Online Grocer Research Articles

The wired mother

Simple Simon Inc., a promising online grocer, believes the Twin Cities is the especially ripe for home delivery service, with the highest proportion of working women in the nation, thereby targeting at those time-starved consumers who would rather shop for groceries from their home PCs and have them delivered to their doors. Surveys also consistently told us that two-thirds of grocery shoppers dislike the task and 70–80% of groceries we buy every week are the same. With the innovative, sophisticated customer relationship management program, the items customers buy every week are stored at SimonDelivers.com. The company also offers the right web site, superior service, and just-in-time delivery to establish solid customer relationship, thus gaining the competitive advantage. Differentiation through niching, the company creates a new meaning of saving time and providing convenience for the working mothers by connecting them to a world of information technology.

A Fuzzy Set Model of Search and Consideration with an Application to an Online Market

Several two–stage choice models (consideration stage plus choice stage) have been proposed in the marketing literature. We extend this literature by developing a more general model that incorporates how consumer search influences the degree to which they consider various brands. To test the validity and value of our model, we operationalized it with data obtained from Peapod, an online grocer, where we tracked consumers’ search processes. We demonstrate that our model performs better than competing models on all the key criteria. New choice models, such as the ones proposed here, are necessary for deriving managerially relevant understanding of choice behavior in online markets. Our empirical results suggest that consumers search both their internal memory and external information at the store to determine the degree to which they consider various brands. Consumers are also heterogeneous with respect to their capability to process external information. For some consumers, external information search dramatically increases the degree to which they consider various brands; but, for others, it has little impact on their consideration. We also find that certain features (e.g., personal lists) reduce consideration set sizes, whereas other features (e.g., sort) increase consideration set sizes.

Reducing Assortment: An Attribute-Based Approach

Most supermarket categories are cluttered with items, or stockkeeping units (SKUs), that differ very little at the attribute level. Previous research has found that reductions (up to 54%) in the number of low-selling SKUs need not affect perceptions of variety and therefore sales, significantly. In this research, the authors analyze data from a natural experiment conducted by an online grocer, in which 94% of the categories experienced dramatic cuts in the number of SKUs offered, particularly low-selling SKUs. Sales were indeed affected dramatically, increasing an average of 11% across the 42 categories examined. Sales rose in more than two-thirds of these categories, nearly half of which experienced an increase of 10% or more; 75% of households increased their overall expenditures after the cut in SKUs. In turn, the authors examine how different types of SKU reductions—defined by how the cuts affect the available attributes or features of a category (e.g., the number of brands)—affected purchase behavior differently. The results indicate that consumers experienced divergent reactions to the reduction in sizes, but they uniformly welcomed the elimination of clutter brought on by the reduction in redundant items. In addition, of households that were loyal to a single brand, size, or brand–size combination that was eliminated, nearly half continued purchasing within the category. Also, contrary to previous research on SKU reductions, the authors find that category sales depend on the total number of SKUs offered. The authors extend the previous research by showing that (1) category sales depend on the availability of key product and category attributes and (2) two particularly important attributes to consumers in an assortment are brand and flavor.

STRATEGY AND SHAREHOLDER VALUE CREATION: THE REAL OPTIONS FRONTIER

The current interest in real options reflects the dramatic increase in the uncertainty of the business environment. Viewed narrowly, the real options approach is the extension of financial option pricing models to the valuation of options on real (that is, nonfinancial) assets. More broadly, the real options approach is a way of thinking that helps managers formulate their strategic options—the future opportunities that are created by today's investments—while considering their likely effect on shareholder value.But if the real options framework promises to link strategy more closely to shareholder value creation, there are some major challenges on the frontier of application. In the first part of this paper, the authors tackle the question, “What is really new about real options, and how does the approach differ from other wellestablished ways to make strategic decisions under uncertainty?” This article provides a specific definition of real options that relies on the ability to track marketpriced risk. Using examples from oil exploration and pharmaceutical drug development, the authors also show how specific features of the industry and the application itself determine the usefulness of the real options approach.The second part of the paper addresses the question: Given the many differences between real and financial options, how should a real options application be framed? The authors examine the use of real options in the valuation of Internet companies to demonstrate the required judgment and tradeoffs in the framing of real options applications. The case of Webvan, an online grocer, is used to illustrate the inter‐action between strategy, execution, and valuation.