Digital Technology and Consumer Preferences: A Literature Review

Abstract

Evolution of digital technology is changing consumer behaviour by translating in-store experience to online environment with ease. Advancements in information technology have enabled consumers to evaluate their choices and create an interactive consumer shopping experience. The objective of this short research paper is to gain insights about the changes in consumer preferences that are being impacted by the ongoing digital revolution.

Introduction

According to Bill Gates; “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” The evolution of consumer behaviour throughout this century is considered to be the one of the best examples of how we overestimate and underestimate changes in the future, especially in the current era of technological advancement and innovations. Imagine the scenario a decade back when Facebook was competing with MySpace to gain traffic, Amazon was primarily recognized for selling books and the iPhone was recently launched in the market. The way to shop was quite different from the way it is being done today. Most consumers trusted the brick-and-mortar stores, which were offering a limited number of product lines. Consequently, it was hard to compare price-value proposition being offered by a given store with other stores, unless they were in the vicinity of each other.

In today’s world, consumers have access to various information and communication technologies (ICTs) that are redefining the way they interact with producers (C2B) and other consumers (C2C). Gradually, technology is transforming the consumer experience – transporting it from physical to the virtual world.

Technology allows consumers to verify labels, study product features, compare prices, review brand’s promises, weigh options, ask questions and know their legal rights. Research suggests that the consumers are evaluating their Internet shopping experiences in terms of perceptions regarding product information, form of payment, delivery terms, service offered, risk involved, privacy, security, personalization, visual appeal, navigation, entertainment and enjoyment (Mathwick et al., 2002; Burke, 2002; and Parasuraman & Zinkhan, 2002).

The consumer shopping behaviour is being altered significantly by the consumer-technology interface which is also one of the Marketing Science Institute (MSI) research priorities for 2018-2020.

Nature of Consumption and its impact on Consumer Preferences

One simple way in which the nature of consumption has been studied in the past is by classifying it into consumption characterised by hedonic and utilitarian factors. It has been observed that the nature of consumption (i.e. hedonic or utilitarian) impacts the choices in the current digital environment too.

Hedonic aspects play a role in the holistic consumption experience (Hirschman and Holbrook, 1982). The hedonic aspect is generally associated with brick-and-mortar stores because of its socially visible nature (Roy et al., 2005) and the online consumer behaviour study has taken a traditionally utilitarian perspective, but this distinction in current digitally revolutionized environment is no longer valid (To et al., 2007). Academic research suggests that functional attributes no longer exclusively drive online buying. Social and hedonic motives are important not only for shopping in general but also for online shopping (Childers et al., 2001).

Consumers assess their shopping experience by considering both utilitarian and hedonic dimensions. The utilitarian aspect relates to consumers accomplishing their shopping objectives with investing minimum investment of time and effort, i.e., ‘efficiency’ (Zeithaml et al., 2000). The consumer can improve utilitarian shopping value by saving time and/or reducing effort by engaging in goal-oriented behaviour that is purposive, task-specific and instrumental (Hoffman et al., 2002). The hedonic aspect relates to the consumer’s experiential value which can be derived during the process of shopping through social interaction, personal security and entertainment (Alba et al., 1997). Consumers who approach the online environment to relish the experiential aspects are inspired by the process while performing shopping rather than by the shopping objectives or consequences.

In other words, the hedonic side of consumption is of even greater importance in an electronic-based market context, as online consumption tends to be associated with certain benefits of a non-functional or hedonic character. It has been noted that hedonic sources can promote a more positive attitude among consumers regarding a company’s value proposition (Higgins and Scholer, 2009) and make them more willing to make an online purchase (Kim and Eastin, 2011).

Online consumption allows consumer to learn about the latest trends, seller offers, ways to escape and have fun, facilitates interaction with other consumers, provides high levels of entertainment, etc. (Ganesh et al., 2010). While companies on the web should be aware of the aspects identified by Ganesh et al. (2012), what is of greater strategic importance is the design and implementation of online marketing strategies which also provide hedonic value to customers (Li et al., 2012). The hedonic aspects of consumer extracted from the extant literature have been listed in Chart 1 below.

Sources of Hedonic Value

Chart 1

Other Factors influencing Consumer Choices in Digital Environment

Apart from the nature of consumption (i.e. utilitarian and hedonic), the factors that influence consumer preferences include better information, convenience, time and effort savings, wider selections etc. Digital environment is seen to be superior to traditional means in terms the sheer amount of attribute information and alternatives it can provide. Consumer can effortlessly and quickly reach a decision as the relevant information are available from the internet and with social interaction on digital media. In this way, search costs for products or services and product related information are drastically minimized. The consumer by engaging himself/herself in information seeking can eliminate worry and reduce distress produced by an uncertainty or risk in a choice situation. In other words, the provision of relevant information enhances the confidence in decision making of the consumers.

Consumers generally want to have a convenient way to shop (24/7, out of their homes) and spend minimum time and effort to accomplish their purchases (Hoffman and Novak, 1996). They are motivated to shop because of the time savings and convenience. Therefore, ease of use is more obvious in reducing time and effort expenditures. Digital platform also provides opportunity to offer a larger number of alternatives per category and the opportunity to search for unique products (Alba et al., 1997).

Role of Price in Consumer Choices

The importance of price as a motivating factor to engage in any purchase activity is widely discussed in extant literature. According to Bell et al. (1999) consumer seems to value time saving rather than possible cost savings. According to the study conducted by Peapod (an online grocery store) that price sensitivity is lower and brand sensitivity higher among the consumers (Degeratu et al., 2000). Price seems to be an important factor for first-time buyers (Reibstein, 2002) but other factors like customer service and on-time delivery received are important for the consumers in the present digital era. Price sensitive consumer can more easily search for low prices (shopbots, comparison sites, etc.), leading to extremely high elasticities. In contrast, consumers who are price insensitive due to high income, limited time and brand consciousness, may appear extremely price insensitive when shopping online.

Based on the distinction of utilitarian and hedonic aspects, the literature indicates three main evaluation criteria that consumers are focusing in (1) making better decisions, (2) saving time and effort, and (3) reducing psychological burdens and/or having a more enjoyable shopping process.

As the information available to consumers proliferate due to the digital technology, they are becoming more powerful in making their own decision. Gone are the days when it could say, ‘advertise it and consumer will come’. Now a days a firm has not only to make products and services with and for a specific consumer to fulfill their needs and wants but to provide superior experience. According to Steve Jobs, “You’ve got to start with the customer experience and work back toward the technology, not the other way around.”

References:

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