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An MIT Sloan School of Management study determines that the ability to use the web to find products is ten times more important to consumers than price alone. Web search also is driving new life for niche products.
If you think holiday shoppers are driven online just to find the best prices on gifts, think again. A new study from the MIT Sloan School of Management has found that the web’s ability to easily locate products, especially niche items, is nearly 10 times more important to consumers than is price alone.
“People do save money by going online, but when we compared lower prices to greater choice, we found that the value to consumers of having the extra choice was 10 times greater than the value for price alone,” says the study’s lead researcher, MIT Sloan School of Management professor Erik Brynjolfsson. “Consumers tend to be less price-sensitive if they are able to find a special niche product.”
Those results were based on a mathematical model calibrated against actual sales data shared by a large multi-channel retailer, according to Brynsjolfsson.
The study demonstrated that the ability to search and locate online has meant new life for obscure book titles and other niche products formerly inaccessible to would-be buyers. For example, obscure book titles-defined as any title ranked lower than 100,000, which is the number of titles housed in the typical brick and mortar book superstore-made up about 40% of Amazon.com’s sales revenue in 2000. In addition, though Top 40 hits make up the majority of CD sales and radio play, online music provider Rhapsody streams more songs from below its Top 10,000 list than it does from the Top 40 list, according to the study’s findings.
The findings suggest that because of this phenomenon, the disparity between the number of products that make up the largest share of sales is flattening out on the Internet. “In the catalog channel the 80/20 rule held up pretty well, but on the Internet, it’s more like 70/30,” says Byrnjolfsson, who studied the participating retailers` sales in both channels.
He predicts that disparity on the Internet will flatten out even further as the result of three factors. For one, virtual shelf space is cheaper than it is in a real store, making it feasible for online retailers to virtually stock more obscure items. The continuing improvements in online search tools and recommendation engines will keep enhancing this effect over time, he adds. Finally, he says both of the first two phenomena are actually helping drive the creation of more niche products.
“I have colleagues who are publishing books aimed at very narrow audiences. They probably wouldn’t bother except for the fact that the Internet gives them a channel where the 500 to 1,000 people in the world who are interested in the topic can find that book. If they had to go through another channel, it wouldn’t have been cost effective. And that’s true not just for books but for all sorts of different categories of products,” he says.