A PROCESS FOR IMPLEMENTING ONLINE AND PHYSICAL
BUSINESS BASED ON A STRATEGY INTEGRATION ASPECT
Ing-Long Wu
1
, Chu-Ying Fu
2
and Chin-Wei Lee
3
1
Department of Information Management, National Chung Cheng University
168 University Road, Ming-Hsiung, Chia-Yi, Taiwan
2
Department of Information Management, WuFeng Institute of Technology, Chia-Yi, Taiwan
3
Service Division, BenQ Corporation, Taipei, Taiwan
Keywords: Clicks-and-bricks strategy, Channel management, Customer relationships, e-business.
Abstract: The growth of e-business has been experiencing a tremendous change in recent years. The initial prosperity
in e-business has now been replaced by the recent trend in a series of bankruptcies and acquisitions.
Business managers begin to consider new business models in terms of the integration of virtual and physical
operations to support more and different services to customers. The key to success in e-business lies in how
you carry out the integration between online and offline business. However, past research just literally
discussed the important relevant issues of clicks-and-bricks strategy and channel management. There was
lack of a complete and solid process to effectively guide the implementation of the integration. Therefore,
this study proposed a three-step process based on a strategic perspective: (1) strategy integration (2) channel
coordination, and (3) synergy realization. The results indicate that the right strategy integration significantly
influences synergies realization through the significant channel coordinations.
1 INTRODUCTION
Business over the Internet has undergone a
tremendous growth in recent years. In particular, the
Internet has fundamentally reshaped the business
structure of retailing and offered retailers new
opportunities for performing marketing activities.
Early predictions were that the new Internet-based
retailers would wipe out many existing retailers
since they were able to operate in a lower asset,
inventory cost, and other expenses than
bricks-and-mortar competitors. However, the initial
euphoria from e-commerce has now been supplanted
by a consequence of the recent wave of bankruptcies
and acquisitions. Much of that thinking has been
reconsidered and the viability of a pure web-based
model is being questioned by many businesses.
Firstly, Internet retailers dealing with physical
goods, such as books, toys, or electronics, are facing
difficult logistical challenges. Fierce competition in
the online market has forced the prices of many
products to fall such that many firms are switching
to a strategy of providing better service through
faster delivery and more customer support. Next,
traditional retailers have reached a point where they
could no longer ignore the importance of online
retailing and the exponential growth of e-tailers.
Many traditional retailers are initially hesitant to
enter online market, partly for unfamiliarity with the
feasibility of technology and uncertainty about the
new market, and partly for fear of cannibalizing
existing marketing channels (Enders and Jelassi,
2000; Payne and Frow, 2004). Now more
traditional retailers are venturing onto the Internet
for creating more revenue streams from multiple
channels (Saeed et al., 2002; King et al., 2004).
Therefore, either virtual or physical companies
are recognizing that success in the new economy
will go to a new governance model with
clicks-and-bricks strategies that bridge the physical
and the virtual worlds. But in forging such strategies,
executives are facing a decision that is as difficult as
it is crucial since different retailers are evolving
toward clicks and/or bricks strategies in different
ways (Muthitacharoen et al., 2005). The key to
success in the Internet business lies in how you
define the clicks-and-bricks strategies (Gulati and
Garino, 2000; Li et al., 2004).
By thinking carefully about which aspects of a
business to integrate and which to keep distinct,
companies can properly tailor their clicks-and-bricks
strategies to their own particular market and
competitive situation and further base the adopted
5
Wu I., Fu C. and Lee C. (2009).
A PROCESS FOR IMPLEMENTING ONLINE AND PHYSICAL BUSINESS BASED ON A STRATEGY INTEGRATION ASPECT.
In Proceedings of the 11th International Conference on Enterprise Information Systems - Software Agents and Internet Computing, pages 5-11
DOI: 10.5220/0001835200050011
Copyright
c
SciTePress
strategies on determining the mix structure of online
and physical channel activities for physical
implementation, such as order products at online
stores and pick-up them at physical stores
(Schoenbachler and Gordon, 2002; King, et al.,
2004). Furthermore, successful hybrid retailers
mainly benefit from synergies of various channel
coordinations in their interaction with customers,
such as improved service variety (Gorsch, 2001;
Steinfield et al., 2002).
Therefore, this study proposes a complete and
substantial architecture for effectively implementing
clicks-and-bricks business. Basically, this process
consists of three steps: strategy integration, channel
coordination, and synergy realization. Furthermore,
empirical study examines its practical validity.
2 LITERATURE REVIEW AND
HYPOTHESES
DEVELOPMENT
Based on the above overall logic, Figure 1 provides
a pictorial depiction of this research framework.
The following discusses the theoretical bases and
hypotheses development for this framework.
Figure 1: Research framework.
2.1 Strategy Integration and Channel
Coordination
2.1.1 Strategy Integration
The source of competitive advantage in business
arena is to be able to create new customer value
(Porter, 1985). A new locus of value creation lies in
the integration of the physical and virtual worlds
(Steinfield et al., 2002; Payne and Frow, 2004). The
bright line that once distinguished the virtual from
the physical is rapidly fading. Companies are
recognizing that success in the Internet era will go to
those who can execute clicks-and-bricks strategies.
Supplementary support is the fundamental of
clicks-and-bricks strategies and the important source
of value creation in e-business. These supports, for
example, contain supplementary goods and services,
cross promotion, shared technologies and the like
(Amit and Zott, 2001).
There is no single option that best defines a
solution for any given company. A study has
discussed a three-option classification going from
complete separation to full integration of virtual and
physical assets for revenue propagation and
enterprise governance (Sengupta, 2000). These
options are: (1) separate and operatethe physical
and online businesses are operated as two separate
entities, (2) share and operatesome key services
are shared, and some common metrics are used
across the two businesses, and (3) joint operation
the physical and online units are integrated and
operated jointly.
Moreover, another study proposes a spectrum for
defining clicks-and-bricks strategies, as shown in
Figure 2 (Gulati and Garino, 2000). They argued
that the integration-separation decision is not an
either-or choice; rather there is a continual spectrum
of the degree of integration. Spin-off and in-house
division are literally well-understood for their
definitions and strategic partnership and joint
venture need to be further elaborated. Physical and
online businesses under strategic partnership are
separately owned and operated, but both brands can
be maintained and promoted in both channels.
Keeping separate names while promoting the
partnership accomplishes two things. It protects the
trust and recognition associated with the original
brand of the physical business and at the same time
establishes a new brand that fits online expectations.
Although physical and online businesses under joint
venture appear to be completely separate, however,
they are actually tightly integrated in certain respects.
Most obvious one is the shared brand.
Figure 2: Online and physical integration framework
(Adapted from Gulati and Garino, 2000).
2.1.2 Channel Coordination
Marketing channels in retailing can be classified into
conventional and electronic channels. Traditional
channel is mainly based on the physical stores, such
S tra te g y in te g ra tio n
C hannel coordination
Synergy realization
Spin-off Strategic Joint In-house
Partnership Venture
Sep ar at i o n
Greater
focus
More
flixibility
Access to
venture
funding
Integration
Established
brand
Shar ed
information
Purchasing
leverage
Di stri buti on
ef fici ency
The Clicks-and-Bricks Spectrum
ICEIS 2009 - International Conference on Enterprise Information Systems
6
as department store and shopping mall, where the
vendors interact with the customers. Electronic
channel, as opposed to conventional channel, relies
on advanced information and communication
technology (ICT) to fulfill channel function. Several
characteristics make the Internet an attractive
medium for the sale of products to consumers, such
as online information access, online transaction and
payment, online delivery of digital products, and
opportunities for building customization (Holland et
al., 2004; Turban et al., 2004).
Today customers are smart, powerful, and highly
informed. They are demanding that every contact a
company has with them leave them more than
satisfied. It is increasingly imperative to coordinate
different channels to produce the most positive
customer services (Nakayama, 2000; Wiertz et al.,
2004; King et al., 2004). More importantly,
customer experiences with channels should be well
differentiated for their various needs and preferences
in order to create long-term relationships with their
customers. Accordingly, channels can be classified
across the sale cycle, i.e., stages of pre-purchase,
actual purchase, and post-purchase (Steinfield et al.,
2002; Payne and Frow, 2004). This study thus
conducts a comprehensive literature review for
define it, as reported in Table1 (Katros, 2000,
Gorsch, 2001; Payne and Frow, 2004; King et al.,
2004; Turban, et al., 2004).
In addition, similar studies also suggest the need
to understand the differences of perceived customer
values and purchase intentions in an online shopping
in terms of various purchase stages in the sale cycle
(Chen and Dubinsky, 2003;
Gupta, et al., 2004).
Thus, channel coordinations should be further
defined based on different purchase stages while it is
helpful to provide more insight to capture customer
experience in product purchase.
2.1.3 Hypotheses Development
Companies are argued to first tailor
clicks-and-bricks strategies to their own particular
market and competitive situation and then base it on
determining proper online and offline channel
activities for the physical implementation (King, et
al., 2004). Many studies have highlighted the
important linkage between defining integration
strategies and choosing channel coordinations in
e-business (Schoenbachler and Gordon, 2002;
Muller-Lankenau et al., 2006). An understanding of
their relationships is important since channel
coordinations could be simplified if marketers first
understand what drives customer channel choice.
While channel coordinations are classified into three
purchase stages, we thus propose three hypotheses
for these relationships.
Table 1: Classification of channels for purchase stages.
Purchase
Stage
Channel coordination
Pre-
purchase
z Use same or similar brand names in both channels
(Pre-purchase 1)
z Use cross-advertisement or promotion in both
channels (Pre-purchase 2)
z Provide identical products and prices in both
channels (Pre-purchase 3)
z Provide online information services in physical
stores to facilitate access to wider product range
(Pre-purchase 4)
z Provide rich products information and
pre-purchase evaluation process online
(Pre
-
purchase 5)
Actual
Purchase
z Order products at online stores and pick-up them
at physical stores (Purchase 1)
z Provide negotiation and order tracing services
online (Purchase 2)
z Provide more choices of payment methods from
online and physical stores (Purchase 3)
Post-
purchase
z Order products at online stores and return for
repair or additional service at physical stores
(Post-purchase 1)
z Offer online help or technical support for products
purchased at physical stores (Post-purchase 2)
z Collect consumer information at both channels for
p
ersonalized marketin
g
and marketin
g
research
H1: The choices of strategy integrations are
positively related with channel coordinations
in pre-purchase stage.
H2: The choices of strategy integrations are
positively related with channel coordinations
in actual purchase stage.
H3: The choices of strategy integrations are
positively related with channel coordinations
in post-purchase stage.
2.2 Channel Coordination and Synergy
Realization
2.2.1 Synergy Realization
Hybrid retailers that successfully integrate their
channels should benefit from improved customer
relationship and retention rate. Prior research has
discussed synergies from the right channel
integration, including improved customer trust,
improved customer awareness, consumer risk
reduction, and coverage of diverse shopping
preferences (Gorsch, 2001). Further research also
highlights similar synergies including cost savings,
service differentiation, enhanced trust, and market
extension (Steinfield et al., 2002; Payne and Frow,
2004). Other research suggests certain performance
measures for multi-channel management: improved
A PROCESS FOR IMPLEMENTING ONLINE AND PHYSICAL BUSINESS BASED ON A STRATEGY
INTEGRATION ASPECT
7
service variety, improved service efficiency,
increased repeat purchase, and enhanced customer
profitability (Brown, 2000, Kumar and Reinartz,
2006). Accordingly, this study summarizes the
previously relevant studies for defining the synergies,
including improved customer trust, improved
customer awareness, consumer risk reduction,
coverage of diverse shopping preferences, improved
service efficiency, increased repeat purchase, and
enhanced customer profitability.
2.2.2 Hypotheses Development
The benefit of selecting and implementing the right
channel coordination could be primarily attributed to
customer satisfaction in the form of enhanced
service and better user experience, and in turn leads
to higher retention rate and customer profitability
(Wiertz et al., 2004; Payne and Frow, 2004). Many
studies have discussed that hybrid retailers may
benefit from synergies between electronic and
physical channels in their interaction with customers
(Gorsch, 2001; Steinfield et al., 2002). Accordingly
we can argue that there are some linkages between
channel coordinations and based on the discussion,
the following three hypotheses are hereafter
developed for the argument.
H4: Channel coordinations are positively related
to synergies realization in pre-purchase
stage.
H5: Channel coordinations are positively related
to synergies realization in actual purchase
stage.
H6: Channel coordinations are positively related
to synergies realization in post-purchase
stage.
3 RESEARCH DESIGN
The survey instrument contains a four-part
questionnaire as indicated in Appendix. The first
part uses a nominal scale, while the rest use 7-point
Likert scales.
3.1 Basic Information
This part includes organizational attributes, industry
type, annual revenue, number of employees, and
experience on virtual and physical stores and
respondent’s attributes, education, age, working
experience, and position.
3.2 Strategy Integration
This part was adapted from the instrument
developed by Gulati and Garino (2000) for defining
four clicks-and-bricks strategies. There are four
constructs, brand, management, operations, and
equity. There are three items, four items, three
items, and three items for brand, management,
operations, and equity individually. As a result, a
total of thirteen items is defined for this instrument.
3.3 Channel Coordination
This part was adapted from the definition of channel
coordinations based on the three stages in the
purchase process, as reported in Table 1 (Katros,
2000, King et al., 2004; Turban, et al., 2004). There
are five items, three items, and three items defined
for pre-purchase, actual purchase, and post-purchase
respectively. As a result, a total of eleven items is
defined for this instrument.
3.4 Synergy Realization
This part was adapted and summarized from the
studies of Steinfield et al. (2002), Gorsch (2001),
Brown (2000), and Kumar and Reinartz, (2006),
including improved customer trust, improved
customer awareness, consumer risk reduction,
coverage of diverse shopping preferences, improved
service efficiency, increased repeat purchase, and
enhanced customer profitability. As a result, a total
of seven items is defined for this instrument.
3.5 Sample Design
Potential sample firms should have both physical
and online stores for their business operations.
Also, the products offered in the market must be in a
physical form rather than a digital form. A total of
500 sample firms are collected from manufacturing
and retailing sectors as sample frame in this study.
Furthermore, marketing managers are selected as the
major respondents. Pretest is executed, including
translation, wording, and structure. After that, a
total of 500 questionnaires for the sample frame are
sent to marketing managers. 90 firms replied, with 3
incomplete responses deleted, resulting in a total
sample of 87 firms for a 17.4% response rate.
3.6 Scales Validation
Confirmatory factor analysis (CFA) is used for scale
validation. First, a measurement model should be
assessed for goodness of fit. Next, convergent
validity is assessed by three criteria, factor loading
ICEIS 2009 - International Conference on Enterprise Information Systems
8
construct reliability, and average variance extracted
(Fornell and Larcker, 1981). Finally, discriminant
validity is assessed by the measure that AVE for a
construct should be larger than the squared
correlation between the construct and other
constructs. The testing results indicate a goodness of
model fit. Convergent and discriminant validities are
all in an acceptable level.
4 ANALYSIS AND FINDINGS
4.1 Analysis of Strategy Integration
Cluster analysis concludes three clusters of spin-off,
joint venture, and in-house division with 18, 34, and
35 sample firms, as indicated in Table 2. From the
percentage distribution, there are a higher proportion
of firms adopting in-house division (40.2%) and a
smaller proportion of firms adopting spin-off
(20.8%). Most firms in manufacturing sector are
larger size and have their own or particular brand in
the market for a long period of time and therefore,
their marketing strategy has been focusing on
maintaining and promoting the original brand.
Moreover, even though firms recognize the
importance of joint venture with existing online
partners to capitalize on the advantages of both
channels in promoting the shared brand, they may
have difficulty to find appropriate online partners
with relevant experience on selling similar products.
Thus, there is a high proportion of manufacturing
firms (53.8%) adopting in-house division. In
addition, spin-off is separately owned and operated.
This strategy would not have full effort on
promoting the original brand while at the same time
it also needs to establish a new brand. However, the
promotion of the original brand is well recognized as
one of the important marketing activities in both
manufacturing and retailing sectors in Taiwan. There
is a low proportion of sample firms (20.8%) reported
in adopting spin-off.
Table 2: Firm clusters for integration strategies and
sectors.
Strategy
Firm size Manufact. Retailing Others
In-House
division
35(40.2%) 21(53.8%) 10(24.3%) 4(57.1%)
Joint
venture
34(39.0%) 9(23.1%) 22(53.6%) 2(28.5%)
Spin-off 18(20.8%) 9(23.1%) 9(22.1%) 1(14.4%)
Total 87(100%) 39(100%) 41(100%) 7(100%)
4.2 Analysis of Channel Coordination
Hypotheses 1, 2, and 3 are first tested. MANOVA
analyzes these hypothetical relationships.
Hypotheses 1, 2, and 3 are all accepted. Moreover,
univariate F test is further examined to understand
the differences of channel coordinations at each
purchase stage varying across the integration
strategies (the results omitted). For pre-purchase
stage, pre-purchase 3 is not significant across the
three strategies. This channel coordination is
commonly recognized as the basic requirement to
build initial trust of customers to the Internet
business. Thus, this channel coordination behaves no
difference among these strategies.
For actual purchase stage, purchase 1 is not
significant across the three strategies. The reason
behind this is similar to the previous one. For
post-purchase stage, post-purchase 1 is not
significant across the three strategies. The reason
behind this is similar to the previous one. Next, there
is a pattern to indicate spin-off strategy with lower
degree of impact on channel coordination across the
three purchase stages. In contrast, in-house division
strategy creates high degree of impact on channel
coordination. This is because spin-off strategy
operates with two separate entities and effective
channel integration would be difficult and
sometimes unnecessary.
4.3 Analysis of Synergy Realization
Hypotheses 4, 5, and 6 are first tested. Canonical
correlation analysis is used to analyze these
hypothetical relationships. The testing results
indicate that Hypotheses 4, 5, and 6 are all accepted.
Moreover, canonical loadings are further examined
to understand the relative impact of channel
coordinations on synergy realization. For
pre-purchase stage, the results reveal that except
pre-purchase 1, the other channel coordinations are
important variables in influencing synergy
realization, in particular, pre-purchase 5 being the
largest one. This is because that promoting the
original brand for most companies has been
considering as the basic marketing activities
regardless the traditional or Internet business.
Customers have recognized the legitimacy of the
original brand and established their trust on these
companies. Thus, the relative effect of using same
brand names in both channels on synergy realization
would not be important.
For actual purchase stage, all the three channel
coordinations have significant impact on synergy
realization. Among them, actual purchase 2 is the
most influential one. This is because customers
A PROCESS FOR IMPLEMENTING ONLINE AND PHYSICAL BUSINESS BASED ON A STRATEGY
INTEGRATION ASPECT
9
perceive this channel coordination as a brand-new
service and have more frequent contact with
company both online and offline, in contrast to the
limitation of past traditional business. For
post-purchase stage, all the three channel
coordinations are important variables in influencing
synergy realization. Among them, post-purchase 3
is the largest one. This is obvious since personalized
marketing from collecting detailed information in
both channels is considered as an antecedent of
customer retention.
Finally, canonical loadings for synergies
realization are examined to understand their relative
improvement. Some synergies have higher
correlations with the predictor canonical variates
(channel coordinations), for instance, improved
customer trust and customer risk reduction (loadings
of 0.786 and 0.745). This is because human being
inherently has cognitive limitation for often
recognizing subjects by the first impression,
particularly in e-commerce environment associated
with the characteristics of high uncertainty or risk,
building initial trust or reducing risk for customers is
thus the first priority of the firm to successfully
operate an online business.
5 CONCLUSIONS AND
SUGGESTIONS
In general, the results indicate that different
strategies have different degrees of impact on
channel coordinations and in turn, different
synergies realization. The implications are discussed
for practitioners and researchers. For practitioners,
managerial personnel can base the findings on
effectively allocating limited resource to achieve
maximal synergies. Moreover, significant synergies
are centered on improved customer, consumer risk
reduction, and increased repeat purchase. This
indicates that establishing customer initial trust and
the first impression is the critical success factor in
online business. This is extremely helpful for a
firm to successfully start a new online business.
For researchers, questions remain to be clarified
for this convergence, which models will win, how
are channel coordinations operated, and what
benefits can be obtained from channel coordinations.
This study attempts to develop a new approach by
integrating the relevant elements together and base it
on defining a clear and solid process to effectively
guide the operation of clicks-and-bricks business as
well as empirically verifies it with high practical
validity. Thus, the proposed model has made an
important contribution to the emerging literature on
e-commerce.
Finally, although this study has produced some
interesting results, it may still have some limitations.
First, this study may have the problem of external
validity for failing to consider the characteristics of
physical and virtual stores such as design of web
store, the number of physical stores, geographic
location of physical store, and so on. Next, digital
products can be sold and delivered simultaneously
on Internet network, but are restricted to this
research. The findings may have some degrees of
limitation on generalization to this kind of products.
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A PROCESS FOR IMPLEMENTING ONLINE AND PHYSICAL BUSINESS BASED ON A STRATEGY
INTEGRATION ASPECT
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