Service beats price on the Web, study finds

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June 15, 2000
Web posted at: 8:44 a.m. EDT (1244 GMT)

by Melissa Solomon

(IDG) -- The Internet isn't necessarily the great price equalizer it was thought to be, according to a recent study.

While search tools on the Web make it easier for consumers to compare prices among competitors, online costs fluctuate even more than they do in the bricks-and-mortar world, said Erik Brynjolfsson, associate professor at MIT's Sloan School of Management and co-director of the Center for eBusiness@MIT in Cambridge, Mass.

The reason is that customers on the Web are still willing to pay more for high-quality service and innovation, he said at the eBusiness Conference and Expo here yesterday.

"It's not the case that the Internet always destroys existing business practices," he said.

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During the conference, Brynjolfsson shared the results of a study he led at MIT that analyzed purchases made through online price intermediaries, also known as shop bots. These sites search the Web for specific products, then give consumers lists of sellers and their prices.

Only 47% of the consumers in the study bought from the lowest-priced seller, according to Brynjolfsson. In fact, he said, price was the least important factor.

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Customers most often choose sellers whose sites they had visited previously, said Brynjolfsson. Next was advertising -- how familiar the company name is -- then shipping time and finally price.

"Companies like Amazon won on just about every dimension," he said.

The key, he said, is for businesses to take their successful traditional business practices, determine which can be reshaped for the Internet age and devise a constantly evolving business plan that responds to changes in the market as they occur, such as the growing demand for wireless e-commerce.

Brynjolfsson cited FedEx Corp. as an example. The Internet actually enhances its business because it allows FedEx to provide real-time order status, transaction records and product information online, he said.

Richard Owen, CEO of San Mateo, Calif.-based AvantGo, agreed that the Web hasn't changed the rules of business -- it has just created "a window" on companies' services.

"Electronic commerce is shining a torch" onto the business practices of companies, he said. "Opening up your windows" and letting customers see what's inside simply forces companies to improve their processes.

The same holds true for business-to-business markets, said Brynjolfsson. Often, companies turn to the supplier with the best service.

Jane M. Kirkland, vice president and CIO of Pittsburgh, Pa.-based Freemarkets.com, a business-to-business online marketplace serving more than 100 vertical markets, said that within each industry, there's room for several B-to-B marketplaces.

But, she added, as long as customers have the freedom to try different exchanges, "the volume will migrate to the marketplaces that work best."

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