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e-commerce and Ethics

First published in Computer Bits

You need a new computer. You look at the ads in the Sunday paper and in Computer Bits, and you look at the offerings of the major mail-order-only companies on the Internet. You notice that nobody offers a package that is directly comparable to anyone else’s. You discover that prices range from a few hundred dollars to a few thousand dollars. You’re tempted by these cheap systems, but you wonder what the catch is, so you decide to get educated. You try to do some research on the Internet. The information is too old or too generic to be of much use. You’re confused, so you go “shopping.”

Your first stop is Billie Jo and Billy Bob’s Mom-and-Pop-Computer-Shop. They have an ad in Computer Bits, and are within a couple of miles from your home. Other than using too much jargon that you have trouble keeping straight, Billy Bob is very helpful. Rather than just trying to steer you to a product, he asks you a lot of questions about who will be using the computer and what types of software will be used. He patiently answers all your questions. After analyzing your needs, he recommends a specific configuration and bundle. He gives you a printout of the system he will build, and quotes a price of $1,099. You leave. Billy Bob has worked for an hour and not made a penny. He and his wife have overhead to keep the shop running, so he has lost money. However, Billy Bob understands that marketing is part of the business. If a certain percentage of customers he helps leave and come back, he can make a living.

Your next stop is MaxCircuitryWorldDepot, the national superstore. Geoff, the salesperson who helps you, is very young, but he knows his stuff. He has to have product knowledge to make a living because commissions are 100% of his salary. Geoff’s processes and configuration-recommendations are similar to Billy Bob’s, but his approach and style are very different. Geoff shows you several different models and recommends either of two. He admits that neither brand is well-built nor reliable, but his chain offers an insured on-site service plan. With service coverage, either of his packages will cost about $1,500.

Frankly, you don’t know what to do. You were hoping to spend half that much. You and your spouse discuss the options over the following week. You like both salespeople, and trust both of them to some extent. Your spouse is more comfortable with the chain, as its advertising has made an impression.

The following weekend, you return to MaxCircuitryWorldDepot and spend another half-hour with Geoff. Although his bias is obvious, he explains the advantages and disadvantages to consumer models, mom-and-pop computers, and mail-order models with some objectivity. Service, before and after the sale, is clearly the biggest advantage to both consumer models and mom-and-pop-built computers, he says. He helps you decide between the two models he has to offer, but you get sticker-shock and tell him you’ll wait for a sale.

You now know exactly what you do and don’t want in your new system. You go home and shop on-line. Kowtown Komputers has exactly what you want for $999 plus shipping. You order it. Assuming it’s a good computer and a good value, did you do the right thing?

Capitalism is the American economic system, and you got the best deal. You owe that to yourself and your family. You are never obligated to do business with a salesperson just because he spends time with you. On the other hand, you are obligated to pay a doctor who fails to cure you and a lawyer who loses your case (unless he took it on contingency).

Buy Online?

According to survey results published early this year, people shop online for two reasons: price and convenience. Greenfield Online found that half of all online shoppers believe that they will find the lowest price on the Internet. In comparison, only 20% believe that they can find the lowest price in a bricks-and-mortar store. However, PricewaterhouseCoopers survey results show that during the holiday season, people were more concerned with convenience and getting the product on time. Only 46% of respondents reported that price was their major consideration for buying online.

Many products are or can be cheaper online. Other products are price-fixed, and many clicks-and-mortar retailers won’t undercut the “not-com” side of their operations by offering lower prices online. Shopping bots, search engines that scan many sites to find the lowest prices on products, make finding a low price easy. The “lowest price” doesn’t always tell the whole story.

The “catch” to many e-commerce sites is straightforward: shipping and handling charges. “Handling” has always been a profit center for mail-order businesses, and some Internet retailers disguise their profits in that charge. When you use shopping bots and other Web sites to compare prices among Internet retailers, the quoted prices often exclude shipping and handling charges. If you are buying a single CD or book, you may not save money by buying online. You’ll have to check each individual site to find out the bottom-line price.

Do not assume that shipping and handling charges will be similar from one site to another. In many cases, they offset product price differences or savings over bricks-and-mortar prices. Remember, if a site is selling dollar bills for 77 cents, the shipping and handling charge is probably $1.50 per unit. Some online businesses force you to set up an account in order to find out what the shipping and handling charge is for a particular product. Look for sites with more ethical practices.

As Oregonians, we save less from shopping online than most Americans. In most states, people can legally avoid sales taxes by buying online. That 5%-9% advantage can easily offset shipping charges and make the Internet a much better shopping center. Ultimately, Oregon retailers will suffer as Californians and Washingtonians stop taking shopping vacations in Oregon.

As e-tailers cannot provide face-to-face service, many of the better businesses have found other ways to add value. Many book and CD e-tailers offer more “help” than you can get in a store. Some sites publish sample chapters of books. Many sites provide RealAudio snippets of tracks on CDs, which can give you an idea of whether you like a CD enough to want to buy it. Sites such as Amazon.com offer well-written objective reviews of books and CDs, and let customers submit their own reviews. A not-com (bricks-and-mortar) business would be hard-pressed to offer the quantity and quality of content that Amazon offers. Of course, Amazon faces the same risk as Geoff and Billy Bob: you can use their content to make your buying decision, then shop for the lowest price elsewhere, whether online or offline. On the other hand, stores and Web sites that offer more than (or other than) low prices have an advantage, too: you might buy because it’s convenient. You’re already there.

Why Pay More?

If you can afford it, shopping online for convenience makes a lot of sense. Online grocery stores are much more expensive than careful supermarket shopping, but much more convenient than clipping coupons, combing ads, and making and using handwritten lists.

In some cases, a higher price may be worth the peace-of-mind. If, for example, you fear getting scammed by an unknown Web site, pay more to buy elsewhere.

A local store that has gone out of business offered a wonderful service. The company let you listen to new CDs (and look at the booklet) in the store. You could take a small stack of CDs to the attendant at the listening station, and spend as much time as you wanted to decide what, if anything, you wanted to buy. The store’s prices were ordinary; you could certainly do better on the Internet. I believe that if you didn’t find anything you wanted, you had no obligation to buy. However, if you liked a CD enough to buy it, you had a moral obligation to buy it there. What would have been in it for you is that the store might have stayed in business, giving you the opportunity to use the service again.

The Shakeout

We’ve been conditioned to believe that e-commerce companies all sell products at or below cost. Venture capital, followed by stock income, provides their cash flow. That business model is beginning to disappear. Also, e-commerce companies that have operated that way are finding that they can’t raise prices and coast on a reputation or public perception of low prices. Shopping bots make it easy to find out how low their prices are.

I can’t pretend to understand this economy, but I believe that sooner or later somebody is going to stick a pin into it. Some combination of chains, mom-and-pop stores, and e-tailers will go out of business, or perhaps one entire way of doing business will disappear. Of course, the price vs. service issue predated the new economy. Superstores and big-box chains have been steadily wiping out independent businesses and small or regional chains for years.

What to Do

If we want to continue to be able to use CD listening stations, knowledgeable salespeople, and valuable Web site content, we have to vote with our dollars. If necessary, think of paying for a business owner or copywriter’s time as the equivalent of leaving a tip in a restaurant. You do it because you believe it’s the right thing to do.

 

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