Assessing Markups, Service Quality, and Product Attributes in Music CDs' Internet Retailing

Abstract

W e investigate trade-offs among markups, service quality, and product attributes across customer, Internet retailer, and wholesaler echelons. Research has documented the reality of retail price dispersion, but little is known about how retail markups, in particular, are related to service quality and product attributes. For example, do Internet retailers deliver superior service in return for high markups? Do product characteristics affect the relationship between service and markups for retailers? To examine these issues, we first developed a model of Internet retail profitability that separates revenues and costs related to sales from other profit sources. This framework allowed us to position our work alongside the extant literature about Internet retailing. Moreover, it led us to synthesize service quality dimensions found in Internet retailing studies. We subsequently developed a critical-event study based on the profit model and the synthesis of service quality dimensions to delineate service aspects that retailers should emphasize to address buyers' utility. Finally, we collected data from Internet purchases across retailers to isolate markup-service quality trade-offs along our delineated service aspects. We find that high markups are associated with superior performance across service quality dimensions. Furthermore, this trade-off becomes more acutely defined when products with variable popularity are transacted.

Service Quality and Price Perceptions by Internet Retail Customers

“…Internet retailers with multiple vertical menu bars in their home pages achieve significantly higher customer price perception. The finding is well aligned with that of previous studies that relate search efficiency to actual price (Rabinovich 2007;Rabinovich, Maltz, and Sinha 2008a). An effective home page format will increase search efficiency, which reduces price sensitivity during customer online shopping.…”

Effect of marketing activities, benefits, risks, confusion due to over-choice, price, quality and consumer trust on online tourism purchasing

“…The heterogeneity of consumer demands and the diversity of products offered, lead to a variety of online service qualities, whilst higher prices also lead to decreasing customer demand, especially when customer demand is price-sensitive (Li et al 2013). Thus, because shoppers are now able to conveniently examine quality and prices on the Internet (a benefit to them), online retailers' pricing strategies are having to depend on product and service quality (Rabinovich et al 2008). Therefore, the study proposes the following hypotheses (also taking into consideration the discussion on price and quality aspects presented in the two forthcoming sections entitled 'Price issues' and 'Quality Issues'): H4: The benefits perceived by consumers positively affect their perceptions of price issues.…”

The Impact of the Online Channel on Retailers' Performances: An Empirical Evaluation

“…For online shopping, customers generally prefer established retailers over new firms, especially in the early phases of e‐commerce. In fact, an online channel with offline presence may be able to charge higher prices due to retail brand power built by consumer trust, brand recognition, and the firm's long presence in the traditional market (Dinlersonz & Pereira, 2005; Rabinovich, Maltz, & Singha, 2008). The traditional distribution structure may also provide greater ease in product delivery and product returns.…”

“…Order fulfillment in terms of product selection, product availability, and delivery service is an important determinant of customer satisfaction for online retailers (Boyer & Hult, 2005; Collier & Bienstock, 2006) and therefore should be an important operational focus (Rabinovich & Bailey, 2004). Retailers that provide reliable fulfillment and extensive product information are able to charge higher markups even in highly competitive product markets (Rabinovich et al, 2008). Reliable fulfillment requires the right product to be available at the right time for timely delivery to customers' orders.…”

“…Firms with a large number of physical stores could benefit more from economies of scale with the online channel. First, a large number of local outlets increases the level of consumer familiarity with the firm's brand and eases the pickup, exchange, or return of the product purchased online, which in turn increases the consumer's trust and willingness to purchase online or even pay a premium for the established brand‐name retailers (Dinlersoz & Pereira, 2005; Rabinovich et al, 2008). Second, firms with traditional physical stores have the advantage of an existing distribution network, facilitating online order fulfillment and reducing shipping costs.…”