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DISSERTATION
Committee:
Dr. Siva Viswanathan (IS)
Dr. Henry Lucas (IS)
Dr. Ritu Agarwal (IS)
Dr. Jie Zhang (Marketing)
Dr. Ingmar Prucha (Economics)
Understanding Consumers’ Online Information Retrieval and Search: Implications for Firm Strategies
The growth of the Internet and digitization technologies has dramatically increased the availability of information to prospective buyers across a number of markets. In contrast to traditional settings where information was primarily provided by centralized/institutional sources (typically the seller or a third-party), consumers today have access to information from a multitude of sources. The Web allows consumers to avail of product and pricing-related information in greater detail and depth from a variety of online sources, while also providing ways to consult distributed advice from experts and intelligent agents. In addition to these, consumers also have access to user generated content, online word of mouth, product reviews/recommendations, and seller ratings – issues that have garnered a lot of interest in the last couple of years. This growing democratization of expertise and decentralization of information, where consumers no longer have to rely solely on information from centralized/institutional sources, is a phenomenon of growing importance.
With over 70% of consumers engaging in online pre-purchase search across several product categories (Forrester Research 2005), it is widely believed that the increased access to such decentralized information will bring about fundamental transformations in the way firms, consumers, and markets behave. However, there have been few systematic studies examining the implications of these changes. Understanding the economic implications of this emerging phenomenon - the decentralization of information - for theory and practice forms the central theme of my dissertation. My dissertation consists of two closely related studies - one set in a new product market for consumer durables, and the other in a secondary market for used goods - that seek to examine how consumers interact with, value, and use decentralized information obtained from the Internet. The findings from these studies provide interesting insights into the various types of online information obtained by consumers in their online search process and how they influence outcomes of importance to both consumers as well as firms in these markets. Understanding the dynamics of this changing landscape provides valuable implications for sellers and merchants seeking to design information provision strategies for their consumers in online channels.
Essay 1: ClickTracks: Understanding Consumers’ Online Information Search Behaviors and Purchase Outcomes in Online Retailing.
The impact of the decentralization of information is especially prominent in online durable good markets (such as furniture and appliances). Given the nature of the infrequent and high-involvement purchase, consumers here conduct greater pre-purchase online search. However, they are not restricted to rely on centralized (or manufacturer-provided) product and pricing information. The role of the online retailer in these markets is increasingly morphing from an intermediary to that of an infomediary, who helps orchestrate the plethora of decentralized information ranging from product reviews and buying guides to additional discounts and shipping/delivery offers. Successful online retailers are the ones with the ability to provide the right information to the right consumers at the right time. In the first essay, I study how such decentralized information presented by the online retailer influences consumers' purchase outcomes using a new and rich source of clickstream data obtained from a leading click-and-mortar retailer of durable goods. The underlying premise is that consumers' online information search behaviors reflect their latent information needs/ preferences, and are therefore helpful to identify differences among consumers. I first identify consumers belonging to different segments and states based on their search behaviors, and second, model consumers' online purchase outcomes as a function of the retailer-provided product- and price-related information. Preliminary findings show that consumers' online information search strategies, reflected in their clickstream tracks, is useful to meaningfully distinguish among consumers that respond differently to retailer-provided information interventions. For firms, these results highlight the importance of learning from consumers’ online search behaviors to design optimal information provision strategies for different consumers. Finally, the growth of online technologies equip firms with the ability to fine tune their strategies to target customer micro-segments, thus making information customization an optimal and feasible firm strategy.
The first essay focuses on the impact of information acquired by consumers on outcomes within the online channel. Consumers however typically straddle online as well as traditional channels. They often gather information online and consummate their purchase offline.
Essay 2: The Impact of Online Information on Traditional Quality Signals in a Used Good Market
The second essay in my dissertation therefore examines how information acquired by consumers from decentralized online sources affects their choices in offline secondary (used-goods) markets. As is well known, secondary markets characterized by information asymmetries have typically resorted to quality-signaling mechanisms such as certification to help reduce the associated frictions. However, the value of these centralized/institutional quality signals to consumers depends crucially on the nature and extent of the information asymmetries in these markets. The dramatic increase in the amount of information available to consumers through various online sources can potentially help bridge the information gaps between buyers and sellers. Drawing upon a unique and extensive dataset of over 12,000 consumers who purchased used vehicles in offline markets, I examine the impact of their obtaining decentralized information from online sources on their choice of certification, as well as the price paid. I account for several estimation issues related to endogeneity, error covariances, and demand-side and supply-side selection effects. An important finding is that while some categories of information serve as a substitute to certification, others increase the likelihood of purchasing certified cars; in addition, different types of information retrieved through online sources have varied impacts on the price paid by consumers. This study is the first to demonstrate that the availability of different types of online information significantly impacts consumers’ valuation for a centralized/institutional quality signal. Further, the findings suggest that knowledge of consumers' online information sources could be profitably exploited by firms to optimize their offline channel offerings. There are important implications for firms' partnerships with online information providers as well.
Together, the studies in my dissertation offer initial evidence of the role and impacts of decentralized information in markets spanning Internet and traditional channels. The findings also shed light on how firms may combine this knowledge with consumers’ online information search behaviors to customize strategies related to information provision to the appropriate customers at the right times.
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