UNIT 2

Consumer Behavior Models

Understanding buyer behaviors plays an important part in marketing. Considerable
research on buyer behavior both at conceptual level and empirical level has been
accumulated. There are two types of buyers
Industrial (organizational) buyer
Individual consumer
Organizational buying behavior has many distinctive features
First, it occurs in a formal organization which is caused by budget and cost.
Second, in some conditions, joint decision-making process may occur, and this is
not possible in individual buying behavior.
Finally, conflict occurs and they are hard to avoid in the joint decision making
process.

Factors Influencing Consumer Behavior:

Consumer Decision Making Process: a detailed analysis

The consumer decision making is a complex process with involves all the stages from
problem recognition to post purchase activities. All the consumers have their own
needs in their daily lives and these needs make them make different decisions. These
decisions can be complex depending on the consumers opinion about a particular
product, evaluating and comparing, selecting and purchasing among the different
types of product. Therefore, understanding and realizing the core issue of the process
of consumer decision making and utilize the theories in practice is becoming a
common view point by many companies and people.

There is a common consensus among many researchers and academics that

consumer purchasing theory involves a number of different stages. Depending on
the different factors and findings, numerous researchers and academics developed
their own theories and models over the past years. However, according to Tyagi
and Kumar (2004), although these theories vary slightly from each other, they all
lead to almost the same theory about the consumer purchasing theory which states
that it involves the stages of search and purchase of product or service and the
process of evaluation the product or service in the post-purchase product.
Five Stage Model initially proposed by Cox et al. (1983) is considered to be one
of the most common models of consumer decision making process and it involves
five various stages. These stages are: recognition of need or problem, information
search, comparing the alternatives, purchase and post-purchase evaluation. This
simple model clearly illustrates and explains how the consumers make a
purchasing decision.
Furthermore, Blackwell et al (2006) highlights the argument why this model is
more precise and clear compared to the other similar models is that because this
models core focus is on motivational factors which helps the user to understand
the reasons behind the purchasing decision easier.
1. Problem/Need Recognition

Recognition of need or a problem is the first stage of the model. According to

Bruner (1993) recognition of a problem arises in the situation where an individual
realizes the difference between the actual state of affairs and desired state of
affairs. Neal and Quester (2006) further state that the recognition of a problem or
need depend on different situations and circumstances such as personal or
professional and this recognition results in creation of a purchasing idea. For
instance, consumer may recognize the need to buy a laptop when there is need to
carry it use it in different places which is convenient compared to a desktop
computer.
Solomon et al (2006) classifies the human needs into two different categories
depending on their nature. The following categories are mentioned: psychological
and functional or physical needs. The authors state that the psychological needs
are the outcome of emotional feeling of consumers whereas functional or physical
needs are usually the results of necessity.
According to Tyagi (2004) need recognition at various levels often occurs during
the process of encountering with the product at various circumstances. In other
words, Tyagi (2004) convincingly argues that an individual might not be aware of
the need for a specific product until he or she encounters with the product as a
result of engaging in window-shopping, media advertisements, or in a range of
other circumstances.
The human need has no limit therefore; the problem recognition is a repetitive in
nature. According to Maslow theory, human being is always dissatisfied, when an
 individuals one need is satisfied another one will come out and this trend
continues repetitively.

2. Information Search

The next stage of the model is information search. Once the need is recognized,
the consumer is likely to search more product-related information before directly
making a purchase decision. However, different individuals are involved in search
process differently depending on their knowledge about the product, their
previous experience or purchases or on some external information such as
feedback from others.
Search of information process itself can be divided into two parts as stated by
Oliver (2011): the internal search and external search. In internal search, the
consumers compare the alternatives from their own experiences and memories
depending on their own past experiences and knowledge. For example, searching
for fast food can be an example for internal search because customers often use
their knowledge and tastes to choose the right product they need rather than
asking someone for an advice. On the other hand, external search ends to be for
bigger purchases such as home appliances or gadgets. For instance, consumers
who wish to buy new furniture or a mobile phone tend to ask friends opinion and
advices or search in the magazines and media before making a purchasing
decision.

3. Evaluation of Alternatives

After gathering enough information at the first stage the consumer gets into
comparing and evaluating that information in order to make the right choice. In
this stage the consumer analyzes all the information obtained through the search
and considers various alternative products and services compares them according
to the needs and wants. Moreover, another various aspects of the product such as
size, quality, brand and price are considered at this stage. Therefore, this stage is
considered to be the most important stage during the whole consumer decision
making process.
 Furthermore, according to Ha et al (2010), the process of evaluation of
alternatives can sometimes be difficult, time consuming and full of pressure for a
consumer. This is because it is quite hard to find an ideal product or service that
satisfies the needs of the customer as there are numerous factors that hinder the
consumer purchasing decision making process. For instance, when it comes to
online hotel reservation or furniture purchasing evaluation process, it can be quite
complex. Several factors and aspects need to be considered before making a
purchasing decision. Factors such as age, culture, taste and budget have all impact
on the evaluation process by the consumer. For example, when purchasing a
furniture, the young people consider the factors such as convenience and price
where as the old people are likely to consider the quality and design.
Moreover, celebrity endorsement is seen as another factor with great potential
impact on evaluation of alternatives stages of consumer decision making process.
Cant et al. (2010) explain the effectiveness of celebrity endorsements with
perceived greatness people associate with their idols and the willingness and
desire to become like their idols.

4. Purchase Decision

Once the information search and evaluation process is over, the consumer makes
the purchasing decision and this stage is considered to be the most important stage
throughout the whole process. In this stage, the consumer makes decision to make
a final purchase as he or she has already reviewed all the alternatives and came to
a final decision point. Purchased further can be classified into three different
types: planned purchase, partially purchase and impulse purchase (Kacen, 2002).
Kacens view is further supported by Hoyer and Macinnis (2008) stating that there
are a number of factors that can affect the purchasing process. For example, the
desired product may not be available at the stock. In this case the purchase
process is delayed and consumer may consider buying the product through online
stores rather than visiting traditional physical stores.
According to Wiedmann et al. (2007) department store sales assistants play in
integral role in terms of impacting consumer purchase decision in a positive way
 from a business point of view. At the same time Wiedmann et al. (2007) warn that
this impact must not be done in a pushy manner, in which case it can prove to be
counter-productive.

5. Post-Purchase Evaluation

The final stage in the consumer decision making process is post-purchase

evaluation stage. Many companies tend to ignore this stage as this takes place
after the transaction has been done. However, this stage can be the most important
one as it directly affects the future decision making processes by the consumer for
the same product. Therefore this stage reflects the consumers experience of
purchasing a product or service. This view is further supported by Ofir (2005)
mentioning that the consumer decision making process is a repetitive action and a
good experience is vital in reducing the uncertainty when the decision to purchase
the same product or service is considered the ext time.
The opinions of peers, friends and family regarding the purchases made is
specified as one of the most important factors affecting the outcome of post-
purchase evaluation by Perrey and Spillecke (2011). This point is further
expanded by Trehan and Trehan (2011), according to whom peer opinions
regarding product evaluations tend to impact customer level of satisfaction
regardless of their level of objectivity.
Brink and Berndt (2009) also highlights the importance of the post-purchase
evaluation stage. According to the authors, the consumer may either get
satisfaction or dissatisfaction depending on the evaluation of the purchase and
comparison of their own expectations. The outcome forms the experience of the
customer and it this experience is believed to have a direct impact on the next
decision of the consumer to purchase the same product from the same seller.
Simply, if the consumer is satisfies with the purchase it is likely that the purchase
may be repeated while if they have a negative experience from the purchase it is
unlikely that the consumer may make the decision to buy the same product from
the same seller or even may not buy the product at all
one-to-one-marketing (1:1 marketing)
One-to-one marketing (sometimes expressed as 1:1 marketing) is a customer relationship
management (CRM) strategy emphasizing personalized interactions with customers. The
personalization of interactions is thought to foster greater customer loyalty and better return on
marketing investment. The concept of one-to-one marketing as a CRM approach was advanced by
Don Peppers and Martha Rogers in their 1994 book,

E-mail Advantage
E-mail is another example of personalized marketing. As an affordable promotional tool for small
businesses, customize a group of emails by pulling information from a database containing specific
information about each recipient. For example, immediately upon opening the email the shopper is
greeted by name. The rest of the email provides information related to specific interests or recent
purchases.

Customizing Promotions
Keep track of your customers purchases by using a database to help create individualized offers.
Even small grocery stores can offer reward cards that are then used to track each product the
customer buys. Coupons that match the customers purchases are then mailed to each shopper,
giving shoppers discounts on the products they like and providing an incentive to return.

One-to-One Relationship marketing: The new marketing with meaning

RELATIONSHIP MARKETING
A policy and a set of tools for establishing individualized, interactive and profitable
relationships with customers. To create and maintain positive attitudes in them towards business or
brand sustainability.
Forms of direct marketing by purpose: The aim is to provoke an immediate purchase (customer or
a few sectors, ...)
Direct qualification marketing: The objective is to identify qualified prospects who will then be
processed by other commercial means (expensive products such as automobiles, real estate etc.)
Direct Loyalty Marketing: The goal is to create and maintain relationships with customers and
prospects during their life cycle

Effective customer relationships management is based on:

1- Information harvesting on each client from multiple sources;

-Existing data;
- Data collected from multiple sources (surveys, web, service, ...).
2- Sorting and classification of centralized information;

-Client value;
- Rule of RFA (Recency, Frequency, Amount);
- Needs (focal point);
- Segmentation (Generations / ethnicity)
3- Intervention strategy

-Behavior analysis;
- Satisfaction survey: measuring of results;
- Targeted campaigns based on results
4- Information provision (client data base)
5- customer learning/identifying cycle:
Identification and classification of available data (comprehensive)

5 Strategies for Using Market Research to Improve E-commerce Sales

The rate of innovation, transactions, and evolution in e-commerce is largely unrivaled. Digital
commerce moves at a speed unknown in many other retail formats. The customer experience is a
central part of a successful e-commerce operation. If a single detail is off, a customer can simply
open another browser window and make their purchase with a competitor. Market research helps
merchants understand customer expectations and break down a customers experience to stay
ahead of trends, build loyalty, and convert buyers time and time again. Here are 5 areas to help you
get started with using market research to improve your conversions and your profits.
Strengthen your differentiation: Health businesses are a great example of why differentiation is key
in e-commerce. The market is saturated with major players in distinct segments ranging from
fitness to nutrition to supplements. Tens of thousands of players battle for customer attention.
Building a brand and customer experience that immediately conveys to a visitor how you are
different and better than the competition is critical. Test elements of your brand with potential
customers. When they land on your page, do they immediately understand the products or services
youre selling? Can they articulate what makes your products or services different from the
competition? (Hint: You should be articulating that for them, and making it easy for them to find).
Upgrade your marketing: A/B testing can help you continuously refine your marketing and
messaging to increase conversions. Different headlines, layouts, color schemes, pricing models,
offers, and copy can have a dramatic impact on how customers perceive and purchase your
products. Developing an ongoing, site-wide A/B testing program is an important cornerstone of an
e-commerce marketing plan.
Simplify your check-out process: When a potential customer lands on your site, is it immediately
obvious to them how to take the next step and buy? One of the biggest complaints in e-commerce
transactions is a complex check-out process. Live testing of your process with shoppers can
quickly surface areas for improvements, and regular customer service satisfaction surveys will
keep your performance metrics fresh.
Check-in on your selection: It can be easy to assume that you are offering a full product selection.
But do you know what variations your customers are looking for? Would expanding the size,
model, or color selection you offer convert to more sales? If you specialize in a specific niche,
would expanding the brands you carry attract more customers? Use market research to more
thoroughly understand the marketplace and maximize your sales through carefully selected product
offerings.
Develop deeper customer archetypes: One of the advantages of a brick and mortar operation is that
you can see your customer; you can interpret subtle clues as a result of face to face interactions.
You learn a lot through idle chitchat, can silently observe shopping behaviors, and ask critical
follow up questions at any time. E-commerce is a far more impersonal experience. Market research
can help put you in touch with the concerns, demographics, and important trends of the audiences
youre trying to reach. For example, if you serve working moms, its easy to assume that they are
focused on how difficult it is to achieve balance. But more in-depth research may reveal
unexpected benefits for that segment that can be incorporated into your marketing efforts. Take the
time to touch base with your customers (or potential customers) and learn more about them, how
they use your product, and perceptions that influence buying behavior.

Introduction to Organizational Buying Behaviour

Organization buying is the decision-making process by which formal organizations establish the
need for purchased products and services and identify, evaluate, and choose among alternative
brands and suppliers.
 8. Performance
Review

Organisational buying is very similar to individual buyer behaviour with some contextual
differences. Organisations buy in furtherance of organisational objectives, such as to manufacture
and deliver goods and services to members, customers or the community.
Organisational buying is heavily influenced by derived demand, that is, demand for an end product
or for a product or service sold by the buyers customers. The demand for components by a
manufacturer will be dependent on demand coming from their customers, the retailers and
wholesalers, who in turn are reacting to demand from their customers, the consumers. Overall
consumer demand may in turn be impacted by economic, social, political and technological factors
in the environment.
Different groups or individuals may play one or more of the following roles:
Users: these are the people who will directly use or consume or require the product
or service in order to undertake their operational duties.
Influencers: these are individuals or groups who help specify the requirements or
provide information to help evaluate the alternatives. People who provide technical
input are usually in this group.
Buyers: these individuals and groups have the formal authority to select vendors and
undertake the actual purchase transaction. They may take a major role in the
negotiations on price and conditions of supply.
Deciders: These individuals have formal or informal authority to select the final
supplier. May be the same as Buyers in routine purchases.
Gatekeepers: These individuals informally or formally control the flow of
information or access to other groups involved in the buying process.
The differences between organizational and individual buying processes are shown in the
following table:

Buying Step Business to Business Consumer

Problem Anticipates and plans for purchase on

Reacts to needs when they arise
recognition a routine basis

General need Extensive, objective cost-benefit Limited analysis of benefits; concern

description analysis with total cost

Product Precise technical description using

Description more in terms of benefits
specification techniques such as value analysis

Information/ Extensive search that extends to the Limited search geographically and in
Supplier search search for supplier terms of sources

Proposal Formal, such as in a tender process if

May be verbal
solicitation large volumes or values involved

Buying Step Business to Business Consumer

Limited analysis with subjective and

Supplier Made after extensive evaluation of
anecdotal information influencing the
selection objective information
decision

Order-routine Routine calculation of re-order points

Not routine
specification as well as time and place of delivery

Post-purchase Extensive comparison made and

performance feedback given, concern with quality Little basis for compari
review management at source

Three Buying Situations:

1. New task
2. Modified rebuy
3. Straight rebuy
New task
In this situation, the buyer is buying the product for the first time. As the cost of the product or
consumption value becomes higher, more number of executives are involved in the process. The
stages of awareness, interest, evaluation, trial, and adoption will be there for the products of each
potential supplier. Only the products which pass all the stages will be on the approved list and price
competition will follow subsequently.
When the problem or need is totally different from previous experiences.
Significant amount of information is required.
Buyers operate in the extensive problem solving stage.
Buyers lack well defined criteria.
Lack strong predispositions toward a solution.

Modified rebuy
In this buying situation, there is a modification to the specifications of the product or specifications
related to delivery. Executives apart from the purchasing department are involved in the buying
decisions. The company is looking for additional suppliers or is ready to modify the approved
vendors list based on the technical capabilities and delivery capabilities.
Decision makers feel there are benefits to be derived by reevaluating alternatives.
Most likely to occur when displeased with the performance of current supplier.
Buyers operate in the limited problem solving stage.
Buyers have well defined criteria.
Straight rebuy
In this buying situation, only purchasing department is involved. Thet get an information from
inventory control department or section to reorder the material or item and they seek quotations
from vendors in an approved list. The "in-suppliers" make efforts to maintain product and service
quality. The "out-suppliers" have to make efforts to get their name list in the approved vendors' list
and for this purpose they have to offer something new or find out any issues of dissatisfaction with
current suppliers and promise to provide better service.

The problem or need is a recurring or continuing situation.

Buyers have experience in the area in question.
Require little or no new information.
Buyers operate in the routine problem solving stage.

The Buygrid Framework for Organizational Buying Situations

Major Influences on Business Buyers
Environmental factors
Expected demand for the product that the buying organization is selling, expected shortages
for the item, expected changes in technology related to the item etc. are the environmental
factors that will have an effect.

Organizational factors
Changes in purchasing department organization like centralized purchasing, decentralized
purchasing and changes in purchasing practices like long-term contracts, relationship
purchasing, zero-based pricing, vendor-performance evaluation are the organization factors of
importance to marketers.

Interpersonal factors
These factors are the relationship between buyers and sales representatives of various
competitor companies.

Individual factors
 These factors related to the buyer. What sort of ways of interacting and service are appreciated
by the buyers and what ways are considered as irritants? Marketers have to understand the
reactions of buyers.

Explain organizational decision making processes

Most of the information an industrial buyer receives is delivered through direct contacts
such as sales representatives or information packets. It is unlikely that an industrial
buyer would use information provided through a trade ad as the sole basis for making a
decision.
1. Problem recognition. The process begins when someone in the organization recognizes
a problem or need that can be met by acquiring a good or service. Problem
recognition can occur as a result of internal or external stimuli. External stimuli
can be a presentation by a salesperson, an ad, or information picked up at a trade
show.
2. General need description. Having recognized that a need exists, the buyers must
add further refinement to its description . Working with engineers, users, purchasing agents, and
others, the buyer identifies and prioritizes important product characteristics. Armed with exten~ive
product knowledge, this individual is capable of
addressing virtually all the product-relatGd concerns of a typical customer. To a
lesser extent, trade advertising provides valuable iaformation to smaller or isolated
customers. Noteworthy is the extensive use of direct marketing techniques
(for example, toll-free numbers and information cards) in cor.junction with many
trade ads. Finally, public relations plays a significant role through lle placement
of stories in various trade journals.
3. Product specification. Technical specifications come next. '!'his is usually the
responsibility of the engineering department. Engineers design several alternatives,
depending on the priority list established earher.
4. Supplier search. The buyer now tries [0 identify the most appropriate vendor. The
buyer can examine trade directories, perfonn a computer search, or phone other
companies for recommendations. Marketers can par:.icipate in this stage by contacting
possible opinion leaders and soliciting support or by contacting the buyer
directly. Personal selling plays a major role at this s~age .
5. Proposal solicitation. Qualified suppliers are next invited to submit proposals.
Some suppliers send only a catalog or a sales representative. Proposal developmen~
is a complex task that requires extensive research and skilled wtiting and
presentation. In extreme cases, such proposals are comparable to complete marketing
strategies found in the consumer sector.

6. Supplier selection. At this stage, the various proposals are screened and a choice
is made. A significant part of this selection is evaluating the vendor. One study
indicated that purchasing managers felt that the vendor was often more important
than the proposal. Purchasing managers listed the three most important characteristics
of the vendor as delivery capability, consistent quality, and fair price.
Another study found that the relative importance of different attributes varies with
the type of buying situations.
For example, for routine-order products, delivery, reliability, price, and supplier
reputation are highly importan~. These factors can serve as appeals in sales
presentations and in trade ads.
7. Order-routine specification. The buyer now writes the final order with the chosen
supplier, listing the technical specifications, the quantity needed, the warranty,
and so on.
8. Performance .review. In this final stage, the buyer reviews the supplier's performance.
This may be a very simple or a very complex process.
Delivering Customer Service in Cyberspace
Introduction

The commercialization of the Internet has seen it being deployed for corporate communications,
for facilitating trading activities, for distributing digital content, for the provision of a wide range
of services, and as a platform for collaboration. While many organizations have migrated products
and services from the physical world to the virtual world, or created new and innovative offerings
to take advantage of the capabilities of the technology, lessons from these early forays clearly
indicate that it is not an electronic replication of the physical world (Butler and Peppard, 1998;
Evans and Wurster, 2000; Jarvenpaa and Grazioli, 2000). Indeed, more than a mere a technology,
the Internet represents an entirely new medium for conducting business.
Not only does it have different attributes than the physical world but also within this virtual
space much of what is taken for granted in day-to-day commercial activities and decision-making
processes are absent. In B2C (business-to-consumer) markets, the focus of this paper, consumer
behavior is also different (Butler and Peppard, 1998).
In the physical world, products and services are generally distinguished from each other on
the basis of tangibility products are portrayed as tangible, i.e. can be touched, while services are
seen as being intangible, i.e. cannot be touched (c.f. Slack et al., 2001). Services have been
described as intangible products (Heizer and Render, 1999, p. 13) and are Pre-publication
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and Services in Cyberspace
Generally not precisely defined, but defined based on what they are not rather than what
they are (c.f. Schmenner, 1995). While many products today have a service component, or
provisioning of a service has a physical aspect, with the advent of the Internet, both products and
services become intangible. Couple this with the Internet as a medium and we are faced with an
entirely new environment and set of circumstances not only for conducting business but also for
managing operations.
If companies are going to be successful with their online strategies analysis would suggest
that it is crucial for them to understand the characteristics of goods and services in the virtual
world as well as the behavior of consumers when they move online (Butler and Peppard, 1998;
Koufaris et al., 2002).
Indeed, the distinction between products and services has guided theory and practice in
operations management. A recent study identified differences that related to measurements used to
assess effectiveness and efficiency, differences in production strategies and differences in
production process between organizations producing tangible goods and intangible services
(Bowen and Ford, 2002).
Whether there are any differences when operating in the virtual world has yet to be
addressed in the literature. But before such a task can be undertaken it is necessary to understand
this virtual world as well as the nature and behavior of products and services in this environment.
The objective of this paper is to explore products and services in cyberspace in order to develop a
categorization that is more appropriate in guiding management action.
The paper first investigates the Internet as media, drawing out a number of pertinent
implications. It then examines some of the fundamental attributes of information products and
digitally mediated services. A categorization of the different types of digital content is developed
and comparisons made across a number of dimensions. The paper concludes with some
implications.
The Internet as Media
In going on the net, what many organizations have failed to consider is that the Internet is
an entirely new medium for conducting business and that the implications of this must be
considered. This medium is an information-defined space. Apart for having no physical
manifestation, its shape, look, topology and context are all defined by information.
It also exhibits a number of distinct features that differentiate it from physical space. Issues
of geography and location are no longer important for the production and distribution of
information (Butler, 2003). It provides individuals and organizations with the capability to
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Control the production, storage and dissemination of information (Havick, 2000).
The constraints of space, all too present in the physical world, cease to be relevant. It is
perhaps the absence of physical and tangible artifacts in this information-defined space that has the
most serious implications for consumer behavior. These artifacts provide the clues that are crucial
for humans in their decision-making processes, and their absence has implications for trust, for
building brands, and for establishing customer relationships.
For example, one of the principal reasons that many pure-play Internet banks failed was
due to the lack of trust that existed between the online venture and customers. Confidentiality and
security are key components of trust (Dayal et al., 2000; Kim and Prabhakar, 2000; Torkzadeh and
Dhillon, 2002). In the physical world of banking, physical cues like large imposing branches and
knowledge of the person managing your account all contribute to the creation of trust.
On the Internet such cues are absent, which has resulted in people being reluctant to deposit
their money with such virtual institutions. Contrast this with the relative success of on-line
brokerages, where an intelligent customer base, trading process, and the dematerialization of the
product over many years, made them more suited to new pure-play start-ups.
Researchers in consumer behavior have found that consumers recognize differences in size
and reputations among Internet stores and that these influence their assessment of the store
trustworthiness, their perception of risk, and their willingness to shop with a particular store
(Koufaris and Hampton-Sosa, 2004; McKnight et al., 2002). A customer who believes that there is
a physical store behind a website is more likely to trust the site on first encounter (Jarvenpaa and
Grazioli, 2000).
Physical spaces form important constituent parts of what we might call settings, to which
a set of social norms instructing us how to behave are attached. For example, when a person enters
a library (or an office, a theatre, a church) he has never been in before, he generally recognizes it
as a library and behaves and interacts with other people accordingly (Lawson, 2001). Such norms
of behavior are still largely absent in the virtual world. On the flip side, the technology cannot
interpret many of the clues, both verbal and non-verbal, given off by a human, as might occur in
physical settings.
Consider, for example, the reaction of a customer when he sees an unexpectedly high price
for a piece of furniture. In the physical world the salesperson can adjust his approach, make
another suggestion or offer a better deal.
 Nevertheless, people's interactions with computers and new media are fundamentally social
and natural, i.e. we expect media to obey a wide range of social and natural rules. These rules are
derived from the physical world of interpersonal interaction. Reeves and Nass
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(1996) Have conducted research on social responses to communication technologies for

over 10 years and coined the term the media equation, meaning media equals real life, to
illustrate this relationship.
The media equation is counterintuitive; we may know intellectually that computers do not
have feelings, that a computer programmed is neither friendly nor hostile, does not have a gender,
that a ball thrown at us on a screen will not hit us and so forth, still we treat them as if they do.
According to the media equation all humans automatically and unconsciously respond socially and
naturally to media.
The implications for developers of online products and services are numerous. For
example, the same rules of politeness apply for web solutions as in real life, something often
overseen by web-site developers. Furthermore, people will assign a personality to characters on a
web site or possibly an entire solution, based a number of simple rules that we use in everyday life.
Words and pictures in media are symbolic representations of things such as images, ideas and
facts that are not actually present.
When this information is mediated we often assume that people only think about who sent
the information and why, and what it means. However, research shows that this view can assume
too much when a picture threatens, we dont think about who created it, what they intended and
what it all means; we often think only about what we should do (Reeves and Nassa 1996). Put
simply, humans have not evolved to accommodate twentieth century technology. The human brain
evolved in a world in which only humans exhibited rich social behavior, and a world in which all
perceived objects were physical objects anything that seemed to be a real person or place was
real.
The media equation is particularly relevant for information mediated via the Internet as the
Internet is an interactive space permitting two-way communication, something that was not
possible with older technologies such as electronic data interchange (EDI). This creates an
environment of immediacy and presence just consider the impact of instant messaging (IM). The
Internet defines a new communications environment, what Castells (2001) refers to as the Internet
Galaxy with its own logic and its own language.
Profoundly, he notes that with the Internet, communication is usually embedded in social
practice, not isolated in some kind of imaginary world. And because communication is the
essence of human activity, all domains of social life are being modified by the pervasive uses of
the Internet.
It is within this medium that organizations are increasingly operating. While the strategic
implications of the Internet have been addressed (Evans and Wurster, 2000; Porter, 2001; Sampler,
1998) the nature of products and services in this medium issues have not received the same
treatment. For example, the operations function is traditionally responsible for
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Producing and delivering products and services, however guidance and best practice are premised
on activities existing in the physical world, with the distinction between products and services
guiding decision making. In the remainder of the paper we explore products and services in
cyberspace.

The Concept of Products and Services in Cyberspace

Products and services made available using the Internet will be defined and shaped by
information. This information can be information already available in the organization (e.g. pricing
or product availability) or new information, whether created within the organization itself (e.g.
richer descriptions of products or digitization of services) or imported from an external source (e.g.
complementary information that can be integrated with internal information to create a new
offering or information provided by a customer to co-create a product).
Information products are products that may currently exist in a physical form, but can be
digitized and distributed electronically. Included are text, images, sounds, video, software, etc.
Such products are essentially knowledge that has been made explicit and turned into information
that has been formalized, for example, books, newspapers, music, a baseball score, stock prices or
a web site.
They may also represent the intellectual endeavors of the staff of an organization, such as
with research, where new knowledge, created within an organization, is offered for sale.
Information products can also be information assets that have been packaged to appeal to a certain
audience or market, for example stock prices for private investors.
Apart from innovative services (see below), some traditional services are also
mediated by the new medium what we refer to as digitally mediated services. This
continues the evolution that has been occurring in service industries as organizations
attempt to automate aspects of the service delivery process to reduce cost and increase
quality and consistency of the service as well as improve both convenience and
availability of the service (Quinn et al., 1990). Many online services are information-
mediated versions of services that exist off-line.
Amazon.com provides a book purchasing service. Expedia.com is an online travel
agent. Tesco.com is an online grocer. However, books purchased on Amazon.com or
Barnsandnoble.com are delivered to the customer by courier or post (although e-books
can be distributed electronically). These sites provide the mechanisms to bring together
buyers and sellers and then transact business; it is this process that is mediated by an
information-defined Pre-publication version International Journal of Information
Management, Vol 25, 2005, pp. 335-345. 6 Products and Services in Cyberspace
Environment.
Online banks provide customers with services on-line that allows them, among
other things, to undertake transactions and check balances via the Internet.
The Internet also supports innovative service designs. For example,
Salesforce.com delivers sales force automation (SFA) functionality over the Net. For a
monthly fee, small and medium sized firms in particular, can avail of functionality that
would probably be prohibitively expensive for them using tradition delivery mechanisms.
Person-to-person auctions such as eBay.com, or spread-betting operations like
Betaq.com, are not commercially viable in the physical world. Location-based services
look set to be a key offering for mobile devices.
In Tokyo, for example, J-Phones J-Navi service lets users enter a phone number,
address or landmark, and then searches the area within 500 meters. This makes it possible
to find the subway station nearest to a particular shop, or a particular kind of restaurant
within walking distance of a particular office building; a map to these locations can also
be provided.
Both digital information products and digitally mediated services have increased in
importance over the last few years and are set to do so even more in the future. However, there is a
gap in the theory addressing the development, management and marketing of such products and
services. Digital offerings are neither pure products, nor pure services in the strict meaning of the
terms. They constitute a category of their own as they have a different set of characteristics and
therefore need to be managed accordingly. In addition, appropriating value from digital
information products and digitally mediated services demands different strategies than in the
physical world.

Information Products, Digital Information Products and Digitally Mediated Services

Table 1 compares products and services in the physical and virtual worlds across a number
of dimensions. Grnroos (1990) has summarized the most commonly mentioned characteristics of
services and physical products found in the literature and we have used these in our analysis. We
have added two additional categories of information products to the table to illustrate the
differences between physical and digital information products. By traditional information products
we include those with a physical dimensions, for example books, CDs or research reports available
in the form of a physical document. With digital information products, content has been digitized
and thus can be sold and distributed on-line. Examples Pre-publication version International
Journal of Information Management, Vol 25, 2005, pp. 335-345. 7 Products and Services in
Cyberspace
Are electronic books, music in the form of MP3 files, news, games, software, or the research
reports sold on-line by companies.
Note, however, that today there are few pure products or services as companies selling
products often try to enhance the value of their products by offering add-on services, and
companies selling service often try to productify their services to make the value to the customer
more concrete. This trend is illustrated by the rise of solutions as an attempt to profile a complex
mix of physical product(s), service(s) and information product(s).
Many physical products today often include an information product as a wrap around to
enhance the solution to customers. For example, Slender tone, with its FLEX MAX toning product
that exercises the muscles of the abdomen, offers a mentor service an on-line personalized
motivational and advice programmed designed to help users of their products achieve diet and
fitness goals (www.slendertone.com).
With traditional and digital information products, the same content can be found in both
physical and digital form. The purpose of Table 1, however, is to illustrate the differences between
the different categories of offerings.

In many respects and in particular if they are interactive digital information products
have more in common with services than with physical information products. Their
interactive capability, together with the elimination of the costs and problems associated
with physical distribution and the impact of network externalities, open up a multitude of
new opportunities for organizations to exploit information through new digital offerings.
On the other hand, digitally mediated services have several features in common
with traditional products, not present with traditional services available in the physical
world. Face-to-face interaction with the customer, so often critical for services in the
physical world, is not possible for digitally mediated services. However, service
capability can be stored and better controlled, thus promising more consistent quality of
services while also removing the constraints of time and place.
This analysis illustrates why the practice of simply moving traditional information
products to the Internet will so often fail physical information products and digital
information products have fundamentally different characteristics. In fact, producers of
digital information products have more to learn from providers of traditional services
than from providers of traditional information products. Worth highlighting is that many
on-line services are generally more demanding of the customer than their physical world
counterpart.
While the customer can be more or less passive in the physical world, he is now
required to become more involved in the provision of the service. The service is thus co-
created and this has implications for customer value.
As some services move online, significant assumptions are made about the
customer, including their knowledge base. Consider the purchasing of airline tickets. If a
customer uses a travel agency in the physical world to purchase a seat, the agent will
usually ensure that she understands the travel requirements of the customer and combines
that knowledge with her knowledge of airline travel. For example, that a return ticket is
cheaper than a single ticket or that a Saturday night stays usually reduces the cost of a
ticket. Some travel agents will also book back-to-back tickets for midweek travel,
which can reduce the cost of tickets many travelers are unaware of this. Travel websites
will usually permit a customer to book single tickets to and from a particular destination;
in the physical world, the agent would point out that it is cheaper to buy a return ticket.

Conclusion
In this paper we have suggested that in developing an online strategy, organizations must
consider the Internet as a medium and evaluate the implications of this business environment for
products and services as well as its impact on consumer behavior. Taking most existing products
and services and moving them directly to the Net without this consideration is likely mean that
online strategies are sub-optimal.
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335-345. 11 Products and Services in Cyberspace

As with any new technology, we are often constrained in our thinking of new applications by the
previous technologies that have dominated our society. Over a decade ago, in introducing the concept of
reengineering to the world, Hammer (1990) advised against paving the cow path with technology in
short, overlaying traditional work processes and practices with technology. He exhorted organizations to
seek out innovative opportunities to deploy technologies by redesigning work processes and that this
would lead to significant performance improvement. An argument of similar sentiment can be expressed
for this medium.
In this paper, we have demonstrated that the nature of products and services changes in virtual
environments. The difference between products and services becomes increasingly blurred as products
take on characteristics of physical world services and visa versa, and both take on an entirely new set of
common characteristics, different from those of the physical world. As the differing characteristics of
products and services have guided operations decisions, it is important to now consider the impact of
cyberspace on the theory and practice on their design, delivery and management. Given that the new space
is defined by information, it may be that in the future the disciplines of operations management and
information systems will move closer together.