Siva Viswanathan, Jason Kuruzovich, Sanjay Gosain, & Ritu Agarwal
Executive Summary
This study identifies a novel mechanism for market segmentation and price discrimination based on consumers' use of online infomediaries. Using the automobile retailing context as the setting for this study, the authors address the following question: Can online infomediaries serve as a viable mechanism for market segmentation and price discrimination? They draw on a unique and extensive data set of consumers who report on the information they found when using online buying services (OBS) as part of their new vehicle purchase process.
The analysis of the data set shows that consumers who obtain price information pay lower prices (for the same product) and that consumers who obtain product information pay higher prices. Although this points to the existence of distinct consumer segments, this knowledge is of limited practical value without a viable mechanism that enables firms to identify and target these customer segments specifically. On the basis of consumer usage patterns of OBS, the authors then uncover three distinct OBS clusters—price OBS, product OBS, and portals—and empirically demonstrate that the usage of these different clusters is associated with significant differences in consumer outcomes. In particular, the users of different OBS clusters pay different prices for the same vehicle, suggesting the potential role of these OBS in market segmentation and price discrimination. Although this finding is actionable in itself, the authors also find that the observed behavioral choices (i.e., consumers' use of OBS clusters) are related to underlying systematic differences in consumer characteristics and the properties of the information found.
The findings have significant implications for traditional retailers as well as for manufacturers. Compared with other segmentation and price discrimination strategies, such as versioning, product-line extensions, or couponing, the findings suggest that segmentation based on OBS usage can serve as a low-cost, effective, and robust self-selection mechanism. The findings also have notable implications for dealers' partnerships with online infomediaries. Contrary to conventional wisdom about the optimality of exclusive referral arrangements between an online infomediary and one of the many competing traditional dealers in a given geographical area, the results suggest that when choosing among several competing online infomediaries, a traditional dealer can benefit from using these different categories of infomediaries as complementary referral mechanisms.
As for OBS, because consumers are clearly differentiated on their underlying needs for the different types of information, OBS would benefit by better highlighting their domain of specialization. Greater specialization and differentiation of OBS clusters would help facilitate consumer self-selection and enable OBS and dealers to understand the value of a referred lead more effectively.
Biography
Siva Viswanathan is an assistant professor in the Decision and Information Technologies Department at Robert H. Smith School of Business, University of Maryland, College Park. Siva studies emerging issues related to online firms and markets and the impact of online intermediaries on various sectors, including consumer retailing, financial services, and automobile retailing. His current research examines the implications of online-sponsored search mechanisms for advertisers and consumers. Siva has a PhD in Information Systems from New York University, a master's degree in Business Administration, and a bachelor's degree in Engineering. Siva's research has appeared in top academic journals, including Management Science, Information Systems Research, and Decision Support Systems. He is also an active participant in international conferences and industry forums.
Jason Kuruzovich is Assistant Professor of Management Information Systems in the Lally School of Management and Technology at the Rensselaer Polytechnic Institute. Jason studies issues related to the impact of information technology and markets on organizations, consumers, and employees. His current research examines factors that influence the performance of multi-channel retailers. Jason has a PhD in Information Systems from the University of Maryland and a bachelor's degree in Engineering from Lafayette College. His research has been accepted at leading journals, including Information System Research and Organizational Behavior and Human Decision Processes.
Sanjay Gosain is a Web strategy analyst with Capital Group Companies. He received his PhD in Information Systems from the University of Southern California. This study was completed while Sanjay was Assistant Professor Of information Systems in the Decision and Information Technologies Department at the Robert H. Smith School of Business, University of Maryland. His research broadly addresses the drivers of effective information technology design, use, and value leverage in organizational settings. Sanjay is interested in examining consumer behavior and information search on the Web and implications for firm strategy. He has also been interested in examining strategic issues related to organizational transformations that leverage information technologies. His research articles have been presented at international conferences and published in leading academic journals.
Ritu Agarwal is a professor and Robert H. Smith Dean's Chair of Information Systems in the Smith School of Business at the University of Maryland. She is also the director of the Center for Health Information and Decision Systems. Professor Agarwal is currently a senior editor at Information Systems Research and has recently completed terms as senior editor at MIS Quarterly and associate editor at Management Science. She has published more than 75 papers in MIS Quarterly, Information Systems Research, Management Science, IEEE Transactions, Journal of Management Information Systems, and other journals. She has worked extensively with Fortune 500 companies, including 3M, Freddie Mac, Dow Chemicals, Rohm and Haas, and AstraZeneca, on various research and consulting engagements. Her current research is focused on the use of information technology in health care settings, technology-enabled transformations in different industries, and the processes through which organizations derive business value from information technology. Professor Agarwal has been a member of the INFORMS board and a vice president in the Association for Information Systems.
Journal of Marketing, Vol. 71, No. 3, July 2007
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