Creating comparative advantages in the E-commerce industry

Abstract

A myriad of electronic retailers are contending in a battle to guard their established territories in cyberspace. Many of them are desperately searching for the key to sustainable growth and profitability as the struggle continues and intensifies. This study finds that one powerful way to attract customers in the e-commerce industry is to create "stickiness" through virtual communities and personalization. Virtual communities and personalization have become necessary elements for a successful e-business as they provide extended customer relations. The two cannot be easily imitated by rivals, creating sustainable competitive advantages. This paper substantiates the above claims in many approaches. First, the literature review will provide information to understand the importance of virtual communities and personalization. A dynamic feedback model is then presented to show how the two factors interact to develop a solid loyal customer base. Next, results of multivariate regression analysis using General Social Surveys 1972-2000 further justify the claim that virtual communities and personalization have significant positive effects on individuals' online purchase behavior. This empirical work also show that demographic variables are not correlated with the probability of making online purchases. Finally, case studies of leading e-commerce firms are presented to confirm that electronic retailers effectively managing virtual communities and offering personalized services are rewarded with customer loyalty, impressive growth, and above industry-average profit returns.