Research

Attracting buyers in the online marketplace - how offline signals drive business for sellers

With online commerce now so commonly used by businesses and individuals, understanding what influences buyers in their choice of sellers is an increasingly significant focus for academic research. A new study from Cass Business School, City University London looks into the visible signals that help persuade a buyer to select one seller over another.

Online business to business marketplaces offer advantages of reach and choice to both buyer and seller. With so many players participating, it's important to ask why buyers select particular sellers over others. What sways their decisions and how can they assess the potential risk that transacting with a seller might pose?

There are established indicators. The mere familiarity of a particular seller is one. Online reputation services that collect and share information on sellers is another. There are also certification systems that should provide greater evidence of a seller's probity. However there are limitations to these indicators.

The sheer amount of online sellers means that many are unfamiliar to the average buyer. In addition there tends to be parity of reputation and certification status amongst large cohorts of sellers, meaning those scores may not prove particularly helpful to a buyer looking to choose.

This research aims to help the market move beyond the limitations of the online mechanisms currently available. It proposes that offline signals that are visible online, such as geographic location and legal status, are important indicators of a seller's credibility and trustworthiness. The former may convey local institutional quality, the latter demonstrates the rules and controls the sellers is legally obliged to adhere to. The study leads to predictions of how these offline signals might influence a buyer's decision.

The researchers predicted and found that the higher a seller's local institutional quality and the more robust the seller's legal obligations, the more likely a buyer is to contact that seller. Secondly, it was found that the higher those factors are relative to the buyer, the more likely a decision to transact business will occur. Buyers appear to interpret a seller's institutional quality relative to a buyer-specific reference point, and not only in terms of the absolute strength of the signal. This means that the consequences of one signal may vary across different buyer-selller pairs.

These predictions were tested by examining the initiation of contacts between buyers and sellers in a large Italian online B2B marketplace over a 21 month period between 1999 and 2001.

This research extends understanding of what impels buyers to seek the services of particular sellers in online B2B marketplaces where the identities of those sellers are largely unfamiliar. Its findings expand existing signalling research and also complements research on the role of reference points in the purchasing process.

The final author version of the research paper is available to download at the link below. This research has been published in Academy of Management Journal.

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