Pure Plays Versus Brick And Clicks: Performance Implications of Internet-based Electronic Commerce Marketing Strategy and Channel Structure Howard S. Rasheed, Ph.D. Assistant Professor Scott Geiger, Ph.D. Assistant Professor University of South Florida 4202 E. Fowler Ave. BSN 3403 Tampa, FL 33617 813-974-1727 [email protected]keywords: electronic commerce, Internet, brand equity, channel of distribution Under Review at: Journal of Business Ventures
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Pure Plays Versus Brick And Clicks: Performance Implications of Internet-based Electronic Commerce Marketing Strategy and Channel Structure
evidence, however, indicates that performance losses result when firms coordinate information
systems activities in the market place (Poppo & Zenger, 1998). This negative finding may
therefore be a function of governance decisions related to the value chain activities associated
with sales transactions. Also, accepting or generating sales over the Internet may not be a
profitable activity for new ventures or established firms because of consumers’ reluctance to use
the Internet for sales transactions (Van den Poel & Leunis, 1999). In light of brick and click
firms having significantly higher profit expectations, established firms can likely withstand the
lack of profitability temporarily if they are successfully building brand equity. More
importantly, the absence of brand equity may explain why dot-com companies are failing.
Analyzing the effects of channel structure on market performance indicates that channel
intensity has significant and positive effects on revenue growth. In addition, utilizing the
Internet to publish information regarding products sold positively impacts revenue growth.
Thus, the more products sold over the Internet and the greater the information available
regarding those products, the greater the increase in revenue. An intense channel structure could
establish economies of scales, which reduce coordination costs according to transaction cost
theory. Therefore, low profit expectations may be, eventually offset by offering more products
or services over the Internet.
Consistent with the resource perspective (Li & Ye, 1999), the size of promotional
budgets positively impacts revenue growth. This finding is also consistent with Bharadwaj et al.
(1993) who suggested that sales productivity in Internet commerce may be a function of brand
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equity, which is impacted by promotional expenditures. Thus, firms with greater promotional
budgets experience greater increases in revenue.
The results also indicate that pure plays have a higher percentage increase in international
revenue. Moreover, international growth is positively affected by using the Internet for
distribution of products and services. These results suggest that pure plays that have products
that can be digitized or otherwise distributed electronically are more successful at growing in
global markets. This could be due to the relative ease of overcoming logistical problems of
exporting when your product can be electronically distributed.
Like most research efforts the current study must be interpreted in the context of some
limitations that provide opportunities for future research. Although other research has used
consumer perceptions of brand equity as a measurement (Yoo et al., 2000), the use of key
informant perceptions about performance measures is a limitation of this research. Actual data
regarding performance would always be preferred, although the availability of financial data for
web-based functional strategy implementation is questionable. Future research could advance
the literature more with quantifiable financial and market performance data that is customary in
business research such as return on investment and market share. Although this data may be
available at the corporate level for pure plays that have gone public, accounting guidelines do not
require reporting at the web site level. Future research could also assess whether the negative
results of using the Internet for sales could be a function of whether the product type is a search
or experience good which affects consumer risk and consumer reluctance (Van den Poel &
Leunis, 1999; Kiang et al., 2000).
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Despite these limitations, this research provides useful insight into the differences
between the pure play and brick and click approaches to electronic commerce. Managers and
practitioners can use the findings to better focus their marketing strategies and channel
structures. Perhaps the usefulness of search engines is underestimated relative to other methods
of online promotion such as banner ads. Managers of pure plays may also find it useful to
concentrate some of their promotional efforts on traditional media, such as print, direct mail,
trade shows, and brochures.
Since managers of brick and click firms are still more successful in using advertising to
build on an existing advantage in brand recognition, the prospects for pure plays to overtake
brick and clicks may prove difficult. Also, if using the Internet to generating sales does not
increase revenue or profitability, pure plays will have difficulty building a sustainable
competitive advantage without a physical store and sales force.
In conclusion, these preliminary results provide some indications of why dot-coms using
the pure play model are failing. They may not have the strategic advantage or solid channel
structure to overtake the market performance of established firms, regardless of how much
money is invested from the financial sector. As incumbents expand their channel structure
electronically, their advantages of brand and marketing effectiveness may reduce any first mover
advantages achieved by pure play firms as new market entrants. Without strong market
performance, financial failure is not far away.
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Table 1. Descriptive Statistics and Pearson Correlation Matrix