THE EFFECTIVENESS EVALUATING OF ONLINE SHOP BASED ON INFORMATIVITY OF THE PRODUCT PORTFOLIO

Transcription

1 THE EFFECTIVENESS EVALUATING OF ONLINE SHOP BASED ON INFORMATIVITY OF THE PRODUCT PORTFOLIO Sergey Kulin Evgeny Poov Abstract The nature of the Internet market allows us to develo information roducts that have exerienced nature, disroortionately large effect on the scale of roduction and some ublicity. Informativity in the article is the ability of goods contains different tyes of information: visual, auditory, olfactory, gustatory, and tactile. Deending on the tyes of contained information ideal online roducts (information goods), stimulating demand online roducts, and not stimulating demand online roducts are described. The article resents a model for evaluating the effectiveness of Internet agent based on informativity of its roduct ortfolio. The model is based on the analysis of the roduct ortfolio, gross income and transaction costs of online shos selling advantage of one tye of goods. A model of the ideal online store is shown. The basis for the analysis is financial results and information about the roduct ortfolio of the largest online Russian retailers. Results have shown that Internet agents that imlement common advantage of ideal online roducts or stimulating demand roducts in the virtual market have a level of transaction costs lower than those online retailers that sell not stimulating demand roducts. Scientific novelty of the model lies in the develoment of research on effectiveness of theoretical aaratus of forming the online seller roduct ortfolio. The ractical significance of the model is the ability to determine the level of otimality of the roduct ortfolio of any virtual consumer market layer. The obtained results allow for a deeer study of the otimization roblems of transaction costs in the Internet market. The results can be alied to small and medium-sized enterrises with e-commerce for marketing strategy develoing. Key words:roduct informativity, online roduct, online sho roduct olicy, transaction costs. JEL Code:M31, L86 910

2 Introduction Contemorary aroaches for evaluating information roducts were formulated two or three decades ago. Since that time, they have not basically changed. Information and technical rogress has changed significantly, and, therefore, revious views on information roducts should be comared to the current reality. In economy and law information roducts are referred to the tye of roducts, the market value of which is formed by the information they contain. They may also include information services. Information roducts are often contrasted with tangible roducts such as food, clothing, or cars. Information roducts, in turn, may either have a material basis (disk, aer, flash drive, magnetic tae), or do without it (electronic versions of books, magazines, etc.). Benjamin Bates insists that information may be resented either as a definite discrete unit or as a deliberate rocess. In the first case, the information aears as something that can be created, assigned, sold, bought, destroyed, etc. In the second case, the information is resented as a source of knowledge, including, according to Bates, information as the basis of all theories and concets, including the theory of economic rocesses. Based on the definition of economic goods, Bates declares that the roduct can be tangible and intangible, transferable and non-transferable, free and with a ositive value (Bates, 1990). It is also obvious that information can be transmitted, can have both some utility and cost. On the other hand, every roduct has its informativity. Under the informativity the study refers to the ability of goods to comrise a lurality of different tyes of information (auditory, visual, tactile, and other tyes of information). At the same time, Hal Varian argues that the information roduct is anything that can be converted into electronic form: books, films, recorded hone conversations. Varian considers information as an economic commodity roduct that has such roerties as great effect on the size of roduction and ublicity (Varian, 1998). The grou of researchers led by Grewal states that the decrease of the cost of information as a roduct and the creation of the technology needed for the acquisition, storage and transmission of this information are one of the most imortant influences of the internet on economic cooeration (Grewal, 2003). James Boyle believes that information lays a dual role in the economy. On the one hand, erfect information is a key element of exlaining the effective functioning hyotheses of the economy. In this case, it is resented as the most comlete and available to the ublic. 911

3 On the other hand, real markets often need the information as a roduct. In this case, the information is intended to be limited, which has cost, and in some cases artial (Boyle, 1996). The eculiarity of the well structured information transmission is an oortunity for the Internet market to make information more accessible to otential customers when comared to traditional methods of informing. Cook and Couey have shown that increasing the availability of information through web technologies can increase the amount of knowledge about the roduct amongst clients. In this case, they are able to make better buying decisions. Subsequently, consumers are more satisfied with shoing they do (Couey, 2001). Ballantine has investigated roduct information interactivity effect on consumers in terms of retail e-commerce. The scientists have roved that the amount of information associated with the roduct affects customer satisfaction (Ballantine, 2005). Jun and Chung also found a ositive connection between information and customer satisfaction in the Internet market (Jun, 2006). The research works by Chung and Sheen have showed that among five key factors (ease of urchase, roduct selection, information, rice, individualization for consumer), it is information that influences the customer satisfaction most of all in a retail e-commerce (Chung, 2008). To evaluate the information content of the roduct ortfolio we offer using the theory of transaction costs (Williamson, 1981). A similar aroach has been used in various other studies (Liang, 1998). Bakos shows the imact of information technology on the reduction of transaction costs arising from the subsequent exchanges on the definite electronic market (Bakos, 1991). 1 Method 1.1 Classification of roducts on the informativity basis The informativity of roducts can be reresented by the sum of the comonents by tye of information, namely: where I informativity of roducts; ia auditory information content; i v visual information content; i o olfactory information content; i ts taste information content; I = i + i + i + i + i, (1) a v o ts tc 912

4 itc tactile information content. The above formula can be used to identify ideal roducts on the basis of informativity according to Table 1. Tab. 1: Ideal roducts on the informativity basis Formula Descrition Examles of roducts I ia when {iv,io,its, itc} 0 Ideal sound (auditory) roducts Musical comositions I I I I i when {i,i,i, i } 0 Ideal visual roducts Cliarts, e-books v a o ts tc i when {i,i,i, i } 0 Ideal olfactory roducts Perfumes, eau de toilette o a v ts tc i when {i,i,i, i } 0 Ideal taste roducts Most food ts a v o tc i when {i,i,i, i } 0 Ideal tactile roducts Some roducts for the deaf tc a v o ts Deending on the combination of terms in the model (1) it is ossible to describe all the categories of roducts in terms of information. For examle, information of food can be resented by formula I = i + i + i ( {ia, itc} 0 ), because when urchasing a buyer always v o ts focuses on taste, smell, ackaging or decoration. The model (1) is necessary to figure out the most successful roducts for online sale. By means of modern Internet technology a seller can fully transmit either auditory or visual information. Unfortunately, modern technologies do not allow transferring the other three tyes of information. As we have mentioned earlier, this information can be artially transferred only with the hel of text digitizing. Therefore, from the viewoint of informativity the following classification can be given to all Internet roducts (Table 2). Tab. 2: The classification of internet roducts by informativity Ideal online roducts (information roducts) Products containing either auditory or visual information, or a combination of both Films, music, e-books, software, databases, and others. Internet roducts, stimulating demand Products containing olfactory, gustatory, or tactile information besides the audio Home aliances, comuter equiment and electronics, musical instruments, cars, 913

5 Internet roducts, not stimulating demand and / or visual information Products in which there is minimum content of the auditory or visual information, or there are no such tyes of information at all furniture and others. Food, erfume, clothes and others. This classification is the theoretical framework. It can be exanded with other classifications of roducts and services. In accordance with the above, we can conclude that economic agents which are engaged in online business should focus on the exact roducts they sell. 1.2 A model of the ideal online sho To solve the task of the otimal roduct ortfolio of an online sho it is necessary to define the boundary conditions under which: - Online sho gets maximum rofit; - Online sho aims at minimizing transaction costs. There is a model of otimal transaction costs of roduction and consumtion of information. It was introduced by Poov E. V. and Konovalov A. A. According to it, a firm does not need to seek comlete freedom from transaction costs. The main goal of the firm is to have such a level of costs which allows all the institutions of roduction and consumtion of information to function (Poov, 2008). On the other hand, the classification of online roducts suggests that the more items are adated for online sale, the lower transaction costs must be sent. In other words, it would look like this: Where TC TC i Transaction costs for the information roduct sale; i TC TC, (2) TC sd Transaction costs for online roducts sale, which stimulate demand; TC nd Transaction costs for online roducts sale, which do not stimulate demand. sd nd 914

6 Based on the condition that a model considers the economic agent selling all three roducts on the Internet market, then the agent revenue can be exressed as the following: Q,TC) (Q,TC ) (Q,TC ) (Q,TC ), (3) ( i i sd sd nd nd where: Q = Q ит + Q сст + Q нст quantity of goods, (4) TC TC TC TC transaction costs. (5) i sd nd In general, terms rofits can be exressed as follows: ( Q,TC) R(Q,TC) C(Q) TC, (6) where π net rofit, Q outut, TC transaction costs, R gross income, С roduct net cost, This model has the following assumtions: 1. In our model income R deends not only on the size of outut Q, but also on transaction costs. This means that the raise in transaction costs increases gross income. 2. The above exression is a budget constraint of our model. A firm may direct all received income on both the net rofit increase and covering the costs. 3. Transaction costs will be assumed to be constant and indeendent of sales. Desite the fact that some tyes of transaction costs can deend on Q, we can resume that they are fixed costs in the short term eriod. To maximize rofits, let us write the exression as follows: max( (Q,TC)) R(Q, TC) C(Q) TC 0, (7) Let us differentiate the exression according to arameter of transaction costs: R 1 0. (8) R 1. (9) If we combine the condition (9) with the condition (5), we get: (TC i R TC sd TC nd 1. ) (10) The exression (10) is an otimality condition for a firm, oerating in the Internet. Consequently, the ideal online sho must sell information roducts exclusively. If the 915

7 structure of the roduct ortfolio is modified, while maintaining the number of units sold and the equal value of all goods, the rofits will decline because of transaction costs rising. Thus, to get maximum rofit, an online seller should have the most rofitable roduct ortfolio. It is necessary to maximize the terms Q,TC ), (Q,TC ) in equation (3). If ( i i sd sd two shos are in the same market internet-conditions, then the roduct ortfolio will form a strategic cometitive advantage for each of them. Of course, the existence of economic agents that sell only not stimulating demand internet roducts are also resent in the Internet market. The model of their develoment will be much slower and inefficient in comarison to agents having the ideal goods for stimulating demand for online roducts. Now it is ossible to figure out the main hyothesis to be tested based on theoretical calculations resented above: H 0: The Internet Agent will have smaller transaction costs if it realizes more ideal Internet roducts stimulating demand. 2 Results and analysis To test the H 0 hyothesis, we have collected data from the largest Russian online shos. We have gathered range of roducts sold in these shos, consolidated statements of income and losses in recent years, which included information on gross receits and business exenses of firms. Let us give an examle from the four online shos: ozon.ru (67% - ideal online roducts (books, CD, DVD, etc.), 27% - online roducts stimulating demand (digital and home aliances, and others), 8% - the online roducts not stimulating demand (clothes and other), holodilnik.ru (household and digital roducts, 100% - online roducts stimulating demand), and bonrix.ru (clothing and footwear, 95% - online roducts not stimulating demand). As a result of theoretical study, the author has investigated certain deendence (10). It states that a firm will be at the otimum level of transaction costs, if the ratio of gross income differentials and transaction costs will be equal to 1. In addition, if we take into account the main hyothesis of this study, it can be assumed that the online sho, selling a lot of roducts that are the best from the informational viewoint, will have smaller transaction costs. 916

8 In our case, ozon.ru is the best online sho in terms of information. The ercentage of ideal online roducts in the sho roduct ortfolio is 66.39%. Using econometric methods we have got regression deendence of the gross revenue of R and the level of transaction costs TC. It is reresented on Figure 1. This deendence can be reresented by the equation: R TC TC Differentiating this equation with TC variable we obtain: 4 10 R 7 TC Substituting into this equation the value of the transaction costs of the online sho for every year, we get the following chart (see. Figure 2). Fig. 1:The deendence of the gross revenue of R and transaction costs TC of online sho ozon.ru R y = 2E-07x x R² = TC R Fig. 2:The dynamics of the index for the online sho ozon.ru ( ) TC

9 This chart shows two key oints. On the one hand, the constant growth shows a stable decrease in the level of transaction costs of ozon.ru. This can be considered a ositive henomenon. This fact artially confirms the H 0 hyothesis. R On the other hand, the value of the index in 2013 came close to the mark of 2 TC oints. This indicates a negative trend deviation level of transaction costs from the otimal value, which is equal to 1. Likewise we analyze the financial erformance of other internet shos. The results are shown in Figures 3-4. R Fig. 3:The dynamics of the index for the online sho holodilnik.ru ( ) Fig. 4: The dynamics of the index R for the online sho bonrix.ru ( )

10 Figure 3 shows that the level of transaction costs of the online sho that sells only online roducts stimulating demand, is at an otimum level. Since 2009, the value of the transaction costs has moved away from the otimum level. It has a clear downward trend. A reason of costs decrease may be the stable oeration of the online sho. Over time, this fact will definitely cause the trust of customers of this sho. As we can see from Figure 4, the curve of R indicator for an online sho that sells roducts, which mainly do not stimulate demand during the reorting eriod, remains below 1. This indicates a high rate of transaction costs in the comany. Conclusion Thus, the main conclusion of the study is as follows: H 0 hyothesis has been fully confirmed. Internet agents selling common internet roducts or roducts stimulating demand on virtual market, have the lower level of the transaction costs than those online retailers selling goods without stimulating demand. Namely, these are the roducts of the traditional market. We can identify the following advantages of the described model. The scientific novelty of the model is in the develoment of a theoretical aaratus for the study of the efficiency of the formation of the roduct ortfolio of an online seller. All established results allow carrying out more detailed investigation of roblems of transaction costs otimization in the internet market. The ractical significance of the model is in the ability to determine the otimal level of roduct ortfolio of any layer of the virtual consumer market. This method could be used to monitor erformance effectiveness and further otimization of the marketing strategy. References 1. Bakos J.Y. (1991) A Strategic Analysis of Electronic Marketlaces. MIS Quarterly, Vol. 15, No 3, Ballantine P. (2005) Effects of interactivity and roduct information on consumer satisfaction in an online retail setting.international Journal of Retail & Distribution Management, No. 33(6),

11 3. Bates B. (1990) Information as an Economic Good: A ReEvaluation of Theoretical Aroaches.Mediation, Information, and Communication. Information and Behavior. Vol. 3. (eds.b. Ruben, L. Lievrouw), New Brunswick, NJ: Transaction, Boyle J. (1996)Shamans, Software, and Sleens: Law and the Construction of the Information Society, Cambridge: Harvard UP. 5. Chung K.-H., Shin J.-I. (2008)The Relationshi among e-retailing Attributes, e- Satisfaction and e-loyalty.management Review: An International Journal,Vol. 3,No. 1, Couey E. (2001)Marketing and the Internet, New Jersey: Prentice-Hall. 7. Grewal D., Lyer G.R., Krishnan R., et al. (2003) The Internet and the ricevalue-loyalty chain. Journal of Business Research, Vol. 56, No. 5, Jun S., Chung K. (2006) A Study on the Factors of Internet Shoing Site Affecting Customer s e-satisfaction, e-loyalty, and Reurchasing Intention.The Journal of Internet Electronic Commerce Research, Vol. 6, No 3, Liang T.-P., Huang J.-S. (1998) An emirical study on consumer accetance of roducts in electronic markets: a transaction cost model. Decision Suort Systems, Vol. 24. No. 1, PoovE.V., KonovalovA. A. (2008) Otimalnostizderjekoiskainformacii [Costs otimumnees of information searching]. VestnikUrFU. Seriya: Economikaiuravlenie, no 1, Varian H. (1998)Markets for Information Goods, Berkeley: University of California. 12. Williamson O.E. (1981) The economics of organization: the transaction cost aroach. American Journal of Sociology, 1981, Vol. 87, No 3, Contact Sergey Kulin Institution:Institute of Public Administration and Entrereneurshi, Ural Federal University named after the first President of Russia B.N. Yeltsin. Address of institution: 13b Lenina Str., Ekaterinburg, , Russia Mail: skulin@yandex.ru 920

12 Evgeny Poov Institution: Institute of Public Administration and Entrereneurshi, Ural Federal University named after the first President of Russia B.N. Yeltsin. Address of institution: 13b Lenina Str., Ekaterinburg, , Russia Mail: 921