SYNSOPSYS A Study on Consumer Behaviour for Online Shopping -A Case Study Of Selected B2C Book Shopping Portals Submitted

in Partial Fulfilment of the Requirements of Bangalore University for the Award of the Degree of MASTER OF BUSINESS ADMINISTRATION

BY TUSUM BHATTACHARYA REG. NO: 10SKCMA081 Under the Guidance of Dr. Byra Reddy

Acharya Institute of Management & Sciences 1st Cross, 1st Stage, Peenya Industrial Area Bangalore 560058 2010 2012

Title:- A Study on Consumer Behaviour for Online Shopping - A Case Study Of Selected B2C Book Shopping Portals

Introduction The Internet has developed into a new distribution channel and online transactions are rapidly increasing. This has created a need to understand how the consumer perceives online purchases. The purpose of this dissertation was to examine if there are any particular factors that influence the online consumer. Primary data was collected through a survey that was conducted on students at the University of Kristianstad. Price, Trust and Convenience were identified as important factors. Price was considered to be the most important factor for a majority of the students. Furthermore, three segments were identified, High Spenders, Price Easers and Bargain Seekers. Through these segments we found a variation of the different factors importance and established implications for online book stores.

Background The invention of the Internet has created a paradigm shift of the traditional way people shop. A consumer is no longer bound to opening times or specific locations; he can become active at virtually any time and place and purchase products or services. The Internet is a relatively new medium for communication and information exchange that has become present in our everyday life. The number of Internet users is constantly increasing which also signifies that online purchasing is increasing .The rapid increase is explained by the growth in the use of broadband technology combined with a change in consumer behavior. The Internet is considered a mass medium that provides the consumer with purchase characteristics as no other medium. Certain characteristics are making it more convenient for the consumer, compared to the traditional way of shopping, such as the ability to at any time view and purchase products, visualize their needs with products, and discuss products with other consumers Oppenheim and Ward (2006) explain that the current primary reason people shop over the Internet is the convenience. They also recognize that the previous primary reason for shopping online was price, which has now changed to convenience. Analysing consumer behaviour is not a new phenomenon. The renowned marketing expert Philip Kotler has published several works on the topic of consumer behaviour theories. These theories have been used for many years not only to understand the consumer, but also create a marketing strategy that will attract the consumer efficiently. Hence, understanding and identifying the consumer is closely related to the directions a company will take with their marketing strategy. These theories can also be applied to

identify the online consumer and to create certain consumer segments. However, some distinctions must still be made when considering traditional consumer behaviour and online consumer behaviour. Since online retailing is a new retailing medium and online consumer behaviour is diverse from traditional consumer behaviour, one must identify what influences the online consumer. Analysing the process that the online consumer goes through when deciding and making a purchase over the Internet, shows some factors that consumers consider. These factors need to be identified and taken into account by online retailers in order to satisfy consumer demands and compete in the online market. To further understand how these factors influence different types of consumers, one must identify segments which will enable everyone to make comparisons. Statement of The Problem:The purpose of this research is primarily to identify and get insight into the main factors the online consumer takes into consideration when purchasing books online, as books are the most commonly bought product on the Internet . Further, it is preferred, if any segments can be established by identifying the consumers and how these segments relate to the identified factors. The findings of this research will be outlined as implications for online book retailers in order to enhance their consumer knowledge and increase the effect of online marketing strategy.

Literature Review

ANALYSIS OF CONSUMER BEHAVIOUR ONLINE Author: Dejan Petrovic Published: 2007 The report outlines the most relevant behavioural characteristics of online consumers and examine the ways they find, compare and evaluate product information. Comparison of the newly collected survey data with the existing consumer behaviour theory resulted in detection of a number of issues related to a specific consumer group. The purpose of this report is to translate these findings into a set of implementation activities on strategic and technological level. Execution of these recommendations will result in better conversion of visitors into customers and encourage customer loyalty and referrals. The focus group of this study will be young adults aged between eighteen and thirty-four interested in buying a mobile phone or a related product. Research by Shun & Yunjie (2006) showed that there are product types, which are more likely to be sold online such as software, books, electronics and music. Reason for this is that when purchasing these types of products, one does not require personal inspection and most, if not all features, can be outlined in the product description and images. Most products in the mobile phone family belong to this category. According to the recent research on consumer behaviour on the Internet users (Cotte, Chowdhury, Ratenshwar & Ricci, 2006), there are four distinct consumer groups with different intentions and motivations:

Exploration Entertainment Shopping Information

Majority of young adults interviewed for purpose of this research tend to be active information seekers. A high level of technological confidence within this group tends to be an encouraging factor when it comes to product information research online. The following analysis presents both, focus group results and behavioural theory in a parallel fashion divided into two main research topics:

Information Retrieval and Search Patterns Perception of Product Information Online

These two areas are mutually dependent and particularly important in a market where consumers have the power to choose the right product from a number of competing suppliers. Well-structured product information that cannot be found easily online is as much

of a problem as is having easily accessible information that does not meet the consumers expectations. Business-to-Consumer (B2C) E-Commerce Gale Encyclopedia of E-Commerce | 2002 | BUSINESS-TO-CONSUMER (B2C) E-COMMERCE Business-to-consumer (B2C) e-commerce has woven itself into the fabric of business and consumer relations. Major strategic alliances have been formed among e-commerce giants. Television advertisements for e-commerce Web sites are plentiful, and consumers and the business community generally seem to accept that B2C e-commerce is here to stay. Even as the United States weathered a general economic slowdown in the early 2000s, online spending continued to grow, with consumers spending more on average with each online purchase. Meanwhile, stocks of leading e-tailers began to level off after losing much of their value in 2000. There was a general sense that the worst was over, and certainly long-term prospects looked good for B2C e-commerce. GROWTH AND GROWING PAINS Swift growth has been perhaps the most celebrated feature of e-commerce. According to the U.S. Census Bureau, online shopping grew from $7.7 billion in 1998 to $17.3 billion in 1999 to $28 billion in 2000. Those figures are lower than other estimates of online consumer spending because the Census Bureau typically does not include online travel services, financial brokers or dealers, or ticket sales agencies in its totals. The 1998 holiday season represented the first "e-tail Christmas" for U.S. consumers. Online consumers spent an estimated $4 billion during the fourth quarter of 1998 for goods and services, including travel, and nearly $10 billion for the year, according to the Boston Consulting Group. For the first time, online retailer Amazon.com surpassed $1 billion in annual sales as a result of the 1998 holiday shopping season. Internet portal America Online generated $1.2 billion in sales in the 10-week holiday season alone. The next year marked an even greater success for online retailers, with big gains over the previous year. Jupiter Communications (now Jupiter Media Metrix) estimated total holiday Internet sales at $7 billion, while PC Data Online reported online holiday sales of $5 billion. Other estimates of 1999 holiday sales online varied from $8 billion to $13 billion, but all agreed that the 1999 holidays posted a large gain over the 1998 holiday shopping season. One of the biggest problems online shoppers have faced, particularly during a holiday rush, is late delivery of merchandise. In December 1999 the U.S. Federal Trade Commission (FTC) received numerous complaints about prominent e-tailers failing to deliver merchandise by promised delivery dates. As a result, seven top e-tailers, including Macys.com ,Toysrus.com, and CDNow, were fined a total of $1.5 million. The FTC found that those e-tailers violated the agency's mail-and-telephone order rule that required an order to be shipped within 30 days. If delivery could not be made on time, the customer should've been told and

given the option of agreeing to a new shipping date or canceling the order. In 2000 the FTC issued a delivery warning to more than 100 e-tailers reminding them of their obligation regarding shipment dates, consumer notification, and refunds. A holiday season field-test of e-tailers conducted by Resource Marketing of Columbus, Ohio, reported in Fortune magazine, found it was easy to find and order products, but the service component was flawed. The company noted that shoppers could not even place an order 25 percent of the time; 20 percent of the packages arrived late or never; and 36 percent of the sites had busy or unhelpful customer service phone numbers. Another study released by Datamonitor estimated that poor customer service cost e-tailers $11 billion in lost sales during 2000, including incomplete purchases that could have been salvaged if better service were provided.

UNDERLYING STRENGTH Despite difficulties, during 2000 online shopping continued to rise. Growth was attributed to new shoppers as well as to more spending by established customers. During the year online retailing received greater support from offline retailers who wanted to add new distribution channels and shore up their revenues. Strong ties to established brands in 2000 helped the growth of "bricks and clicks," further integrating traditional retailing with online channels. In 2000 approximately 64 million Internet users participated in some form of online shopping-related activity, and 24 million households purchased at least one item online, according to a report from eMarketer. According to the U.S. Census Bureau, the third quarter of 2000 saw a 15.3 percent increase in online sales over the previous quarter. Total Internet sales reached $6.37 billion in the quarter, but online purchases made up only 0.78 percent of all retail sales, up from 0.68 percent in the second quarter. The categories of online retailers with the strongest growth in the quarter were mail-order firms, automobile companies, and online bookstores. Mail-order companies and traditional retailers showed faster growth in the quarter than pure-play e-tailers. Their strong performance was attributed to having infrastructures in place, such as distribution, customer relation, and billing systems, as well as having recognizable brands. Consumers also appeared more comfortable making online purchases: repeated Internet use and knowing other people who bought online were reducing concerns about security and Internet fraud. For the 2000 holiday season, online shoppers spent an estimated $10.7 billion, according to a study by Goldman Sachs and PC Data Online. That included $878 million spent online in the week after Christmas. The report found that online sales during December increased 60 percent over the previous year, and online sales for the 2000 holiday season more than doubled from the $5.2 billion spent during the 1999 holiday season. A study by Media Metrix (now Jupiter Media Metrix) found that traffic to e-tail Web sites during the 2000 holidays increased by more than 30 percent over 1999 levels, with online retailers reporting an average of 34.2 million unique visits each week. Other estimates of online spending for the 2000 holidays ranged from $10.8 billion to $12.5 billion.

Estimates of the amount spent online during all of 2000 varied considerably. In January 2001 Activ-Media Research reported that online shopping in 2000 reached $56 billion, with sales during the holiday season of about $9 billion. That compared to an estimated $3.5-to $4.5 billion spent during the 1999 holiday season. Factors contributing to the surge in online holiday spending included better order processing systems and more effective marketing promotions. Some 57 percent of all consumer-oriented Web sites had e-commerce capabilities, while an additional 36 percent provided pre-sale information and post-sale support without actually taking orders. The research firm projected that online B2C sales would reach $1.1 trillion by 2010. The U.S. Census Bureau reported that online shoppers in the United States spent $28 billion in 2000, an increase of 62 percent over the $17.3 billion spent in 1999. The Census Bureau said that online shoppers spent $7.8 billion on airline tickets in 2000, followed by $5.1 billion on personal computers and $2.1 billion on hotel rooms. The Bureau's figures did not include online travel services, financial brokers and dealers, or ticket sales agencies. The study was prepared for the Census Bureau by Jupiter Media Metrix, which projected that total e-commerce sales would reach $213 billion by 2005. A 2001 report by the Boston Consulting Group found that 68 million Internet users in the United Statesrepresenting 55 percent of all Internet userspurchased something online in 2000, up from 53 million in 1999. Some 70 percent of Internet shoppers reported problems with Web sites taking too long to load, followed by 20 percent having trouble getting a site to accept their credit card. About 11 percent reported a problem of not receiving merchandise that was ordered and paid for. ONLINE SPENDING GROWTH CONTINUED IN 2001 Consumers spent a reported $3.4 billion online in February 2001, according to the National Retail Federation and Forrester Research. That represented a 13.3 percent increase over January, when consumers spent $3 billion online. Those figures compared to $2.8 billion for January 2000 and $2.4 billion for February 2000. In March 2001 online consumer spending reached $3.5 billion, according to Nielsen/NetRatings and Harris Interactive. The report, based on a survey of 39,000 Internet users, found that more than 81 percent of all adults with Web access had purchased something online since being connected to the Internet. The Nielsen-Harris study found that online travel and apparel accounted for more than half of online spending growth. A similar report from Forrester Research and Greenfield Online agreed on the total level of spending in March 2001, but reported a much lower dollar value of apparel purchases than those estimated by Nielsen and Harris. Both studies agreed that apparel was the most popular small-ticket item purchased online, however. For the first quarter of 2001, the U.S. Census Bureau reported that e-commerce sales reached $7 billion, excluding online travel services, financial brokers and dealers, or ticket sales agencies. E-commerce sales represented 0.91 percent of total retail sales for the quarter, according to the Census Bureau.

In May 2001 the Boston Consulting Group predicted that online retail sales in North America would grow from $44.5 billion in 2000 to more than $65 billion in 2001. BCG, together with online retail trade association Shop.org, found that the three strongest online retail segments in 2000 were computer hardware and software, books, and travel reservations. The travel segment included air, lodging, car, cruise, and tour reservations. For 2000 travel generated $13.8 billion in online sales, followed by computer hardware and software at $8.2 billion, then books with $1.9 billion in online sales. As a percentage of overall retailing, online sales were projected to increase from 1.7 percent in 2000 to 2.5 percent by the end of 2001, according to the study.

BUSINESS MODELS SEEK PROFITABILITY B2C e-commerce is conducted essentially via three business models.

Pure-play online retailers, such as Amazon.com, sell only over the Internet. They do not sell offline and do not have traditional brick-and-mortar stores that consumers can visit. A second type of online retailer includes companies that have traditional stores or sell offline through catalogs or mail-order, but that also have a presence on the Web. These are known as "bricks-and-clicks" because they sell to consumers both through an offline channel and an online storefront. A third category consists of portals, such as America Online, where goods and services from several online retailers are offered to consumers.

PURE PLAYERS Most pure-play e-tailers had little concern for profits when they first launched. They focused on acquiring market share, spending to gain new customers, and building their brands. They succeeded in driving traffic to their Web sites, but their margins were not enough to achieve profitability. As a result, many pure-play e-tailers went out of business in the wake of the dot-com shakeout of 2000. Others faced cash shortages and needed to raise funds to cover their cash-burn rate and lack of profitability. In early 2001 some of the leading pure-play etailers, such as Amazon.com and Buy.com, took steps to become profitable by the end of the year. Amazon.com cut its work force by 15 percent, laying off 13,000 employees.Buy.com announced plans to focus on highermargin products, such as technology and consumer electronics products, instead of its entertainment offerings. BRICKS-AND-CLICKS By mid-2001 many considered the brick-and-click formula the leading model for success in online retailing. A study by McKinsey & Co. revealed that more than 75 percent of the bestperforming e-tailers were online cousins of traditional retailers. Bricks-and-clicks had the benefit of existing brands, established marketing and distribution arrangements, and an installed information technology base. The study found that e-tailers that sold clothing and

apparel did the best in terms of gaining revenue from customers, with an average 21 percent operating margin. In fact, it was the only e-tail category with an average positive operating margin. In other categories, such as electronics, books, and gifts, the average operating margin was negative, with only the leading players making money on every sale. Bricks-and-clicks also had the ability to bring the Internet into their traditional stores. Instore kiosks with Web access allowed consumers to research potential purchases online, then find the merchandise they wanted in the store. Brick-and-click bookseller Barnes & Noble took steps in 2001 to more fully integrate its online bookselling with its stores. For example, the company allowed customers who purchased books online the convenience of being able to return them to a Barnes & Noble bookstore. PORTALS Portals such as Yahoo! and America Online (AOL) have evolved from being large directories that helped people find places on the Internet to places that offered their own content and services. Leading portals such as Yahoo!, AOL, AltaVista, and MSN all offer shopping areas for consumers. In June 2000 the top portal shopping site was Yahoo! Shopping, which attracted 5.8 million unique home-based visitors, or nearly 7 percent of all Internet users. AOL's Shopping Channel had more than 3.4 million unique visitors that month. AltaVista's shopping area attracted 2.6 million unique visitors, while MSN's shopping sections had 1.2 million unique visitors. Portal shopping areas provide added value to new and experienced online shoppers alike. They offer specialized search engines and many give consumers the opportunity to comparison shop across several sites. The storefront business model made popular by Yahoo! Shopping has also succeeded in attracting more small businesses. These online store-fronts enable small businesses to maintain an online presence with minimal expense, and they benefit from the traffic attracted to the major portals. A January 2001 study by the Yankee Group found that B2C e-commerce at portals and online malls grew at a faster rate than for stand-alone etailers during the 2000 holiday season. AOL reported an 84 percent increase in holiday sales over its 1999 holiday sales of $2.5 billion, while Yahoo! and Lycos reported that their holiday sales doubled over the previous year. Stand-alone e-tailers, on the other hand, reported an average growth rate of 40 percent. Another Yankee Group study found that 57 percent of online consumers began their shopping trip at a portal or portal-based mall during the 2000 holiday season. KEYS TO PROFITABILITY As e-tailers seek to achieve profitability by cutting costs and spending less to gain customers, the ability to generate positive gross margins becomes the number one factor in e-tail success. Another critical factor is driving traffic to the Web site, but that needs to be combined with a high conversion rate. That is, it is important to have not only sustained visitor traffic, but also to be able to convert 10 to 15 percent of the visitors into buyers. According to a December 2000 study by the Yankee Group, the average conversion rate for e-tailers was only 1 percent.

Successful e-tailers must also provide consumers with products they want and be able to convince them that the Web is the place to buy them. Successful etailers must be able to provide consumers with a positive Web experience, make it easy to find products and information about products, and ease any fears or concerns that consumers may have. In the context of the above statement of the problem and review of the literature , the Study on Consumer Behaviour for Online Shopping -A Case Study Of Selected B2C Book

shopping portals is conceived with the following objectives: Objectives : The main factors affect the online consumer when considering and making a purchase over the Internet. To analyse how these factors influence the consumer when purchasing books online. To find whether any segments exist within the identified online consumers . To evaluate the connection between the factors affecting online consumers and consumer segments.

Choice of methodology The main focus will be to find the main factors that influence the online consumer when making an online purchase. In order to broaden our own understanding of the subject we conducted our initial research in literature on consumer behaviour and e-commerce. We reviewed studies that had similar aims and paid particular attention to their results. For our own research we decided that the most appropriate approach would be a questionnaire that would be filled out by students at of different universitites. To encourage the students not to reject the questionnaire outright, and to increase the response rate, the questionnaire should be limited to maximum of one sheet of A4 paper. The study started out as an exploratory study but will be developed into an explanatory study since first attempt will be gaining knowledge about consumer behaviour to further being able to gain knowledge about online consumer behaviour. Having this knowledge it will be continued to identify specific factors that are of importance when the consumer is making online purchases. This information is then used in order to find relationships and correlations between these variables. Sample Size` -100

Empirical Research Method This chapter will present process of the research study, in order to collect primary data and reach the objective of the dissertation and the different types of methodologies that were used . Analysis This chapter will present the analysis and conclusions of the conducted research. Identification of certain segments and analysation of how the factors Price, Trust, and Convenience affect these segments

Research Strategy When collecting data to approach the purpose of a research there are two ways in which the data can be collected. In order to acquire a general knowledge about the topic, secondary data is primarily used and is one of the ways by which data can be collected. The second way to collect data is the primary data collection. Usually when a study is conducted, secondary data is not sufficient enough and needs to be completed with primary data . Secondary Data Secondary data can be classified into three different subgroups: documentary, multiple source, and survey. Documentary second hand data comes in both written and non written form. It is the data that can be collected from sources such as journals, databases, transcripts etc. This form of data is dependent on the access the researcher has to it. Survey based secondary data is the data that is collected through the survey and is available as data table forms. Multiple source secondary data is data that has been compiled into documentary or survey form; the main characteristics of this type of data is that it has been changed into different form before the researcher is assessing the data . The research will be conducted with a positivistic approach, since we will try to affect and interfere with the collected data as little as possible. Limitations There are a number of factors influencing the online consumer. However, this research will try to identify the main factors influencing the online consumer and will, therefore, try to limit these to a few in order to be able to investigate the effect on the online consumer. Within the field of consumer behaviour there are many theories and models that identify the consumer. This research will limit itself to identifying the consumer through his/her consumer characteristics and the consumer buying process. Consumer behaviour differs

depending on what product or service is bought. Hence, different factors are of different importance to consumers depending on the product or service. Therefore this research will limit itself to books since this is the product that is most widely bought on the Internet. Students are the population that frequently have to buy course literature. This seemed to be the most appropriate choice considering the limitations in both time and resources.

Chapter Scheme:
Chapter1: Introduction It gives an insight and introduction about the broad area of the topic chosen and also the theoretical background of the study. Chapter2: Research Methodology It helps to understand the practical steps adopted to reach the data and methods of analysis and interpreting the response. Chapter3: Profiles It talks about the background of the online book shopping and gives detailed information about its origin, growth, development and its future. It also gives information about different portals through which consumers purchase books online. Chapter4: Data Analysis And Interpretation The Data collected from the study would be quantitatively presented and analysed using appropriate statistical tools for interpretation and providing relevant recommendations. Chapter 5: Findings, Suggestions And Conclusions Based on the analysis of the data findings with respect to the objectives shall be interpreted and on the basis of that suggestions will be made. Dr. Byra Reddy Faculty Guide Date:Tusum Bhattacharya Reg No.:-10SKCMA081