Future for Internet Retailers: Compete on Niche Products, Advises Management Insights Study

HANOVER, MD, November 18, 2009 – In their competition with brick-and-mortar stores, online retailers will do best if they promote the ability to search out and obtain niche products online, according to the Management Insights feature in the current issue of Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS^®).

Management Insights, a regular feature of the journal, is a digest of important research in business, management, operations research, and management science. It appears in every issue of the monthly journal Management Science.

“Battle of the Retail Channels: How Product Selection and Geography Drive Cross-Channel Competition” is by Erik Brynjolfsson of MIT, Yu (Jeffrey) Hu of Purdue University, and Mohammad S. Rahman of the University of Calgary.

The authors ask how Internet retailers compete with brick-and-mortar retailers and how this competition varies across different products. Internet retailers are deeply concerned about the competition with local retailers and vice versa.

The paper measures the strength of the competition that Internet retailers face from local stores and shows how it varies across products with varying levels of consumer search costs.

The authors find that niche products sold by Internet retailers are largely immune to competition from brick-and-mortar retailers, whereas competition is much more intense for popular products.

The authors point out that Internet retailers that pursue a “niche” strategy can be almost immune from competing with local stores. They also recommend that Internet retailers vary their promotional strategies and product offerings based on geographic locations of consumers.

The current issue of Management Insights is available at http://mansci.journal.informs.org/cgi/reprint/55/11/iv. The full papers associated with the Insights are available to Management Science subscribers. Individual papers can be purchased at http://institutions.informs.org. Additional issues of Management Insights can be accessed at http://www.informs.org/site/ManSci/index.php?c=11&kat=Manawgement+Insights.

The other Insights in the current issue are:

• Inference from Streaks in Random Outcomes: Experimental Evidence on Beliefs in Regime Shifting and the Law of Small Numbers by Elena Asparouhova, Michael Hertzel, Michael Lemmon
• Implications of Expected Changes in the Seller’s Price in Name-Your-Own-Price Auctions by Scott Fay, Juliano Laran
• Volatility Spreads and Expected Stock Returns by Turan G. Bali, Armen Hovakimian
• Composition of Electricity Generation Portfolios, Pivotal Dynamics, and Market Prices by Albert Banal-Estañol, Augusto Rupérez Micola
• The Silver Lining Effect: Formal Analysis and Experiments by Peter Jarnebrant, Olivier Toubia, Eric Johnson
• Swift and Smart: The Moderating Effects of Technological Capabilities on the Market Pioneering–Firm Survival Relationship by April M. Franco, MB Sarkar, Rajshree Agarwal, Raj Echambadi
• A Matter of Balance: Specialization, Task Variety, and Individual Learning in a Software Maintenance Environment by Sriram Narayanan, Sridhar Balasubramanian, Jayashankar M. Swaminathan
• Valuing Modularity as a Real Option by Andrea Gamba, Nicola Fusari

INFORMS journals are strongly cited in Journal Citation Reports, an industry source. In the JCR subject category “operations research and management science,” Management Science ranks in the top 10.

The special MBA issue published by BusinessWeek includes Management Science and three other INFORMS journals in its list of 20 top academic journals that are used to evaluate business school programs. Financial Times includes Management Science and four other INFORMS journals in its list of academic journals used to evaluate MBA programs.

About INFORMS

The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. The INFORMS website is www.informs.org. More information about operations research is at www.scienceofbetter.org.

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