|Buying patterns in e-commerce
|East and west approach internet buying
|by Zita Zoltay Paprika
|In the 1940s, Thomas Watson, then chairman of
IBM Corp., estimated the global aggregate demand for computers
to be five. He simply could not foresee the explosive development
that information technology (IT) would have over the second
half of the 20th century, and especially its implications. The
Internet is one such recent IT breakthrough that is taking place
worldwide, and today more than 25,000 people gain Internet access
every hour. This growth offers great opportunities and great
challenges for existing businesses and potential customers (Figure
|Figure 1. The use of the Internet
is exploding worldwide, and market share by region is
changing. (Goldman Sachs Internet Report -2003 forecast)
Computers and the Internet are being adopted more quickly than
previous technologies, such as the steam engine and electricity.
For example, it took an estimated 90 years before 50% of American
homes had even one product made by a U.S. manufacturer. In contrast,
the Internet is already approaching a 50% penetration in the United
By increasing access to information, IT contributes to making markets
work more efficiently. For example, the Internet allows consumers
to seek the lowest price, and a firm can solicit bids from more
suppliers. Reduced transaction costs and barriers to entry have
brought the e-commerce economy closer to the utopian concept of
perfect competition, which assumes complete access to information,
many buyers and sellers, zero transaction costs, and no barriers
to entry or exit. IT makes these conditions less implausible. Better-informed
markets can more efficiently allocate and use resources. For example,
manufacturers can track changes in demand more easily via direct
links to electronic scanners in stores, and farmers can get information
almost instantly on weather, prices, and crop conditions.
In the West
The need to attract, acquire, leverage, and retain customers remains
a primary concern to business. Revenue growth through customer acquisition
and retention is as important a requirement in e-commerce as it
is in other business. Customers, especially in the Western business
culture, count speed of service as a key reason that they do business
with a company. They resent delays and hate waiting for service.
In the United States, almost 80% of the gross domestic product (GDP)
is generated through different kinds of services, and speed of service
no longer distinguishes an enterprise as providing superior value.
Customers generally are not thrilled if they receive good service,
but they are highly dissatisfied if they do not. E-business provides
the necessary framework to cope with these demands by cutting the
waiting time for a service.
Customers also want consistent, reliable, and easy-to-use service.
As the speed of service increases, customer expectations grow. Thus,
making customer service friendly, easy, and solution-orientated
is an important business trend. The increasing popularity of outsourcing
makes this issue even more important. For outsourcing to succeed,
enterprises must coordinate their operations with their partners
and vendors. E-business helps streamline this integration process
more accurately and efficiently than other business models.
|Figure 2: The European market is not
homogenous, and internet penetration scattered by political,
linguistic and cultural barriers. (Goldman Sachs Internet
Although the European market theoretically represents e-commerce
opportunities that are equal to those in the United States,
political, linguistic, and cultural barriers make achieving
this goal more difficult than in the U.S. market. The European
consumer market is not homogeneous, and personalcomputer and
Internet penetration varies throughout the region.
Northern European countries have the highest e-commerce penetration
ratio, but the three largest traditional markets are the United Kingdom,
Germany, and France (Figure 2, above). Internet penetration continues
to climb in Europe, and with its head start in wireless communications
future prospects for e-commerce look bright (Figure 3, below). However,
growth has been constrained somewhat by telecommunications regulations.
|Figure 3: In Europe online shopping
represents a market comparable to that in the United States,
despite its more fragmented nature. (Connectis)
Merrill Lynch expects the number of European Internet users to
jump from 72 million in 2000 to more than 200 million by 2004. European
consumers, however, have yet to get used to shopping online. Many
are unfamiliar with the technology or have concerns about security
and privacy. Commerzbank (Frankfurt, Germany) estimates that at
8.5 billion euro (about $8.5 billion), online sales account for
just 0.3% of the total retail market in Western Europe. Not until
2004when interactive TV and mobile media take holdwill
the online market reach a projected 4.7% and approach a meaningful
proportion of retail sales.
Developing e-commerce in Central and Eastern European countries
is slowed by the low amount of online spending, which results from
a low general income, low GDP, weak basic telecommunication infrastructure,
and foreign investors disparate confidence levels in the markets
profit potential. The Central and Eastern European market will likely
reach its huge potential, but this growth will not happen soon.
Japanese citizens began exploring the Internet in large numbers
in 1995, and by early 2000, 20 million people were online
(Figure 4). E-commerce began there in 1999, and it is expected
to grow dynamically. According to Ministry of Telecommunications
forecasts, the economic impact of e-commerce on Japan between
2004 and 2009 will increase its GDP by 10%.
|Figure 4: Internet penetration has
grown rapidly in Japan, but online buying patterns are
different from those in the West. (Ministry of Telecommunications,
Internet sales by some Japanese companies are impressive. However,
many factors, including, legal, cultural, and financial issues,
hinder the development of e-commerce in Japan. The high cost of
Internet access is a strong barrier to its growth.
Japan is not a country eager for change. However, once change starts,
it seems to roll along. Although late to arrive in Japan, the dot-com
fever created a shift in the mindset of some people. Many observers
believe that this phenomenon will provide the much-needed catalyst
to change Japanese culture. The first signs have appeared in the
form of quitting the lifetime job. Until now, the most promising
jobs were in government ministries or large corporations. Today,
some bright entrepreneurs willingly give up their prestigious positions
to launch their own Internet companies or join someone elses
Other cultural barriers also hinder the spread of e-commerce. Shopping
in Japan is regarded as an important social activity, an opportunity
to meet friends and spend time together. Many young women (ages
16 to 26) still live at home, work part-time, and represent a significant
spending group because they have disposable income and time to spend
it. Because of shoppings important social function and the
distrust of using credit cards, Internet sales of brand goods have
not taken off. Companies that do sell online appeal to a specific
marketfor example, cosmetics for particular skin ailments.
But consumers are starting to move online for some less-expensive
products in which trust in a brand name is not a concern.
Clearly, online shopping is in its infancy in Japan. But although
the proportion of women using the Internet is only 30%, industry
projections show a sharp rise in the coming years. The next 10 years
will likely reveal greater changes in Japanese shopping habits than
seen in the past decade.
Reference spendingthe term for offline purchases of products
or services based on information obtained onlineis important
in Japan. Real estate, automotive, and finance are three areas in
which consumers increasingly refer to Webbased material in preparation
for purchases. In many cases, purchase decisions are made exclusively
on the basis of Internet research.
Reference spending usually occurs as a result of specific consumer
behavior typical of the market conditions or a cultural setting.
The Japanese are time-conscious Internet users because access fees
there are expensive. Japans Web surfers rely more heavily
on traditional paper media for site information than do their counterparts
in Europe and the United States. Many paper magazines now serve
such users, particularly older or novice users who carefully study
the sites they want to visit before spending their time (and money)
Japans 19.4 million wired citizens are rapidly gaining confidence
in e-commerce .46.5% of male and 44.3% of female home Internet users
have made a purchase online or subscribed to a service. Despite
the cell phone's bright future as a sales device, 95% of online
purchases in Japan are still made via a personal computer.
Women are the most important target consumer market in Japan,
and not just because of their purchasing power. Japanese women are
trend-setters in many areas of consumption and from a surprisingly
early age - high school or even junior high school. Female online
shoppers buy clothes, food, or games and toys; men go for computer
hardware, books, and software. Overall, the most popular item among
Japanese e-consumers is food. In Japan, customers are treated with
the utmost respect. E-retailers that fail to satisfy Japanese consumer
demands and tastes will quickly lose out to those who do.
East versus West
Patience and expediency are two very different approaches to choice.
We can characterize the former as an Eastern and the latter as a
Western decision-making style, and the two approaches differ in
several important dimensions. The Western view considers speed a
virtue, whereas Eastern philosophers and ordinary people view patient
reflection as a virtue. The Western decision process is systematic
and linear; the Eastern decision process makes holistic leaps in
nonlinear ways. However, neither side of the world holds a monopoly
on one or the other approach.
E-commerce is based on the expedient decision-making approach.
It supports customers' requirements for speed and comfort. Therefore,
buying online is not a big challenge or cultural shock for Western
shoppers, but it is quite unusual for the reflective customers of
the East. In the Western marketplace, e-commerce does not change
people's shopping habits and traditions, only the channel of the
transaction. Moreover, because goods are less expensive online than
in shopping malls, people are stimulated to shop online.
Expedient Western customers choose known brand names instead of
generic products to get quality. The weak point for them is that
they must provide their creditcard number. The expedient decisionmaker/
shopper is characterized by systematic and linear decision processes.
This corresponds to the logic of the Internet. Searching algorithms
and menus model the expedient-thinking pattern.
Reflective shoppers get some support from e-commerce as well.
They like to investigate products precisely and consciously. However,
when browsing costs a lot because of on-line charges, they do less
of it. Consequently, they do not get a holistic view of the available
options, and their expectations often are not met. Reference-spending
customers do not let themselves be hurried or forced. They use alternative
offline sources to get information. They refuse aggressive marketing,
which is accepted in Western e-commerce. The Japanese might be approached
more successfully through games, which even adults like to play.
The Internet provides transparent solutions, but it cannot maintain
the personal care customers seek. Missing is the human contact and
advice of traditional shopping because these functions are built
into e-commerce in a rigid way. Especially for women, shopping is
a social event, and they do not find the same rewarding interaction
when shopping with a computer. However, e-commerce offers the opportunity
for quick choices and lets customers surf and learn about all options.
Because of its fast development and acceptance, ecommerce could
modify customer behavior and shopping habits in the West and East.
Entrepreneurial and investment opportunities exist in e-commerce
across three evolutionar y stages: companies that serve domestic
markets only, those that serve a geographic region's population,
and those that serve worldwide markets. Opportunities within each
stage reflect the maturity of a country's markets and business infrastructure.
For greater success, e-commerce needs to recognize the different
cultural backgrounds and needs of Eastern and Western peoples.
Japan, young set new style in spending. Financial Times, Tokyo,
Sept. 19, 2000, p. 6.
Hoch, S. J.; Kunreuther, H. C.; Gunther, R. E. Wharton on Making
Decisions; John Wiley and Sons: New York, 2001; 339 pp.
Lukenics, E. Going Online from East to West; Thesis, Budapest University
of Economic Sciences and Public Administration, International Studies
Center, 2001, 48 pp.
Stoker, T. The future at your fingertips. The Independent, London,
England, Oct. 4, 2000
Zita Zoltay Paprika
is director of international affairs at the Budapest University
of Economic Sciences and Public Administration in Budapest, Hungary