Ushering Buyers into Electronic Channels: An Empirical Analysis

40 Pages Posted: 24 Dec 2011

See all articles by Nishtha Langer

Nishtha Langer

Rensselaer Polytechnic Institute

Chris Forman

Cornell University - Dyson School of Applied Economics and Management; Georgia Institute of Technology - Scheller College of Business

Sunder Kekre

Carnegie Mellon University

Baohong Sun

Carnegie Mellon University - David A. Tepper School of Business

Date Written: November 22, 2011

Abstract

Despite many success stories, B2B e-commerce penetration remains low. Many firms introduce electronic channels in addition to their traditional sales channels, but find that buyer usage of the e-channel over time does not keep up with initial expectations. Firms must understand the underlying factors that drive channel usage and how these factors change over time and across buyers. Using panel data pertaining to the purchase histories of 683 buyers over a 43-month period, we estimate a dynamic discrete choice model in a B2B setting that (i) recognizes how price, channel inertia, and inventory change over time, (ii) allows buyers to dynamically trade off these factors when making e-channel adoption decisions, and (iii) takes into account buyer heterogeneity. We find that channel usage is both heterogeneous and dynamic across buyers. Our findings reveal the dynamic tradeoff between channel inertia and the adverse price effect, which interact in opposing directions as the e-channel grows more popular over time: price increases resulting from more bids deter buyers, whereas channel inertia built from sampling experience helps retain repeat buyers for the new channel. Second, we find that the buyers’ size and diversity influence purchase decisions, and the e-channel appears more attractive to small and/or diversified buyers. Based on our analysis, we postulate that the seller’s allocation decisions of products across channels, if not aligned with buyer behavior, can alienate some buyers. Based on the parameter estimates from the buyer response model, we propose an improved channel allocation that enables firms to selectively attract more buyers to the e-channel and improve revenues. Channel acceptance increases as a result of smart allocation when firms understand and account for individual buyers’ channel usage behavior.

Suggested Citation

Langer, Nishtha and Forman, Chris and Kekre, Sunder and Sun, Baohong, Ushering Buyers into Electronic Channels: An Empirical Analysis (November 22, 2011). Available at SSRN: https://ssrn.com/abstract=1976098 or http://dx.doi.org/10.2139/ssrn.1976098

Nishtha Langer (Contact Author)

Rensselaer Polytechnic Institute ( email )

110 8th St
Lally School of Management
Troy, NY 12180
United States
+15182764414 (Phone)

Chris Forman

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Sunder Kekre

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Baohong Sun

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-6903 (Phone)
412-268-7357 (Fax)

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