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Overcoming the Tyranny of ‘Richness’ and
‘Reach’
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By Dr Joshua Chang Dr Joshua Chang is currently an independent
researcher in the field of Internet Marketing, and has previously carried out
research and teaching at the University of Canberra, Australia. Dr Chang has
presented at several international marketing conferences, and has an active
interest as a web entrepreneur, being the founder of one of |
Abstract
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Traditional shopping limits the number of shops the shopper is able to visit due to time and other cost constraints; the time spent traveling consequently leaves the shopper with less time to evaluate the product. This paper aims to provide an understanding of how the Internet diminishes the tyranny of the trade-off between information richness and the reach of alternative shops inherent in traditional shopping, as well as how it enables businesses to be more competitive. The theory of ‘richness’ and ‘reach’ was formulated by Evans and Wurster (1999) in the book ‘Blown to Bits: How the Economics of Information Transforms Strategy’. |
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Shoppers traditionally and mainly go to retail stores to
do their shopping. This requires the
spending of time for travel and time in a store.
The
value of such travel and time costs varies by the opportunity cost of time
for the individual. Going to
the shop involves the concept of ‘reach’.
Because
there are practical limits to the number of shops that a consumer could visit
in order to look at the alternative products
available for selection, there are limitations to ‘reach’. ‘Richness’
refers to the quality of the information available to shoppers (as defined by
accuracy, relevance, adequacy etc.), while ‘reach’ refers to the number of
shops that they visit to compare product quality and prices. Within
a certain period of time allocated for shopping, the larger the number of
shops a shopper visits, the smaller the amount of information the shopper can
elicit from any individual store and vice-versa. As Evans and Wurster
(1999) state: To
the extent that information is embedded in physical modes of delivery, a
basic law governs its economics; there is a universal trade-off between
‘richness’ and ‘reach’ (p. 23). The Limitations of
Traditional Shopping Buyers engage in external search for
problem solving purposes.
External search can maximize
satisfaction to consumers by providing the benefits of lower prices,
preferred styles, higher quality, reduced risk and greater confidence (Neal
et al 2002). However, this external search is limited by the trade-off
between ‘richness’ and ‘reach’ present in traditional shopping. The
trade-off between information richness and reach of alternative shops forces
shoppers to search in a hierarchical manner, which limits their search
capabilities. In terms of theoretical expectations, shoppers would begin
their search by looking at high reach sources such as the Yellow Pages or
Classified Ads, which offer contacts to many shops but little or no
information about its products.
The shopper then selects a few shops to
visit to gain detailed information about the product before making the
purchase. Evans and Wurster (1999) state that shoppers have to navigate their way
from high reach/low richness information sources (such as a phone book) to
high richness/low reach sources (such as the sales assistant; a sales
assistant would offer a single customer richly detailed, interactive, and
personalized information about his own limited range of wares). The compromise between the “economics
of information” and the “economics of things” described by Evans and Wurster
(1999) makes it difficult for stores to display a large variety of products
while giving customers the information they want to know about them. For
instance, a bookstore may be unable to carry extremely large volumes of books
due to the cost of inventory (economics of things). However, a
smaller inventory would mean that shoppers have a lesser variety of books to
choose from; the number of books in the store also serves as a list for
informing customers about the number of books the store carries (economics of
information). ).
As shown in Figure 1, searching in a
hierarchical manner involves crawling along the richness/reach trade-off
(Evans and Wurster 1999).
As shoppers obtain higher informational
richness, they lower their reach of alternative shops. This
trade-off prevents shoppers from obtaining a high reach of alternative
sources and rich product information, hence limiting their search
capabilities. Searching in a
hierarchical manner takes time and effort, and risks a sub-optimal
purchase. Due to the limited number of
shops the shopper eventually visits before making the purchase, as a result
of time and pecuniary cost constraints, it is very
unlikely that the shopper is able to maximize satisfaction by obtaining the
best deal in terms of price and quality. Evans and Wurster (1999) state
that shoppers act with “bounded rationality”: they make decisions that
are sensible given the incomplete information that they possess and the high
cost of getting better information. In
other words, physical information channels result in asymmetrical and limited
information flows that could cause sub-optimal customer choices leading to
post purchase dissonance.
Implications on the benefits of
online shopping The benefits of online shopping stem
from a weakening or elimination of the richness-reach trade-off, as explained
in the preceding analysis.
The Internet allows non-store shoppers
to obtain both richness and reach without the tyranny of the trade-off. The
weakening or elimination of the ‘richness/reach’ trade-off enables shoppers
to browse through a large number of stores (a high level of ‘reach’) to gain
a high level of product information (a high level of ‘richness’). The
hierarchical search process that is inherent in traditional shopping is no
longer necessary with online shopping, saving the shopper time and effort, as
shown in Figure 2. The constraint of “bounded rationality” in shoppers is
consequently relaxed, as shoppers acquire an increased capability of more
optimal problem solving in regard to their purchases.
Internet-based benefits According to Evans and Wurster’s (1999)
formulation, the Internet permits a separation between the “economics of
information” and the “economics of things” referred to previously. Amazon.com offers three million books
‘located’ on some 25 million computer screens (“economics of information”) as
compared to the average bookstore, which carries an average of 80,000 titles
(“economics of things”). A similar
separation is reported by Evans and Wurster (1999)
in relation to Dell Computers. Dell’s
Internet site offers over 10 million configurations of the PC by letting the
consumer permute hardware configurations, as compared to 20 configurations
offered in the average computer superstore. With the
aforementioned separation, online retailers are able to offer a greater
selection of products online as compared to in physical stores, while
allowing better product navigation for shoppers. According to Sharma and Krishnan (2002),
the Internet store can provide a larger inventory of products and sizes, and
can virtually guarantee the availability of any type and size of
merchandise. New advances in Internet
technology such as electronic shopping navigators or ‘shopping bots’ assist
shoppers in their product search by enabling the separation of the economics
of information and the economics of things.
These ‘shopping bots’ take a query, visit shops that may have the
product sought, bring back the results and present them in a consolidated compact
format that allows comparison shopping (Rowley 2000). Examples of popular ‘shopping bots’ are
Mysimon.com and Netmarket.com. The weakening
of the richness-reach trade-off also manifests itself in the ability of
shoppers to browse and purchase goods on the Internet anytime, unlike
traditional brick-and-mortar storefronts that have fixed opening hours. The Internet operates 24 hours a week,
seven days a week, and can be accessed anywhere in the connected world. Shoppers can also purchase goods that are
unavailable at their location, as the Internet allows shoppers to make
purchases from vendors in other locations around the world. Shopper-based
benefits
Shopping using
the Internet by overcoming the trade-off between ‘richness’ and ‘reach’ saves
shoppers time and pecuniary costs of traditional shopping; shoppers can shop
from the comfort and convenience of home, and need not travel to physical
storefronts. As compared to
traditional shopping, online shopping provides a
greater reach of information that benefits shoppers in terms of reduced
search costs. This could be a
major saving for time-poor consumers, depending on their opportunity cost of
time. Shoppers are able to locate many vendors online
using search engines and websites designed to navigate shoppers, view
detailed product information from a variety of vendor’s websites, compare
price and quality among different vendors, and make purchases online. Shoppers are able to find the lowest prices
due to the wider reach of information facilitated by the Internet and by
using navigator websites. With online
shopping, shoppers no longer have to suffer the costs and incomplete
information of traditional hierarchical search, making product searches
easier and more effective. Business-based benefits
Like shoppers,
corporations are burdened with the trade-off between richness and reach in
conventional channels and markets. The
wider the reach to customers that the corporation tries to obtain, the lower
the information richness it is able to transmit, and vice-versa. As a result, corporations are forced to use
intermediaries to enhance its customer reach and information richness. According to
Evans and Wurster (1999), with the Internet,
corporations are able to practice disintermediation by obtaining both
richness and reach without the limitations of the trade-off. Opportunities are created to rationalise the logistical value chain. This means that corporations can save
different types of costs. Such costs
savings would be transmitted to shoppers depending on the competitive
pressures in the marketing channel and the relative bargaining powers between
buyers and sellers. Corporations can
eliminate supply intermediaries as they use the Internet to transmit
information to a wide reach of consumers using online stores. This way, corporations save on the costs of
supporting intermediaries such as agency fees and commissions. This could lower prices for shoppers,
implying that a win-win situation is created between the corporation and
customer as the savings on intermediary costs are divided between them, with
the division of the gain depending on the competitive pressures in the
marketplace. According to Evans and Wurster (1999): When the underlying enabling technologies are moving an
order of magnitude faster, the story is very different. The disintermediating
business model can beat the old in both richness and reach. This can happen because technology permits
more rich information to be delivered to consumers directly. It can also happen because technology
permits such a thorough deconstruction of the old value chain that new
combinations of free standing players can match the capabilities of the old
vertically integrated business model (p. 93). Another type
of business cost saving is the reduced need for brick-and-mortar
facilities. Traditional retailing is
burdened with higher costs due to the capital cost of the physical premises
and the attendant operational costs such as wages of sales staff. Sharma and Krishnan (2002) state that the
Internet store has lower fixed costs, as it does not have to be physically
located close to the customer. Also,
since technology replaces most functions carried out by retail salespeople
(such as check-out and verification), the costs are lower. The high fixed
capital costs associated with the physical facilities of conventional
channels have in the past operated as formidable barriers to entry limiting
competitive pressures for lower consumer prices. These physical facilities typically take
years to build, and their presence automatically disadvantages potential new
entrants. With the weakening or
elimination of the trade-off between ‘richness’ and ‘reach’, competitive
entry is made possible because the high fixed capital facilities no longer
provide a protective barrier. In fact,
they could provide a burden that disadvantages incumbent businesses, while
advantaging new entrants. The upshot
is the creation of competitive pressures for the passing on to consumers of
the savings in capital and operational costs in the form of lower prices for
online products. Sharma and Krishnan (2002) state that
in the last three years, the threat of the Internet has increased the
competitive pressure that retailers face. According to
Evans and Wurster (1999), online vendors are aware that due to the wider
informational reach of consumers on the Internet, which leads to low levels
of pricing secrecy, they have to focus on low prices to gain the competitive
advantage. According to the Ernst and Young Survey (‘Internet
Shopping’ 1998), prospective shoppers viewed price savings and selection as
more important benefits than convenience, which was ranked third. Conclusion The Internet weakens or eliminates the
trade-off between ‘richness’ and ‘reach’, creating benefits for both shoppers
and corporations. With Internet shopping, shoppers are able to obtain a
higher reach of alternative products and richer product information enabling
an improved purchase decision.
Shoppers no longer have to search in a
hierarchical manner and be constrained by bounded rationality inherent in
traditional shopping.
Corporations are also able to reap
similar benefits like the ability to obtain a wider reach of customers and
provide greater information richness. This enables
savings on intermediary costs and a reduced need for brick-and-mortar
facilities, creating competitive pressures in the retail industry. This
implies a competitive advantage for corporations (B2B and B2C) that use the
Internet as a medium to reach its customers. Neal, C., Quester, P. and Hawkins, D. (2002) Consumer Behaviour: Implications for Marketing Strategy, 3rd
Edn. McGraw-Hill Irwin, NSW Rowley, J.
(2000) ‘Product Search in E-Shopping: A Review and Research Propositions’, Journal
of Consumer Marketing, vol. 17 no. 1, p. 30 Sharma, A. and
Krishnan, R. (2002) ‘Clicks Only, Clicks and Brick, and Brick Only: Are
Retail Salespeople an Important Factor in Choice?’, Journal
of Marketing Management, Vol. 18. No. 3-4, April, pp. 317-336 |
