AN ANALYSIS OF THE E-GROCERY INDUSTRY IN SINGAPORE

TAN KOK LENG

FACULTY OF BUSINESS ADMINISTRATION NATIONAL UNIVERSITY OF SINGAPORE 2000/2001

AN ANALYSIS OF THE E-GROCERY INDUSTRY IN SINGAPORE

AN ACADEMIC EXERCISE
PRESENTED TO THE

FACULTY OF BUSINESS ADMINISTRATION NATIONAL UNIVERSITY OF SINGAPORE

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION WITH HONOURS

BY TAN KOK LENG 2000/2001

Acknowledgement
The completion of this Academic Exercise would not have been possible without the assistance of many special and wonderful individuals. Foremost, I would like to thank my supervisor, A/P Teo Chung Piaw, whose guidance and support greatly helped me overcame the difficulties that I faced in completing this Academic Exercise. His understanding and encouragement made the whole experience enjoyable and non-pressurizing. His constant stream of creative ideas also made brainstorming session interesting and challenging. And Sir, thanks for the patience in reading and editing my drafts, it must have been an excruciating experience. I would also like to thank my co-supervisor, Dr Liu Qizhang, for sparing time to give me his insightful comments and suggestions.

My heartfelt gratitude to the FreshDirect management, especially to Mr. Keith Tan, Mr. Desmond Lee and Mr. Adrian Lee, for providing valuable assistance to this Academic Exercise.

Most importantly, I am grateful to my parents whom have always been supportive and understanding. Without them, I wouldnt even have a chance to receive a University education let alone complete one.

To all my friends who have helped me in these four years of University life. Special thanks to Hon Lim, Chris, Adrian, Joseph, Kok Fai and the rest of the gang, without you all, life will be colourless in Bizad. Thanks for everything and I treasure the times we spent together. My appreciation to Adrian, Wei Ying, Irene, Wee Nian and Tee Leong for their effort in proofreading, formatting and printing this Academic Exercise.

Last but not least, a big warm hug to Michele, for listening to my complaints and problems and for being there when I needed support and encouragement.

Abstract
It has been widely speculated that electronically mediated markets will have less friction than comparable conventional markets. Though a vast numbers of literatures were written extensively on the U.S e-grocery market, there is limited literature on local e-grocery development. This study seeks to determine whether the local Internet market for fruits is more efficient than the conventional fruit market with respect to price levels, menu costs, price dispersion and price sensitivity. We also seek to examine the local online fruit market to ascertain the potential and viability of selling fruits online in Singapore.

Using a data set of over 3,793 price observations collected over a period of 3 months, we compare pricing behavior at 7 Internet and conventional fruit retail outlets. Our analysis indicates that local online fruit sellers charge higher prices than conventional fruit sellers and menu costs on the Internet are not lower than in the conventional fruit market. However, we find that price dispersion is lower in the online fruit market compared to the conventional fruit market. And with an online survey conducted over a period of 2 months, we discover that price sensitivity in the online fruit market is not lower than in the conventional fruit market and that providing information like retailers services information and product characteristics helps to reduce consumers price sensitivity.

We conclude that the local online fruit market is not more efficient than the conventional fruit market. In addition, we note that the local online fruit market is still in its infancy and may change dramatically in the coming years with new entrants and a greater number of tailored services usher by firms to cater to specific customer needs.

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Table of Contents
Acknowledgement Abstract Table of Contents List of Tables List of Figures List of Appendices i ii iii viii ix x

Chapter 1: Introduction 1.1 Overview 1.2 Fruit Trade in Singapore 1.3 A Historical Perspective of e-grocery 1.4 A Historical Perspective of e-grocery in Singapore 1.5 Objectives and Potential Contribution of Study 1.6 Organization of Report 1 2 2 6 7 8

Chapter 2: Literature Review 2.1 2.2 2.3 Market Efficiency Search Cost Hypotheses 2.3.1 2.3.2 2.3.3 2.3.4 Price Level Price Sensitivity Menu Cost Price Dispersion
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9 11 12 12 14 18 19

Chapter 3: Industry Analysis and Case Study 3.1 Industry Structure Analysis 3.1.1 Competition (Porters Five Forces) 3.1.1.1 Degree of Rivalry 3.1.1.2 Threat of Entry 3.1.1.3 Threat of Substitute 3.1.1.4 Supplier Power 3.1.1.5 Buyer Power 3.1.2 3.1.3 3.1.4 3.1.5 3.1.6 3.1.7 3.2 Age Potential Regulation Importance Prices of Fruits Discussion 22 22 22 23 24 24 25 26 26 28 28 28 29 30 30 30 31 32 32 32 33 33

Case Study: FreshDirect 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 Introduction Companys Background FreshDirects Website FreshDirects Target Market Positioning and Advertising Determining Customer Demand and Preferences FreshDirects Operations 3.2.7.1 Order processing

iv

3.2.7.2 Sourcing activities 3.2.7.3 Fulfillment activities 3.2.8 3.2.9 Applicability o f Vendor Managed Inventory (VMI) Pricing

35 36 38 39 39 40 40 44

3.2.10 Competitors 3.2.11 Strengths and Weaknesses 3.2.12 Key Issues for Online Fruits and FreshDirect 3.2.13 Future Outlook

3.2.13.1 Potential of Online Fruits in Singapore 44 3.2.13.2 Future Plans and Challenges 45

Chapter 4: Research Methodology 4.1 4.2 Research Design Online Questionnaire Survey 4.2.1 4.2.2 4.2.3 4.2.4 Overall Questionnaire Design Questionnaire Programming Online Pilot-Testing of Questionnaire Data Collection 4.2.4.1 Forum Postings 4.2.4.2 Personalized Email 4.2.5 4.3 Response Rate 46 46 47 49 49 50 50 51 51 51 53 54

Collection of Price Data 4.3.1 4.3.2 Network Query Language (NQL) Physical Visits to Conventional Retailers
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4.4 4.5

Processing Data Collected Statistical Tests 4.5.1 4.5.2 4.5.3 4.5.4 4.5.5 Price Level Price Sensitivity Menu Cost Price Dispersion Discussion

54 55 55 56 57 57 57

Chapter 5: Results and Analysis 5.1 Demographics Profile 5.1.1 5.1.2 5.1.3 5.2 Reasons for Not Buying Fruits Online Fruit Consumption and Buying Habits Likelihood of Buying Fruits Online 58 58 61 61 64 64 67 70 72 74

Hypothesis Testing 5.2.1 5.2.2 5.2.3 5.2.4 Price Level Price Sensitivity Menu Cost Price Dispersion

5.3

Supplementary Descriptive Statistics

Chapter 6: Discussion and Conclusion 6.1 6.2 6.3 6.4 Summary of Findings and Discussions Limitations of Study Directions for Further Research Conclusion
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75 78 79 80

Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Bibliography

I X XXII XXIII XXIV

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List of Tables
Page Table 1: Retailers Selected in This Study Table 2: Fruits Selected in This Study Table 3: F Test Table 4: Demographics Profile of Respondents Table 5: Reasons for Not Buying Fruits Online Table 6: Fruit Consumption and Buying Habits Table 7: Likelihood of Buying Fruits Online in the Next Three to Twelve Months Table 8: Likelihood of Buying Fruits Online Given Certain Criteria Table 9: t tests on Prices Table 10: Proportion of Times the Minimum Internet Price is less than the Minimum Conventional Price Table 11: Important Factors to Consider when Choosing an Online Fruit Seller Table 12: Convenience, Time Saving, Extra Information and Extra Services Table 13: Price Factor Table 14: Descriptive Data on Price Changes Table 15: Proportion of Times Price Dispersion is Lower on the Internet Table 16: Useful Services Table 1 7: Summary of Findings for all Hypotheses 68 69 69 70 72 74 76 52 53 56 59 61 62 63 63 64 65

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List of Figures
Page Figure 1: Findings in Internet Usage in Singapore, 1998 Figure 2: FreshDirects Website Figure 3: FreshDirects Operation Flow Figure 4: Data elements collected during Order Process Stage Figure 5: FreshDirects value chain Figure 6: SWOT Analysis FreshDirect Figure 7: Online Questionnaire Figure 8: Buying Source Figure 9: Mean Price - Stores Comparisons Figure 10: Number of Price Change For each Fruit Seller 27 31 34 35 38 41 50 62 66 71

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List of Appendices
Page Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 The Current and Potential Players in The Online Fruit Market Sample Online Questionnaire Questionnaire - Flow Chart Sample Forum Posting Sample Personalized Email I X XXII XXIII XXIV

CHAPTER 1: INTRODUCTION
Shopping in the future means never having to go to the supermarket The Straits Times, Thursday, 15 June 1995. 1.1 Overview The Internet is the worlds single biggest networked community; it spans every continent, hundreds of thousands of networks, millions of computers and tens of millions of people (Prettejohn, 1996). Nua Internet Surveys estimated that there are about 407.1 million1 Internet users worldwide and Zakon (2000) approximated about 93,047,785 hosts, 1,301,000 domains and 134,365 networks. The Internet is still growing and is the new platform for global commerce. The Internet revolution has already accomplished much of what decades of technology transfer, fiscal reforms and aid have failed to achieve. It has substantially lowered the barriers to global business and is offering a new way to conduct business. The Internet has also been touted as the tool for moving conventional market closer towards a perfect market. In fact, many literatures talk about Internet-based electronic marketplaces leveraging on information t echnology (IT) to match buyers and sellers for increased effectiveness and lower transaction costs, thus contributing to a more efficient and friction-free markets (Bakos, 1998). The grocery industry is of course not spared from Internets touches. The Internet has become the latest delivery channel to be adopted by grocers in Singapore to provide fresh fruits.

In this study, the main question we will ask is: Is Internet markets more efficient than conventional markets? Many researches have been done to answer this question using differentiated products like cars (Lee, 1997), financial products (Bakos et al, 2000; Brown and Goolsbee, 2000) and wines (Lynch and Ariely, 2000) where product heterogeneity is the main source of inefficiency. Later, homogenous products like books, Compact Discs (CDs) (Brynjolfsson and Smith, 2000; Bailey, 1998) and groceries (Degeratu, Rangaswamy and Wu,

http://www.nua.ie/surveys/how_many_online/index.html 1

2000) were used, which we expect lesser degree of market inefficiency on the Internet. However, they found that non-product heterogeneity like, brand, trust, convenience and pricing strategies etc, play a part in market inefficiency too.

In this study, we will be using a homogeneous and perishable commodity - fruit. The local online fruit market will be used in our study for efficiency in Internet markets.

1.2 Fruit Trade in Singapore The fruit market is a component of the grocery trade in Singapore, which in turn forms an integral part of the economy. It caters primarily to household consumption and is a business that has developed in different forms over the past decades. The fruit trade is basically conducted through three distinct marketing channels. At one end of the spectrum, fruits are sold by no-frills general provision shops, market produce shops and wet markets set up largely in Housing Development Board (HDB) estates and are usually frequented by HDB residents. In the middle, mini-marts offer a selective range of fruits in a more comfortable setting (e.g. Econ Minimart). There is also shop like Sun Moon who specialize in selling fruits only. At the other extreme end are the supermarkets (e.g. NTUC FairPrice, Cold Storage, Shop N Save, Carrefour, Giant Mart), offering an all-encompassing range of fruits at competitive prices in an airconditioned environment (Department of Statistics, Singapore, 1999). Lastly, there is also a fruit wholesale center located in Pasir Panjang catering to both businesses and consumers. But in this Internet age, a fourth channel has emerged, e -grocery, grocery (including fruits) sold online and delivered to customers doorsteps.

1.3 A Historical Perspective of e-grocery Before we take a look at Singapores e -grocers, let us look at some pioneers in the United States (U.S). Peapod, based in Chicago, Illinois, is the earliest e -grocer and Americas pioneer online

grocer. It was founded in 1989 by brothers Andrew and Thomas Parkinson. But Dutch international food provider Royal Ahold and United Kingdom (U.K)s Tesco are the largest e grocers in the world currently. Royal Ahold also has stakes in Peapod and Latin America in addition to Europe.

The size of the U.S grocery market is about $479 billion but online grocery account for only a small percentage of the mega billion-dollar grocery market 2 (about 0.2%). Online food shopping is expected to t ake 3.2% share of market by 2005. Since 1989, fresh competitors like Webvan, NetGrocer and HomeGrocer have followed Peapod into the online grocery market.

On the whole, most online grocers are not making money. Much of Wall Street is not intrigued with t he existing online grocery models. By 1999, most American online grocers have run into troubles. For example, Peapods attempt to increase sales and maintain market share force the company to spend even more on marketing and thus pushing the company deeper into the red. In March 2000, Peapod CEO William Malloy resigned, citing health reasons. $120 million in committed funding also fell through leaving the company scrambling with only $3 million in operating cash3 (about six weeks of operating capital). Peapod's stock collapsed, the market knocked 52% off the company's share price, sending the value down from $8 to under $4 at the closing bell. Webvan and HomeGrocer were affected as investors crossed e -grocers off their shopping lists. Peapod's market worth was now below $60 million while the market values Webvan at about $3 billion and HomeGrocer at $1.2 billion.

Royal Ahold infused $73 million in private capital into Peapod in April 2000 after four investment firms canceled the planned $120 million inve stment. The infusion accounted for 51% of Peapod's outstanding common stock. The investment was in a newly issued series of
2 3

Monroy, Tom, Online Grocery Shopping: A Way of Life, Inter@ctive Week, July 12, 2000. Salkever, Alex, Decline and Fall of an E-Grocer, BusinessWeek.com, March 17, 2000. http://www.businessweek.com/bwdaily/dnflash/mar2000/nf00317g.htm 3

convertible preferred Peapod stock at a price of $3.75 per share. In October 2000, Royal Ahold increased its private equity stake from 51% to 58.14% 4 . Royal Aholds increase accounts for $2.3 million shares. Under the agreements, Peapod will continue as a stand-alone company. Royal Ahold will also supply Peapod with goods, services and fast pick fulfillment centers.

Webvan of San Francisco is the brainchild of its CEO, Louis Borders, who founded the company in 1998. Borders also founded the Borders Books chain. Its investors include Softbank Corp., Knight Ridder Co., CBS Inc. and the venture capital firms of Benchmark Capital and Sequoia Capital. Webvan lost $60.4 million on sales of $3.8 million in the first quarter it delivered groceries. It aims to generate 8,000 orders a day from each warehouse at an average of $103 an order, yielding a profit margin of 12% (three times the grocery industry's typical margin). Average orders early on were only $71 and there were relatively few customers. Its first warehouse was designed to handle the volume of about 18 supermarkets, but it was operating at just 20% of capacity at the beginning.

NetGrocer, a New York-based online supermarket, also got into troubles. It failed to complete an initial public offering, and then fell into a cash crisis resulting in it laying off a large portion of its staff 5 . HomeGrocer was launched in 1998 and Amazon.com owns 22% stake. In the year ended January 2000, HomeGrocer spent $7.7 million on advertising and promotion and generated $21.6 million in sales to some 55,000 households. WebHouse Club (Priceline.com), launched on November 1 st , 2000, allows customers to name their own price for groceries on the Internet and then claim those groceries at local supermarkets, such as A&P, KeyFood, ShopRite, Grand Union and Stop & Shop. Other American e-grocers include Streamline (based in the Westwood suburb of Boston), HomeRuns and ShopLink.

Fendelman, Adam, Royal Ahold Ups Equity Stake In Peapod, BizReport, October 13, 2000. http://www.bizreport.com/daily/2000/10/20001013-6.htm 5 Kim, Nancy J., Growth plan for e-grocer, Puget Sound Business Journal, February 12, 1999. 4

In the U.K, the growth rate of e-grocery business is the strongest in the world with annual growth of 254%. Tesco is the leading e -grocer in the U.K, with sales of 125 million (0.6% of Tesco's total sales in the U.K) and it has first mover advantage in the U.K market.6

In Toronto, the online market leader is Grocerygateway.com. There is also The Country Grocer.com, Ottawa's first Internet supermarket. Other online grocers in the Canadian market include PeachtreeNetwork.com, Quick.com (who delivers fresh fruits and vegetables) and TeleGrocer, Canada's most experienced and largest independent online grocery shopping service who has been providing online grocery shopping services in Canada since 1996.

So far, online grocery businesses have been struggling to capture a significant share of the $479 billion in total annual grocery sales as Peapod's troubles indicated. PricewaterhouseCoopers's (PWC) 7 recently did a survey of consumers' attitudes regarding online grocery shopping. PWC found that currently only 1% of consumers are using web services to do their shopping compared to the average of ten trips to the supermarkets per month that primary household shoppers make. The survey also revealed that 43% of respondents state they are more likely to buy groceries online through their regular supermarket than use an Internet-only grocery service. Another 18% don't want home grocery delivery of any kind.

Opinions about the future prospect of e-grocery are mixed. eMarketer believes that online grocery sales will indeed begin to pick up. In 1999, online grocery spending was a modest $335 million, which should jump to $1.1 billion in year 2001. By 2003, online spending on groceries will reach $8.3 billion. Forrester Research foresees stronger growth in 2003 ($10.8 billion) and 2004 ($16.9 billion) when online sales will account for 17% of the total grocery market. So

Kmrinen, Vesa, Supply Chain for e-Commerce and Home Delivery in the Food Industry, Helsinki University of Technology. This document contains some ideas presented by the speakers at the CIES "Supply Chain for e-Commerce and Home Delivery in the Food Industry" conference May 18 - 19, 2000 in Berlin. 7 eMarketer, Consumers Cool to Web-Only Groceries, BizReport.com, August 5, 2000. 5

whether online grocery and especially online fruit will be successful in a small country like Singapore remains to be seen.

1.4 A Historical Perspective of e-grocery in Singapore A handful of local grocers8 , from big-timers like Cold Storage to familiar spice sellers in Little India, have set up shop in cyberspace. Cold Storage created the first online grocery store in Singapore in 1997. This new website not only provides information and other services, but also provides a new Dial and Deliver service that allows customers to order items through Singapore ONEs broadband network. Cold Storage aims to make shopping more convenient and pleasurable for customers through their partnership with Singapore ONE, the world's first nation-wide broadband network.

Currently in the local market of e -grocery, other players that allow customer to order grocery online include NTUC FairPrice9 (NTUC FairPrice is upgrading its website and is currently unavailable), Econ Minimart, Grocer21, Nilgiris.com and E-Mart (See Chapter 3 for a more detail analysis of the industry). Latest entrants into the arena include HomeClub.com and Egrocery.com. However, most of the online grocers started out initially with or are riding on the back of a physical presence. The Internet is just another channel of sales for them. None started out as a true blue online grocer first, and then extended to a physical shop later. Of all the online grocers, only three offer fresh fruit online. Cold Storage and E-mart sell fresh fruits online as part of their grocery assortment. There was initially no online grocer with the sole purpose of selling fruits only. But with the rising performance since 1999 of upstart online company FreshDirect (See Case Study in Chapter 3), whose main objective is to offer a direct

8 9

A check was done using Lycos Asia Shopping Directory and found about 10 grocers selling online in Singapore. A supermarket co-operative launched by the National Trades Union Congress (NTUC) in 1973 with the mission of stabilizing the prices of essential consumer products and has since gone on to become the peoples supermarket. 6

sales channel in fresh fruits retailing, we have a pioneer company selling fruits, a perishable produce, online.

Infrastructures to aid development of local e -grocery are also in progress. The Floravale became the first residential estate in Singapore to offer e -grocery kiosks for its residents 10 . Residents will be able to order groceries electronically from Singapore Food Industries (SFI) through twotouch screen, user-friendly kiosks.

1.5 Objectives and Potential Contribution of Study The main objective of this study is to determine whether the local Internet market for fruits is more efficient than the conventional fruit market with respect to price levels, menu costs, price dispersion and price sensitivity.

Though a vast numbers of literatures were written extensively on the U.S e-grocery market, there is limited literature on local e-grocery development. Only until recently, three survey articles (two by AsiaOne Food review and one by The Straits Times) were published on this topic for the general public. This Academic Exercise hopes to add to the body of literature on e grocery and provide insights to the development of local e-grocery. We will further provide a case study with an objective understanding of actual e -grocery implementation and the essential issues experienced by a new local fruit seller, FreshDirect.

The study also seeks to perform a diagnosis of the online fruit market and to ascertain the potential and viability of selling fruits online in Singapore. In addition, we hope to gather from this research the profile of local fruit consumers. This will include information on what are the factors beside price that online fruit buyers consider and value when making purchase decisions.

10

Lee, Su Shyan, Residents to get E-Grocery Kiosks, The Straits Times, April 12, 2000. 7

1.6 Organization of Report The rest of the report is organized as follows:

Chapter Two will provide a review of the existing literature on the related topic to our study.

Chapter Three will present a diagnosis of the local online fruit market and a case study on FreshDirect, a local online startup dealing in home delivery of fresh produce. This chapter will also provide a glimpse of key issues and key operation problems they faced.

Chapter Four will present a summary of the methodologies used in this research, the survey procedure and a summary of the various statistical technique employed in analyzing the data collected.

Chapter Five will discuss the results and findings of our study.

Chapter Six will conclude the report by presenting a summary of key findings, highlighting some limitations of this study and suggests possible directions for future research.

CHAPTER 2: LITERATURE REVIEW

This chapter reviews the relevant literature and establishes the research framework for the study. Section 2.1 discusses market efficiency. Section 2.2 discusses search cost. Lastly, section 2.3 analyzes price level, price sensitivity, menu cost and price dispersion; and also describes the research hypotheses.

2.1 Market Efficiency In classic economic term, a market is efficient if it executes all the potential transactions that would benefit a buyer, a seller and any third parties affected by the transactions (OSullivan and Sheffrin, 1998).

Bertrand model of price competition states that for competition between parties selling the same product (a homogenous good) with unlimited supply, if there is no market friction11 , consumers will purchase the product from the seller with the lowest price. This results in pure price competition where the firm with the lowest price makes all sales. If firms have the same marginal cost, price is reduced to marginal cost (P = mc). If one firm has a lower marginal cost than the others do, the firms with t he higher marginal costs will exit instead of making negative profit on sales and the equilibrium price will be the marginal cost of the last firm to exit. In retail markets where sellers set prices, efficiency occurs when prices are set equal to the retailers marginal cost (Smith, Bailey and Brynjolfsson, 1999). Marginal cost pricing is the efficient outcome since pricing above marginal cost excludes welfare enhancing trades from consumers who value the product at a level between the price and the marginal cost.

Bertrand competition does not exist in physical markets because of transaction costs. Transaction costs is known in economics as deadweight loss. Deadweight loss is regarded as an
11

Bertrand model assumes that products are perfectly homogeneous, consumers are informed of all prices, there is free market entry, a large number of buyers and sellers and zero search costs. 9

undesirable outcome and is to be minimized whenever possible. Bailey (1998) said that transaction costs consist of search costs, coordination costs and payment processing costs and that information technology can be used to decrease transaction costs. Search costs would turn out to be significant in determining Internet market efficiency. Consumers unable to transact with all possible intermediaries must search the space of alternatives and absorb search costs in the process.

An old concept used in the financial world called the Efficient Markets Theory (EMT) is also incorporated to introduce the idea of efficient market in this new era of electronic commerce. The EMT means that current prices fully reflect information available. The key phrase here is "information available". This means that the price changes immediately when new information becomes available. Efficient market is one where the market price is an unbiased estimate of the true value of the investment or a product.

Smith, Bailey and Brynjolfsson (1999) actually identify four dimensions to measure the efficiency of an Internet market as compared to a conventional market. Firstly, Price Levels: Are the prices charged on the Internet lower? Secondly, Price Elasticity: Are consumers more sensitive to small price changes on the Internet? Thirdly, Menu Costs: Do retailers adjust their prices more finely or more frequently on the Internet? And lastly, Price Dispersion: Is there a smaller spread between the highest and lowest prices on the Internet for the same product category? These four dimensions will be adopted in this Academic Exercise to measure the efficiency of the local online fruit market.

Bailey (1998) uses price levels, price dispersion and menu costs to test Internet market efficiency for books, software and CDs while Brynjolfsson and Smith (2000) analyze Internet

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market efficiency for books and CDs. It would be interesting to analyze the Internet market efficiency for fruits. This leads to the main hypothesis for this Academic Exercise: H0 : Internet fruit market is more efficient than conventional fruit market.

2.2 Search Cost Bakos (1997) defined buyer search cost as the cost incurred by the buyer to locate an appropriate seller and purchase a product. This would include the opportunity cost of time spent searching as well as associated expenditures such as driving, telephone calls, computer fees, magazine subscriptions, etc. Search cost will result in monopolistic pricing by sellers (Diamond, 1985 and Stiglitz, 1989).

The Internet has dramatically reduced search costs. Through the Internet, information has become much more widely available. For example, searching may be easier on the Internet as Bakos (1997) points out because of the search engines. Bakos (1997) also extends the work of Diamond (1985) to describe how consumers alter their search when physical markets become electronic markets. Bakos (1997) suggests that with zero search cost, through using an infrastructure such as the Internet, consumers will be able to explore the entire search space of possibilities.

Conventional wisdom suggests that this should lead to competitive outcomes. The explosive growth of the Internet promises a new age of perfectly competitive markets. With perfect information about prices and products at their fingertips, consumers can quickly and easily find the best deals. In this brave new world of Internet, retailers' profit margins will be competed away, as they are all forced to price at cost.

In commodity markets, all sellers are assumed to offer identical products and the role of the Internet is only to provide information about the existence and price of a seller. But in a
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differentiated market, buyers look for product information, service information and other heterogeneity characteristics on top of price and seller information. Search cost is more complicated here. As mentioned before, fruit by itself is a homogeneous product. However, if we add in product characteristics like country of produce, quality, weight, size, it is not as homogeneous as it seems. Furthermore, we should not forget the characteristics of the online grocers who sell them. In simple term, we can say that the online fruit market is a differentiated market.

2.3 Hypotheses The research framework for this study is based on the four dimensions used by Smith, Bailey and Brynjolfsson (1999) to measure Internet market efficiency.

2.3.1 Price Level Conceptual economics suggest that Internet markets tend to be more efficient than conventional markets due to a reduction in information asymmetries that arise from lower search costs. Economic theory predicts that high consumer search costs will lead to prices above marginal cost in equilibrium Thus in conventional markets, without the help of Internet to reduce information asymmetries and the resulting search costs, prices should be higher than in Internet markets.

Using the EMT definition in a different sense, an efficient market is created when it is easy for consumers to fully understand a product, and when they have the ability to compare product prices in order to make optimized buying decisions. Consumers will also have to feel that they have received the best product for the best price possible. This is purchasing decision power where the consumer is king (sovereign). If the Internet allows consumers to more easily determine retailers prices and product offerings, these lower search costs will lead to lower prices online for both homogeneous and differentiated goods (Bakos, 1997). This is what Sinha
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(2000) called Cost Transparency, a situation in which a sellers costs is visible to buyers due to the abundance of free information obtainable from the Internet. Sellers cannot price too high for buyers know their cost structure. From the consumers perspective, if the hypothesis was true, they would expect to pay less on the Internet than in a physical store.

Another reason is that in Internet market, there is a low barrier to entry in the form of low entry cost. This will limit the ability of online sellers to charge price premium and earn super normal profits. Lower entry costs should lead to more entry in equilibrium (Salop, 1979); and more entry or the mere threat of entry (Milgrom and Roberts, 1982), should lead to lower prices in equilibrium. Similarly, online sellers may have lower operational costs than conventional outlets. These lower operational costs among online sellers could also lead to lower prices in a long-run equilibrium.

However, results are mixed as to whether prices are higher or lower in Internet markets. Bakos (1997) uses Salops circle model to show that if electronic markets have lower search costs than conventional markets, prices in the electronic markets will be lower and more homogeneous. In Bakoss setting, consumers incur search costs to discover the prices and characteristics of products. Brynjolfsson and Smith (2000) found that prices are indeed lower for books and CDs, although Bailey (1998) found that prices are higher on the Internet for books and CDs. Lee (1997) also observes higher prices in electronic markets for used cars than in conventional markets for used car in Japan.

When you think about it, it might not be true that prices are lower on the Internet. Amazon.com is the clear leader in online books, for example, but it seldom has the lowest online prices. It may also be difficult to find a product category in which the cheapest online retailer has the highest sales.

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Moreover, research shows that only about 8% of active online consumers are aggressive price shoppers (Marn, 2000). It is also not true that ease of shopping online encourages price comparisons and drives down prices overall. The majority of Internet users visit only the small number of sites where they feel comfortable (e.g. users are familiar with the web layout and know exactly where to click to get their transaction done). Research has found that more than 90% of CD shoppers and 80% of book shoppers typically visit only a single site and most often not the one with the lowest prices. This trend is also confirmed by Adamic and Huberman (1999) who use log files from AOL that record the number of vi sits to various websites to show that hits to websites are highly concentrated among a few sites. The authors suggest that this may be due to brand loyalty and network effects in Internet markets.

With conflicting conclusion about price levels, we would l ike to see whether this is true for the local fruit market. Thus we have the following hypothesis: H0 : Prices of fruits are equal or lower on the Internet than in conventional stores. H1: Prices of fruits are not equal or lower on the Internet than in conventional stores. 2.3.2 Price Sensitivity Price elasticity measures how sensitive consumer demand is to changes in price. Price elasticity is defined as the percentage change in quantity sold, q, for a given percentage change in price, p:

(dq/dp) (p/q).
For commodities like fruits, price elasticity may be an important signal of market efficiency. In efficient markets, consumers are more sensitive to small changes in prices, at least as long as there is alternative sellers or substitute products exist. Higher (absolute values of) price elasticity may result from lower search costs (in the form of easier price comparison) or lower switching costs for Internet consumers. But Alba et al (1997) said that lower search cost might allow consumers to more readily locate products that better meet their needs regardless of price.

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In the physical world, tests of price elasticity are often expensive and time-consuming. They are therefore usually limited to a small set of products over a narrow range of price levels. By contrast, the Internet can provide for continuous, real-time price testing that produces instant customer responses. If an online company wants to know the sales impact of a 5% price increase, it can conduct a test by trying this out on every 50th visitor to its site. Thus companies can gain extremely rich insights into the role price plays in their customers buying decisions.

Three studies analyze different aspects of price sensitivity in Internet markets. The first, Goolsbee (2000) uses survey data to analyze how sensitive customers are to local sales tax rates. He finds that online consumers are highly sensitive to local tax policies. Those who are subject to high local sales taxes are much more likely to purchase online (and presumably avoid paying the local sales tax). While this study does not specifically test price elasticity between Internet firms, it does point to a high degree of price sensitivity between the total cost of a good online and the total cost in a conventional outlet.

The other two empirical studies analyze price sensitivity in electronic markets for differentiated goods. Degeratu, Rangaswamy and Wu (2000) compare the price sensitivity of groceries sold through conventional and electronic outlets. They find that price sensitivity is lower among online grocery shoppers than it is for conventional world shoppers. The authors feel that this could be due to a lack of product information in the online channel, which would lead to higher brand loyalty (where brand is used by customers as a signal of quality and trust). A strong brand name is a risk reducer for customers and it decreases search costs (Keller, 1998). It is a commonly used extrinsic cue to infer and maintain quality perceptions and can represent an aggregate of information about a product (Richardson, Dick and Jain, 1994).

15

Trust may take on a heightened importance in Internet markets because of the spatial and temporal separation between buyers and sellers imposed by the medium itself (Brynjolfsson and Smith, 2000). Having a conventional world or national retailer brand name may signal trust. Thus without any information on the fruits selling online, the name Cold Storage or NTUC Fairprice could well be a form of guarantee for shoppers. Retailers reputation has the ability to provide cues and tremendous amount of information to consumers. It can also influence perceived quality by serving as an extrinsic cue of product quality (Dawar and Parker, 1994). Several empirical studies have shown that when the perceptions of store names or retailer names are more favorable, the buyers perceptions of product quality will be higher (Dodds, Monroe and Grewal, 1991; Jacoby and Mazursky, 1985). Brynjolfsson and Smith (2000) show that retailers with established conventional world brand names are able to charge a price premium of 8-9% over prices at pure play Internet retailers. Palmer, Bailey, Faraj and Smith (2000) state that developing trust between sellers and buyers is critical for the continued growth of Internet commerce. However, branding is actually a form of market inefficiency as it is a non-price factor distorting perfect information.

For fruit, product criteria like country of produce, size, weight, season and especially brand, will play a part in purchasing decisions. This is especially so for fruits as a Sunkist orange or a bunch of Del Monte bananas will give customers a better mental assurance of quality. To say a Sunkist orange, Golden Delicious apple, or a Chiquita banana conveys some information ( de Figueiredo, 2000). Shankar, Rangaswamy and Pusateri (1998) use survey data for travelers to show that prior positive experience with a brand in the physical world could decrease price sensitivity in online markets. This can be applied not only to product brands but also to retailers brands. For example, if customers shopped at NTUC or Cold Storage before, he may be more likely to purchase fruits from online sites set up by these two companies due to familiarity and their

16

reputations. So it seems that brand, awareness, familiarity and trust are important factors of price sensitivity of customers.

However, this might be temporary, as customers get more familiar with other online grocers because the Internet facilitates easier location of grocers and easier comparison between different grocers. Ward and Lee (1999) observe that recent adopters of the Internet will rely more on brand in their shopping choices, but that this reliance will decrease over time as they gather more experience with the Internet.

Lynch and Ariely (2000) test customer price sensitivity by manipulating the shopping characteristics in a simulated electronic market for wine. The authors find that consumers will tend to focus on price when there is little other information available to differentiate products. So providing better product information to customers softens price competition and increases product-customer fit.

Despite its apparent wealth and prosperity, Singapore is a highly price sensitive market (Stanton, Emms and Sia, 1996). The authors state that this also equates to low brand and product loyalty amongst the majority of the population. So it would even be more intriguing to see how price sensitive are local consumers towards fruits considering all the different factors. Thus this leads to the following hypotheses: H0 : Price sensitivity is lower on the Internet than in conventional stores. H1: Price sensitivity is not lower on the Internet than in conventional stores. H0 : Price sensitivity is negatively correlated with the amount of information available to differentiate the product. H1: Price sensitivity is not negatively correlated with the amount of information available to differentiate the product.

17

2.3.3 Menu Cost The costs of changing prices are known as menu costs. Menu costs are the economic costs of "printing menus" which contain the prices for the items carried by a supplier or intermediary (Bailey, 1998). In a conventional setting, menu costs result primarily from the costs to physically re-label products on shelves (Levy et al, 1997). In an electronic market, it is hypothesized that menu costs should be lower as it only comprised primarily of the cost to make a single price change in a central database. If so, we would expect to see less price stickiness among Internet retailers.

Since menu costs for online sellers is lower, they can change prices more frequently to respond to changing market conditions. Bailey (1998) mentioned that reduced menu costs affect competition as o nline sellers can easily respond to competitors pricing actions and could even lead to price discrimination. Menu costs are important for an efficient market because high menu costs can lead to price stickiness. Price stickiness results because sellers will only make a price change when the benefit of the price change exceeds the cost. If menu costs are high, sellers will be less willing to make small price changes, and as a result will be less able to adapt to small changes in supply and demand. Levy et al (1997) found that supermarkets do not often change the prices on groceries that may be $10 or less. This might be true for fruits as fruits are not high priced items.12

Levy et al (1997) estimate menu costs in a given market and in their study, the authors found that the menu costs in grocery stores is approximately $0.52 per price change. While this may not be a significant amount to stores which sell high-priced, high margin items such as cars, $0.52 per price change is significant enough for low margin items like grocery and fruits.

12

Unless we are talking about exotic fruits which are more expensive (e.g. peaches, cherries, red plums). 18

Bailey (1998) and Brynjolfsson and Smith (2000) found that menu costs are lower for Internet outlets. Bailey (1998) measured the number of price changes undertaken by Internet and conventional retailers and finds that Internet retailers make significantly more price changes than conventional retailers. Brynjolfsson and Smith (2000) compare the propensity of retailers to make small price changes (that would be prevented by large menu costs). They find that Internet retailers make price changes that are up to 100 times smaller than the smallest price changes observed in conventional outlets.

Big supermarkets like Cold Storage or NTUC Fairprice will incur menu costs in re-labeling price tags for fruits. However, it seems that t here is absolutely no cost incurred to change prices of fruits for wet market fruit sellers. All these wet markets sellers need to do is open their mouth to inform customers of price changes. Therefore the following hypothesis with regards to menu costs warrants investigation: H0 : Menu costs are lower on the Internet than in conventional stores. H1: Menu costs are not lower on the Internet than in conventional stores.

2.3.4 Price Dispersion Price dispersion is defined as having different prices charged for the same good at the same time and is measured by the spread between the highest and lowest price.

Price dispersion is typically seen as arising from high search costs or from consumers who are imperfectly informed of prices. The informed consumers purchase from the retailer with the lowest price and the uninformed consumers purchase if the price they are aware of is lower than their reservation value. The typical result is price discrimination in which some stores charge low prices in an attempt to attract informed consumers while other stores charge high prices to sell to uninformed consumers. So it seems that with the aid of the Internet, search costs are

19

lower in Internet markets (Bakos, 1997), consumers are more readily informed of prices, there is free market entry, and with a large number of buyers and sellers, price dispersion on the Internet should be lower than conventional markets. Sellers cannot charge higher price than competitors to informed consumers who used the Internet as a search tool or else they will not make any sale. The Internet seems to have all the characteristics associated with perfect competition. For example, consumers can compare many sellers prices with a click of a mouse, there are low barriers to entry and sellers can change prices at low cost (Bailey, 1998; Brynolfsson and Smith, 2000).

If indeed Internet markets were highly competitive we would expect at least one of the following three things to be true (Baylis and Perloff, 2000). First, a perfectly competitive market where the law of one price prevails would emerge. Second, even if the market were not that competitive, we would expect companies to adjust their prices regularly to undercut competitors. Third, we would expect a tradeoff between price and services or fees, where firms that provide services and offer guarantees would charge higher prices to cover their extra costs. Using this reasoning, Varian (1999) predicted that two groups of e -commerce retailers would emerge: those providing little service at low prices and those offering more service at higher prices. This may explain the price dispersion on the Internet and providing service valued by customers could be the key to earning price premium for online fruit sellers.

The hypothesis price dispersion on the Internet should be lower than conventional markets is also not supported by existing empirical evidence. Bailey (1998) finds that price dispersion for books, CDs and software is no smaller online than it is in conventional markets. Brynjolfsson and Smith (2000) also find that prices for identical books and CDs at different online retailers differ by as much as 50%, and on average by 33% for books and 25% for CDs. A third study by Clemons, Hann and Hitt (1998) finds that prices for airline tickets from online travel agents

20

differ by an average of 28%. Such price dispersion is usually a sign of market inefficiency and it is important for pricing strategies on the Internet.

Baylis and Perloff (2000) proposed four reasons to explain why prices for a homogeneous good may vary across sellers. First, price dispersion may be random noise in an immature market that is slowly adjusting to the competitive equilibrium. Second, price variations across oligopolistic firms may be due to mixed strategies in pricing or other strategic behavior. Third, price dispersion may reflect service premiums. Fourth, price may vary as firms price discriminate based on consumers time-preferences or search costs. The third reason seems to explain the situation for online fruit market well. Brand and online fruit sellers services are important aspect to decreasing buyers price sensitivity and maintaining price premium.

Bakos (1998) said that while the Internet allows consumers to easily collect information about sellers and prices, the same characteristics could also allow sellers to gather better information about consumer characteristics for price discrimination strategies. Furthermore, low menu costs may make it more cost effective for online sellers to dynamically change prices online to implement a price discrimination strategy (Smith, Bailey and Brynjolfsson, 1999). Odlyzko (1996) gives many examples of retailers using multiple prices to price discriminate and he argues that the characteristics of Internet markets may actually give retailers many opportunities to price discriminate. Clemons, Hann and Hitt (1998) also conclude that use of a non-user friendly user interface for a lower priced site owned by the same travel agent who owns another higher priced site is also a form of price discrimination on the Internet. Marn (2000) actually said that as oppose to common belief, the Internet could be a pricers paradise. So is the Internet a paradise for the local online fruit sellers? We seek to confirm this in the following hypothesis: H0 : Price dispersions are lower on the Internet than in conventional stores. H1: Price dispersions are not lower on the Internet than in conventional stores.
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CHAPTER 3: INDUSTRY ANALYSIS AND CASE STUDY

This chapter gives an in-depth diagnosis of the online fruit industry and includes a case study on one of the key players in the market. Section 3.1 reviews the online fruit industry. Section 3.2 presents the case study on FreshDirect.

3.1 Industry Structure Analysis Industry structure (or characteristics) is one of the key predictor of performance, and the (CAPRI) 13 model will be used in this study to analyse the online fruit industry.

3.1.1

Competition (Porters Five Forces)

This section will analyse the competition and attractiveness of the online fruit industry using Porters Five Forces, which according to Porter is a major determinant of profitability for a participating company. Greater competition lowers average profitability.

3.1.1.1 Degree of Rivalry A few major players dominate the online grocery industry while the smaller players serve different niche markets. However, among the ten active online grocers, only three sells fruit online 14 . They are Cold Storage, E-mart and FreshDirect (See Appendix 1 and Section 3.2 for detail description of the current and potential players in the industry). So with only three players in the online fruit market, rivalry seems to be low. Each player seems to be doing its own thing and not reacting to any moves by rival companies. Competitions will also come from conventional fruit stalls and wet market stalls. These stalls provide convenience and personalized service for customers living in nearby neighbourhoods.

13

The CAPRI model consist of Competition (C), Age (A), Potential (P), Regulation (R) and Importance (I); as explained by A/Prof. Kulwant Singh, in the module BK 4003 Industry and Competitive Analysis, lecture on Industry Analysis and Structure, Faculity of Business Administration, National University of Singapore. 14 NTUC FairPrices website underwent a two months revamp and has since discontinued its online grocery services. FairPrices future direction concerning its online presence remains to be seen.

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Fruits, like most grocery products, are viewed as commodities (i.e. indifferent in nature and low product differentiation). Thus online fruit sellers may have to compete on price to gain volumes and market share and therefore intensifying rivalry. However, on closer inspection, we realised that there are many accompanying product characteristics like country of produce, brand, size and weight which might offer room for differentiation. So differentiation might be possible in terms of variation in product assortment, in the form of service, website customization and brand name. For example, Sun Moon Fruit Store Chain, which emphasizes differentiation based on unique packaging, sometimes even went to the extent of packing the individual banana.

Exit barriers are low in terms of taking down a website for those companies who already have a physical presence (e.g. NTUC FairPrice did not suffer any damage by discontinuing its online grocery temporarily). Exit barriers are high for companies like FreshDirect or for those whom the Internet is their sole sales channel. Specialized assets like freezers and delivery trucks could be difficult to liquidate especially for companies like FreshDirect who had no physical presence and no alternative uses for these assets. With some companies finding it hard to leave the industry, the intensity of rivalry will deepen.

Looking at the various factors, the degree of rivalry is moderate in this industry at the moment but due to the fact that the local fruit market is too small to contain too many players, rivalry will intensified when more players come in. However, each online fruit seller may be able to establish its unique reputation and niche market to serve.

3.1.1.2 Threat of Entry The entry barrier into the online fruit market is very low, as little cost is needed to set up a website. There is little to prevent any of the major grocery chain or any small provision shop or fruit stall seller from setting up shop on the Internet. For the likes of Giant mart and Carrefour,

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entrance would mean setting up a website only and for Shop N Save, making its website transactional. The cost is almost zero for grocers like Econ Minimart and HomeClub.com who already has an online presence and all it takes is just to add fruits to their line of products sold on the Internet.

However, economies of scale may prevent new entrants. High initial capital outlay is needed for buying inventories and setting up distribution networks (for order fulfillment). But if the company is already in the fruit industry and progressed to becoming a Clicks and Mortar company, like Cold Storage and E-mart, it will enjoy cost advantage over other new entrants. Orders from the online channel can also be combined with those from the existing stores to form bulk orders, thus achieving economies of scale advantage in the form of lower ordering and shipping costs. Existing companies will also have established contacts and supplier networks, which will be costly for new entrants to imitate. So barriers to entry for the online fruit market will be high only for potential entrant without an established physical presence already.

3.1.1.3 Threat of Substitute Threat of substitute is low. There is no substitute for fruit itself except for substitution amongst different kinds of fruits.

3.1.1.4 Supplier Power Supplier to an online fruit seller would consist of companies that lease delivery trucks or provide delivery services, cold store rental service providers (e.g. freezers), fresh fruit suppliers and IT vendors who design, set up and maintain websites.

Fruit sellers usually get their supplies from wholesalers who import fruits in bulk from overseas. All these fruits enter Singapore duty free and without quarantine restrictions. Some imported

24

fruits are re-exported to neighbouring countries such as Malaysia, Thailand and Brunei15 . Singapore has a relatively large number of food wholesalers (about 300) 16 , agents, distributors and brokers. The wholesale sector is characterised by multiple layers of firms, many of them sole traders earning very small margins. There are also a large number of traders each holding a small number of sole agencies or distributorships and a large number of low value "spot" transactions. A large number of small vans are utilised in transportation of food products to retail outlets, with some large supermarket outlets receiving more than 50 deliveries per day.

Supplier power is low for big companies like NTUC FairPrice, E-Mart and Cold Storage as they have larger bargaining power due to their size and reputation. But supplier power may be high for smaller companies like FreshDirect. The general trend is that there is a strong, but diminishing element of supplier control over pricing. The vital issue is the ability of the online fruit sellers to obtain quality supplies because freshness is an important selling point (at least in the case of FreshDirect) and because of the perishable nature of fruits itself.

There is currently an oversupply of e -solution service providers and so bargaining power for IT suppliers is low. With the recent Asia crisis and intense competitions between various freight forwarders and delivery companies to attract business, it is unlikely that any of the transportation companies will charge too high a price for service. Freezers and delivery trucks are also widely available and easily accessible. Overall, supplier bargaining power is low.

3.1.1.5 Buyer Power Bargaining leverage of buyers is very high. Besides the Internet, fruits can be easily bought from any corners of Singapore. Increasing number of market produce shops and wet markets are
15

These three countries are major re-export destinations for apples and pears. Stanton, Emms & Sia, Opportunities for Canadian Food and Beverage Products in Singapore, A Study Prepared For: Commercial Division Canadian High Commission Singapore, Agriculture and Agri-Food Canada, June, 1996.
16

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established in the HDB estates. They normally sell f resh meat, vegetables, fish, fruits, etc. to cater to the needs of the residents. Furthermore, buyers switching costs is low as buyers can easily find another seller on the Internet. Seasonality would no doubt have a significant impact on fruit supplies and demand. This is especially pronounced during festive seasons like Chinese New Year and Christmas. As Singapore becomes more developed, convenience and time become valuable assets to any individuals.

3.1.2 Age The Singapore online fruit industry is in its infant stage and stability is low. Most of the online fruit sellers are less than two years old. Usually, for a young industry, innovation and differentiation becomes more important compared to cost in a more matured industry. But fruits are low margin products and unless sales can be greatly increased (which is difficult at the moment), the three online fruit sellers will have to work on keeping cost down while satisfying customers demands. As the industry is new, companies have not reached the bottom of their cost curves yet and thus there are still rooms for cost reduction.

3.1.3 Potential In a study conducted by AC Nielsen-SRS17 and commissioned by the Info-Communications Development Authority of Singapore (IDA), it was found that 92% of the adults aged between 18 to 55 years old are aware of the Internet. About 1 in 3 adults in this age group (about 32% of the total adult population) ever used the Internet, translating to approximately 677,000 adults. Those who ever bought via the Internet however, make up only 2% (40,000) of the adult population aged between 18 to 55 years (Figure 1). So the three online fruit sellers could be fighting for this 40, 000 customer base and trying to convince them that fruits can be bought

17

AC Nielsen-SRS, "Major Findings of the Market Study on Electronic Commerce 1998", 1998. http://www.ec.gov.sg/ecsurvey.html

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over the net just like books and CDs. At the same time, the three companies could only hope that this base will increase in the future.

Figure 1: Findings in Internet Usage in Singapore, 1998

Source: AC Nielsen-SRS, "Major Findings of the Market Study on Electronic Commerce 1998", 1998. http://www.ec.gov.sg/ecsurvey.html

Over the period 1987-1997, the grocery trade had grown steadily. In tandem with rising economic growth, total turnover generated by the grocery trade increased from $1,492 million in 1987 to $3,004 million in 1997 (Department of Statistics, Singapore, 1999). This represented an annual increase of 7.2% over the ten-year period, reflecting the rise in population over the past decade and the steadily expanding demand for groceries amongst consumers. During the last two and a half decades, the average monthly household expenditure had increased significantly from $540 in 1973 to $3,686 in 1998 18 . Food still constituted the largest share of total household budget, though its proportion had declined substantially from 45.2% in 1973 to 23.7% in 1998. From the survey conducted by this Academic Exercise, it is found that most people spent an average of $40 on fruits monthly. Thus we have potential annual revenue of: $ 40 x 10,000 x 12 months = $4,800,000 19 . And although Singapore is small in size and population density is high compared to the U.S, Singaporeans have less spare time. The U.S although more dispersed and bigger, the people there have more spare time. Thus the potential for online fruits is there.
18 19

Statistical Highlights, Department of Statistics, Singapore, 1999. Assuming repeat customers and only one quarter of Internet purchaser will consider buying fruits over the Internet.

27

3.1.4 Regulation The import and sale of fresh fruits in Singapore is governed by Food Regulations and the Sale of Food Act. Agri-food and Veterinary Authority (AVA) is the national authority responsible for ensuring and facilitating the supply of stable, safe and wholesome meat and meat products, fish and fish products, fresh fruits and vegetables. All imported fruits are required to be tagged to indicate their sources. This basket-tagging system allows AVA to identify the farms that use excessive pesticides on their produce. To ensure that there are no excessive residues of agricultural chemicals on the fruits, AVA conducts routine random sampling on imports from all sources. Night inspections are also conducted at the Pasir Panjang Wholesale Market to monitor imported fruits 20 . The Singapore Government also has a significant influence on consumption habits through proactive legislation and healthy lifestyle campaigns (Stanton, Emms and Sia, 1996).

3.1.5 Importance The online fruit industry is very important to FreshDirect as the Internet is its sole channel of sales. The online business accounts for more than two third of FreshDirects revenues with the remaining one third from telephone and fax orders. But for Cold Storage and E-Mart (Singapore Food Industry), the Internet is just another sales channel for them.

3.1.6 Prices of Fruits As Singapore no longer has commercial fruit farms, most of these local fruits are imported from Malaysia and thus prices will be higher. The prices of fruits are a function of mainly the country of produce, season, brand, weight and size.

20

Agri-food and Veterinary Authority website. (http://www.gov.sg/mnd/ppd)

28

Singapore imports fresh temperate fruits like apples, pears, peaches, plums, cherries, strawberries, raspberries, and blueberries. Most temperate fruits are air-flown into Singapore to maintain the freshness demanded by the market. Thus the prices of temperate fruits are more expensive than local tropical fruits. But fresh tropical fruits such as papaya, pineapple, watermelon, bananas and more exotic fruits such as durian, rambutans and mangoes are consumed in far larger quantities than fresh temperate fruits. Tropical fruits are very popular with Singaporeans as they are part of local food culture and so are well understood by all local consumers. Besides this, they are readily available and priced lower than fresh temperate fruits.

3.1.7 Discussion The online fruit industry is young and thus should be customer driven, based on brand and service competition with heavy marketing needed. The current three players seem contented with their own niche market. They might still be trying to satisfy the needs of their existing consumers that they do not have the inclination to respond to competitor actions. Once it is more established, it could become capacity driven and more efficient where low margin, high volume, low marketing and price competition prevail.

Based on industry structure analysis, the prospects of attractiveness and profitability are dim. Buyers power is high, entry and exit barriers are low and rivalry is moderate. Customers are becoming more sophisticated and are demanding more complex and customized service for their purchase. With limited margins, a small local market and many potential entrants, companies like FreshDirect might struggle i f there is any major shift in the current industry structure while Cold Storage and E-mart will have their conventional sales channel to fall back on. Thus FreshDirect will have to come up with strategies to cope with its survival given the various constraint discussed in the industry structure analysis.

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3.2 Case Study: FreshDirect 3.2.1 Introduction This case study aims to provide an objective understanding of actual e -grocery implementation and the essential issues experienced by a new local fruit seller, FreshDirect. Considering that local climate, transportation costs and buying habits are different from that of the U.S and Europe, this case is especially useful for local fruit sellers interested in going online to sell their wares, as they can relate to FreshDirects experience better than those sellers in Europe or U.S. In order to collect more detailed information on FreshDirect, two face-to-face interviews (January 2000 and July 2000) were conducted with the FreshDirect Management at its Pasir Panjang Office. In addition, we managed to accompany Mr. Desmond Lee on a delivery trip. This trip has provided us with great insights to the problems faced by FreshDirect.

3.2.2 Companys Background Founded in November 1999, FreshDirect is Singapores first online fruit shop (Straits Times, 11 January, 2000). It is the fruit of the labours of young entrepreneurs Desmond Lee (26 years old), Adrian Lee (26), Keith Tan (25) and Sze Chuan (26), all former Ngee Ann Polytechnic students. FreshDirect aims to be among the pioneers in the fresh grocery industry to ride the e -commerce wave into the future. Their marketing effort will concentrate in developing FreshDirect into a national brand such that most Singaporean will come to know and remember them. They intend to go regional and get listed by 2002.

With staff strength of five, FreshDirect offers up to 47 different types of fruits online. Since then, FreshDirect has extended its product line to fresh produce such as vegetable, flowers, fruit jam and dairy products like milk, juices and cakes. Customers can pay by cash, credit card or cheque. Delivery charge is $3, waived only for purchases of more than $50. Till the date of our interview (July 2000), FreshDirect has 50,000 web hits and 300 online customers, with 25%

30

repeat customers and average order of $50. Revenue has increased by 400% since founding. From November 1999 till January 2000, there is an increase of 1000% in sales and from January 2000 till July 2000, there is an increase of 50% in sales.

3.2.3 FreshDirects Website The website of FreshDirect (www.freshdirect.com.sg) was initially set up for transactional purposes (Figure 2). Now, FreshDirect is moving to using it to provide more information to customers. Development of its website was contracted out to a vendor who also provides maintenance. It was time consuming and problem filled during development. The website did not come out as intended, certain features failed and there were debugging problems.

FreshDirect also maintain a well-organized database containing customer information. FreshDirect can use the information for future planning and also develop a better physical distribution and transportation system to better cater to customers demands. It also allows for more strategic marketing plans like segmenting the market, analyzing sales pattern, analyzing purchasing trends and so forth and also served as the foundation for implementation of the customer loyalty programme.

Figure 2: FreshDirects Website

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3.2.4 FreshDirects Target Market Many of FreshDirects customers are young executives, who are very busy, have little time to wander down to the market or supermarket and yet are health conscious. Mr. Lee added: Were targeting people who want the freshest, the highest quality, willing t o pay for convenience and are price insensitive. Once, I delivered some fruits to an HDB block, which had a fruit shop on the void deck. I asked them why they didnt just go downstairs to buy their fruits, and they said: Lazy. This group of people consists mostly of women age between 26 to 35 years old and about 80% of them live in condominium and 20% live in HDB flats. Customers are located all across Singapore and many are housewives. FreshDirect also targets at business or corporate customers. These customers are mainly the cafes and restaurants operators.

3.2.5 Positioning and Advertising FreshDirect positions its products and services on 3 dimensions: Freshness, Quality and Convenience. But the convenience aspect is not emphasized as everybody else in e-commerce sells on convenience. Price is also not emphasized like NTUC. As Mr. Tan put it, We might not be the cheapest. Besides advertising in the newspaper and on Singapore Bus Services buses, FreshDirect also has tie up with Yahoo Singapore and is involved in events like the National day Carnival and IT fair. Other advertising channels include brochures and mail drops.

3.2.6 Determining Customer Demand and Preferences Basically FreshDirect determines demand and customers preference through past e xperience and knowledge. For example, orders usually increase when certain public holidays (e.g. Chinese New Year, Christmas) are approaching or when the weekend is near. Usually, most customers order on Saturday and Sunday, and want delivery on Monday. The best method of determining customers preference is through personal interaction with them during delivery. FreshDirect will also call customers to get feedback several days after delivery. Customers are asked

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whether they are satisfied with FreshDirects products (e.g. are fruits sweet or not), satisfied with the services, any preferences or new products they would or wouldnt like to have. This little after sales survey allows FreshDirect to maintain a list of buyers with information on frequency of purchase, product purchased, complains and suggestions. FreshDirect aims to be proactive rather than reactive. Instead of waiting for customers to call, FreshDirect contacts its customers first. This is an opportunity to add value to its services.

3.2.7 FreshDirects Operations 3.2.7.1 Order processing Customers will place order through the web, e -mail, phone or fax. FreshDirect will check the number of orders every hour and an order list is printed and passed to Mr. Tan, who will then source for the products (Figure 3). After which they would pack the fruits and plan the route for delivery. About 75% of orders come from online and 25% from offline such as fax, telephone and email. The average number of order per day is 20. The ordering stage is also where information of new customer is collected (Figure 4).

FreshDirect currently employs manual processing of orders. At this point in time, current sales are still manageable under the present arrangement due to the relatively small volume. However, should the number of orders increase, a computerized processing of orders may be required to minimize errors and to save time. Orders from the web and e -mail will also be affected when the website goes down. It has happened on several occasions so far due to technical problem at the server/hosting services. It was down for half the day on each occasion. There is no back up system at FreshDirect except for the telephone. This is a major cause of concern and FreshDirect might consider implementing a contingency infrastructure for their website (e.g. a mirror site). Being an online business with 75% of orders coming through the website, the reliable operation of the website is paramount to the success of the company as it is the main

33

channel of interaction with customers and serve the innate role as the window of opportunity for business. Non-operation of the company website may also be damaging to the confidence and brand image that customers have on the company. Thus it is important that FreshDirects IT vendor is prepared for any contingencies.

Figure 3: FreshDirects Operation Flow START

CUSTOMER ORDERS ONLINE CUSTOMER CALLS FRESH DIRECT TO RELAY

ORDERS

FreshDirect check for orders every hour CUSTOMER FAX FRESH DIRECT TO RELAY
ORDERS

Order list will be printed

ORDER LIST IS PASSED

TO PURCHASING PERSONNEL TO DO THE SOURCING

Availability of fruits to fulfill order?

No

INFORM CUSTOMER

Yes Customer place new order?

Yes

P ACKING AND
DELIVERY OF ORDERS

No

End

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Figure 4: Data elements collected during Order Process Stage

CUSTOMER'SPARTICULARS 1. Salutation 2. Name 3. Residential/ Office Telephone 4. Fax 5. Pager 6. Mobile 7. Residential/ Office Address 8. Email Address 9. Fruits Preferences 10. Customer ID Order Information 1. 2. 3. 4. Product Code Product Title Quantity Unit/Price DELIVERYINFORMATION 1. Time of Delivery 2. Special Delivery 3. Date of Delivery

3.2.7.2 Sourcing activities Sourcing of fruits and vegetables will only commence upon the receipt of an order (immediate sourcing). This is similar to Just-In-Time (JIT) production concept employed in the factories. FreshDirect try to keep inventory level at its minimum. For example, even if there is an preorder for 20 boxes of oranges, they would only purchase in advance 17 boxes. This is to guard against cancelled orders and to reduce inventory cost. As fruits are perishable in nature, any cancelled orders will simply mean losses for the company 21 .

FreshDirect sources their supply of fruits mainly from Hai San (a local wholesaler) but they do also source from other wholesalers. The key consideration to them is the freshness of the fruit over its price. The motto is "nothing but only the freshest will suffice". In their quest to maintain the image and niche as a quality fruit provider, FreshDirect would rather cancel an order than to deliver goods that fail to meet their minimum level of freshness. It was also highlighted that the transaction with suppliers relies very much on personal relationship. Problems in sourcing do occurred. Sometimes, a particular brand of fruits customer wants is out

21

There is no penalty on customers for cancellation of orders.

35

of stock or fruits delivered by suppliers are rotten. If this is the case, FreshDirect will call up the customer and advice him or her on alternatives or else reject the sale.

When order volume grows big enough, and sales volume and purchasing pattern can be predicted accurately, FreshDirect plans to change the sourcing and ordering processes. It is not practical to source only when orders come in if o rder volume is large. Ability to order a large quantity of fruits will get FreshDirect better prices from suppliers.

3.2.7.3 Fulfillment activities FreshDirect has one van that has the capacity to carry 50 boxes of fruits or milk/juices plus two baskets for miscellaneous products like cakes and vegetables. This van will make delivery within 3 delivery time slots: 1) Morning (9am -1pm): for business to business delivery 2) Afternoon (2pm 6pm): usually for orders around the Central Business District (CBD) area 3) Evening (7pm-10pm) 4) Saturday and Sunday (10am - 2pm) Usually, orders in the morning will be delivered in the afternoon and orders in the afternoon will be delivered in the evening. FreshDirect will also allow the customer to dictate the delivery time slot and they will try to cater for it. If order for fruits comes in the evening, FreshDirect would advice their customer to have their fruits delivered the next day because the fruit market activities quiet down around 5 pm, and so if they source for the fruits then, it might not be very fresh.

Currently, planning of delivery route is based on experience. No formal planning or system is used. Driving takes up majority of delivery time. Packing and picking up supplies is easy and takes up little time. Loading and unloading time is about 10 minutes per delivery. Administrative activities like order taking, invoicing, transaction payments and interaction with

36

customers can also be done quickly. FreshDirect actually hopes to increase interaction time with customers to build long-term relationship.

Common problems encountered in fulfillment are: customers are not in when delivery arrives, even when the customers promise to be in, fussy customers who are out to make things difficult and customers who change order at the last minutes. These problems will disrupt the entire delivery schedule. FreshDirect will usually call customers before delivery and advice customers to keep them informed of any changes in orders. Traffic conditions further complicate matters, as the e stimation of delivery time is made difficult. This could cause delay in delivery resulting in unhappy customers. Unexpected situation such as accidents, tyre puncture could also happen.

Time critical deliveries are given priority (usually from customers who want delivery by a certain time). If FreshDirect cannot meet the delivery time slot, consumers will usually agree to a reschedule of delivery time slot. The problem lies with business delivery. No delays are allowed, as business needs the supplies to conduct their business. Businesses like restaurants and cafes will suffer losses if supplies are delayed. So flexible planning is needed with businesses given more priority. FreshDirect also try to avoid Electronic Road Pricing (ERP) and try to plan all deliveries inside CBD on one trip to minimize ERP charges.

FreshDirect will keep its delivery function in-house. Outsourcing is not economically viable yet and not suitable due to the many unique characteristics of fruits. For fruits, a lot of product knowledge is needed. For example, the deliveryman needs to know whether a fruit is ripe or not, or the fruits country of origin when questioned by customers. And if the customers are not happy with the fruits, FreshDirect personnel can make decision immediately to charge them a lower price or replace them. Furthermore, FreshDirect aims to maintain a very good relationship with their customer and they can add value to the customer by passing the knowledge that they

37

have on fruits to customers during delivery. Third party might not be able to handle enquires from customers or deal with rejects. FreshDirect plans to acquire another van soon. Its about capacity. With larger capacity, we will dare to go further and solicit more demand, said Mr. Tan.

3.2.8 Applicability of Vendor Managed Inventory (VMI) FreshDirect is currently at the stage of satisfying purchase only, which is order fulfillment. FreshDirect feels that it is not possible to implement Vendor Managed Inventory (VMI) at FreshDirect ( Figure 5). But it might be possible for business-to-business scenario but definitely not possible for business-to-consumer.

Figure 5: FreshDirects value chain

Firstly, customer may not want VMI arrangement. Secondly, consumers taste changes constantly, even consumers themselves might not know what they want. So there is no way to predict exactly the type and amount of fruits consumers want. Some fruits might be out of season and supplies are not stable due to weather conditions and prices. Mr. Tan believes that it is not possible to predict consumers demand despite what some researchers say. He feels that highly perishable products and products with volatile demand and supply (e.g. fruits) are not suitable for VMI implementation. But products like toothpaste, soap are quite stable in demand and people dont switch brand so often. It might be possible for these products.

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For businesses, it is possible because their order is more constant and larger in volume. The type of products ordered is also quite standard. For example, a caf, the type of dissert the cafe is serving is known and its menu is quite fixed. So the ingredients the cafe order is also quite fixed. Thus predicting business demand is quite easy. It might even be possible to go on to the planning stage of the demand chain model. But overall it is quite difficult. The factors Mr. Tan named are: difficult to collect data on customers, inaccurate data and time consuming.

3.2.9 Pricing The frequent fluctuation of fruits prices makes it difficult to update prices. It depends on timing, season, freshness and sizes of fruits. But FreshDirect try as much as possible to minimize price changes. FreshDirect will absorb the difference if price fluctuation is small and temporary. Contrary to what our literature review about menu cost being lower in Internet markets, it is actually quite difficult for FreshDirect to access the database to change prices, as only the vendor knows the technical procedure for accessing the database. On the whole, the prices of FreshDirects products are comparable with conventional fruit sellers. Mr. Tan stated that consumers would usually use supermarket prices as benchmark to gauge their products.

3.2.10 Competitors Defined broadly, FreshDirect views anybody that do home delivery of grocery as its competitors. But defined narrowly, it would be online companies whose product line includes fruits, vegetables and dairy produce. That would mean E-mart and Cold Storage.

FreshDirects strategy is to go for a niche market and avoid going head-to-head with the major players in the industry. FreshDirect cannot compete with NTUC FairPrice and Cold Storage on product coverage. We dont want to be everything to everybody, or we will become nobody, said Mr. Tan. FreshDirect feels that they are operating i n different field from its competitors.

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They are using a Fresh positioning and personalized service to sell fresh products. FreshDirect conducts monthly review of sales figure and customers preference and purchasing pattern. Sales target is also set during the review. Decision is made on what products to add or take away by using sales performance of that product as basis. However, no specific strategies are design to counter any competitors.

3.2.11 Strengths and Weaknesses So why should consumers buy from FreshDirect? FreshDirect provides an alternative to competitors. FreshDirect offers up-to-date selection of fresh fruits on their website and offers a wide variety of in season fruits, vegetables, fresh juices and freshly baked bread. FreshDirect Management feels that they offer fresher and better quality fruits because they bypass the middlemen and they promise same-day delivery to customers. Their produces are not repeatedly packed, unpacked, do not sit in cold rooms to be sorted each day to restock the shelves (like in supermarkets), and worse picked up and squeezed by strangers. FreshDirect also ensure that optimal temperature is maintained all the way to the customers door.

The strength of FreshDirect also lies in their strategy of focusing on a niche market, which conserve limited resources. Being a relatively small company in terms of staff and structure allows it to be more nimble than the grocery giants around. But FreshDirects strength is also its weakness (See Figure 6 for summary of Strengths and Weaknesses). Focusing on a niche market limits revenue growth. Other weaknesses include small resource pool and small product range. FreshDirect hopes to add to its strength by building a strong branding image.

3.2.12 Key Issues for Online Fruits and FreshDirect Firstly, fulfillment is a critical factor for FreshDirect. If fulfillment is not a problem, then there is no problem. It is difficult to do, but those with the least cost and most efficient service will

40

make money. Everybody knows how to sell, but no one knows how to deliver , said Mr. Tan. It boils down to logistics and maintaining a balance in the tradeoff between fulfillment and cost. There is a break-even point in every transaction and delivery. Beyond that, it is not worthwhile doing. Every company is different in size, structure and margin. Thus the breakeven point will fluctuate up and down. To find the product to suit the breakeven point is difficult. FreshDirect try to achieve cost effectiveness by packing as much as possible i n one trip and consolidating CBD orders. The ideal situation is one van to do one delivery. But that is not possible for FreshDirect with limited financing.

Figure 6: SWOT Analysis FreshDirect

STRENGTHS Convenience for customers High quality products Low inventory costs Low delivery charges Good relationship with suppliers Customization Closer working relationship with customers (niche) OPPORTUNITIES Expanding Oversea Product extension Strategic Alliances Licensing Venture capitalists WEAKNESSES No economies of scale Limited Financial Resources Lack of staff Weak brand name

THREATS Competitors go online

Secondly, for any new product or new process, mindset is the most important. Changing the mindset of consumers will increase the adoption rate of buying fruits online. In addition, customer retention (loyalty) through customer satisfaction is a critical factor to FreshDirect. FreshDirect would take the extra effort to satisfy its regular customer because they are the ones who support FreshDirects business. For example, sometimes regular customers would request
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FreshDirect to source for items not on its carrying list or even items not related to their product line. Still, FreshDirect would do it as long as it is within their means.

Thirdly, quality control is also very important because when ordering fruits online, customer cannot touch or taste the fruits. They will just have to trust FreshDirect to deliver what is promised on the web. Currently, efforts in the online fruit business only focus on improving the purchase function and the physical distribution of goods. Simply improving ordering and fulfillment does not, however, suffice to make FreshDirect a viable competitor to the current supermarket business model. To make selling fruits online a profitable growth business, FreshDirect have to offer its customers more value. It is not enough just to offer customers a wide range of fruits; a wide range of new meaningful services is also needed.

Furthermore if competition heats up, home delivery may become a basic service rather than a value added service. When everything else become the same, branding becomes important, in term of price, product quality, overall image, customer service. FreshDirect can add value through personalized service like calling customer by name. Ultimately, the aim is to gain trust. Customers trust FreshDirect to give them the best price and best quality products. When trust is established, developing a long-term relationship with customers is not difficult. For example, people have the perception that NTUC FairPrice is the cheapest, and Cold Storage has classy stores that displays and sells more exotic fruits.

Fourthly, ability to reconcile consumers perception of fruits is also crucial. This is because the definition of ripeness and appearance of fruits is very subjective. For example, some consumers may perceive ripeness for apples as dark red in colouring whereas it is crimson red for others. Therefore the crux of this issue is to be able to reconcile this disparity in views to satisfy and meet consumers perceptions. As this issue pertains to the consumers mental schema to fruits,

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FreshDirect has tried to resolve to some extent of this problem by following a benchmark. The benchmarking dimension is the concept of freshness, which is defined as the shortest time spent by the product from source to consumers. By operating on this dimension and together with FreshDirects quality policies, it has minimized the impact of the problem to the business.

Another key factor is cost. Controlling cost is necessary because it is one key success factor that drives profits. Fulfillment, especially for Singapore, is not cheap (due to ERP, CBD, COE22 ). Vehicle cost is very high regardless of whether it is rented or purchased. To maintain a logistic fleet is expensive but outsourcing is expensive too. For FreshDirect, they have to pay a monthly installment of $700 for seven years for their delivery van. Petrol cost is $35 per every 5 days. So that adds up to 6 x $35 = $210 per month.

As a whole, fruit is a low margin business even for big supermarket; therefore volume is important for FreshDirect. For example, NTUC FairPrice buys its supply in bulk, which allows higher bargaining power with suppliers and in turn it is able to sell at a lower price to consumers. Getting supplies at a favourable price is crucial for FreshDirect.

And if FreshDirect cannot manipulate its cost, it should manipulate the revenue component. This can be done through retaining old customers, getting new customers and having more variety of products so that customers will buy more per trip. That is why FreshDirect expanded its product range. FreshDirect also try to carry high margin product, specialty product that are not sold by competitors (e.g. exotic fruits).

Dealing with returns is another big issue for FreshDirect. The usual reasons for rejects are delivering something customers did not order, delivering something customers did order but it is rotten and delivering something customers did order but it does not look nice to customers. For
22

Certificate Of Entitlement, which is required for purchasing a vehicle in Singapore.

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example, customers complain about getting a papaya that is not green when they did not specify it in the first place. In cases in which customers are not satisfied with the quality of the fruits or the fruits are damaged during delivery, the goods would be rejected and compensation would be made or replacement done. Compensation is sometimes made along with the customers next order, instead of making an additional trip. This is possible because most of FreshDirects customers are their regulars. FreshDirect has a "no questions asked" 100% replacement policy.

All rejected fruits that are re-sellable (still in good conditions) will be taken back, or else disposed off. Thus customers concise specifications of what they want are important for FreshDirect in reducing rejects and thus cost because fruits are perishable. The overall aim is customer service and satisfaction. FreshDirect wants to make the whole experience of fruit buying positive for customers and keep them happy. So delivery personnel are told not to argue and that customers are always right.

3.2.13 Future Outlook 3.2.13.1 Potential of Online Fruits in Singapore Mr. Tan feels that the concept will work in Singapore, but the mindset needs to be change. 10 years down the road, more people will start buying over the web and have home delivery. Traveling will be a negative factor as it is a hassle and is time consuming. Singapore is moving towards an intelligent society with IT and is actively investing in infrastructure to support this goal. Condominium and new housing estate are fitted with landlines, getting ready for an intelligent home. Primary schools are educating students to use computers and primary school students are already using Excel to do their assignments. Mr. Tan is confident that Singapore is moving in the right direction and the environment is very positive and conducive for e -grocery.

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But FreshDirect firmly believes that e -grocery and online fruits will not replace traditional mode of grocer. The mass will still go to supermarket and provision shops. The Internet will just be another alternative or channel for purchasing fruits and groceries.

3.2.13.2 Future Plans and Challenges FreshDirect feels that issues like security problem still need to be resolved. Changing mindset and educating people is of utmost importance for online fruits. For FreshDirect, the challenge would be to establish its branding, to retain old customers and find new customers. The egrocery customer base is only so big and growing slowly. So to increase ones own customer base would mean getting it from competitors.

FreshDirect has no plans or intention to branch out yet. They want to do their current business properly and establish themselves first before expanding. But eventually, they feel they have to expand oversea, as Singapore is too small (See Figure 6 for summary of opportunities). Then, FreshDirect might plan to export the concept oversea but not operating oversea themselves. The business environment is totally different oversea. For example, product line might need to be changed, consumer behavior are different, logistic costs are different. However, licensing and franchising is a viable plan for FreshDirect. FreshDirect is also looking at the possibility of Wireless Application Protocol (WAP) subject to economical viability two three years down the road. Anther option is to enter into a cooperative relationship with an existing market player that has the resources so as to achieve a winning situation.

In the long run, FreshDirect hopes to get listed and get more venture capitalist to provide funding for advertising. FreshDirect hopes that the Internet and its e -commerce initiatives can help it become a national brand and household name, like NTUC FairPrice, and be known as a grocery merchant that guarantee fresh grocery rather than as just another e -commerce firm.

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CHAPTER 4: RESEARCH METHODOLOGY

This chapter outlines the research method and design used in this study. It is organized into five sections. Sec 4.1 discusses the research design. Section 4.2 illustrates the reasons for choosing the online questionnaire design, details the programming of the online questionnaire and its pilot testing and describes the data collection process. Section 4.3 describes the price data collection process from both online and conventional fruit sellers. Section 4.4 describes the processing of data collected. Finally, section 4.5 reviews the s tatistical methods used to test the hypotheses.

4.1 Research Design Simon (1969) said that A researcher has many alternative methods to choose from when investigating a particular problem and there is no single best way to collect data for all situations. To investigate the price sensitivity of online fruit buyers and to obtain general demographics and information related to buying fruits online, this study adopts an online questionnaire survey conducted through the World Wide Web. To investigate the price level, menu costs and price dispersion, price data of fruits was collected to compare actual prices charged by a group of conventional retailers to prices charged by a group of Internet sellers selling the same category of fruit at the same time. The price data consists of over 3,793 individual price observations collected from November 2000 to January 2001.

4.2 Online Questionnaire Survey The online questionnaire survey method is used because the Internet is the most suitable medium through which to reach the desired sample of Internet users. Online surveys are not expensive as little costs are incurred in designing and hosting an online questionnaire on a server as compared to the postage fees required for mailing questionnaires. Time and effort needed to submit responses are minimized as respondents who have completed the questionnaire can just send their answers through a simple click of the submit button.

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Hyperlinks to survey site that are included in e-mails inviting participation also make it convenient for potential respondents to access the site. Online surveys also enable large amounts of data to be collected within a short period of time. Completed responses submitted are immediately saved onto the server and can be downloaded at leisure.

4.2.1 Overall Questionnaire Design Based on the research framework discussed in chapter Two, the online questionnaire (Appendix 2) was formulated to test the price sensitivity of online buyers and to discover the factors preventing them from buying online. It consists of seven main questions and all relevant responses to statements are indicated on a seven point Likert scale.

Respondents were asked in the opening question whether they have ever bought fruits online. If they answered No, the online survey will lead them to a set of questions (SET A) asking them reasons for why they have not bought online before and the likelihood they will do so in the future. If respondents answered Yes, the online survey will lead them to a different set of questions (SET B) testing for price sensitivity (See Appendix 3 for Survey Flow Chart).

SET A Question 1 solicits respondents reasons for not buying fruits online. Questions 2 and 3 gathers information on respondents fruit purchasing and consumption habits. Question 4 assesses the likelihood that respondents will buy fruits online in the next three, six and twelve months. This is what Babbie (1990) terms an intensity structure for measuring intention. For example, a respondent who is Very likely to buy fruits online in the next three months would logically have a higher intention than if he was Very likely to do so in the next six or twelve months. Thus to derive a representative value for such a scale, Babbie (1990) suggests weighting the responses. So the three time periods of three, six and twelve months are assigned the weights of

47

3/6, 2/6 and 1/6 respectively. The summation of the responses multiplied by their respective weights would produce a representative value to measure the respondents intention (Tan and Teo, 2000) to buy fruits online. For example, assuming that the respondent indicated 1 for all three time periods, the value will be calculated as: 1 3/6 + 1 2/6 + 1 1/6 = 1. Similarly, if the respondent indicates 7 for all the three time periods, the value will be calculated as: 7 3/6 + 7 2/6 + 7 1/6 = 7. Hence, the minimum and maximum values produced by this transformation are 1 and 7 respectively. Other combinations of values for the three time frames will produce a value between 1 and 7. Questions 5 and 6 asked about the likelihood that respondents would buy fruits online given certain criteria.

SET B Questions 2, 3, 4a and 4b tests the correlation between the amount of information available to differentiate the product and price sensitivity of respondents. If the respondents picked the lowest price for both Questions 2 and 3, they will be asked Question 4 and Question 5a to further assess their price sensitivity. Following Question 5a, Question 6a seeks the perceptions of respondents toward the usefulness of various services provided by online fruit sellers such as home delivery and providing opinion on the freshness of fruits.

If the respondents did not picked the lowest price for both Question 2 and 3, they will continue on to Question 4a and 4b. If the lowest price is picked for Question 4b, the respondents will again go to Question 5a and then Question 6a. If not, the respondents proceed to Questions 5 and 6. Question 5 solicits respondents view regarding the important factors considered by them when deciding which online seller to buy from. Question 6 ask for the respondents views on convenience, time saving, extra service and extra information in relation to the price they are willing to pay.

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Finally, Question 7 gathers demographic information on respondents gender, age, marital status, highest educational level and current profession.

4.2.2 Questionnaire Programming The online survey was programmed in Hyper Text Markup Language (HTML) using Microsoft FrontPage 2000. To ensure that all items are filled in completely, JavaScript commands were embedded into the HTML coding to remind respondents of incomplete responses. For example, if the respondent attempts to submit the questionnaire with a question unanswered, a dialogue box will appear, prompting him or her to fill in the unanswered question before submitting the questionnaire.

4.2.3 Online Pilot-Testing of Questionnaire A pilot test was conducted on the online questionnaire to assess its comprehensiveness and the average completion time. The questionnaire ( Figure 7) was hosted on the Faculty of Business Administration server and a hyperlink established on the National University of Singapore, Centre for eBusiness Home Page (http://www2.fba.nus.edu.sg/survey/e_business/WELCOM.htm).

Two rounds of pre-testing were conducted. The first round was conducted on five Business Administration undergraduate Internet users (three males and two females). The survey took about 8 minutes to fill in. All five respondents were comfortable in filling up the survey. Based on the feedback from this first round, it seems that Netscape Communicator users had some problems loading the survey pages. This could be due to some conflicting codes as Microsoft FrontPage is more compatible for Microsoft Internet Explorer than for Netscape Communicator. However, this problem was rectified and some questions were rephrased to make them clearer and more comprehensive.

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Figure 7: Online Questionnaire

The second round of pre-testing was conducted on five working Internet users (three females and two males). Two of the females work in the accounting industry while the third is a bank officer. One of the males is an engineer while the other is a manager in a fast food chain. Again, all five took about 8 minutes to complete the survey. The questions were generally found to be clear and easily understood. The instrument was thus deemed ready for actual data collection.

4.2.4 Data Collection

The online survey was conducted for two months starting on 1st December and ending on 31st January.

Two gift baskets worth $100 each were given to 2 lucky winners in a draw conducted at the end of the survey as incentives to stimulate participation. Confidentiality of responses was assured and respondents were encouraged to forward any queries via email to the address provided.

4.2.4.1 Forum Postings Messages (Appendix 4) advertising the survey were posted at popular forums. The forums were: 1) Yahoo!Geocities-Computer and Internet community 2) HardwareZone Forums 3) eCircles These forums were chosen because of high number of postings on them, which indicate a high traffic flow of Internet users.

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4.2.4.2 Personalized Email 1656 personalized messages were sent individually via emails to SingNet and Pacific Internet subscribers as well as to Business Administration undergraduates (see Appendix 5 for a sample of a personalized email). For the subscribers of Pacific Internet, their email addresses were obtained at random from the A to Z homepage listings provided under Pacific Internet's White Pages. SingNet subscribers email addresses were obtained from SingNets A to Z personal homepages directories. For Business Administration undergraduates, their email addresses were obtained at random from the Faculty email address book. These mailings will allow us to reach the major portion of Singapores Internet users, as SingNet and Pacific Internet are two of three Internet Service Providers (ISP) in Singapore while Business Administration undergraduates are good representation of Internet savvy Singaporeans.

4.2.5 Response Rate Of the 1656 personalized emails sent out, only 1128 personalized emails were effectively sent. This was because the intended recipients email was either no longer in use or the recipients mailbox had exceeded its quota. Of the 1128 emails sent, 601 were returned. Another 238 responses came from the forum postings. However, of the total 839 sets of data collected, 30 were repeat and similar e ntries. This could be due to respondents clicking on the submit button twice or some respondents trying to increase their chances of wining the lucky draw prizes by submitting multiple entries. Therefore, a final total of 809 sets of data were collected.

4.3 Collection of Price Data Our methodology tracks the pricing of the two categories of fruit retailers: those that sell over the Internet and those that sell through conventional outlets. For each fruit category, we selected three Internet 23 and four conventional fruit retailers (Table 1). One of these retailers, Cold

23

Only three online grocers sell fruits through the Internet.

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Storage, currently maintains operations both on the Internet and in conventional outlets. Carrefour is a high-end giant supermarket, NTUC FairPrice is a national chain supermarket and wet market fruit stall is the low-end neighborhood seller. This will give us a good mix for the conventional fruit outlets sample.

To control the differences between the fruits sold in the two markets, specific fruit of specific brand, size and weight were chosen to form our basket (Table 2). And for meaningful comparison, only fruit items whose prices were available across all the traditional fruit stores and online sellers chosen for this study were considered. This will eliminate much of the unobserved heterogeneity in the sample, leaving us with a sample of fruits carefully matched across channels and a clearer measure of the difference between the channels. For fruit items obtained from wet markets, more than one price quotations were obtained from each stall and an average price was then computed. List price of fruits were taken and converted to comply with the relevant weight and size category when necessary.

Network Query Language (NQL) was used in collecting price data from online fruit sellers websites while daily personal visits were done to conventional brick and mortar fruit outlets and supermarkets to collect the price data for conventional fruit sellers.

Table 1: Retailers Selected in This Study Retailers Source

Cold Storage FreshDirect E-Mart NTUC FairPrice Carrefour Wet market Fruit Stalls Internet and Conventional Internet Internet Conventional Conventional Conventional

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Table 2: Fruits Selected in This Study

Fruit Apple Orange Banana Papaya Pineapple Water Melon Brand China Fuji Apple Australian Valencia Orange Del Monte Banana No brand Local, No brand Red, seedless, No brand, Weight/Size Large 1 kg 1-1.5kg 1-1.5 kg 3-4kg Observation 1092 541 552 540 540 528

4.3.1 Network Query Language (NQL) This study needs four essential ingredients: communications, conversion, automation and intelligent behavior in order to capture price data of online fruit sellers daily. We will find little or no direct support for these capabilities in most of today's programming languages. NQL was selected because NQL possesses the one important function, connected applications, which has the four essential capability needed. NQL also has the following advantages: NQLs programs are short; code is easy to write and easy to read, development is rapid and i t stresses simplicity. Statement keywords are made up of words found in the dictionary. NQL also includes features for scheduling. For example, scripts can be set to execute at a specific date and time, and to run again at regular intervals. Scripts code c an wait for a specific time to arrive, wait for a specific interval to pass, or repeat execution of a code block at regular intervals, which is important for our daily collection of price data from the Internet.

NQL codes were written to automatically connect to the three online fruit sellers websites daily. The program was asked to search for key words like China Fuji Apple Large and Price on each websites. Once the key words are matched, the relevant numbers (price data) under Price are captured and saved to Microsoft Excel 2000.

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4.3.2 Physical Visits to Conventional Retailers To verify that the conventional prices in our sample did not contain systematic biases, we should compare the prices charged by a random sample of fruit retailers to prices charged by fruit retailers in our study for the same week. But in a study by the Department of Statistics of Singapore24 , it was found that the differences for wet market stalls in food prices at different localities was insignificant. There was no consistent trend of prices in a particular geographical zone being higher or lower than other zones. For a particular outlet, some fruit items were cheaper while others were dearer when compared with the other outlets. There was no systematic pattern of one outlet marking up the price significantly. The market mechanism was efficient enough to ensure competitive pricing. So we can safely take the prices of any two stalls or supermarkets as representative of that of Singapore as a whole and suggest that the prices charged by conventional fruit retailers in our sample are not biased in a way that would weaken our main results when comparing them to Internet prices.

Daily visits were done to Cold Storage, NTUC FairPrice, Carrefour and wet market fruit stalls to ask for price quotations for our basket of six fruits. Manual recording was done to capture the prices of the six types of fruits. The manual records are then keyed into Microsoft Excel 2000 daily. One point to note was that prices was not taken on the first 4 days of Chinese New Year for wet market fruit stalls due to closure and on the first two days of Chinese New Year for Cold Storage, NTUC FairPrice and Carrefour due to public holidays.

4.4 Processing Data Collected Responses that were submitted through the online survey were saved onto a Microsoft Access 2000 file in the faculty server. The file was then downloaded at the end of the survey. The
24

Department of Statistics Singapore, Comparison of Retail Prices of Food Items Sold at Wet Markets and

Market Produce Shops, Occasional paper on price statistics, September 1992.

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responses were then separated into two groups: data from personalized emails and data from forums. This was accomplished by tallying the email address from each response with the personalized mailing list. The price data collected using NQL and visits to conventional shops was saved into a Microsoft Excel file. SPSS 10.0 and Microsoft Excel 2000 were used to analyze the data collected.

4.5 Statistical Tests This section discusses the statistical methods used to test the hypotheses in this study. We analyze our data by examining price levels, price changes over time, and price dispersion across stores. With regard to price levels and price changes, our aim is to compare the characteristics of Internet channels for fruits to the characteristics of existing conventional fruit channels. An analysis method should be chosen that would make the fewest assumptions about the distribution of the underlying data (Bailey, 1998). Therefore, this study adopts a straightforward statistical analysis method assuming a normal distribution of prices, which is the only dependent variable in the analysis.

4.5.1 Price Level Student t t est is employed on mean Internet and conventional fruit prices to test our hypotheses on price level. The level of significance, a, used in the t statistic is 5%. If the t observed > t a25 , we reject the null hypothesis at the level of significance and conclude that the alternative is true. Before that, a test was done to see whether the variances of the two samples of Internet and conventional fruit prices are equal. The test statistics for testing H0: 1 is F =
2

2
2

s/s
1

2 2

, where the larger sample variance is placed in the numerator.

25

ta is 1.645 in this case

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Table 3: F Test
Fruits Apple Orange Banana Papaya Pineapple Water Melon Critical F Value 1.00 1.00 1.00 1.00 1.00 1.00 Calculated F Value 1.6446 1.0594 2.1182 17.1917 1.1699 H0 Reject Reject Reject Reject Reject Reject

The null hypothesis was rejected for all 6 set of price data (Table 3). So t test assuming unequal variances was used. We will also test our hypothesis on price level by calculating where the higher percentage of time the lowest price for a given fruit in a given day across all retailers sampled is found. This is accomplished by comparing the lowest price found among all three Internet fruit sellers in our sample for a fruit in a given time period (day) with the lowest price found among all four conventional fruit sellers sampled.

4.5.2 Price Sensitivity The data collected from the online survey will be used to measure price sensitivity and the importance of price as a factor in online fruit purchase. The data will also be used to present a demographical profile of the respondents. Prior to data analysis, the data source (respondents from forum and from personalized emails) was assessed for its reliability and biasness. A Chi Square ( 2 ) test was performed on the two different set of respondents to test for any difference in term of their demographics profile. The null hypothesis that respondents obtained from forum posting and respondents obtained from personalized email are independent of each other was rejected. Therefore, we can combine the two sets of data when performing our tests.

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Unfortunately, there were not enough respondents who had bought fruits online before. We got only 42 respondents and thus we could only perform descriptive statistics on the data to test the hypothesis on price sensitivity.

4.5.3 Menu Cost To examine this hypothesis, we analyze the size and number of price changes between Internet and conventional channels (Brynjolfsson and Smith, 2000).

4.5.4 Price Dispersion To examine the hypothesis on price dispersion, we compare measures of price range between the Internet and conventional channels and measure the proportion of times price dispersion is lower on the Internet (Brynjolfsson and Smith, 2 000). Price range is defined as the difference between the largest and smallest price charged by the three Internet and the four conventional fruit sellers for a given fruit and date.

4.5.5 Discussion As this Academic Exercise hinges upon uncovering the workings of market efficiency in the online fruit market, it is imperative that the proper understanding of the various methods of testing market efficiency is clearly established. Having done that, it will allow us to effectively and credibly account for any findings in the penultimate chapter.

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CHAPTER 5: RESULTS AND ANALYSIS

This chapter presents the results and analysis of the data collected from the online questionnaire survey and the price collection. It consists of three sections. Section 5.1 presents the demographics profile of the respondents. Section 5.2 provides the results of the hypothesis testing. Finally, section 5.3 reports on supplementary descriptive statistics with regards to respondents view on the usefulness of services provided by online fruit sellers.

5.1 Demographics Profile The demographics statistics of the respondents to our online survey is presented in Table 4. The findings show that 65.3% of the respondents are male while 34.7% are females. 21.8% of the respondents are married and 78.2% are single. With regards to age, 46.4% of the respondents fall into the age group of 20 to 24 years old. The age group of 25 to 29 years old has the next highest percentage of respondents at 25.7%, while respondents from the age group 30 to 34 years old make up 12.6% of all respondents. In the case of education level, the majority (41%) of the respondents have a university degree while A Level and diploma holders are the next two largest groups at 22.9% and 22.1% respectively. In term of current profession of the respondents, students formed the majority of the respondents at 36.8%. Accounting/Finance people (11.0%) formed the next largest group while respondents in computer related jobs accounts for 7.4%. Overall, of the 809 respondents, only 42 (5.2%) answered having bought fruits online before. For those 767 respondents (94.8%) who have not bought fruits online before, the survey goes on to ask them for reasons and their fruit purchasing habits. For the 42 respondents, the survey goes on to test for their price sensitivity.

5.1.1 Reasons for Not Buying Fruits Online Table 5 shows the list of reasons for not buying fruits online by the respondents of this survey. Surprisingly, it seems that security of online financial transactions (ranked 8 th ) is no longer the

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Table 4: Demographics Profile of Respondents Variable Frequency Gender Male 528 Female 281 Marital Status Single 633 Married 176 Age 14 or below 12 15-19 64 20-24 375 25-29 208 30-34 102 35-39 28 40-44 14 45 and above 6 Highest Education attained PSLE 25 O Level 62 A Level 185 Diploma 179 Graduate 332 Post Graduate 26 Current profession Accounting/Finance 89 Computer related 60 Consulting 21 Customer service 39 Educations 25 Engineering 53 Executive/ Senior Management 31 General Administrations 21 Government 27 Manufacturing 8 Professional (Legal, Medical) 18 Sales/Marketing/Advertising 33 Self-employed 22 Student 298 Not working 9 Retired 1 Homemaker 10 Employed part-time 6 National service 17 Others 21

Percent 65.3 34.7 78.2 21.8 1.5 7.9 46.4 25.7 12.6 3.5 1.7 0.7 3.1 7.7 22.9 22.1 41.0 3.2 11.0 7.4 2.6 4.8 3.1 6.6 3.8 2.6 3.3 1.0 2.2 4.1 2.7 36.8 1.1 0.1 1.2 0.7 2.1 2.6

most important concern for these respondents. Respondents are more concern about not getting what they saw on the sellers website and not being able to examine the fruits they are buying. This could be due to the fear of receiving a rotten apple or orange after buying online, or for instance, in the case of Serangoonroad.com, customers had complained that apples sold by the company don't look as red as on the computer screen. Fruits are not as homogeneous a product

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as a book. This is derived from the inability of producers to achieve consistency in the same type of fruit (like an apple). It turns out that fruit is more a feel and touch product like clothes rather than a commodity or a quasi-commodity like books and CDs. de Figueiredo (2000) classified fruits as Look and Feel with heterogeneous quality products. Art and used cars all fall into this category. He says that these are products where, even if the buyer has completed his search, knows the product, and recognizes the brand, he will need to see and perhaps would want to examine (touch and feel) the actual individual product before purchase. Buyers have preferences over the ripeness of the banana, the color of the orange, the hardness of the apple. Furthermore, fruits are perishable and people feel more comfortable going down to the physical shop to feel, touch and smell them before buying them. It seems that buying fruits is an art.

For fruits, not only is quality difficult to communicate, but also it varies by product, and thus creating a large obstacle for selling them on the Internet. The ability to post product descriptions, provide more accurate and complete product information on the web mitigates some of this problem, but is limited. One cannot place three thousand different apples on the Web. Until technology is advanced enough to allow us to examine fruits online, de Figueiredo (2000) suggests using price and reputation to combat this obstacle. He says that look and feel products with heterogeneous quality might succeed on the Web if they are repeat purchases and inexpensive. Repeat purchases allow the online fruit sellers to build a reputation for quality in repeated provision of the product to a given consumer. Inexpensive products allow the consumer to mitigate risk. If the products are not of high quality in the consumers perception, the loss is relatively low. Thus, inexpensive prices give consumers the incentive to experiment, and thus the online fruit sellers the opportunity to build a reputation. A good reputation coupled with inexpensive prices will allow some fruit sellers to succeed online. In addition, online fruit sellers could improve their return policy so as to encourage more buyers online.

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Table 5: Reasons for Not Buying Fruits Online Reasons Mean Standard Deviation 6.44 What I see on Internet may not be what I actually get 1.03 I can't touch or feel the fruits 6.31 1.10 Prefer going to actual shops 6.26 1.20 Problem returning the fruits if don't like the fruits bought 5.26 1.30 Product information is either lacking or misleading 5.19 1.16 Personal information may be compromised by sellers for 5.14 1.32 commercial gains Sellers may not be legitimate 5.11 1.38 Online financial transaction is unsecured 4.86 1.69 Not happy with delivery charge 4.80 1.35 Can't get the fruits that I want (lack of variety) 4.73 1.34 Prices not attractive enough 4.35 1.28 Not aware that I can buy fruits online 4.25 2.40 Don't know how to buy on-line 2.06 1.55
Respondents were asked to indicate on a scale of 1 (Strongly Disagree) to 7 (Strongly Agree) the extent they agree that each reason was the one preventing them from buying fruits online.

5.1.2 Fruit Consumption and Buying Habits Majority of the respondents buy their fruits from wet market fruit stalls and from NTUC FairPrice supermarket (Figure 8). This is due to the fact that NTUC supermarkets and wet markets are numerous and well distributed all over Singapore. They provide cheap and convenient service for nearby neighborhood residents. Cold Storage is also a favorite shopping place for the respondents. Busy working Singaporeans might visit Cold Storage outlets at shopping malls during weekend for their grocery needs.

Out of the 767 respondents who had not buy fruits online before, most have a healthy diet and consume fruits daily (66.2%) or at least 3 to 4 times a week (18%). Majority of the respondents (68.2%) buy fruits weekly. 75.2% of the respondents spent $10 and below on fruits while 18.9% spent $11 to $20. Only 5.9% of the respondents spent $21 and above on fruits (Table 6).

5.1.3 Likelihood of Buying Fruits Online It seems that the respondents are more likely to buy fruits online in the long term rather than in the short term (Table 7). This could be due to them adopting a wait and see attitude or waiting for more people to participate before doing so themselves. But overall the intend to buy fruits

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online i s very low as most respondents indicated Very Unlikely or Unlikely(highest mean is only 1.88 and mean weighted response is 1.56) to do so in the next three to twelve months.

Figure 8: Buying Sourcea

Buying Source
1
en El ev

13 183 483 36

Source

7ol d ar t St or ag e

in

iM

539 112

C M on Ec

Sh

op

Pr

ov

is

io

100

200

300

400

500

600

Frequency

Respondents can choose more than one answer for buying source.

Table 6: Fruit Consumption and Buying Habits Variable Frequency b Fruit Consumption Daily 508 1-2 times per week 84 3-4 times per week 138 Seldom 37 b Fruit Purchase 1-2 times per week 152 Weekly 523 1-2 times per month 61 Monthly 31 Amount spent on $10 and below 577 fruits b $11-$20 145 $21-$30 29 $31-$40 9 $41-$50 4 Above $50 3
b

Percent 66.2 11.0 18.0 4.8 19.8 68.2 8.0 4.0 75.2 18.9 3.8 1.2 0.5 0.4

Out of a total of 767 respondents.

With r egards to delivery charges, the findings indicate that respondents are most likely to buy fruits online if there is no delivery charge (Table 8). This result is not surprising since they are already paying to access the Internet. They would be reluctant to spend more just to have the fruits delivered to their home when they can go to nearby physical shops to get their fruits at no

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extra cost. Imposing a flat fee or amount based delivery charges are view unfavorably by the respondents. This is similar to the results from a PricewaterhouseCoopers's survey, which showed that free delivery is strong draw among all those considering ordering online. Online sellers face a tradeoff of whether to impose a delivery charge or bear the cost themselves. With delivery charge, online buyers have incentive to buy more per order so as to spread the delivery charges they are paying. If delivery were free, online buyers would be indifferent to the number of time they want delivery, even if only ordering small dollar value item on each single order. Table 7: Likelihood of Buying Fruits Online in the Next Three to Twelve Months Time Periods Mean Standard Deviation
Next 12 Months Next 6 Months Next 3 Months

1.88 1.56 1.46 1.56

1.44 1.16 1.08 1.09

Summation of the responses multiplied by their respective weights

buy fruits online in the next three to twelve months.

Respondents were asked to indicate on a scale of 1 (Very Unlikely) to 7 (Very Likely) the likelihood they will

Table 8: Likelihood of Buying Fruits Online Given Certain Criteria Criteria Mean Standard Deviation No delivery charges 4.26 1.96 Payment is only upon delivery 3.95 2.00 There is a No Questions Asked return policy 3.90 1.96 Can use WAP -enabled (Wireless Application 3.00 1.76 Protocol) mobile devices to ordered fruits Delivery charge is based on the amount of fruits 1.87 1.45 ordered Delivery charge is a flat fee 1.80 1.36
Respondents were asked to indicate on a scale of 1 (Very Unlikely) to 7 (Very Likely) the likelihood they will buy fruits online if given certain criteria.

Most respondents also feel safer if the online sellers adopt a Pay only upon delivery policy and a No Question Asked return policy. Firstly, respondents may still have qualms about the security of online financial transactions (credit card). Secondly, respondents might want to inspect the fruits before accepting them and before making payment. They want to have the

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right to reject poor quality fruits or fruits that are not up to their satisfaction. This area could pose quite a problem for online fruit sellers. As mentioned in the FreshDirect case study, perception of fruit quality is subjective. Overall, the likelihood of buying fruits online is low as most of the mean is below the neutral value of 4.

5.2 Hypothesis Testing For each test, we review the empirical results and discuss possible sources of structural differences between Internet and conventional channels. For price dispersion we will also discuss the characteristics of Internet channels alone in an effort to identify the sources of price dispersion in Internet channels. Finally, we will discuss potential interpretations of our findings.

5.2.1 Price Level Table 9: t tests on Prices Internet Price Conventional Price Mean Mean $0.77 $0.58 $0.38 $0.34 $1.56 $1.45 $1.50 $1.27 $1.30 $1.27 $2.74 $2.81

Fruits Apple Orange Banana Papaya Pineapple Water Melon

T 10.83 9.513 11.86 27.08 2.613 -1.297

H0 Reject Reject Reject Reject Reject Do not Reject

The results of the t tests are displayed in Table 9. Our results suggest that the prices charged for fruits are higher instead of lower on the Internet than in conventional stores: by $0.19 (24.7%) for apple, $0.04 (10.5%) for orange, $0.11 (7%) for banana, $0.23 (15.3%) for papaya and $0.03 (2.3%) for pineapple. Only the mean price of watermelon was lower on the Internet than in conventional stores. Thus, t tests reject the null hypothesis that mean fruit prices on the Internet are equal or lower than mean prices in conventional stores in favor of t he hypothesis that prices of fruits are not equal or lower on the Internet than in conventional stores.

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Table 10 shows that over the study period, the lowest price for a given fruit in a given day across all retailers sampled is found in conventional stores 100% of the time for all the fruits except for orange. The lowest price was found on the Internet 22.8% of the time for orange. We also found that the minimum price charged by conventional stores on average, is $0.26 lower for apple, $0.04 lower for orange, $0.11 lower for banana, $0.40 lower for papaya, $0.08 lower for pineapple and $1.30 lower for watermelon than the minimum price on the Internet.

The hypothesis that prices of fruits are equal or lower on the Internet than in conventional stores is not supported. It seems that it is more expensive to buy fruits through the Internet.

Table 10: Proportion of Times the Minimum Internet Price is less than the Minimum Conventional Price Fruits Min. Internet Price < Min. Min. Internet Price >= Conventional Price Min. Conventional Price Apple 0% 100% Orange 22.8% 77.2% Banana 0% 100% Papaya 0% 100% Pineapple 0% 100% Water Melon 0% 100% Market immaturity is one major reason for the higher price on the Internet. There are currently only three players in the online fruit market and each player seems to be comfortable and content with its own niche. It is also possible that online fruit sales have not yet reached a sufficient high level for the online sellers to be concerned about their competitors. For e xample, both Cold Storage and E-mart wont be too concerned about sales from the Internet channel as sales obtained from the conventional channel is much higher and much more important. For online fruit seller like FreshDirect, it may still be trying to satisfy the needs of its existing customers and do not have the inclination to respond to competitors actions. Online fruit sellers could still be experimenting with their pricing on the Internet and are more concerned about using product quality and service level to attract customers. FreshDirect mentioned that price is not their main marketing tool. Thus price competition is minimal.

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However, in the long run, as the online fruit market matures, more competitors enter the market and consumers become more prices sensitive, lowering prices may be the only sustainable strategy. The online book market also experienced this when Amazon slashed its prices when Barnes and Noble entered the online market. This is consistent with Baileys (1998) argument that the higher prices he observed on the Internet could have been caused by market immaturity.

Figure 9: Mean Price - Stores Comparisons

Mean Fruit Prices $3.60 $3.20 $2.80 $2.40 $2.00 $1.60 $1.20 $0.80 $0.40 $0.00 Apple Orange Banana Papaya Pineapple WaterMelon

Price

Wet Market

FreshDirect

Seller

Another reason could be due to the fact that it is actually expensive to set up shop on the Internet for fruit sellers. Investment in IT is expensive and these Internet sellers need to recoup their cost. So the cost of investment could be reflected in the fruit prices for smaller companies like FreshDirect resulting in higher price on the Internet compared to conventional sellers who need not incur IT investment cost. As Internet sales increase, Internet retailers are able to amortize their fixed costs over a larger volume of sales to achieve economies of scale. The result of economies of scale is a lower average cost for each item sold. The Internet sellers may then pass on these lower costs to consumers in the form of lower prices.

NTUC FairPrice and Cold Storage also have higher bargaining power over their suppliers compared to small wet market stalls. NTUC FairPrice and Cold Storage can purchase in bulk and obtained price discount. In a sense, the pricing on the net could well be influenced by its

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Carrefour

Cold Storage Online

Cold Storage

NTUC FairPrice

Emart

physical counter part, as source of supplies is the same for Cold Storage online and Cold Storage the physical store. NTUC FairPrice also has the obligation to keep price low as it is supposed to cater to the lower income population. Thus small online fruit seller like FreshDirect is at a disadvantage in term of pricing compared to giants like E-mart and Cold Storage ( Figure 9) due to lower sales volume to spread its fixed cost and due to higher cost of supplies.

5.2.2 Price Sensitivity Of the 42 respondents who answered they had bought fruits online before, majority bought apple (66.7%) while orange (16.7%) was the next favorite online fruit. Watermelon was third at 9.5%. When given only the price and nothing else, majority of the respondents (90.5%) chose the seller with the lowest price in the respective fruit category. This is also confirmed as majority of t he respondents stated that if no other information were given, they would use price (presumably the lowest price) to decide whom to buy from (Table 13). This is consistent with what Lynch and Ariely (2000) suggest that consumers will tend to focus on price when there is little other information available to differentiate products. In contrast, 7.1% of the respondents picked the most expensive online seller. This could be due to the fact that they see price as a measure of quality.

When the various online f ruit sellers logo is added on top of price information, the percentage of respondents who still chose the seller with the lowest price fell to 50%. 47.6% of the respondents chose E-mart, 42.9% chose Cold Storage while the remaining (9.5%) chose FreshDirect. However, one thing to note was that Cold Storage was chosen by 11.9% of the respondents despite the fact that Cold Storage was the most expensive seller for that category of fruit. Overall, 16.7% of the respondents chose the most expensive seller when r etailers brand was introduced on top of price information. When we further add pictures of fruits to price information and retailers brand, only 4.8% of the respondents chose the seller with the lowest

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price in the respective fruit category. Again, 85.7% of the respondents chose Cold Storage although it is not the cheapest. We continued to increase the amount of information by adding information like payment method, delivery time and delivery charges. Now, 23.8% of the respondents chose the seller with the lowest price in the respective fruit category. This is still much less than the 90.5% when only price information was provided. About two third (66.7%) of the respondents chose Cold Storage again.

Table 11: Important Factors to Consider when Choosing an Online Fruit Seller Factor Mean Standard Deviation Reputation of the seller 6.50 0.82 Familiarity with the seller 6.25 1.18 Amount of information given 5.94 1.12 Delivery charges 5.25 1.48 Variety of fruits offered 5.06 1.18 Prices of fruits offered 4.94 1.34 Types of services offered by the seller 4.75 1.61 Whether registration is needed 2.63 1.31
Respondents were asked to indicate on a scale of 1 (Not at all Important) to 7 (Very Important) the extent each factor was important in helping them choose an online fruits seller.

Respondents feel that the reputation of the online fruit sellers is most important in choosing an online fruit seller (Table 11). This may be due to the fact that they perceive a seller like Cold Storage with an established brand name and good reputation as one that can be trusted to provide a secured transaction and quality products. This is followed by familiarity with the seller and amount of information given. As mentioned in Section 5.1.3, delivery charge is also an important factor in inducing purchase of fruits online. It appears that respondents are generally not too concerned with the prices of fruits and whether or not registration is needed.

This is thus evidence to suggest that as more information is provided, respondents become less price sensitive. We can also conclude that retailers brand and reputation does somehow play a part in consumers decision-making. A strong brand name is a risk reducer for consumers and it decreases search costs (Keller, 1998). Respondents are also willing to pay more for

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convenience. These are followed by time saving and extra information (Table 12). But they are not too keen on paying more for extra services. Table 12: Convenience, Time Saving, Extra Information and Extra Services Statement Mean Standard Deviation Would not mind paying more for convenience 5.69 1.20 Would not mind paying more for time saving 5.19 1.05 Would not mind paying more for extra information on 4.06 1.53 the fruits I am buying Would not mind paying more for extra services 3.81 1.33
Respondents were asked to indicate on a scale of 1 (Strongly Disagree) to 7 (Strongly Agree) the extent they agree with each statement.

This is consistent with what we reviewed in Chapter Two that brand, awareness, familiarity, trust and convenience are important factors for the price sensitivity of consumers. Lynch and Ariely (2000) mentioned that lowering the cost of search for quality information (instead of price information) reduced price sensitivity. So when more information like delivery time, delivery charges is provided, most respondents no longer choose the seller with the lowest price. On the whole, the hypothesis that price sensitivity is negatively correlated with the amount of information available to differentiate the product is supported. Table 13: Price Factor Statement If no other information is given, would use price to decide whom to buy from Would always buy from the website that offers the lowest price Buying fruits online makes it easier to compare prices Would buy online if it is cheaper than buying from conventional fruit stalls Would always buy from the conventional stall that offers the lowest price

Mean 5.96 5.46 5.46 5.08 3.81

Standard Deviation 1.34 1.88 2.02 2.23 1.83

Respondents were asked to indicate on a scale of 1 (Strongly Disagree) to 7 (Strongly Agree) the extent they agree with each statement.

For the 50% respondents who kept choosing the seller with the lowest price when both price and sellers brand name are given, 61.9% said that they will increase their volume of purchase if price fall by as low as $0.05. Most of the respondents also felt that it is easier to compare fruit prices online. It also seems to make them more price sensitivity as most state that they would always buy from the website that offers the lowest price and would buy online if it is cheaper

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than buying from conventional fruit stalls (Table 13). However they are not so keen in checking out different fruit stalls in order to obtain the lowest price in the physical world. The mean is low (3.81) for the statement Would always buy from the conventional stall that offers the lowest price. This is consistent with what Lynch and Ariely (2000) said that if electronic shopping lowers the cost of acquiring price information, it should increase price sensitivity.

5.2.3 Menu Cost Table 14: Descriptive Data on Price Changes Channel Range Mean Number of Value Price Change c

Fruit

Apple

Internet Conventional Orange Internet Conventional Banana Internet Conventional Papaya Internet Conventional Pineapple Internet Conventional Water Melon Internet Conventional
c

$0.04 - $0.21 $0.05 - $0.20 $0.02 - $0.05 $0.01 - $0.07 0 $0.10 - $0.10
0 $0.20 - $0.20

0 $0.20 - $0.40 $0.40 - $0.40 $0.40 - $0.40

$0.11 $0.15 $0.04 $0.04 0 $0.10 0 $0.20 0 $0.28 $0.40 $0.40

5 13 3 8 0 2 0 5 0 5 1 1

Average No. of Price Change per seller 1.67 3.25 1 2 0 0.5 0 1.25 0 1.25 0.33 0.33

Note: Unequal number of conventional fruit seller (four) and online seller fruit sellers (three) were used in this study.

Results are mixed and inconclusive for this hypothesis. Table 14 shows that there are actually more price changes among conventional fruit stores than among Internet sellers. This again could be due to the immaturity of the online fruit market where online sellers do not respond to competitors pricing actions. The third and fourth columns of Table 14 present the range and mean value of observed price changes. The smallest Internet price change we observed, for apple, is $0.04 compared to $0.05 for conventional prices. But for orange, the smallest price change observed on the Internet is $0.02, compared to $0.01 among conventional retailers. For watermelon, there is no difference in the smallest price change for both channels. Prices for fruits like pineapple, papaya, banana and watermelon do not change much on the Internet.
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Figure 10: Number of Price Change For each Fruit Seller

Number of Price Change (All Fruits)

16 Number of Price change 14 12 10 8 6 4 2 0 Seller 5 4 11

15

Freshdirect Emart 7 Cold Storage online Cold Storage Conventional Wetmarket 1 NTUC Carrefour

From Figure 10, we can see that FreshDirect did not change its price on the Internet at all. For smaller company like FreshDirect who outsourced their web function, the price database may not be that accessible. They have to contact their vendors in order to make changes. For company like Cold Storage and E-mart, they may have their own IT department to take care of price changes on the Internet. Both E-mart and Cold Storage also carry other products besides fruits and therefore will need to make price changes on the Internet more often compared to FreshDirect. On contrast, wet market fruit stalls make the most price change. They incurred no menu costs when changing prices, as word of mouth is free. The low price change for Carrefour could be due to stable supplies or a stable pricing policy.

We note that these data do not really support the hypothesis that menu costs are lower on the Internet than in conventional stores in the sense that Internet sellers are more willing to make smaller price changes than conventional sellers. It seems that fruit sellers whether online or conventional are indifferent to menu costs. One thing to note is that because festive season like Christmas and Chinese New Year occurred during the period of this study, so price changes could be due to sales and discount; and clearing of stocks after these holiday periods.

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5.2.4 Price Dispersion The range of prices across the three Internet sellers (i.e. the largest price minus the smallest price for a particular fruit within a particular time period, which is day in our study) averages $0.43 for apple, $0.12 for orange, $0.27 for banana, $0 for papaya, $0.30 for pineapple and $0.49 for watermelon. On the other hand, the range of prices across the four conventional sellers averages $0.65 for apple, $0.10 for orange, $0.31 for banana, $0.40 for papaya, $0.35 for pineapple and $2.30 for watermelon. Table 15: Proportion of Times Price Dispersion is Lower on the Internet Fruit Percentage Apple 100% Orange 12.5% 100% Banana Papaya 100% Pineapple 26.1% Water Melon 100% Across all time periods, the range of prices on the Internet is lower than the range in conventional stores 100% of the time for apple, banana, papaya and watermelon (Table 15). For orange and pineapple, our data suggest that dispersion on the Internet is larger t han dispersion among conventional prices.

Overall, the hypothesis price dispersions are lower on the Internet than in conventional stores is supported. It seems that the Internet is effective in reducing search cost for fruit buyers. This is consistent with Bakoss (1997) findings that the spread of prices reduces in the presence of lower search costs. This could also be due to the fact that there are only three online fruit sellers available currently. It does not take much time for buyers to compared prices of three sellers on the Internet. Although price dispersion is lower on the Internet, there is still substantial dispersion. Price dispersion could not be due to product heterogeneity as this was removed through the careful selection of our basket of fruits. We could say that we are focusing on almost a physically identical product. So it should be due to retailers heterogeneity.

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Firstly, shopping convenience could explain the price dispersion in the online fruit market. Retailers who make it easier to find and evaluate products may be able to charge a price premium to time sensitive consumers. Some websites offer better search tools, product reviews and health tips. Some online fruit sellers might also provide services that customers feel is valuable and useful. For example FreshDirect has a flexible delivery policy and allow customers to receive delivery at their own convenience. So price dispersion here may actually reflect service premiums (Baylis and Perloff, 2000).

Secondly, price dispersion may also arise when online fruit seller price discriminate based on a consumers willingness to pay. Internet consumers may have a higher reservation price because of their demographics or the convenience of ordering over the Internet; and some online fruit sellers may be responding to this characteristic with higher prices. Online fruit sellers may also be able to charge a price premium by leveraging customers switching costs. Switching between online sellers can be costly as many sites have loyalty programmes. For example, FreshDirect has this DirectDollar programme where for every $40 purchased, customers earn 1 DirectDollar. Customers can use it to deduct from their subsequent purchase. Moreover, once consumers are familiar with a site, they may be reluctant to try another, especially when their usual site is customized to suit them, for instance through "one-click" shopping.

Search and switching costs are clearly important but perhaps the biggest reason for price dispersion is that consumers are willing t o pay a premium to shop at sites that they trust. Thus the differences in prices among Internet retailers can be explained by differences in trust. Some online fruit sellers are trusted more by consumers and can therefore charge higher prices. A trusted brand may also be more important on the Internet than in conventional stores since online consumers cannot be sure whether or when their purchases will be delivered. Consumers may be willing to pay a higher price if they have confidence that their transaction will be

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processed. As mentioned in Chapter Two, having an established or know retailers name like Cold Storage will allow it to charge higher price than competitors because consumers feel that it is more trustworthy and is a guarantee of product quality (Dawar and Parker, 1994). This is also consistent with Kellers (1998) suggestion that a strong brand name is a risk reducer for consumers. For all these reasons, some online sellers are able to charge more than others and thus resulting in price dispersion.

5.3 Supplementary Descriptive Statistics Table 16: Useful Services Service Mean Provide home delivery at customers time of 6.23 choosing Home delivery 5.88 Provide opinion on the quality of fruits for the day 5.58 Provide opinion on the freshness of fruits for the 5.31 day Provide knowledge on fruits 5.31 Help customer source for exotic fruits 4.65 Reserved fruits that are out of stock 4.31

Standard Deviation 1.70 2.03 1.06 1.29 1.19 1.96 1.74

Respondents were asked to indicate on a scale of 1 (Not at all Useful) to 7 (Very Useful) the extent each service is useful to them.

A report by AsiaOne stated that consumers were usually unhappy about the restricted times of delivery. Some feel the time bracket given for expected delivery is too long. It is also clear that those consumers who do want home deliveries want them within a narrow time frame. As Mary Brett Whitfield, Director of PWC E-Retail Intelligence System, stated: "The capability to deliver groceries to consumers' homes within a short time frame will be key to determining which online grocery service providers survive and prosper."

This is consistent with our findings as respondents feel that the ability of online fruit sellers to provide home delivery at their time of choosing is most useful (Table 16). This is followed by home delivery, providing opinion on the quality of fruits, on the freshness of fruits and knowledge on fruits. Services like helping customers source for exotic fruits and reserving fruits are not popular
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with

the

respondents.

CHAPTER 6: DISCUSSION AND CONCLUSION

This chapter concludes this study with a summary of the findings and their research implications in Section 6.1. Limitations as well as suggestions for future studies are also discussed in Section 6.2 and 6.3 respectively. Section 6.4 concludes the Academic Exercise.

6.1 Summary of Findings and Discussions The demographics of this study show that about 65.3% of the respondents are males. This is consistent with previous study (e.g., Teo and Lim 1998) that found a predominance of males among Internet users in Singapore. However, the percentage of males in this study is lower than Teo and Lims study, where males comprised 89% of the respondents. It seems that the percentage of male Internet users tend to decreased over time. This was also indicated in the GVU WWW user surveys 26 . In the second GVU in 1994, 90% of the respondents were males; in the fourth GVU in 1995, it was 70.7% males; the sixth GVU in 1996 was 68.6% males; the eighth GVU in 1997 was 61.5%; and the tenth GVU in 1998 was 66.4%.

The current users of the Internet, as described by Hoffman, Novak and Chatterjee (1996), are mostly educated, higher income users and thus they may be less price sensitive than the consumers in the general population who shop at physical retailers. This is confirmed as 89.2% of the respondents in our study have an education level of A Level and above. 80% of the respondents are also in the age group of 15 to 29 years old. This is consistent with the study by Teo and Lim (1998), which found that most Internet users are youths and young adults. These results are also similar to the findings of earlier studies (Hoffman, Novak and Chatterjee, 1995; The Straits Times, 25 March 1998), which imply that as potentials customers, Internet users are

26

Since its beginning in 1994, the GVU WWW User Survey has accumulated a unique store of historical and upto-date information on the growth and trends in Internet usage. It is valued as an independent, objective view of developing Web demographics, culture, user attitudes, and usage patterns. (www.gvu.gatech.edu/user_surveys)

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well-educated bachelors, high net-worth individuals who are not particular about price as a factor in commercial transactions. Table 17: Summary of Findings for all Hypotheses Description of Hypothesis Conclusion H0 : Prices of fruits are equal or lower on the Internet than in Not Supported conventional stores H0 : Price sensitivity is lower on the Internet than in conventional Not Supported stores H0 : Price sensitivity is negatively correlated with the amount of Supported information available to differentiate the product H0 : Menu costs are lower on the Internet than in conventional stores Not Supported H0 : Price dispersions are lower on the Internet than in conventional Supported stores. The results from the hypotheses testing are summarized in Table 17. Up to now, empirical studies are mixed on the question of efficiency in Internet markets. Our analysis indicates that online fruit sellers charge higher prices than conventional fruit sellers. We also find that menu costs in the local online fruit market are not lower than in the conventional fruit market.

There are many factors to be considered when making pricing decisions and price change. Menu cost is one thing, but sellers marketing strategy and image projection is i mportant. It does not mean that just because the cost to change price is low, sellers should change price at the smallest of ripple. Their aim might be price stability or to project an image of providing high price, high quality product. It is not their strategy to be a low price, low cost seller. Sellers might desire high premium or are constrained by cost. They will also have to consider the reaction of competitors to their pricing actions.

One major difference between the e -grocers in the U.S and in Singapore is that e -grocers in U.S can use advertising revenue to subsidize lower pricing strategy while local e -grocers could not.

76

And considering that there are more clicks in U.S compared to Singapore, it also explains why online fruit prices are higher than prices in conventional stores in Singapore.

We find that price sensitivity is not lower in the online fruit market than in conventional fruit market. Goolsbee (2000) also suggests that consumers are highly sensitive to differences between conventional and Internet prices. In the physical world, consumers are limited in their knowledge of what they want, where to buy, and who to buy from. Since it takes less time to compare prices on the Internet, it is more likely that the average Internet shopper will compare prices at more retailers than the average conventional shopper. Any comparison that took this fact into account would be more likely to find the consumer more focus on price on the Internet. Taking it in the same breath, it is also easier for c onsumer to compare the different brand and services available on the Internet. Thus providing more information can let consumers find the most suitable fruit sellers to service them and not just focus on price alone.

Lastly, we find that price dispersion is lower in the online fruit market compared to the conventional fruit market. However, substantial price dispersion exists among the three online fruit sellers. No one company is the same, in term of image projection, philosophy, strategies or cost structure.

These results do not provide support for the hypothesis that the Internet is a more efficient channel in terms of price levels and menu costs. However, the price dispersion findings say that price dispersion is lower on the Internet and the price sensitivity results suggest that consumers are more price sensitivity online. We conclude that the local online fruit market is not more efficient than the conventional fruit market and that providing information like retailers services information and product characteristics helps to reduce consumers price sensitivity. In

77

addition, retailers heterogeneity like brand and trust are the main source of price dispersion for the online fruit market.

6.2 Limitations of Study This study has several limitations, which also present opportunities for future research. This study has four main limitations. Firstly for online survey, the sampling pool is restricted to people with Internet access. It is difficult, if not impossible, to control who actually responds t o the Internet survey. This may result in an inherent bias as people with certain characteristics or backgrounds may be more likely to respond. Also, we could not generalize the results to nonInternet users.

Secondly, the samples of Internet users for t his study were mostly those who tend to be more knowledgeable about the Internet (most maintain their own Web pages on the Internet) and are thus experienced Internet users. So the sample of respondents may be skewed toward more experienced Internet users.

Thirdly, due to the limitations of space and time, this Academic Exercise has only been able to provide preliminary insights in each of the four dimensions used by Smith, Bailey and Brynjolfsson (1999) to measure the efficiency of an Internet market as compared to a conventional market.

Price data was collected over a period of three months, which is too short for us to see any trend in prices. Insufficient data collected also prevents us from employing more sophisticated statistical tests. Limited number of online fruit sellers was another limitation. For example, to examine the hypothesis on price dispersion, we could not use trimmed range between the Internet and conventional channels to further test for price dispersion, as there were only three online retailers. Trimmed range is the difference between the second largest and second smallest
78

prices charged by the sellers and is used to control for possible outliers in the data. Similarly for the hypothesis on price sensitivity of online consumers, we were unable to accumulate enough respondents who had bought fruits online before to really test their price sensitivity for fruits.

Furthermore, if more online grocery and fruit sellers could be interviewed, more case studies could be undertaken to provi de a larger, more detail overview of the online fruit industry in Singapore.

6.3 Directions for Further Research It is important to confirm the results of our study by measuring the efficiency of other perishables and other product categories. Analyzing e fficiency in other Internet markets will be particularly important for emerging Internet markets for diverse products and services such as financial instruments and drugs.

As mentioned before, time was one major constraint for this Academic Exercise, thus it would be interesting to observe any changes in efficiency in online fruit market over time and observe price changes as the market matures over time. Future studies can test for whether price difference on the Internet increases or decreases over time and converge to one single price. They can also investigate whether prices in the online fruit market decreases over time.

It is also interesting to analyze the behavior of other Internet markets over time as they mature through new entry and customer acceptance. This will be important for both relatively mature Internet markets (e.g., books, CDs, hardware, software, and airline tickets) and emerging markets such as fruits and insurance.

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6.4 Conclusion Our study indicates that the local Internet fruit market is not more efficient than the conventional fruit market. The industry diagnosis also provided us with an insight to its nature and showed us that the online fruit market in Singapore is still in the early stage of development. Given these findings, it is possible for the local online fruit sellers to still charge premiums based on differentiated services and other non-product heterogeneity characteristics. The players can go for a niche as our study showed that there is a segment of price insensitive consumers waiting to be served.

Another major implication of our findings is that pure online fruit sellers could find it hard to compete with sellers who also have physical presence. Both pure online fruit sellers and traditional fruit sellers need to tap the expertise of the other to make online selling work. This way, they can share costs across the two different channels and reinforce their brands at the same time. Consumers should be allowed to reach their favorite retailers anytime, anywhere, in any way they choose. It has been noted that shoppers who shop through multiple channels spend five times more than those who shop through one channel (Berman and Green, 2000). In this new century, it seems that there isnt anyone who is a pure play Internet retailer who will survive without a brick-and-mortar support, and no conventional retailer who will make it without an Internet strategy.

And finally in the future, as more new players enter the local online fruit market, and backed by a changing of consumer mindset towards online fruit purchases, we believe that such increased pervasiveness would lead to a more efficient and established fruit market.

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APPENDIX 1:

THE CURRENT AND POTENTIAL PLAYERS IN THE ONLINE FRUIT MARKET

THE CURRENT PLAYERS IN THE ONLINE FRUIT MARKET COLD STORAGE (http://www.coldstorage.com.sg) Cold Storage has a chain of some 30 supermarkets island wide. Since its online debut in July 1997, Cold Storage has attracted some 12,000 registered members. Though Cold Storages online venture has been growing, it is still relatively small in comparison to the brick and mortar stores under Cold Storage. However, the Internet has overtaken the phone and fax service, growing from an initial 20% to 45% of the total dial and deliver, and Internet sales in two years.

Cold Storages site is pretty easy to navigate with its Search feature and Help Desk function. It is especially handy when customers are looking for a particular product or are confused as to how to buy online. Its online feedback form has helped Cold Storage reach out to customers and make feedback more instantaneous.

Product Offerings Cold Storage offers more than 2000 items for the customers and allows them to order via the Internet, fax, or phone. Cold Storage initially only offered dry goods for its dial and deliver service and Internet business, but due to constant requests from customers, they extended the range to include perishable fresh products like fresh fruits in April 1999. One specialty of Cold Storage online is its Wine Cellar. Besides selling wine online, it also gives weekly

recommendation of wines. There is also a section on the web for office orders, catering mainly to office users. The products listed here are popular grocery categories for offices.

Payment Customers could pay by cash, cheque, Nets or Cash Card (a smart card reader will be needed). Member can also pay by quoting their Cold Storage Cards (an in-house charge card) and their membership number. However, Cold Storage does not allow payment by credit card currently. According to the company, they are considering implementing it for the convenience of the customers.

Delivery The cut-off time for same-day delivery is 1 p.m., if not, the customer will have to wait between 1-2 working days and there is no delivery on Sundays and public holidays. The minimum order is $50 and a compulsory $5 delivery charge will be incurred regardless of the amount ordered. If any customer is not satisfied with the goods delivered to him, he can replace them or get a refund.

E-mart (http://www.e-mart.com.sg) E-mart is set up by the Singapore Food Industries (SFI), a food supplier for the Singapore Army, in January 2000. E-mart has launched a loyalty programme for the customers. For every dollar spend, the customers will earn 1 reward point. The customers can accumulate the points and exchange for rebates.

II

Navigation and shopping on E-Marts website is easy as products are neatly categorised with specific segment of customers in mind. For example, there is pet food for a customers dog, herbs and tonics for his mum, a healthy living corner stocked with organic food for a weightconscious sister, and diapers for his baby son.

Another interesting area is that apart from shopping, customers can also email a chef or dietician for more information, like cooking tips and recipes; read up food news and even receive a weekly email newsletter. Other features include pictures for every food item displayed (crucial if customers need to visualize the food they are getting) and Halal signs for poultry products (for Muslim shoppers).

Product Offerings Currently, the number of food items sold by E-Mart via the net is about 2000, ranging from perishables like fruits, vegetables and meat, to non-perishables like beverage and frozen food. The number will increase to 6000 due to customers high expectation. Given that the company behind e-mart is Singapore Food Industries, supplying such quantities is easy. It has, after all, been in the grocery and food business since 1973, supplying pre-cooked and raw food to the Singapore Armed Forces and to supermarkets and wholesalers. It sold about S$300 million worth of food in 1999 27 .

Delivery E-mart provides daily home delivery between 9 am to 9 pm including weekends and public holidays. Though there is no minimum order required, there is a delivery charge of $10 for orders below $50. If the order is between $50 and $70, the charge is $5. There is no delivery charge for orders that are $70 and above.
27

Chua, Val, Click for food Part 1 and Part 2, Lifestyle@AsiaOne, 25 September 2000. http://food.asia1.com.sg/gdfd/features/feature20000925.html

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POTENTIAL ENTRANTS INTO THE ONLINE FRUIT MARKET Egrocery.com (http://www.egrocery.com.sg) Egrocery.com originates from a 15 years old shop in Veerasamy Road that sells spices, beans and foodstuff for Indians. Egrocery.com was set up in July 2000 and is run by an uncle-nephew team. Nephew Rajendran applies his web and marketing skills to setting up the virtual store and his uncle Rethinam provides the goods and support with his brick-and-mortar store.

Navigating the site is easy enough. Products are categorised into clear sections, such as rice, dairy products and spices, each with pictures provided. Furthermore, there is a Search feature, a How to order? instruction section and a FAQ section. The website also has a eRecipe section where customers can share cooking recipes. Feedback is possible through a Contact Us form and there is also a Notice Board for announcements.

Egrocery.com receives about 25 orders per day. Egrocery.com is concentrating on serving the Indian community first, but will add other communities in the near future. Egrocery.com is also hoping to convince IDA or NSTB of its business plans and get some funding. Whether the venture is paying off remains to be seen, as it is still in its infancy.

Product Offerings Egrocery.com currently offers more than 375 products ranging from beverages, flour, and curry powder to spices and vegetables. It currently does not sell fresh fruits online, but nothing is preventing them from doing so in the future. It also sells audio CDs. It even sells online tickets for Indian musical performance.

IV

Delivery Users make a free, one-time registration before they purchase. It does not provide any online payment mode and only allows the customers to pay upon delivery. There is a $5 delivery charge that is applicable for orders below $50. Orders must come in before 9 am for same day delivery and there are no deliveries on Sundays and public holidays.

Home Club.com (http://www.home-club.com.sg) Homeclub.com was started in April 2000 by wholesale distributor Sin Heng Chan Group. Home Club is the first online grocer to provide the "Locked Bag" service. This means that the deliveryman will place the goods in a bag, and lock it to the customers gate using a combination lock. The combination numbers will be shown on the customers bills, which will be slipped under the customers door. The customers could unlock the bag when they return. After that, customers just need to put the cheque into the bag, and notify the deliveryman to collect the bag on the next day. The locked-bag scheme is free but requires a refundable deposit of $20. It is only for customers living in condominiums, but it may be extended to some Housing Board estates later. Home Club also has a 7 -day, no questions asked, return policy. But to date, there are very few items returned.

Products are categorised in a Product Mall with pictures of items displayed. There is a Help function which provide all information about shopping at Home Club.com. One specialty is that customers can have their purchases packed into a customized hamper or just order pre-packed hampers.

Product Offerings HomeClub.com doesn't s ell perishables like fruits, but sells essentials like beverages and food, and other luxuries such as cordyceps essence and bottled bird's nest. There are also CDs in both English and Mandarin on sale. Home Club focus is mainly on the heavy and bulky dry goods like canned food. According to Home Club, fresh foods are not popular. However, if there is demand for this category, they will expand accordingly to the needs of the customers. It would seem that Home Club threat to the online fruit market is minimum at the moment.

Payment Homeclub.com provides delivery at a low charge of only $3.50 per trip if the order is below $30. Delivery is free if the order is $30 and above. Furthermore, there is no minimum order required. However, if the customer wants the goods to be sent to his office within the CBD, an additional surcharge of $2.50 will be charged. Customers can only made their payments by cash, credit card or cheque upon receiving the goods and could not make payments online.

Delivery Homeclub.com only delivers on weekdays and Saturdays. For same day delivery and for customers staying in the West (where the office of homeclub.com is located), there is no cut-off time, but for other areas, the orders must come in before 2 pm.

SERANGOONROAD.COM (http://www.serangoonroad.com) Serangoonroad.com opened shop in November 1999 and is now seeing returns to the tune of $10,000 worth of sales each month. Apart from being an egrocery company, it also provides Internet solutions for other companies. The company also sees

VI

Serangoonroad.com as the perfect way to link up the Indian community in Singapore. The company also plans to reach out to the international market with watches, flowers, gift certificates and Indian saris.

Buying at Serangroad.com is easy as there are step-by-step instructions to guide customers. One disadvantage of the website is that there is no pictures of the products on display as compared to other websites. This implies that customers will have no visual aid when shopping at Serangoonroad.com. However, one unique feature of Serangoonroad.com is that it provides a listing of other online services for the Indian community, with links to an online Tamil magazine, and a directory listing the services of Indian restaurants, a beauty saloon, and moneychangers. There is even a Garage Sale section where sellers link up with buyers via classified ads.

Product Offerings Currently, the cyber store sells mostly dried or canned food such as drinks, dairy products, flour, and sugar. Although the store used to sell perishables, it proved to be problematic and thus the number of perishable goods sold via the Internet was reduced. Customers had complained that apples sold by Serangoonroad.com don't look as red as on the computer screen. Whether Serangoonroad.com will re-enter the online fruits market remains to be seen.

Payment The customer can opt to make payment via cash, cheque or credit card upon delivery. The customer will need to meet a minimum order of $20. A $5 delivery charge is applicable for orders below $50, and for those orders with $50 and above, the delivery charges will be waived.

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Delivery Customers living in the North will only receive their goods on Thursdays while customers living in other parts of Singapore will be able to receive their goods on any weekdays. There is no delivery on Sundays and public holidays.

ECON MINIMART (http://www.econ-minimart.com.sg) Launched in 1982, the Econ Minimart franchise (operating under Econ Minimart Services Pte Ltd.) gives the independent retailers the benefit of economies of scale. At present, it has 200 outlets participating in this concept. The Econ Minimart franchise is own by Provisions Suppliers Corporation Limited (PSC). In terms of business expertise, PSC continues to provide training, technical and advertising support for its present neighbourhood Econ Minimart franchisees. It is being renowned as having the expertise to transform sunset businesses into ones that are able to meet the challenges in modern retailing.

Buying from Econ Minimart online is fairly comfortable as the web layout is simple and nonflashy. Products are neatly categorized with pictures of product items provided.

Product Offerings Besides selling the usual range of groceries and household items, Econ Minimart also sell phone cards online. Products range includes foodstuffs and beverages, health and medical products, paper products, tapes, batteries and pet foods. Currently, Econ Minimart does not sell fruits online. However, it might do so in the future.

VIII

Delivery Customers can have their orders delivered to their home or they can pick up their orders at nearby Econ minimart stores.

IX

Appendix 2: Sample Online Questionnaire

WELCOME TO NUS ONLINE FRUITS SURVEY

(For Singapore Internet Users Only)

Dear Respondent,
Thank you very much for your participation in this survey. I am conducting a research study as a partial fulfillment of my Honours degree in the Faculty of Business Administration. The objective of this study is to get a persons opinions on buying fruits online and to test the price sensitivity of online consumers. To take this measure, please read the instructions given at the beginning of every section carefully before answering the questions. All you need to do is to give your frank and candid answers on the questions. Please be assured that your responses will be kept strictly confidential. Individual participants will not be identified in the analysis as only aggregated results will be analyzed and presented. Prices used in this survey are actual real time data updated using Network Query Language (NQL). So participants taking part in the survey can also gain knowledge of actual fruit prices from various online retailers.

Participants will also have chances to win great prizes. Gift baskets worth $100 each will be given to 2 lucky winners !!
Finally, for your information, this survey will be conducted for two months starting on 1st December and ending on 31st January and consists of 7 Questions . If you have any queries, please do not hesitate to contact me by email at fba70033@nus.edu.sg. We thank you very much once again for completing this questionnaire and helping to make this study possible. We are grateful for your assistance. Yours sincerely, Tan Kok Leng BBA (Hons) Student Faculty of Business Administration

Have you ever bought fruits online? Yes No

Question 1 :
This section inquires about your opinions regarding what is preventing you from buying fruits on the Internet. Using the scale below, please indicate the extent with which you agree or disagree with the following statements by selecting the appropriate number. I will not buy fruits online because:
Strongly Disagree 1 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n Strongly Agree 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n

Online financial transaction is unsecured

j k l m n 1

I can't touch or feel the fruits

j k l m n 1

Sellers may not be legitimate

j k l m n 1

Personal information may be compromised by sellers for commercial gains

j k l m n

2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n

3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n

4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n

5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n

6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n

7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n

Product information is either lacking or misleading

j k l m n 1

I have problem returning the fruits if I don't like the fruits I bought

j k l m n 1

What I see on Internet may not be what I actually get

j k l m n 1

Not aware that I can buy fruits on-line

j k l m n 1

Prices not attractive enough

j k l m n 1

Don't know how to buy on-line

j k l m n 1

Not happy with delivery charge

j k l m n

XI

2 j k l m n 2 j k l m n

3 j k l m n 3 j k l m n

4 j k l m n 4 j k l m n

5 j k l m n 5 j k l m n

6 j k l m n 6 j k l m n

7 j k l m n 7 j k l m n

Can't get the fruits that I want (lack of variety)

j k l m n 1

Prefer going to actual shops

j k l m n

Question 2
Where do you (or your family) usually buy your fruits?
c d e f g c d e f g

Provision Shop Cold Storage

c d e f g c d e f g

Wet market Pasir Panjang Wholesale Centre

N/A

c d e f g c d e f g

Econ Mini Mart g c d e f 7-Eleven

NTUC Supermarket

Others (Please specify):

Question 3
a) On average, how frequent do you consume fruits?
Daily

b) On average, how often do you buy fruits?

Weekly

c) On average, how much you spend on each purchase?

$10 and below

XII

Question 4
How likely would you buy fruits online in Very the: Unlikely
1 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n Very Likely 7 j k l m n 7 j k l m n 7 j k l m n

Next 3 Months

j k l m n 1

Next 6 Months

j k l m n 1

Next 12 Months

j k l m n

Question 5
How likely would you buy fruits online if delivery charges are:
Very Unlikely 1 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n Very Likely 7 j k l m n 7 j k l m n 7 j k l m n

A flat fee

j k l m n 1

Based on the amount of fruits ordered

j k l m n 1

No charges

j k l m n

Question 6
How likely would you buy fruits online if: Unlikely
1 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n Very Very Likely 7 j k l m n 7 j k l m n

There is a "no questions asked" return policy in place

j k l m n 1

You can use WAP-enabled (Wireless Application Protocol) mobile devices to order fruits Payment is only upon delivery

j k l m n

1 j k l m n

2 j k l m n

3 j k l m n

4 j k l m n

5 j k l m n

6 j k l m n

7 j k l m n

Submit

XIII

Question 1
Which fruit did you buy?

Submit

Question 2
Which online seller would you buy from given the following information?
j k l m n j k l m n j k l m n

Seller A Seller B Seller C

$0.50 per piece of Apple $0.75 per piece of Apple $1.00 per piece of Apple

Question 3
Which online seller would you buy from given the following information?

j k l m n

$0.50 per piece of Apple

j k l m n

$0.75 per piece of Apple

j k l m n

$1.00 per piece of Apple

Submit

XIV

Question 4a
Which online seller would you buy from given the following information? (Please ignore the prices in the previous questions)

$0.50 per piece of Apple

j k l m n

$0.75 per piece of Apple

j k l m n

$1.00 per piece of Apple

i j k l m n

Question 4b
Which online seller would you buy from if the following information was given for each seller?

(Please ignore the prices in the previous questions)

j k l m n

$ 0.50 per piece of Apple Payment method: Pay only upon delivery of goods.

XV

j k l m n

$0.75 per piece of Apple Payment method: Cold Storage Card, Cash, Cheque, NETS and CashCard Delivery time: Order Before 1pm - Next workday (9.30am) Order Before 5pm - Next workday (2pm) Order After 5pm - 2nd working day (9.30am) There is no delivery on Sundays and Public Holiday Delivery charges: No extra charge for deliveries over S$30.00!

j k l m n

$0.85 per piece Payment method: Accept Cash, Cheque and VISA/Master Credit Card payment upon delivery. Delivery time: Order Before 1pm - Next workday (9.30am) Order Before 5pm - Next workday (2pm) Order After 5pm - 2nd working day (9.30am) There is no delivery on Sundays and Public Holidays Delivery Charges No Minimum Purchase! Order Value Delivery Charges Above S$50 Free S$30 to S$50 S$5 Below S$30 S$10 Confirmation email and call before delivery Plastics Bags is available at no charge.

Submit

XVI

Question 5
Please indicate the degree in which the following factors are important to you in choosing an online fruit seller.
Not at all Important 1 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n Very Important 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n

Reputation of the seller

j k l m n 1

Amount of information given

j k l m n 1

Familiarity with the seller

j k l m n 1

Variety of fruits offered

j k l m n 1

Prices of fruits offered

j k l m n 1

Types of services offered by the seller

j k l m n 1

Delivery charges

j k l m n 1

Whether registration is needed

j k l m n

Submit

XVII

Question 6
Strongly Disagree 1 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n Strongly Agree 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n

I would not mind paying more for convenience

j k l m n 1

I would not mind paying more for time saving

j k l m n 1

I would not mind paying more for extra services.

j k l m n 1

I would not mind paying more for extra information on the fruits I am buying.
Submit

j k l m n

XVIII

Question 4
Would you buy more if the price of fruits falls by $0.05?
j k l m n j k l m n

Yes No

Submit

Question 5a
Please indicate what is your likely decision Unlikely
1 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n Very Very Likely 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n

I would buy online if it is cheaper than buying from conventional fruit stalls.

j k l m n 1

I would always buy from the conventional stall that offers the lowest price.

j k l m n 1

I would always buy from the website that offers the lowest price.

j k l m n 1

Buying fruits online makes it easier to compare prices.

j k l m n 1

If no other information is given, I would use price to decide whom to buy from.

j k l m n

Submit

XIX

Question 6a
For the following services provided by online fruit sellers, please indicate your views on their usefulness to you

Not useful
1 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 2 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 3 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 4 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 5 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n 6 j k l m n

Very useful
7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n 7 j k l m n

Home delivery

j k l m n 1

Provide home delivery at your time of choosing

j k l m n 1

Reserved fruits that are out of stock

j k l m n 1

Provide opinion on the freshness of fruits for the day Provide opinion on the quality of fruits for the day Provide knowledge on fruits

j k l m n 1 j k l m n 1 j k l m n 1

Help you source for exotic fruits

j k l m n

Submit

XX

Question 7
Finally, please tell us about yourself.
Are you.. Are you..
Male

Single

About what is your age, please? What is your highest level of education? Your current profession is

25 - 29

Diploma

Computer related

And Your E-Mail Address please (for the lucky draw)..........

End of questionnaire. Once again, Thank you very much for participating.
Submit

XXI

Appendix 3

APPENDIX 3: QUESTIONNAIRE - FLOW CHART

Question 0 If answer to Question 0 is Yes go to SET B Question 1 SET A Question 1 If answer to Question 0 is No go to SET A Question 1

Question 2

SET B Question 1

Question 3 Question 2 Question 4 Question 3 If the lowest price is picked for both Questions 2 and 3, go Question 4, Otherwise continue.

Question 5 Question 4 Question 6 Question 5a

Question 4a

Question 6a Question 4b If the lowest price is picked for Question 4b, go to Question 5a Otherwise, go to Question 5. Question 7 Question 5

Question 6

XXII

Appendix 4: Sample - Forum Posting

Hardwarezone.com Forum

XXIII

Appendix 5: Sample - Personalized Email

XXIV

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4

Internet

Society

(ISOC).