Roni Krakover

Does The Internet Level the Playing Field for the Small Retailers?

Many believe that the Internet levels the playing field and allows smaller retailers to setup online stores with substantially lower entrance barriers. “The virtual operation of the Internet allows merchants to enter and leave quickly and with lower investment” (Watson, Akselsen, & Pitt, 1998).

However, it appears that there is more to leveling the playing field than reducing the entrance barrier. Trust, for example, remains one of the most important components of the relationship between vendor and consumer, and gaining trust for one’s online store is not trivial. For trust to exist the retailer has to project that it has the motivation and reliability to deliver the goods as expected by the consumer (Jarvenpaa, Tractinsky, & Vitale, 2000). A large physical operation can serve as a trust cue for the consumers; it delivers the message that a large number of suppliers and clients trust the organization enough to engage in business activities (Doney & Cannon, 1997). This large physical operation is harder to project over the Internet.

In addition, the ease of entrance and exit can act as a two-way sword for online vendors. Customers are well aware of the fact that opening a store in the physical world requires large resources and investment, while an online store can be opened instantly and almost for free. According to Doney and Cannon (1997), a large retailer size assures the customer that this is not a “fly by operation” – a more challenging task in the online world where it is possible to open an online store and disappear shortly after.

In their study, Doney and Cannon (1997) find a significant positive relationship between retailer size and buying. In an Internet study by Jarvenpaa, Tractinsky, and Vitale (1999), the effects of store size on trust varies according to the product category – when buying books, store size mattered less than when buying a flight ticket. The authors attribute this difference mainly to the different cost of the products; however perceived need for future repairs, interaction and support may also be a factor.

Another issue to keep in mind is the complexity of isolating retailer size effect. By definition, bigger retailers have more visibility – either due to their physical presence or to advertising budgets, so it is very likely that they will generate more brand awareness, which can be easily confused with size. Thus, it is important to take into account that a small retailer who will be able to create larger awareness may reap similar rewards as the big retailer.

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