiple
interactions in relationships to understand inter-organizational
relationships. Macneil [14, 15]
indicates this theory relies on a behavioral, norm based classification of exchanges
that reflects the behavior of parties in long standing commercial
contracts. This perspective has
received extensive attention by researchers in marketing - Dant and Schul [11]
and Noordweier, John and Nevin [19]. Parties in long-term contractual relationships
are viewed as employing decision criteria that maximize outcomes for both
parties rather than engaging in self-maximizing and opportunistic behavior.
Such exchanges are considered to be governed by cooperative norms that socially
interconnect individuals in such a manner that behavior in any commercial
exchange is influenced by the norms of social interaction that precede it.
Self-seeking behavior by either party in the exchange is consequently moderated
by the social norms.
From this perspective, exchanges differ on the extent of
relational integration the extent to which parties in an exchange value the
relationship itself, in addition to viewing it as a means to derive specific
product or service benefits. Exchanges are viewed as lying on a spectrum
ranging from low to high in relational integration. Those low on this dimension
are termed ‘discrete’ and those high on this are termed ‘relational’ exchanges.
Relational exchanges are suggested as leading to: behaviors in exchange that
preserve and maintain the relationship, such as safeguarding the other party’s
interests, adopting a flexible attitude in interactions and resolving conflict
within the relationship rather than resorting to litigation.
This theory of interorganizational exchange has been
examined in contexts where a significant component of the interactions between
firms is comprised of conventional face-to-face meetings and using telephonic
or other channels of interaction. It has not been examined in contexts where
the interaction is largely electronically mediated as in electronic commerce.
Raman [21] suggests that business-to-business electronic commerce is likely to
be a significant component of electronic mediation of commercial activities in
general. Many of the features of inter-organizational exchange in electronic
commerce are likely to be significantly different from conventional contexts.
The ability to search for suppliers from among those with a presence in the
electronic marketspace and the ability to create tightly linked supply chains
that transcend geographic boundaries are just two of the range of issues that
need re-examination in the light of the developments related to electronic
commerce.
Our strategy for identifying and designing applications follows
directly given our focus on using electronic commerce capabilities to build
customer relationships. Figure 5
depicts a high level way of examining a portfolio of potential electronic
commerce applications. The idea is to
evaluate two important components on two dimensions: importance and how well
they are achieved. The concept of
critical success factors (CSF) is well accepted and needs no explanation. It is important to note that CSFs tend to be
focused inwardly from the perspective of the firm. To the extent the organization is truly intending to use
electronic commerce to build customer relationships, the Customer Needs (CN)
factor is at least equally important as the CSFs. CNs are harder to determine because only the customers can tell
us what they are. However, as with our
consumer product metaphor, there are well-established techniques in the fields
of advertising and marketing to understand the CNs.
Figure 5 is a useful tool for established companies to
determine their strategy against both potential new e- and traditional
competitors. It is important for
established firms to recognize their significant comparative advantage –a set
of customers with relationships, established Brands, business processes and
products. There are two parts to the
strategy. The first is to avoid doing
anything with the new technologies to harm those aspects of comparative
advantage. The second is to anticipate
changes in the expectations of our customers that could move our firm from a
position of comparative advantage to one of poor performance against an
important customer need. As an example
of such a sea change, in 1996 very few people even considered making an online
purchase. In 2001, a large number of
people in the US have not only made online purchases, but they have also paid
for the purchase online via credit card.
The conceptual framework of customer relationships is
helpful because it focuses us on understanding customer expectations of an
electronic commerce experience. This provides a perspective and conceptual
basis to design the business processes and information systems to meet those
expectations: the electronic servicescape, the supporting infrastructure and
the relationship marketing capability. The design, particularly of the electronic
servicescape, will be directly related to the business basics and underlying
concepts of advertising communications, interpersonal relationships, sales,
customer service, and fulfillment.
The catalog industry is a
significant instance of a set of companies that can clearly evolve their
business into electronic commerce. Catalog companies can do so by selectively
utilizing the Internet and other emerging information technology for those
situations where the functionality offers a clear benefit over the current,
profitable way of doing business. The catalog industry model presents a basis
for understanding the electronic servicescape of electronic commerce in the
form of the Call Center. The components of the supporting infrastructure are
identified by the fulfillment function of the catalog industry. The catalog
industry also serves as a significant example of successful application of
relationship marketing.
Design of the supporting infrastructure and relationship
marketing components for electronic commerce are complex, expensive, and demand
very high operational reliability. Building and operating such systems is well
within the experience of MIS. Because customers view electronic commerce in the
context of a service encounter, the primary challenge to MIS is in the design
of the electronic servicescape and in the integration of the components to
avoid "breaking promises" to customers.
The electronic servicescape potentially involves almost all
of the direct interactions between the customer and the business. Effective
servicescapes must integrate principles from interactive advertising, selling,
relationship building, and customer service. For example, if the role of a web
page is to be an electronic alternative to a contact with a person, then the
web page should be designed using the same basic rules that are used to design
a sales force. It follows that marketers, advertisers, sales people, customer
service providers and MIS practitioners need to converge their skills to
leverage the capability of electronic commerce technologies in the design of an
effective electronic servicescape.
Last, given the metaphor
of a service encounter as a basis for designing an electronic commerce system,
designers must pay particular attention to the limitations of the rapidly
changing supporting information technologies. It is very important to be
careful not to permit existing limitations of technology to "break
promises" which could then negatively impact the service encounter, the
relationship, and Brand image.
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Acknowledgements
This chapter is in part the result of research conducted
under National Science Foundation Award # 9811060, “The Role of Customer
Relationships in Electronic Commerce”, Lester A Wanninger, Principal
Investigator.
The research leading up to and conducted under the NSF Award
is the work of a multi-disciplinary team of colleagues at the University of
Minnesota. Cheri Anderson, a PhD
student, contributed immeasurably to the concept of the electronic servicescape
and the interpersonal communications and advertising principles. Professor Daniel Wackman contributed
significantly from his own research on interpersonal relationships. Professor Robert Hansen contributed from his
research on service quality and relationship marketing. Professor Weidong Xia of the Carlson School
of Management provided the research rigor for design, analysis and
interpretation of the research studies, assisted by PhD students Chris Carr and
Bin Wang. Qimei Chen, a PhD student,
provided the lead on the work on personality characteristics of web sites.