The Impact of Digital Marketing on Firms' Strategies and Consumers' Post-purchase Behavior

Thesis (Ph.D.)--University of Washington, 2014Companies have for decades built up their business around the traditional brick-and-mortar channel. The rise of the Internet and the surging popularity of online shopping have offered rapid growth in e-commerce and embodied the emerging click-and-mortar (e.g. Target.com) or solely online business model (e.g. Amazon.com). As the focus of market moves away from brick-and-mortar to e-commerce, companies have sought to adapt best digital marketing strategies to obtain competitive advantage over their rivals. Meanwhile, the prevalence of user-generated content has given consumers unprecedented power to influence the market performance of various products and services. Such transformation has created many opportunities and challenges for modern e-businesses. It has opened several new pages for IS literature as well. In my dissertation, I intend to study the impact of digital marketing on firms' pricing strategy as well as on consumers' intrinsic behaviors in the post-Internet era. In the first study, I examine a novel hybrid pricing model, featuring both online advertising and digital promotion. Endogenizing product prices as a decision variable, I explicitly consider the implementation costs and the distribution effectiveness associated with the underlying mechanism. From consumers' perspective, cashback shopping provides an attractive saving opportunity as the prices they pay are perceived lower. Surprisingly, under some conditions the "low" post-cashback price is actually "high", relative to the level in the absence of cashback mechanism. As a consequence, the introduction of cashback may reduce consumer surplus and social welfare. In the second essay, I investigate a fundamental question: Under what conditions are consumers more likely to post product ratings voluntarily? Unlike existing literature, I follow an established theory and propose a novel approach, decomposing consumer satisfaction into product quality and quality disconfirmation. I find that the discrepancy between a consumer's expected and realized product quality has a significant impact on her propensity to share product experience. Such intension to contribute is subject to the crowding-out effect, meaning that the underlying propensity declines as more peer consumers have already shared their opinions. Furthermore, the more credible a consumer perceives the online review system, the less prone she would be to interact with the system. A series of simulations are designed to further understand: (1) the association between product evaluation and lurking behavior, (2) the evolution pattern of product ratings, and (3) the effect of review manipulation on subsequent rating activities. In sum, these investigations provide a better understanding of how information systems and IT-enabled marketing methods reshape merchants' competitive strategy and consumers' decision-making processes. I briefly introduce the background, motivate the research questions of my interest, and summarize the main findings of this dissertation in the first chapter. In the following two chapters, I review related literature and highlight the contribution of my work from both academic and managerial perspectives for each of two studies. Then, I discuss model development and setting, describe research design and methodologies, and summarize main findings and implications of those two studies