Growing online sales could lower prices, but also trim choices

Nov 02, 2009

Shoppers could see lower prices but less variety to choose from as more manufacturers sell directly to consumers through the Internet, according to new research led by a University of Illinois business professor.

Yunchuan "Frank" Liu says bypassing retailers eliminates the middleman's price markup, but also may curb manufacturers' incentive to provide long and varied product lines.

"We should cautiously celebrate the price benefits of buying through the Internet because there's a tradeoff that some consumers might not like," Liu said of the findings, which will appear in Marketing Science. "There's some good news - low price. But there's also some bad news - less choice."

Contrary to past research, the study found that the traditional system of selling through retailers encourages longer - rather than shorter - product lines, which could dry up as manufacturers turn to direct sales online.

In stores, longer product lines help manufacturers overcome inefficiencies of selling through middlemen that have profit motives of their own, according to the study, co-written by University of Minnesota marketing professor Tony Haitao Cui. More products equal more chances to lure buyers and thereby increase sales.

But developing and producing longer product lines is costly and the incentive wanes when manufacturers sell directly, which could ultimately leave consumers with fewer styles, colors and other options to choose from, Liu said.

He cited the more limited cosmetic varieties provided by direct-seller Avon in contrast to Estee Lauder, which markets a vast line of in-store products that offer sometimes subtle differences to match buyers' individual tastes.

"Over the next few decades, we could see a revolutionary change in the retail marketplace, with less variety in certain product areas, from cosmetics to computer equipment to cars," Liu said. "So consumers may be less likely to find products that most fit their needs."

He says the current is fueling a growing trend toward direct sales through the Internet. Selling online is less costly for manufacturers and also attractive to buyers because e-commerce generally charges no sales tax.

"The status quo is encouraging direct sales, largely because of the tax consequences," Liu said. "But that policy has shortcomings because it could lead to less variety, so policy makers should at least consider the potential negative effects."

Shopping could change radically over the next few decades if the trend continues, he said. Manufacturers could shift to almost exclusive online sales, with retailers turning to store brands to plug the holes in product offerings.

But Liu says a universal product migration from stores to the Internet is unlikely. Groceries may always be best marketed in stores, as well as products that people want to touch or test before buying, such as clothing.

"As things stand, though, the percentage of direct sales will keep increasing," he said. "How much depends on the product category. It may be lower in clothes, but higher for cars or computer software. It's already high for products like books, CDs and tickets. If the trend continues, people may end up longing for the good old days, when they had more choices."

Source: University of Illinois at Urbana-Champaign

Explore further: Economist probes the high cost of health care

add to favorites email to friend print save as pdf

Related Stories

Cause marketing: Altruism or greed?

Jun 04, 2009

(PhysOrg.com) -- Companies that join with social causes to sell products not only enhance their image but also improve their bottom line, say University of Michigan researchers.

Networking: Syndicated online content

Jun 19, 2006

The cost of online content continues to climb, but Internet retailers are not paying the full price for producing it, sources are telling United Press International's Networking column.

Recommended for you

Economist probes the high cost of health care

Mar 27, 2015

When Zack Cooper arrived at Yale as assistant professor of public health and economics, he gained access to a first-of-its-kind dataset. Working with the non-profit Health Care Cost Institute, Cooper and ...

Cash remains king in Chile but its days could be numbered

Mar 26, 2015

For more than a year now, Chileans have endured a crisis of cash access. Despite global moves toward new forms of payment such as contactless and mobile transfers, the crisis in Chile highlights the continuing ...

Will you ever pay off your student loan?

Mar 25, 2015

Would-be participants of higher education must be given full and transparent advice before they accumulate debts as students that follow them into the workplace, according to a report published in the International Journal of ...

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

ormondotvos
not rated yet Nov 03, 2009
You tryin' to make me buy more stuff? You looked at the economy lately? I'd be happy to get one choice cheap these days, and I don't intend to fall for these ads you're running for junk in general, lotsa choice of crap.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.