One need only look at the jammed parking lots of malls this holiday season to know that the Web has not put brick and mortar stores out of business.
But an MIT Sloan School of Management expert on consumer behavior and marketing strategy warns that the powerful combination of digital technology and globalization will eventually drive out manufacturers, retailers and others who fail to adapt their traditional business models to new digital realities.
“Not that long ago, e-commerce was all the rage, and a lot of people lost their pants,” says Sloan Senior Lecturer Christian Dussart, co-director of Sloan’s Digital Business Strategy program. “We were dreaming. We thought everything would happen in just years.”
Online commerce is growing, but not at the heady rates some expected during the heyday of the ecommerce boom. About 25% of people plan to use the Internet to buy holiday gifts this year, according to an ABC News poll conducted the first week of December. That’s unchanged from last year, and up just six points from findings in a similar poll three years ago.
But those who are shopping online expect to spend more: an average of $646 this year, nearly double the inflation-adjusted $331 they planned to spend online during the 1999 holiday season.
So far, it appears that they are spending more. Online consumer spending hit $2 billion for the first week in December, according to measurement and analysis firm comScore Networks. That’s an all-time high for online buying, says the firm.
On-line retail sales today, however, total only two percent of overall sales. But Dussart expects that figure to rise to five percent by 2005 and to 20 percent by 2015. “Even if we are now only at the beginning of the cycle, on-line sales will soon overpass catalog sales,” he said.
The increase in online purchasing is accompanied by fundamental changes in consumer behavior, such as declining brand loyalty, according to Dussart. The use of search engines is providing shoppers with a larger pool of distributors and products from which to choose, he says.
“Consumers are becoming less loyal to a product, less loyal to a brand name. They have a choice. The more they can bargain, the more price becomes the key distinguishing factor. This is great for consumers, but it’s a nightmare for companies,” he says.
Dussart believes that companies today are more realistic about online commerce. They realize, he says, that “digital business is not just a short-term story, but a long-term phenomenon.”