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“The Internet

While the Internet might affect the way firms do business in many ways, in this paper, we focus on three key aspects that are likely to have a major impact on distribution. First, we recognize that the Net represents tremendous convenience for consumers in that consumers can cheaply search and compare products and, as a result, have the opportunity to place orders without visiting the stores. Second, on the supply side, we recognize that the Internet represents a channel of distribution with a different cost structure. Clearly, if firms manage to replicate the rich store environment on the Internet without having to incur the cost of expensive personal and retail outlets, then distribution costs might significantly decrease. However, the Internet might not necessarily mean lower distribution costs. This is because retailers are likely to face new costs including, for example, the cost of shipping and handling or the cost associated with return policies. Thus, in what follows we do not a priori assume that distribution costs are lower on the Internet. Third, we recognize that the Internet represents a new medium in which the type of information that consumers can acquire differs significantly from that of the traditional retail environment.1 In particular, we distinguish between two types of product attributes, which we call digital and nondigital attributes. We define digital attributes as all product attributes that can be communicated through the Internet.2 The majority of digital attributes are those that can be assessed through visual inspection and that traditionally have been evaluated by consumers in the store. In the context of clothing, for instance, manufacturers always need to update their product lines to reflect recent trends in fashion even for relatively standard items such as jeans, shirts, or suits. Similarly, the assortment of produce regularly changes in supermarkets. Such changes in style, or assortment can be communicated to consumers through a Web page. The Web however, also presents an opportunity for enlarging the set of digital attributes, including attributes communicated through sound, for instance. When purchasing CDs consumers can listen to samples from the music of their choice. The second category of attributes are those that can only be evaluated through physical inspection of the products. In the context of clothing, for instance, texture and “fit” are key product features that can only be explored through physical presence. Other categories where nondigital attributes are important include produce in a supermarket (smell, taste, freshness), cheese (taste, color), or flowers (freshness). It is important to note that while nondigital attributes are important for these categories, digital attributes remain critical for product choice.”

(Lal and Sarvary, 1999)



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