Retail Romance

To furnish their home, Donna Hoffman and Tom Novak have purchased online virtually everything but the kitchen sink. Correction: They bought that on the web, too.

For them, however, buying online is more than just shopping—it’s academic research. Every addition to their cart is potential fodder for another paper from the husband-and-wife team that runs the Sloan Center for Internet Retailing at the University of California at Riverside. “The worst part is that when I do go into a store, I feel frustrated because I can’t click on a product and read more about it or compare prices,” Novak says.

Hoffman is co-director of the center and chair of the department of management and marketing at the university’s A. Gary Anderson Graduate School of Management. Novak also is co-director of the center as well as a professor of marketing. Most Internet retailing professionals may not realize it, but they know Hoffman and Novak—by their ideas, if not by their names.

They were the first to identify the “digital divide” between the Internet haves and have-nots, and the racial and economic factors that characterize it. Their seminal 1998 paper was published in, of all places, Science—a journal more likely to feature the rat genome than the ruminations of business professors. Virtually every paper and magazine from the New York Times on down covered that story, and it kicked off a host of federal, state, local and privately funded programs to help bridge the divide.

They also were the first to study the concept of “flow” in the web browsing experience. Browsers experience flow whenever they go online and hours later find themselves absorbed in a web site far afield from their original destination. One of their missions is to figure out ways to harness that tendency to improve the e-retail experience. One of their papers, “Measuring the Customer Experience in Online Environments,” is the most-cited article in the journal Marketing Science during the last decade.

Further, Hoffman and Novak were among the first to recognize that e-commerce was not only a revolutionary phenomenon but a subject that easily could occupy an entire academic career. Or two.

Doctor, doctor
Theirs was a graduate school romance. Both earned their doctorates in quantitative psychology at the University of North Carolina at Chapel Hill in 1984. They followed each other to teaching appointments in New York and Dallas before alighting at Vanderbilt University, Nashville, in May 1993—shortly before retail was about to change forever.

They set up their Unix workstations in their new offices and Novak was ready to begin analyzing data when he took a colleague’s fateful suggestion to download a piece of software called X-Mosaic from the National Center for Supercomputing Applications at the University of Illinois. There went the summer: Novak and Hoffman were rapidly seduced and consumed by web surfing.

“Two things captivated me at first,” Novak says. “With a simple click of the mouse I literally felt transported somewhere else. We take web pages for granted these days, but at the time this was a truly unique experience. Second, this was content that anyone could put up for anyone to see. I spent much of the summer thinking about the implications of this and the way it made me feel transported to other places. This led to our research on flow.”

Hoffman was equally dazzled. “As business professors we thought this would change the world,” she says. “We had tenure so we decided to study this, and our careers organically evolved from there. We attracted research funding and started publishing papers. And then we were off. It was a fun period because there were not many of us studying the Internet as a scholarly topic, and we all believed it was starting a revolution while everyone else thought we were crazy.”

One person who was not amused was the dean of Vanderbilt’s ­business school. It took until the late ‘90s at the height of the dot-com boom to persuade him they were onto something more than a passing novelty. Hoffman and Novak became heroes, and started the first MBA program with a concentration in electronic commerce. They scored funding from Paul Allen’s Interval Research Corp. to study the marketing implications of commercializing the web. With money from Vanderbilt they established an online panel of volunteer evaluators (now called eLab) that retailers could use to test and refine new ideas. And they were publishing papers at a rapid clip.

Then came the crash, and the business school pulled the plug. “It was just asinine,” Hoffman says. “We had all this funding from companies and foundation grants and there was more interest than ever, but deans everywhere were saying, ‘That fad’s over.’”

Enter Alfred
Enter the Alfred P. Sloan Foundation, which funds 26 academic centers to study industries such as finance, trucking, airlines and auto manufacturing. The idea behind the foundation is to get professors out of the Ivory Tower and into industries, observing business in action, says foundation program director Frank Mayadas. When Hoffman and Novak came to the foundation in 2001 with a proposal for a center on Internet retailing, Mayadas wasn’t initially convinced that it counted as an industry.

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After considerable discussion, though, he came around, intrigued by e-retailing’s potential to ­transform industries and build the economy. “We said, ‘OK, we’ll give you some support if you can show us evidence of matching money,’” he says. With grants from several retailers, including Lands’ End and Wal-Mart, the Sloan Center for Internet Retailing set up shop at Vanderbilt in 2003. Before long it became the preeminent academic institution for studying electronic commerce, industry observers attest.

“The center is rather unique in what it’s doing,” Mayadas adds, “and a lot of people have taken interest.”

While the center didn’t do contract research for companies, it did take their problems as fodder for students to use in semester-long projects, which yielded critiques of new web sites or competitive analyses of major sites in certain sectors. The center also hosted workshops, seminars and roundtable discussions on various aspects of electronic commerce.

Fast-forward to 2006. Hoffman and Novak now were empty-nesters, having sent their son off to Oberlin (Novak’s alma mater). There was no reason to stay in Nashville, and the fast-growing University of California at Riverside, among many others, was wooing them. People and location played major parts in making the decision to move to sunny California.

For one thing, the campus’ ethnic and economic diversity made it an appealing lab for their ongoing interest in digital-divide issues. “Lots of people here are the first in their family to go to college,” Hoffman says. And when it came to location, being nearer to Silicon Valley and some of the biggest names on the Internet also had its appeal. So during the summer Hoffman, Novak and the Sloan Center moved lock, stock and barrel to California.

Now that they’ve had a few months to settle in, they’re working on eLab 2.0, a beefed-up version of the center’s original panel, and on the launch of eLab eXchange, a set of “prediction markets” that lets consumers bet on how online retailing will unfold, or give their opinions on certain aspects of retailers’ web sites. Also, one of Hoffman’s pet projects at the moment is the study of “­haptics”—how to compensate for the impossibility of actually touching a physical product on the Internet. “A lot of people need to touch and not being able to can inhibit sales,” she says.

Surprise, surprise, surprise
Such forward-thinking research has defined the Sloan Center, and its predictions coming true has validated staff. But the husband-and-wife team do get perplexed and sometimes find some predictions do not pan out.

For example, despite the rapid evolution of the commercial Internet, Hoffman is surprised at how slowly the art of online advertising is developing. “Now everything’s focused on search engines, which is a big improvement over banner ads,” she says. “What’s frustrating is advertisers still are applying the TV mindset—‘Let’s show them a car commercial!’ At least we’re moving toward pay for performance. I wrote a paper begging people to move away from cost-per-thousand and toward pay for performance. But the move has been taking too long.”

And the couple’s Y chromosome admits to mistakes. Novak originally had predicted that consumers would have much more control in an online market, and that the balance of power would shift from retailers because of the availability of information, the ability to compare prices and product features, and the tremendously magnified effect of word of mouth. That has come true. But some aspects of his vision proved incorrect: He didn’t expect, among some other things, big players in bricks and mortar would be online giants as well.

“My original virtual utopia was that all manner of new-to-the-world firms would dominate online shopping and the web would be an exciting place full of surprises,” he says. “But much online shopping behavior has turned out to be fairly basic and practical: researching product information online before you buy, checking availability, checking store hours, buying from the web site of a multi-channel retailer because you trust them since you’ve shopped with them in the physical world, and grinding through holiday shopping, though in record time. I underestimated the practical, everyday value the Internet would have for consumers.”

On another note, Novak still is frustrated by the challenges presented by search engines. “Consumers expect instant gratification from search,” he says. “But if you’re trying to use the Internet to figure out, say, why your TIVO is making a strange clicking noise when you watch certain channels, you probably won’t find the answer. Speed is one of the paradoxes of the Internet. It’s both a way to quickly find information and a way to spend hours never quite getting the answer you’re seeking.”

Through the Sloan Center Hoffman and Novak got the answer they were seeking when it came to career plans. And Novak says there’s not too much they would change if they had it to do all over again, though he is quick to admit one major modification: “There are certain companies that will go unnamed whose stock I would not have purchased.”