The Impact of the Internet on Consumer Search and Choice

Myung-Soo Lee, Ph.D. Chair/Professor Dept. of Marketing and International Business Baruch College - CUNY

Information Search
Important part of consumer decision making process Internal search from memory vs. external search from various sources Information search environment has evolved over time, particularly due to the emergence of the Internet circa 1995

Internet Activities
Percent of internet users who report this activity Most recent survey date

Here are some of the things they do online:

Buy a product

71

August 2006

Buy or make a reservation for travel

63

August 2006

Participate in an online auction

27

August 2006

Sell something online

15

August 2006

Buy or sell stocks, bonds, or mutual funds

13

November 2004

Take a class online for credit toward a degree of some kind

12

December 2005

Questions?
How much do they search? What information do they search? Where do they search? What are the search outcomes? Does the Internet change any of those search dimensions?

How Much Do They Search?

Amount of search = f (prior knowledge, prior experience, risk taking propensity, age, gender, education, opportunity cost of time (wage rate), love to search,) In principle, what drives search is the net benefit from additional search costbenefit framework No search segment surprisingly high percentage of consumers (21% in car purchase in one of our samples)

What Information?
Functional quality reliability, mileage, safety ratings, Expressive quality design, image, comfort, Price Dealer location and dealer offering

Information Sources
Three dimensions:
Personal vs. impersonal Independent vs. seller dominated Online and offline

TV and Print Advertising 3rd party sources Consumer Reports Personal Sources purchase pal Dealer visits

Different information from different sources?

Information sources Print ads/mfr. brochures TV ads Family/Friends 3rd party reports Dear visits Internet sources Type of Information F H L M H M ? E M H H M H ? P L L M H H ?

Search Outcomes
Choice depends on which information sources used some evidence but more research needed Price savings from search yes but not for all consumers Cost-benefit framework still works

The Impact of the Internet

Total Amount of Search - ? Source shift yes Search outcomes definitely Price dispersion and quality variance still persist mainly because of imperfect information due to cost of search

Whats coming?
Different information sources much more sophisticated information websites (autobytel.com, autos.yahoo.com, edmunds.com, kkk.com) Much more active social networks or blogs to facilitate viral marketing Shift to online and interactive advertising Mobile technology as a source of information

Conclusion
The emergence and evolution of the Internet affect consumers search and choice in terms of how much and what to search Still, cost-benefit framework works Dont assume that everybody will search a lot or needs more information Different sources convey different types of information and accordingly affect the choice outcome Search and choice are related You need to allocate promotional budget based on how consumers shift their information sources over time and you have to provide different information content

The Impact of the Internet on Product Information Search: Synthesis of a Research Project
Brian T. Ratchford Debabrata Talukdar Myung-Soo Lee

Research Domain: Product Information Search

Research topics
Total amount of information search Search patterns/Information sources Returns to search

Impact of the Internet

On the above three topics

Major Data Collection Effort

Mail Survey Methodology
February 1990 n=901 (30.0% response rate) February 2000 n=886 (29.5% response rate) February 2002 n=705 (23.5% response rate) February 2004 n=603 (20.1% response rate) February 2006 n=590 (19.7% response rate)

Longitudinal data before and after the Internet emergence

What We Have Done So Far

Developed a general model of search; modeled the benefits of sources into three attributes: functional, expressive, and price; used 2000 survey data International Journal of Electric Commerce (2001) Empirically tested the model of search and information source choice; couldnt reject the IIA hypothesis; calculated the gains from Internet search; used 1990 and 2000 survey data Journal of Marketing Research (2003) Expanded the model testing utilizing more detailed Internet search data; information produced by Internet sources; used 1990 and 2002 data Review in Marketing Research (2005) Identified the evolving patterns of information search with Internet sources added; used 1990, 2000, and 2002 survey data Journal of Consumer Research (2007)

What We Plan to Do
Conceptual Challenges
See if IIA (proportional draw hypothesis) holds up when the Internet sources become smarter Explaining why consumer search is so limited; may get some help from understanding psychological processes Returns to search; price savings are demonstrated but not clear whether search in general, Internet search in particular, leads to better buys

Methodological Challenges
Panel-based research (on-line and off-line) Utilize some tracking technologies (e.g., on-line click stream) Collaboration with manufactures to get transaction data

Some Illustrations on Search Characteristics

Search Characteristics Over Time

60 50 40 30 20 10 0 Knew Which Manufacturer to Purchase from (%) 47 48 56 57

1989 1999 2001 2003

Search Characteristics Over Time

40 35 30 25 20 15 10 5 0 Knew Which Dealer to Purchase from (%) 27 27 1989 1999 2001 2003 40 40

Search Characteristics Over Time

2.95 2.9 2.85 2.8 2.75 2.7 2.65 2.6 2.55 2.5 Number of Models Considered 2.72 2.66 1989 1999 2001 2003 2.91

2.7

Search Characteristics Over Time

2.5 2.4 2.3 2.3 2.2 2.1 2.1 2 1.9 Number of Dealers Considered 2.26 1989 1999 2001 2003 2.5

Search Characteristics Over Time

3.5 3 2.5 2 1.5 1 0.5 0 Number of Test Drives 3.12 2.62 2.27 2.13 1989 1999 2001 2003

Search Characteristics Over Time

16 14 12 10 8 6 4 2 0 Time Spent Looking around the Showrooms (% of Total Search) 1989 1999 2001 2003 15 14 12 12

Search Characteristics Over Time

16 14 12 10 8 6 4 2 0 Time Spent Talking to Sales People (% of Total Search) 1989 1999 2001 2003 15 15 13 12