The growth of the Internet platform a phenomenon, and there is a correspondence with commerce on this platform (Swaminathan, Lepkowska-White & Rao, 1999: pp. 1-2). In 1999 it was estimated that the online shopping would grow from $11 billion to $41 billion in 2002 (National Retail Federation, 1999). Online Christmas shopping exceeding all IMRG’s expectations when $15 billion (£7.66 billion) was spent by British consumers alone in the ten week run up to Christmas, marking a 54% increase more than the £5 billion spent over the same period in 2005 (IMRG, 2006). As this is such a growing method of commerce and is a large percentage of all transactions, it is important to assess Bagozzi’s theory of the exchange when applied to Internet transactions.
The Internet was a portal to a global market, where firms could sell to customers anywhere in the world. Firms could operate entirely online with no costs from premises. This saving could be passed on the customer, as online prices are often less expensive than offline/in-store competitors. Customers also benefited from online shopping as it is more convenient and can buy a wider range of products from around the world. When anyone uses the Internet, information on their activities is gathered, which can be used by firms to target consumers for their products.
“Personalisation is the ability to satisfy specific needs of individual customers”, and has traditionally been employed as a marketing strategy for luxury goods and niche markets, due to the high costs (Mattila, 1999: pp. 40-46). Personalisation depends on the knowledge on the individual, and the ability to satisfy their needs. The Internet has made personalisation a cheaper option, and this strategy can be used for a wider range of products. Firms now have to compete globally with other firms on the Internet, so personalisation has become a “competitive necessity” (Chellappa & Sin, 2002).
Personalisation allows a firm to identify individual consumer needs and inform them of products that will satisfy them. Historically this would be the role of a salesperson to a customer in a restricted exchange (Bagozzi, 1975: pp. 32). Bagozzi’s theory applied well to the face-to-face transactions of the 70’s, however exchanges over the Internet are very different from the in-store transactions that Bagozzi’s theory of exchange applied to, and offer many challenges.
Transactions over the Internet have more parties than traditional exchanges, as in order to access the Internet a user must use an Internet service provider. The Internet service provider gives access to the Internet, however it also logs the websites that the user has viewed. So here this could be seen as a “middle man”, who receives information on the websites visited as well as a premium, and in return allows access to the Internet. This is part of all Internet exchanges, and so it needs to be identified as a party, as the information that they receive is used to target products and services.
Figure 1:
Note: Adapted and altered from Bagozzi: Marketing as Exchange (1975)
This is a very basic diagram of a transaction over the Internet, and as you can see it involves more parties than an offline transaction, making it more difficult to apply Bagozzi’s theory. Identifying all parties involved in a single transaction is very difficult, as there are more entities being exchanged with more parties. This diagram shows a complex exchange (Bagozzi, 1975: pp. 33). Nonetheless, the exchange is quite straightforward, as a consumer pays the merchant and expects the product/service. Due to the distance the product must be delivered involving another party, which makes the exchange a complex one (Bagozzi, 1975: pp. 33). With any exchange over the Internet, information will be given to the ISP, and if there are tangible entities then a delivery service must also be a part of the exchange. This would make every exchange over the Internet a complex one, (Bagozzi, 1975: pp. 33), which makes the original types of exchange redundant, as they will all be complex. For this reason, I feel that Bagozzi’s theory of the exchange types must be updated to not include the ISP or delivery service, or to view the delivery service and merchant as a single entity. Historically a restricted exchange (Bagozzi, 1975: pp. 32), could take place between a customer and a salesperson. Over the Internet more parties are involved in a transaction, so it is difficult to distinguish between the traditional complex exchanges. Bagozzi’s theory must take delivery into account when distinguishing the exchange types.
The Internet is the same market is fundamentally the same market, however advances have bridges geographical gaps and have joined the individual markets. For this reason, Bagozzi’s theory can still be applied when considering what is being exchanged between key parties, and what other parties are involved in the exchange. Nonetheless, Bagozzi’s theory has always had its flaws. The main disadvantage was it was difficult to apply to the diverse range of exchanges that take place. The Internet has made it possible to trade almost product to anyone we can access the internet, and because of this there are now more diverse transactions. For example buying a house abroad can now be done over the internet, but involves a large number of parties and is an “interconnecting web of relationships” (Bagozzi, 1975: pp. 33). With larger exchanges such as this, it is very difficult to identify all entities and parties within, and complex exchanges such as this are taking places more and more due to the internet. There has always been a difficulty in identifying parties and entities within an exchange, and if this cannot be done then any judgements made will be incorrect. Bagozzi’s theory is valuable as a managerial tool as I promotes thinking about the exchange, however with exchanges involving more and more parties, not only is Bagozzi’s theory going to take longer, but is liable to have more mistakes making it worthless. For small exchanges or exchanges were the parties and entities within are clear, I feel Bagozzi’s theory is still very important, but I feel it is not easily applied to the diverse range of exchanges brought about by the internet.
The Internet was an unforeseen phenomenon that has influenced the exchange (Bagozzi, 1975: pp. 39). The theory still fits the exchange process, as it hasn’t changed dramatically, however there are third parties that must be identified, such as the ISP, delivery firms, and other parties that receive information. Delivery is part of the exchange process, however this is part of the service offered by the merchant. If these were identified, it would be possible to differentiate the types of exchange as being restricted, generalised or complex. If this were done, then Figure 1 would be identified as a restricted exchange (Bagozzi, 1975: pp. 32). Within the exchange there is overt and covert coordination (Bagozzi, 1974: pp. 77-81), and think that majority of the third parties that collect information about the consumer’s website habits is collected covertly, however it is still part of the process. For example, the ISP’s collection of viewed websites is used for marketing purposes. Although it is not a party to the exchange, it should be recognised as a third party.
References:
Bagozzi, R P (1974) Marketing as an Organized Behavioural System of Exchange. Journal of Marketing, 38 (October), 77-81.
Bagozzi R. P. (1975) Marketing as Exchange, Journal of Marketing, Vol. 39, p32-39.
Chellappa, R K and Sin, P (2002) Personalization versus privacy: An empirical examination of the online consumer's dilemma. In 2002 Informs Meeting.
Gruen, T W., Osmonbekov, T., Czaplewski, A J (2005) How e-communities extend the concept of exchange in marketing: An application of the motivation, opportunity, ability (MOA) theory. Marketing Theory, 5, 33-49 (2005).
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Mattila, A (1999) Consumers’ Value Judgement. Hotel and Restaurant Administration Quarterly, 39, 40-46.
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Swaminathan, V., Lepkowska, W., Elzbietam, R., & Bharat, P. (1999). Browsers or buyers in cyberspace? An investigation of factors influencing electronic exchange. Journal of Computer Mediated Communication, 5, 1-2.
