VOL IX 2009

Journal of E-Business: Volume IX (2009), No 1, 2 1

Journal of e-Business Volume IX (2009), No.1, 2 (www.journalofe-business.org) (ISSN: 1542 0846) (A Refereed, On-line Publication of the International Academy of E-Business) (www.iaeb.org www.iaeb.info [email protected]) (All rights Reserved)

TABLE OF CONTENTS Editorial Notes ……………………………………………………………………………………….. 2 Editorial Board of Reviewers ……………………………………………………………………… 3 Publication Policies and Submission Guidelines ……………………………………………… 7 Copyright Transfer Form ……………………………………………………………………………10 Articles:

Entrepreneurial Emergence in the Field Of M-Commerce: A Generic Business Model Reconceptualization ………………………………………………………………………… 11 Frances Jørgensen, Aarhus University, Denmark, [email protected] John Ulhøi, Aarhus University, Denmark, [email protected] A Customer Centric Approach to Front-End Business Intelligence Deployment……….. 16 John Hamilton, James Cook University, Australia, [email protected] Explaining Consumer Behavior in a Multi-Channel Context: A Qualitative Study ……. 27 Eric Brunelle, Hec Montréal, Canada [email protected] Identity Theft Prevention using E-retailers’ Websites …………………………………….. 41 Marion Schulze and Mahmood H Shah, University of Central Lancashire, UK, [email protected] Tax Issues of E-Business: Domestic versus International …………………………………. 52 James G.S. Yang, Montclair State University, USA, [email protected] E-Business, Security and Trust: Problems and Prospects …………………………………. 67 M.Senthil Velmurugan and Kogilah A.P. Narayanasamy, Multimedia University, Malaysia, [email protected], [email protected] The Role And Effectiveness of E-Business In Building Relationship Equity In The Cultural Industry ……………………………………………………………………………..103 Mark A.A.M Leenders, Amsterdam Business School, University of Amsterdam, The Netherlands, [email protected] From E to M-Commerce: Image Spill-Over Effect of M-Applications: A Danish Case…106 Martin Hannibal, University of Southern Denmark [email protected] Erik S. Rasmussen, University of Southern Denmark [email protected]


EDITORIAL NOTE Welcome to the Journal of E-Business (www.journalofe-business.org ), the online publication of the International Academy of E-Business. As one of the pioneers in the field of e-business, both the Academy and its refereed publications have been making significant contributions toward the theory and practice of strategic management in profit and not-for-profit organizations. (Additional details at www.iaeb.org ) This peer-reviewed Journal is published periodically, typically twice a year, to encourage and disseminate research studies in all aspects of e-business strategies and practices, including e-commerce, supply chain management, data storage and mining, management of information systems, global marketing and communications, human resource management, financial analysis and planning, entrepreneurship, research and development, and technology management. Outstanding articles from the academic researchers, teachers, policy makers, business entrepreneurs and managers, as well as others, are accepted for publications on the basis of the recommendations of reviewers, who are members of the Editorial Board. Both exploratory and conclusive research studies are welcomed and, subsequently, peer-reviewed and considered for publication. Articles do not have to be empirical in nature. Case studies dealing with specific business situations are acceptable. As with most leading journals, academic activities and publications depend on volunteers for their scholarly involvement and contributions. The Academy is extremely grateful to so many individuals, who are experts in their respective fields and are serving on our Editorial Board. As reviewers, editor, or in other capacities, these individuals willingly participate actively in spite of their constant time and resource constraints. The Academy is grateful to Professor Raj Garg, of University of Pennsylvania Indiana, who served as editor of the Journal since its inception in 2001 until 2005. Dr. Joe Teng, Professor at Keiser University in Florida, has begun to serve as associate editor to take the Journal further down the leadership path. This combined volume of the Journal includes certain refereed articles chosen on the basis of the reviewers’ recommendations. You will find too some “outstanding award winning papers” of our 2008 Annual Conference in San Francisco. Those who wish to submit their articles for publication should follow the guidelines, which are updated periodically on our Website www.iaeb.org. Please note that as a scholarly Journal, the publication contains a wide variety of contributing individual’s views, opinions, thoughts, and so forth. The contributing authors or their contents do not speak for, or represent, the official position of the Academy. All inquiries and comments related to the articles should be addressed directly to their respective authors.

Editor-in-Chief


EDITORIAL BOARD OF REVIEWERS

Editor-in-Chief Vinay Kothari, Regents’ Professor Emeritus, Stephen F. Austin State University, Texas

Associate Editor Joe Teng, Keiser University, Florida

Reviewers:

Tom Aabo, Aarhus School of Business, Denmark Emmanuel A. Abegunrin, Cappella University, USA Stewart Adam, Deakin University, Australia Raj Aggarwal, Kent State University, Ohio, USA Vidyadhar Reddy Aileni, Osmania University, India Sonke Albers, Christian-Albrechts-University of Kiel, Germany Charlotte Allen, Stephen F. Austin State University, Texas, USA Vincent Amanor-Boadu, Agrifood Lyn S. Amine,Saint Louis University, Missouri, USA Africa Arino, University of Navarra, Barcelona, Spain Martin Atkins, University of Aberdeen, UK Fred K. Augustine, Jr., Stetson University, Florida, USA Achraf Ayadi, Institut National des Telecommunications, France

Abdul Rahim Abu Bakar, Universiti Utara Malaysia, Malaysia

Helen Barry, Waterford Institute of Technology, Ireland Constance Bates, Florida International University, Florida, USA Kip Becker, Boston University, Massachusetts, USA Ravi Behara, Florida Atlantic University, Florida, USA Christian Bender, Westfaelische Wilhelms-Universitaet Muenster, Germany Christine Bernadas, Central Washington University, Washington, USA Amit Bhardwaj, Meerut Institute of Engineering and Technology, India Somnath Bhattacharya, Florida Atlantic University, Florida, USA Fahim A. Bhuiyan, Strayer University, Maryland, USA Carole Bonanni, Simon Fraser University, Canada Joseph Bonnici, Bryan College, Rhode Island, USA Thomas A. Buckles, University of San Diego, California, USA Soku Byoun, University of Southern Indiana, Indiana, USA Carlos Pampulim Caldeira, University of Evora, Portugal Bob Camp, Indiana University of Pennsylvania, USA Amparo Cervera , Universidad de Valencia, Spain Kenny K. Chan, California State University, Chico, USA Patrick Y. K. Chau, University of Hong Kong, Hong Kong C. S. Agnes Cheng, University of Houston, Texas, USA Julia M. Christofor, University of Kiel-Multimedia Campus Kiel, Germany Dong-Sung Cho, Seoul National University, Korea Pravat K. Choudhury, Howard University, Washington, DC, USA C. Chinnapaka, Bang College of Business, KIMEP, Kazakhstan Wayne Coleman, Texas A & M University, Kingsville, USA Rajul Datt, Meerut Institute of Engineering & Technology, UP, India Aurobi Das, Faculty of Management/E-Business, IIIT, Kolkata, India


Irene J. Dickey, University of Dayton, Ohio, USA David Douglas, University of Arkansas, USA Rex Dumdum, Marywood U and State U of NY at Binghamton, USA Teck-Yong Eng, Aston University, U.K., USA Andre' M. Everett, University of Otago, New Zealand Karen Fernandez, University of Waikato, New Zealand Marc Fetscherin, Rollins College, Florida, USA Marcia Flicker, Fordham University, New York, USA Susan Fuller, John Cabot University, Internship Program, Italy James W. Gabberty, Pace University, New York, USA M.A.Moneim Gadalla, Cairo University, Egypt Esmeralda Garbi, Florida Atlantic University, Florida, USA Raj Garg, Indian University of Pennsylvania, Pennsylvania, USA Nabarun Ghose, Tiffin University, Ohio, USA J. Greg Gimba, ANETCGROUP, Inc., Daytona Beach, Florida, USA O P Gupta, Punjab Agri University, India Peter H. Hackbert, California State Univ., Monterey Bay, USA John Hadjimarcou, University of Texas, El Paso, Texas, USA Abdul Hafeez-Baig, University of Southern Queensland, Australia John Hamilton, James Cook University, Australia Lois Hammond, Consultant & Entrepreneur, Florida, USA Andreas Hammer, International University in Germany, Germany Judy Harris, Towson University, Matyland, USA Fokhray Hossain, , DIIT, Daffodil International University, Bangladesh Patrick Ibbotson, University of Ulster at Coleraine, Ireland

Jennifer Isern, CGAP. Washington, DC, USA Gopal Iyer, Florida Atlantic University, Boca Raton, Florida, USA Jan-Erik Jaensson, Umea University, Sweden Subhash C. Jain, University of Connecticut, USA M. P. Jaiswal, Management Development Institute, Gurgaon, India

Ernest Johnson, University of Regina, Canada Paramjit S. Kahai, University of Akron, Ohio, USA Faruk Karaman, Okan University, Istanbul,Turkey Erdener Kaynak, Pennsylvania State Univ., Harrisburg, USA Alan S. Khade, California State University, Stanislaus, USA Mostafa Khattab, Colorado State University, Colorado, USA Gurprit S. Kindra, University of Ottawa, Canada Mary Beth Klinger, College of Southern Maryland, USA David Kohler, San Francisco State University, California, USA Andreas Kuckertz, University of Duisburg-Essen, Campus Essen, Germany Jenny Ungbha Korn, Northwestern University, Illinois, USA Connie Kothari, IAEB Administrator & Coordinator, USA Vinay Kothari, Stephen F. Austin State University, Texas, USA Bernd Kreuels, University of Dortmund, Germany Peter Kreuz, Future Trend Institute, Austria Christoph Lattemann, International Graduate School of Digital Media and Management, Multimedia Campus, Kiel, Germany Thomas C. Lawton, Imperial College, Management School, London, UK C. Christopher Lee, Central Washington University, USA Michel Leseure, Al Alkhawayn University, Morocco Thomas K. P. Leung, Hong Kong Polytechnic University, HK Daniel K.T. Li, Lingnan University, Hong Kong Eldon Y. Li, California Polytechnic State University, USA


Xiaolin Li, Towson University, Maryland, USA Xianghui Liu, Huaqiao University, PR China Sandy Lueder, Sacred Heart University, Connecticut, USA Brian Lofman, Rollins College, Florida, USA Mani Madal, NITIE, Mumbai, India Glenn Maples, University of Louisiana at Lafayette, USA Mehdi Majidi, George Washington University, D.C., USA Lynn Martin, University of Central England, U.K Clarence C.McMaster II, LaGuardia Community College, Long Island, USA Mohan K. Menon, University of South Alabama, Alabama, USA Mirza B. Murtaza, Middle Tennessee State University, Tennessee, USA Kofee N'Da, Clarkson University, New York, USA Mohammed Nadeem, National University, San Jose, California, USA Johnny T. Nelson, Harman International Industries, Texas, USA Francine Newth, Providence College, Rhode Island, USA Japhet H. Nkonge, North Carolina Agricultural & Technical State Univ, USA Emmanuel Nnadozie, Truman State University, Missouri, USA Jose Noguera, Florida International University, Florida, USA Alphonso O. Ogbuehi, St. Joseph's University, Philadelphia, USA Miguel R. Olivas-Luhan, Univ. of Pittsburgh, ITESM-Monterrey, Mexico

Robert Ankomah Opoku, King Fahd University of Petroleum & Minerals, Saudi Arabia

Paul Ostasiewski, Wheeing Jesuit University, West Virginia, USA A Ben Oumlil, Western Connecticut State University, USA Shanthakumar Palaniswami, Central Michigan University, USA Pranav Parekh, cyber Think, Inc., New Jersey, USA Jungkun Park, Purdue University, Indiana, USA

Namgyoo Park, University of Miami, Florida, USA Raymond Pettit, ERP Associates, Metro, New Jersey, USA Lucia Piscitello, Politecnico di Milano, Milan, Italy Raj Kumar Prasad, Editor, E-Commerce Magazine, India Pradeep Racherla, Temple University, USA Dharam S. Rana, Jackson State University, Mississippi, USA Sunita S. Rana, Jackson State University, Mississippi, USA William Rapp, New Jersey Institute of Technology, Newark, USA C. P. Rao, University of Kuwait, Kuwait Marc Resnick, Florida International University, Florida, USA Jay Rhee, San Jose State University, California, USA

P. Clint Rogers, Edulink Consortium of European and African Universities, Information & Communication Technologies for Development (ICT4D), Finland

Anthony Ross, Michigan State University, USA Jennifer Rowley, University of Wales, Bangor, UK Alexander Runge, KPMG Consulting AG, Switzerland Narendra Rustagi, Howard University, Washington, DC, USA Boong-Yeol Ryoo, Florida International University, Florida USA K.B. Saji, Indian Institute of Management, Lucknow, India Jose L. Salmeron, Pablo de Olavide University, Spain Val Samonis, The Center for European Integration Studies (ZEI), Bonn, Germany Ron M. Sardessai, University of Houston, Victoria, Texas, USA Milind Sathye, University of Southern Queensland, Australia William D. Schulte, George Washington University, D.C., USA Ravi C. Seethamraju, University of Sydney, Australia


Robert H. Seidman, Southern New Hampshire Univ., USA Willem Selen, Macquarie University, Australia Janjaap (Jake) Semeijn, Universiteit Maastricht, the Netherlands Christopher Seow, University of East London, UK Jayesh Shah, Emerson & Cuming, National Starch & Chemical., New Hampshire Junaid M. Shaikh, Curtin University of Technology, Australia; Sarawak Off Shore, Malaysia Preeti Sharma, Rensselaer at Hartford, Connecticut, USA Seema Sharma, Open University Business School, U.K. G. H. Shergill, Massey University, Albany Campus, New Zealand Eric Shiu, University of Birmingham, UK Nitish Singh, California State University, Chico, California, USA Andrew Slade, University of Sunderland, UK Nancy Spears, University of North Texas, Denton, Texas, USA Riccardo Spinelli, DITEA – Università degli Studi di Genova, Italy V. Srikanth, Institute of Public Enterprise, Osmania University Campus, India Chetan Srivastava, University of Hyderabad, India A. V. Subbarao, University of Ottawa, Canada Bala Subramanian, Morgan State University, Baltimore, Maryland, USA

Suresh Subramoniam, Prince Sultan University, Riyadh, Saudi Arabia

Ted Surynt, Stetson University, Florida, USA Zakir H. Syeed, SYMBIONS Software Pvt Ltd, Bangalore, India Mohammad Talha, Multimedia University, Malaysia Florence Tang, Curtin University of Technology, Hong Kong, Joe Teng, Keiser University, Ft. Lauderdale, Florida, USA

Heiko Thimm, Fachhochschule Kiel –Univ. of Applied Sciences, Germany Hans Mathias Thjomoe, Norwegian School of Management, Oslo, Norway John Van Beveren, University of Ballarat, Australia Johannes von Mikulicz-Radecki, Mannheim University, Germany Clyde A. Warden, National Changhua University of Education, Taiwan Jiang Wen, University of Electro-Communications, Tokyo Frank Wolf, Nova University, Florida, USA David Wright, Kwantlen University College, Canada Cliff Wymbs, Baruch, City University of New York, USA Gonca Telli Yamamoto, Okan University, Turkey Ulku Yuksel, Michigan State University, Michigan, USA John Hongxin Zhao, Saint Louis University, Missouri, USA

Notes:

1. Listed above are the individuals, who have been selected by the IAEB Executive Committee to serve as occasional reviewers for the Academy’s conferences, refereed journals, and other publications. The IAEB is grateful to these scholars for their kind support and cooperation in the review process. Without their voluntary contribution and hard-work, the Academy could not continue to disseminate knowledge and enhance business education and productivity.

2. Any individual, who is interested in serving as a reviewer on the Editorial Board of Reviewers, should submit brief vitae to [email protected]. Please include your complete name, professional title, current organizational affiliation, e-mail and physical addresses, country of current residence, and a summary of individual professional and academic accomplishments.


PUBLICATION POLICIES AND SUBMISSION GUIDELINES A brief summary of the International Academy of E-Business (referred to as Academy, henceforth) Publication Policies and manuscript/article Submission Guidelines is outlined below. Authors and co-authors, who intend to submit their individual manuscript for publication consideration, should fully read and understand them.

I. PUBLICATION POLICIES • The International Academy of E-Business (the Academy) reserves the right to change its

policies and guidelines at any time without prior notice. • The International Academy of E-Business reserves the right to publish or not to publish any

manuscript (accepted or under consideration) for any reason without explanation of reasons for decision.

• Submission of manuscripts for possible publication implies that the authors have read and concur with Academy’s policies and guidelines.

• Submission of manuscript does not necessarily constitute receipt or acceptance for publication by the Academy. Authors are responsible to ensure receipt by the Academy.

• All manuscripts submitted for publication go through a review process, which typically takes several weeks during the regular academic year -- longer during summer months and holidays.

• COPYRIGHT: Submitted manuscripts should be original, and they must not violate or infringe upon any intellectual property rights of any individual or organization. If a manuscript is accepted for publication or published, the copyright ownership is presumed to have been transferred by the author(s) to the International Academy of E-Business, irrespective of whether the transfer was carried out formally or not.

• The International Academy of E-Business retains all copyrights over all of its published content and materials, unless some other arrangements have been specifically agreed upon in writing by the Academy’s Administrator or its Executive Director. Typically, the author(s) of the accepted manuscript for publication would receive additional copyright information and a copyright transfer form for each author’s signature. Failure of the author(s) to return the copyright form in a timely fashion will result in publication delays.

• The International Academy of E-Business respects the intellectual property rights and ownerships of individuals and/or organizations, in addition to all other rights. Furthermore, the Academy does not encourage, nor approve, anyone to infringe on the rights of others. If there are right violations from manuscript publication, each author of the violating manuscript bears the total liability—solely and/or collectively. Each author of the accepted manuscript for publication agrees to hold the International Academy of E-Business harmless, in case of right violations, and each author furthermore guarantees to protect and defend the innocence and the lack of any responsibility of the Academy, its officers and/or its representatives.

• Inadvertently errors, omissions, and/or other mistakes may occur when manuscripts are published. Even though the International Academy of E-Business regrets such occurrences, it assumes no legal or financial responsibilities. All manuscripts are accepted and published, subject to errors. To minimize such errors, manuscripts should be prepared for consistency, style, and easy uploading.

II. SUBMISSION: GUIDELINES 1. Verify Changes before you submit your manuscript, please visit www.iaeb.org to check for changes

to Submission Guidelines and for Current Address. 2. All manuscripts should be submitted to following Current Address: a. International Academy of

E-Business Administrative Offices, Box 631064, Nacogdoches, TX 75963-1064 USA. b.


Absolutely NO electronic submissions are accepted unless it is arranged specifically in advance to

minimize cyber virus and other risks. c. Manuscript Copies required (very important): Submit three (3) hard copies, and one CD containing an electronic version of your manuscript. Your electronic version should be in MS Word in XP or 2000 plus versions. d. Use the following instructions for font and formatting:

i. Title: Times New Roman 14 point, bold, capital letters, centered; ii. Headings: Times New Roman 12 point, bold, left margin iii. Subheadings: Times New Roman 12 point, left margin, underlined iv. Body Text: Times New Roman 12 point

e.. Organization (in order listed below) a. Cover Page (important)

i. Staple a cover page to the manuscript indicating only the article title (used for anonymous refereeing).

b. Title Page i. Do not staple to manuscript ii. ii. Title Page should include full authorship information-- name, address, telephone, affiliation, e-mail, rank, etc.

c. Abstract Page i. Abstract should be limited to 100-150 words

d. Paper Manuscript i. Preferable length should not exceed more than 15 pages (single spaced with one inch margin on all sides), including charts, graphs, exhibits, references, appendix, and so forth.

f. Editing and Grammar i. Manuscript should be free of all spelling, grammar and punctuation errors. ii. Manuscript with numerous errors or “sloppy” work and style is likely to be rejected.

iii. Inconsistencies:i. Manuscripts should be consistent in use of abbreviations, terminology, and reference citations throughout.

iv. Abbreviation used for the first time, should be write it in full within brackets. Example, BEM (Big Emerging Markets). g. Tables, Figures, and Drawings: a. All tables, figures, illustrations, etc. should be embedded at the appropriate place within the text of the article. b. In paper version, they could be appended to end of the article.. c. Table Number and Title should be at the Top of Table, Figure, or Drawing. h. References a. References, citations, and overall manuscript style should be consistent with those used by the American Psychological Association or the Journal of Marketing.

b. References should be placed in alphabetical order at the end of the article. Examples: i. Garg, Rajendar K. (1996), “The Influence of positive and negative wording and issue involvement on responses to likert scales in Marketing Research”, Journal of the Market Research Society, Vol. 38, No. 3, 235-246.

ii. Kaynak, Erdner and Vinay Kothari (1984), “Export Behavior of small and medium sized manufacturers: Some policy guidelines for international marketers”, Management International Review, Vol. 24, No. 2, 61-69.

i. Revisions and Alterations a. Often, a manuscript may be accepted by the Editor contingent upon satisfactory inclusion of changes mandated by anonymous referees and members of the Editorial Review Board. If you are asked to revise your manuscript, please make the necessary


changes and resubmit the revised version following the Editor’s specific instructions.

j.. Review Time a. Please allow 3 to 4 months for review process to be completed. During this time

you should avoid unnecessary inquiries about status of your submission. b. The Editor will contact you immediately after the review process is completed.

(Expect delays due to time and resource constraints.)

k. Inquiries or questions, write to [email protected].

l. Certification a. Submission of a manuscript for journal publication represents a

certification by author(s) ‘that the work contained in the manuscript is original, and that neither the manuscript, nor any version, has been previously published or under consideration by other publications, simultaneously. (Under certain circumstances exceptions may be

permitted if there is a mutual understanding in advance, in-writing.) Furthermore, the author accepts the full responsibilities for any violation

of copyrights or any other legal rights.


Journal of E-Business (A Publication of the International Academy of E-Business)

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ENTREPRENEURIAL EMERGENCE IN THE FIELD OF M-COMMERCE: A GENERIC BUSINESS MODEL

RECONCEPTUALIZATION Frances Jørgensen, Aarhus School of Business, Aarhus University, Denmark, [email protected]

John Ulhøi Aarhus School of Business, Aarhus University, Denmark, [email protected] ABSTRACT: In this paper we propose a generic business model conceptualization emphasizing significant characteristics of the actors, activities, and relationships involved in the emergence phase of entrepreneurial ventures in the field of M-commerce. The paper begins with a review of the literature on business models, entrepreneurial and organizational emergence, and M-commerce; thereafter a framework is suggested for the purpose of business modeling the earliest phases of new M-commerce business startups. The paper contributes by advancing contemporary theory on business models and by providing insight into the importance of adopting an entrepreneurial approach to business modeling in highly dynamic technological fields such as M-commerce.

INTRODUCTION: To be successful, entrepreneurial organizations must be adept at organizing streams of activities and the often intricate processes involved in recognizing, exploring, and exploiting new opportunities. Over the years enterprises have convincingly demonstrated that they can obtain remarkable results from being very good at innovating (c.f. for 3M, Apple, Nike), involving both R&D as well as effective marketing skills. History is also full of cases with excellent innovations (from the point of view of technological achievement) that turn out to be commercial disasters (e.g. Apple’s Newton; Sony’s and Philips’ DAT player). Similarly, there are remarkable success stories of entrepreneurs penetrating a mature market with innovative and radically different approaches to deliver a service that fundamentally includes the same technologies (Easy Jet/Ryan Air and Skype). Even from those few extraordinarily successful examples some interesting characteristics can be identified. Firstly, even successful firms in terms of developing and commercializing innovations fail (e.g. Apple, Sony; Philips); secondly, commercial successes often leapfrog and bypass traditional stage model conceptualizations of organizational growth (e.g., Ryan Air, Easy Jet, Skype). A variety of isolated explanations for innovation successes and/or failures are available in the literature on innovation and entrepreneurship, each of which represent only minor parts of a bigger picture. If not put together, however, the beholder is left with little clue as to the full picture. This paper posits that the business model concept holds promises for offering a means to conceptualize and represent a more holistic view of the picture. It would be naïve to assume that these extreme cases rely on identical business models, rather it is more likely that in there are unique and specific properties that accounts for the actual business performance. On the other hand, arguing that context and asset specificity are at play is not the same as denying any possibility for identifying some more generic and common building blocks that may constitute some of the foundational bricks and mortar in most business models. Identifying such basic building blocks remains the general objective of this paper. Having identified some of these key elements, we will then relate them to the concept of emergence so as to highlight how organizations may best address the critical issues of recognizing, exploring, seizing and exploiting new entrepreneurial opportunities as early as possible. A basic assumption underpinning this research is that how firms approach and use the business model concept within a continuum ranging from ‘business-as-usual behavior towards entrepreneurial behavior’ influences the potential outcome of activities related to the recognition, exploration and/or exploitation of entrepreneurial opportunities. Thus, more specifically we will address the development of M-commerce and business modeling at the early stages of opportunity recognition, exploration and exploitation. The remainder of the paper is organized as follows: first, we sketch the overall research design and then review existing literature on business models and entrepreneurial emergence, which serves as a point of departure for discussing the role of business models in a dynamic technological setting such as M-commerce. Finally, the implications of the proposed framework are discussed in terms of practical and theoretical contribution and application.


RESEARCH DESIGN: The research presented here represents only an excerpt of ongoing research project on M-commerce in which ethnographic field data are being collected. To guide this research and to allow for iterative recursions between the empirical field and the conceptual level, a literature review has been conducted that allows for making use of accumulated insight from the existing pool of knowledge from academic and scholarly outlets with peer-reviewed publications found in a variety of recognized databases (e.g. ABI inform global, Business Source Premium, Directory of Open Access Journals, JSTOR, and ELIN), utilizing the following concepts: business model(s); business model(s) and e/M-commerce; business models and strategic management; business models and mobile services; business models and mobile technology (ies); business models and information technology. From the initial results of approximately 1000 hits, we culled a minor sample on which the proposed framework is based and from which the summary presented below is derived. BUSINESS MODELS: Since the late 1990’s, the popular and academic management literature have increasingly adopted the term business model in its vocabulary; still, there is considerable ambiguity concerning the concept’s definition. Often it appears that more effort is made in clarifying what business models are not and what they are not intended for than what they comprise. For example, Petrovic et al (2001) emphasize that business models should not be used to describe complex social systems of actors, relationships, and activities, while Gordijn (2000) faults the tendency to confuse business models with process models. It appears no more straightforward when attempting to identify elements to be encompassed by the business model concept, with between 4-8 (Morris et al., 2005) and 43 (Shafer et al., 2005) elements being suggested. How then should the concept of business model be defined and what does it fundamentally include? Fundamentally, the business model concept has been seen as a means to address how value (for future customers) is to be created and how such value can be captured by the creator (Chesbrough, 2008). From an e-business model perspective Osterwalder & Pigneur (2002) and Osterwalder et al. (2004) provide an overview of the products/services offered by the firm, the relationships with customers, the infrastructure management, and the financial aspects of the firm. Although this e-business model approach provides a solid theoretical foundation to begin to view M-commerce, it is still static without reference to time or developmental phases. We contend that a comprehensive business model should also include an understanding of how activities occur and processes unfold very early on in the firm’s or innovation’s lifespan, as these elements may provide invaluable information related to later innovation of the business model. This contention is supported by Mitchell and Coles (2004), who propose that companies often fail to see the opportunities for improvement and innovation of their business models due to lack of an overview of how various activities and actors impact the model. ENTREPRENEURIAL EMERGENCE AND ORGANIZATIONAL GENESIS: Gartner et al. (1992) urge researchers of entrepreneurship not to take the organization’s existence for granted, and to question how the organization came to be, as they insist that organizations in an emergent phase are different than existing organizations. Davidsson (2006) concurs with the need to distinguish between what they call the discovery (e.g. activities related to the origins of the start-up idea) the exploitation phases (e.g. what is involved in resource acquisition), and the entrepreneurial phase (after start-up) in the new venture process. Descriptions of the start-up conditions of new business ventures, and especially longitudinal data depicting how early conditions impact the later performance of the firms, are rather scarce however, even though the activities occurring in these early formative activities may have a significant impact on the subsequent functioning of the company (Bamford et al., 1999), perhaps by influencing the deep structures, or “fundamental choices” on which a firm is built (Gersick, 1991). Aspelunda et al (2005) discovered that in technology-based new ventures in particular, these initial resources generally represent the human and or social capital in the firm, and often that situated in the start-up team. Further, researchers Davidsson and Honig (2003) have demonstrated the importance of human and social capital in the exploitation stage of the entrepreneurial process, when key networks are established.

We propose that not only will descriptions of companies in the very earliest points in time differ substantially from descriptions of existing organizations, but that elements from the initial activities and processes will have significant impact on the subsequent that follow. For this reason, we argue strongly for


extending the current understanding of business models to include descriptions of the actors, activities, and relationships in the nascent and emergent activities and/or processes. M-COMMERCE: Mobile commerce, or M-commerce, has been defined as “all activities related to a (potential) commercial transaction through communications networks that interface with mobile devises” (Tarasewich et al., 2002) that provides unique business opportunities for both existing e-commerce companies and new ventures focusing solely on M-commerce (McIntosh and Baron, 2005). A critical characteristic of M-commerce is that an individual can engage in business transactions anywhere, at any time (Looney, 2004), thus eliminating the place related restraints associated with traditional e-business. Social (need for mobile, individualized and personalized communication) as well as technological (new IP-based services, shorter innovation cycles) and economic (positive externalities, demand, substitution) factors are driving the development of m-technologies and M-commerce (Buellingen and Woerter, 2004). Kallio (2004) has sought to identify critical aspects of M-commerce ventures, including primary roles (e.g. the end user and providers of the applications, content, and networks). A few studies on M-commerce business models have been reported in the literature, for example Looney et al. (2004) have looked at the brokerage industry resulting in four new business models, and Leem et al. (2004) have detailed models for mobile start ups in Korea. Thus far, these models focus only on select actors and activities, while ignoring how these elements change over time, and how those changes may impact the overall business model. The model we propose on the basis of the comprehensive literature review is shown in Figure 1 and includes infrastructure management, product innovation and customer relationships. Here, actors and the social processes and activities taking place in partner networks influence the way in which the firm is organized and structured (infrastructure management); product innovation encompasses the recognition, exploration, and exploitation of new opportunities to create value for the target market; and actors, their input and the social processes and activities in the network affect customer relationships. Each of these elements influences each other and is influenced by the highly dynamic nature of the M-commerce environment. Most importantly perhaps, each of the elements and the environment are influenced and influence the developmental phases of the firm over time.

Figure 1. A Generic M-Commerce Business Model (based on e.g. Osterwalder, 2004;

Osterwalder & Pigneur, 2002).

DISCUSSION AND CONCLUSION: As stressed in the literature, M-commerce is a consumer-centric activity (Wang et al., 2007). How fast such new business opportunities will be recognized and exploited in the end will ultimately depend on how technical issues (e.g. capacity and reliability), economic issues (business models, organizational, the costs of mobile options relative to fixed alternatives; complementary service providers, etc), psychological and behavioral issues (attitude, motivation and confidence), and/or social issues (social acceptance, etc) act as barriers or drivers. The proposed model lends itself both to

M-Commerce Environment (e.g. capacity,

reliability

Value Capturing…New Ventures…Opportunity Value Recognition


further refinement and generation of research hypotheses aimed at testing the inherent assumptions. In terms of the former, we would suggest qualitative studies, perhaps based on interviews with key persons involved in different activities and processes of M-commerce business venturing to gather data regarding the characteristics of the actors (e.g. demographics, previous experiences, individual competencies, drives, personality profiles, etc.) and the activities (e.g. spontaneous versus planned, trusting versus guarded, formal versus informal). Thereafter, relationships between any of these elements, or combinations of them, could be tested via quantitative methods. While the proposed model is still in the earliest phases of development, the comprehensive literature review on which it is based contributes to theory development with respect to the critical elements for inclusion in an M-commerce business model and emphasizes the importance of integrating elements of entrepreneurial development into the framework. The model also provide ICT-developers and business managers with a common map that allows for understanding of why ICT developers must utilize a holistic approach to designing systems and products for use with mobile technology. REFERENCES Aspelunda, S., Berg-Utbya,T. and Skjevdal R. 2005. Initial resources’ influence on new venture survival: A longitudinal study of new technology-based firms, Technovation, 25, 337–1347. Bamford, C.E., Dean, T.J. and McDougall P.P. 1999. An examination of the impact of initial founding conditions and decisions upon the performance of new bank start-ups, Journal of Business Venturing 15, 253– 277. Buellingen, F. and Woerter, M. 2004. Development perspectives, firm strategies and applications in mobile commerce,Journal of Business Research, 57, 1402-1408. Chesbrough, H. 2008. Business models: Reviewing what they are, so we can innovate them (forthcoming in Long Range Planning). Davidsson, P. 2006. Nascent entrepreneurship: Empirical studies and developments. Foundations and

Trends in Entrepreneurship, 2, 1-76. Davidsson, P. and Honig, B. 2003. The role of social and human capital among nascent entrepreneurs. Journal of Business Venturing, 18, 301-331. Gartner, W. B., Bird, B.J. and Starr, J.A. 1992. Acting as if: Differentiating entrepreneurial from organizational behavior, Entrepreneurship, Theory & Practice, 16(3), 13-31. Gersick, C. J.G. 1991. Revolutionary change theories: A multilevel exploration of the punctuated equilibrium paradigm, Academy of Management Review, 16(1), 10-36. Gordijn, J., Akkermans, J., and van Vliet, J. 2000. What’s in an Electronic Business Model? Knowledge

Engineering and Knowledge Management- Methods, Models, and Tools, LNAI 1937:257-273. Looney, C.A. Jessup, L.M. and Valacich, J.S. 2004.Emerging business models for mobile brokerage service. Communications of the ACM, 47(6); 71-77 McIntosh, J.C. and Baron, J.P. 2005. Mobile commerce's impact on today's workforce: issues, impacts and implications, International Journal of Mobile Communications, 3(2), 99-113. Morris, M., Schindehutte, M., and Allen, J. 2005. The entrepreneurs’ business model: Toward a unified perspective.” Journal of Business Research , 58(6), 726-735. Petrovic, O., Kittl, C. and Teksten, R.D. 2001. Developing business models for e-business, Proceedings of the International Conference on Electronic Commerce, Vienna.


Shafer, S.M.,Smith, H.J.and Linder, J.C. 2005. The power of business models. Business Horizon, 48(3), 199-207. Osterwalder, A. 2004. The Business Model Ontology: A Propositional Design Approach, Universite de Lausanne Ecole des Hautes Etudes Commerciales, http://hec.unil.ch/aosterwa/PhD. Mitchel, D.W. and Coles, C. B. 2004. Establishing a continuing business model innovation process. Journal of Business Strategy, 25(3), 39-49. Osterwalder, A. and Pigneur, Y. (2002). An e-Business Model Ontology for Modeling e-Business, published in the proceedings from the 15th Bled Electronic Commerce Conference e-Reality: Constructing the e-Economy Bled, Slovenia, June 17 – 19. Tarasewich, P., Nickerson, R. and Warkentin, M. 2002. “Issues in Mobile eCommerce, Communications of

the AIS, 8, 41-64. Wang, J.J., Lei, P., Sheriff, R.E. 2007. Understanding consumer-driven business model for mobile commerce based on a fuzzy synthetic evaluation method, in proceedings of the IADIS International Conference e-Society, 335-339.


A CUSTOMER CENTRIC APPROACH TO FRONT-END BUSINESS INTELLIGENCE DEPLOYMENT

John Hamilton, James Cook University, Australia, [email protected] ABSTRACT: The integration of business intelligence systems into existing business systems requires the mapping and engaging with electronic data storages. Such appropriately targeted and devices business intelligence systems may then be deployed into these electronic data storages. They may then be combined to deliver new front-end business intelligence solutions, which may add value to the modern e-business environment. Business intelligence software agents and approaches may be appropriately targeted to existing business areas – like the travel services industry, and can be wisely deployed to help generate desired business intelligence solutions. Key words: Business intelligence, travel industry, services, customer targeting. INTRODUCTION Luhn (1958) groups business intelligence (BI) into a broad category of applications and technologies that: gather, store, analyse and provide access to data suitable to assist enterprise users in their business decisions and deliberations. BI typically includes: decision support systems, data queries and reporting, on-line analytical processing, statistical analysis, forecasting and data mining. BI systems often tap data warehouse information, and link this data with historical, current and predictive views of various business operations. Developed software systems often assist in the extraction, analysis and reporting of such information - delivering sales, production, financial and many other performance related business data management solutions. BI information also assists companies in their comparative positioning by benchmarking comparable companies (Luhn, 1958). BI also sifts and simplifies both information discovery and analysis by making it possible for ‘decision makers at all levels of an organisation to more easily

access, understand, analyse, collaborate and act on information, anytime and anywhere’ (Microsoft Technet, 2008a). BUSINESS INTELLIGENCE DEVELOPMENT The Australian Commonwealth Serum and Industrial Research Organization (CSIRO), 2008 suggests that by using available data intelligently a business may increase competitive advantage. It suggests this process occurs in five consecutive key stages: (1) data sourcing, (2) data analysis, (3) situation awareness, (4) risk assessment, and (5) decision support. Data sourcing Data sourcing involves the extraction of information from sources including: (1) text documentation like memos, reports or email messages, (2) photography, images, audio files, and formatted tables, and (3) web pages, or other URL linked sources. Such data collection is generally electronic, or can be converted into electronic form via interconnected data input tools and deliverable systems like: scanners, digital cameras, external database queries, global web searches and full computer file access, collation and analysis. Such data once compiled may often be sorted and analysed to some extent using existing basic software tools. Data analysis Beck and Michael (1995) suggest the synthesises of useful knowledge from broad collections of business data may identify and deliver: (1) new and current trends, (2) new information from previously disparate sources, (3) new validations and further understandings of business models, (4) missing information, and/or (5) possible future trends and scenarios. Such processes are termed ‘data mining’. This knowledge discovery’ sometimes solves business understanding problems utilizing: (1) probability theories (like classification, clustering, and Bayesian networks), (2) statistical methods (like regression, factor and cluster analysis, and customer demands), (3) operations research tools (like queuing, scheduling, and logistics), (4) artificial intelligence systems (like neural networks, and fuzzy logic) (CSIRO, 2008). However such data capture requires meaningful and intelligent linkages into both the business situation and its outcomes. Situation awareness


Integrating outcomes focused data analysis into the business situation may help to deliver key information that better engages the business and its environment with its end-user demands or requests. Here, information linked to prevailing or projected market trends is outputted in relevant terms, and may aid in decision-making processes. Thus, situation awareness may deliver information pertinent to understanding and delivering smart output solutions. Situational awareness algorithms typically provide automatic syntheses, and may also be programmed to offer degrees risk assessment. Risk assessment BI may help determine plausible solutions and appropriate actions. In this mode, mapping current and future risks against procedures like cost-benefit analysis or against competitive forces analyses may deliver outputs that enable further business assessment of capabilities. Such assessments are typically point-in-time measures, and apply to a set of monitored or measured circumstances. Here, appropriate risk solutions are selectively and intelligently drawn from the business’s array of interconnected database and decision support systems. Decision support BI systems, working within decision support frameworks, may be used in knowledge discovery. Here new knowledge outputs must be wisely sourced and used. Key situations like share price manipulations, external economic changes, business and supplier performance, customer perception, and market sentiment once flagged, may be intelligently engaged to enhance sales, customer-delivered quality, customer servicing and customer satisfaction. In the travel tourism industry such decisions need to be generated on a timely manner, and may be monitored by: (1) real-time metrics monitoring of tourist bookings, (2) viewing graphical representations of data like room usage, and meals, (3) predicting financial performance like meeting profit targets, (4) drilling across performances at different levels of staffing, materials, and logistics,(5) responsive decision making built from BI tabulations of the business situation, and (6) improved BI software program integrations, solution executions, and business value-based solutions. BUSINESS INTELLIGENCE BI may deliver the necessary business insight to better enable decision making. It also may allow a company to respond rapidly to changing market conditions, and possibly to deploy a range of intelligent approaches that assist in delivering ‘optimal business outcomes. For example, Avanco (2008) builds BI solutions by deploying three toolkits: (1) performance management (2) enterprise reporting, and (3) datamining of remaining business databases. These BI solutions systems help Avanco transform and then load new combined intelligent solutions including: (1) metrics outcomes to track data, (2) digital dashboards to effectively communicate and predict performance results,(3) web centric tools to better view and share dynamic reports containing ‘drill-down’ details, query responses, and deliverables (like understanding key forces positively driving the business). Avanco specifically deploys BI solutions to assist in keeping all business units on task, goal focused and aligned with the determined strategic direction.

Extract Transform Load

Transactional Databases

Business Intelligence

PerformanceManagement

EnterpriseReporting

DataMining

Data Warehouse


Figure 1. The Avanco Approach, Source: www.avanco.com, (2008)

The Avanco approach builds BI applications and solution capabilities into existing data warehouses. These BI solutions then effectively data mine resulting in improved decision making capabilities and better information dissemination capacities within the business. IBM business solutions target such decisions based solutions (IBM 2003a). They seek to grow and maintain strategic competence front-end business users may directly engage with these in-depth BI analysis pathways. IBM solutions may also investigate BI-packaged solutions of numbers, facts and scenarios and use these as pathways to improve key bottom-line performance parameters (http://www.ibs.net/au/solutions/business-intelligence/). Such IBM BI systems deliver enhanced: (1) supply chain performance, (2) data configuration (as sourceble fact packets), (3) instant solutions (that build scalable and growing data stores or warehouses), and (4) analysis toolkits (that assist in staff decision making processes). Hence, many approaches to building BI solutions exist. BI APPROACHES Today, many BI solutions typically fit into a number of approaches including:

1. Agent Based BI Systems (Jenkins, Norman & Faratin, 1998; Schleiffer, 2005; Weng & Tran, 2007)

2. Web-Based and Fuzzy Logic BI Systems (Weir, 2000; Jensen, & Shen,. 2004) 3. End-to-End BI Models (Kalakota & Robinson, 1999) 4. Intelligent Agent-Based BI (Bobek & Perko, 2006; Tarokh & Soroor, 2006) 5. Multi-Agent BI Frameworks (Wickramasinghe, Amarasisi & Alahakoon, 2004; Hamilton &

Selen, 2008)) 6. 3D - Self Organising BI Maps (Kohonen, 1982; Shirazi & Soroor, 2007) 7. Smart BI Gateways White, 2005; Hamilton, 2009).

Agent based BI systems These systems pursue problem specific solutions in a similar manner to artificial intelligence sorting systems. An agent is a computer or information system, positioned within a constrained environment. It is also capable of delivering autonomous action(s) in response to its designed targets. Ideally, agents are capable of: controlling actions across multiple technologies, communicating with other agents, quickly reacting to change and position, taking initiative based on weighted parameter settings, and possessing degrees of intelligence (Schleiffer, 2005; Weng and Tran, 2007). Web-based BI frameworks Businesses may deploy BI across their web presence to access, analyse, publish and distribute relevant information to end users. This point-and-click information accession has been greatly simplified by the inclusion of technologies that engage with high performance repositories such as data-marts and/or data warehouses (Gupta, 2008). Many businesses focus on BI systems to reduce costs, to find new revenue streams, or to change company processes to better meet new challenges (Ritacco & Carver, 2004). Jensen and Shen (2004) link fuzzy logic and rough set theories to greatly reduce of data redundancy and information loss. Others use BI as a Web 2.0 toolkit enabler (O’Reilly, 2007). Thus, from a BI perspective, web technologies are still evolving, and web related BI manipulation toolkits are still being enhanced – especially in the security, scalability and data extraction areas! Web servers deliver web pages, but they must also respond to multiple users, and their web server access requests. Here, secondary data processing is often required, thereby slowing business responses. Another response slowing factor is the need to include web servers. Web servers, to some extent, interrupt the continuous connection between the user, the business applications, and desired data source components. Web-Based BI Frameworks typically engage:

1. A BI Server – to house the business offered BI solutions and to readily respond to connected and data seeking users. (IBM, 2003a).

2. A Session Management Service – to control the web user’s access to the server and information and to intelligently track activities (Ollman, 2001).

3. A File Management System, - to capture directory and file sourcing permissions, and to maintain these materials (OS data, 2008).


4. The Scheduling, Distribution and Notification Services – to allow web users to schedule reports, build queries and seek information refreshes when required or when specified (Microsoft Technet, 2008b).

5. Load Balancing Services – to cater for multiple users accessing the server (or its supporting offload servers), and deploying two or more systems to basically act as a single unit (IBM, 2003a).

6. An Application Server - to maintain parts of the system and build web browsers into powerful, front-end query / analysis tools (IBM, 2003b).

7. Supporting Technologies such as Cobra, Hop, Java and Xml – to improve web servicing options (Popov, 2000).

Thus, across their overall solution design Web-Based BI Frameworks typically network across standard technologies and engage in BI interconnectivity and in systems integration systems. End-to-end BI models Another approach to BI is the end-to-end approach. Here, data elements built into robust, scalable and flexible platforms are combined, converted into useful and intelligent forms, and deduced into final business outcomes that are often linked to transaction solutions (Kalakota and Robinson 2001). End-to-end BI platforms typically act as an integrated five-step process:

1. integration of customer-related information 2. analysis and segmentation of: ‘data mining’ segments, users, customers specific products and

cross-selling options 3. triggers to indicate product personalisation requirements 4. performance indicators determining best ways to action a user request 5. point of sale information to best capture end users.

Thus, end-to-end solutions, as shown in Figure 2, typically link business units into overall solutions.

Figure 2. A Five-Step Process for Delivering a BI Platform

Source: Kalakota and Robinson, 2001

Intelligent Agent-Based BI Intelligent agents are software data capture program entities that quickly perceive and proactively respond to user-generated changes. Intelligent agents aim to satisfy business design objectives, and user requests. They generate smart business solution components (Wickramasinghe, Amarasisi, Alahakoon, 2004). They also engage and interact with other agents to best meet business design requirements, and they are capable of self analysis – where they seek to explain actions, and detect both errors and successes. Intelligent agents can:

1. collect internal or sources unstructured data, recognise information in semi-structured forms and then organise retained data along with additionally related information

2. create business-relevant prediction and simulation models 3. delivery selected information to the appropriate user over the right channel

Thus intelligent agents add reasoning capabilities to the BI equation Multi-Agent Approach Intelligent multi-agent systems further enhance intelligent agents approaches (Wickramasinghe, Amarasisi, Alahakoon, 2004). Intelligent multi-agents act within constrained environments and deploy multi-dimensional algorithms to optimize item selection and/or resource allocation (Schlieffer, 2005; Shirazi and Soroor, 2007; Beausoleil, Baldoquin & Montejo, 2008). To build overall user-requested solutions, multi-agent systems offer a range of combinations of engaging intelligent agents. Several multi-agents each capable of mutual interaction and message passing, request (or produce) changes in their common business networked environment, and if programmed correctly they then deliver a best net-business-solution to the requesting end-user. Multi-agents can deliver set of intelligences that:

Customer Centric

Information

Analysis and

Segmentation

Presonalisedfor each

Customer

Multi-Channel

DeliveryTransaction

Customer Centric

Information

Analysis and

Segmentation

Presonalisedfor each

Customer

Multi-Channel

DeliveryTransaction


1. operate across their software environments and deliver decisive actions 2. recognise and set precepts and accumulate relevant information from the environment 3. monitor an event and also collect relevant information about a change 4. set or follow goals, objectives or strategies 5. follow beliefs and handle accumulated information about the business environment 6. plan how to achieve desired business goals 7. set, build, and follow message protocols for agents to follow (and interact) (Padghan & Winikopff,

2004; Hamilton and Selen, 2008). Thus multi-agent BI approaches may better deliver a customer specific business solution to the requesting user. Three dimensional Self organising BI maps (SOMs) and Growing self organising maps (GSOMs) These systems are well explained by Kohonen (1982), Wickramasinghe, Amarasisi and Alahakoon (2004), Shirazi and Soroor (2007), Hamilton and Selen (2008), and Hamilton (2009). Here, a user request is trail-matched in the three dimensional data packages environment. Where no exact match is deliverable, a best option is selected, or another solution is sought. This option is then remembered, added to the database, and a next like request, is further adjusted and improved, hence, iteratively, the result improves to a closer exact representation of the customer request. Alternatively, as more relevant data is sought and obtained, it is then added to the self organising map. As more slightly different data is added to the system, a growing self organising map is created, and even greater intelligence gathering and synthesis is thus possible. Smart BI gateways Figure 2 shows BI delivered via its overarching, demand-driven, interactive Services Gateway Platform housing the business (1) front-end-focussed data integration systems (IDP), (2) customer data capture (DWP) and business matching systems (CSP), and (3) management scenario-testing and gaming approach systems (MTP). These systems interact with the business, the business external connectors, and the engaging customers – at different levels of appeal (Hamilton, 2009). Further upstream in the back-end business networks business, operational data stores, enterprise data warehouses and data-marts are tapped as required by collaboration, transactions, planning and business information factories. These integrated systems work together as supporting smart networks. They may seek out ‘best user option’ solutions (White, 2005) against specific transactions applications (Searby, 2003) and/or business planning and performance management systems (Ballard, White, McDonald, Myllymaki, McDowell, Goerlich, & Neroda, 2004) and/or business process and performance management systems (Pagano, 2005). Thus, a business integrated, smart network, deploying smart BI systems, potentially offers solutions for the discerning user. This smart BI solution system encapsulates much of the above tools and moves BI capabilities to a new level. If built correctly it represents a ‘state of the art’ BI system


Figure 2: Smart BI Frameworks, Adapted from Hamilton, 2009 ENGAGING A BUSINESS INTELLIGENCE SYSTEM In a Tropical Tourism BI system, travel may be captured into BI actionable software matrix of location against destination options, as shown in Table 1. In conjunction with Table 2 – which outlines the tourists travel constraints (money, time and activity time), the tourist may input a rated desirability measure, the activity’s cost and its time requirement. These may be combined with constraints like: day or night activity options. Thus by balancing and optimizing of customer constraints, activity constraints, funds available and locations it is possible to deliver a customer activity desirability ratings set for each specific customer and their desired targets. This analysis may be further refined, by first determining an impending tourist’s preferred activity types against other options or preference blocks. In this situation, shown in Table 3, relative information concerning each location, and related attributes are presented on a 0 to 1.0 scale, and are held in the business intelligence system(s) as part of a customer driven desirability ratings system. These focused activity preference (or customer driven desirability) blocks and their attributes may be built into a simple Growing Self Organising Map (GSOM), and then used to generate clusters of locations with similar attributes of significance. Consider a tourist choosing a ‘must do’ tropical tour activity (rated 10), like a Great Barrier Reef tour. The BI system assesses that the optimal combination to fill the tourist’s day, and adds both a city night markets and a dining out activity to this complement the day’s activities. It further deduces that this day costs at least $340, and consumes at least 13 hours of activities – leaving 35 hours, $1269 to consume in the future. The tourist then asks how much lunch, breakfast, and connecting travel may cost. The business intelligence system not directly housing this data, then searches its databases and estimates its best-guess answer. It may advise the end-user where such information may be sourced. This simple system involves agents, multi-agents, a central administrator coordination system, integrated data warehouses, business solution option algorithms, and possibly a growing self organising map that approximates likely tourist desired outcomes. With such a system being constantly updated, and still accepting multiple customer, business, and supplier additions, a dynamic, relevant BI tours system is deliverable.

Services

Gateway

Platform

Engaging

Customers to Business

Front-End Interactive

Systems

External

Environmental

Impacting

Business Systems

External

Database

Systems

Web

2.0

Systems

Global

and Mobile

Systems

Management

Toolkit

Platform

Customer

Servicing

Platform

Intelligent

Databases

Platform

Services Gateway Platform

Component Systems

Dynamic

Website

Platform

Business Segment

Front-End Push/Pull

Interactions with Back-

End Networks and

Externals


Table 1: Tourist Destination Activity Desirability

Location

Tourist Destination Activity Options

Desirability Scale

Cost ($) Time (hrs)

Activity-Time (%Day/Night)

Great Barrier Reef 10 220 9 100% Day

Botanic Gardens 3 15 4 100% Day

Outback Tour 0 150 8 100% Day

Rainforest Tour 10 250 12 100% Day

Rainforest Sky-Train 10 50 2 50% Day

City Night Markets 9 1 100% Night

Night Shopping 7 2 100% Night

Dining out 7 120 3 100% Night

Morning Skydiving 4 350 5 50% Day

White-water Rafting 6 140 6 50% Day

Historic Train Ride 35 4 50% Day

Table 2: Tourist Travel Constraints

Total Monies Allocated to Tours and Activities $1600

Total Stay Time (4 days) – 96 Hours Stay 40

Total Activities Time Planned During Stay 48

Table 3: Tourist Location - Activity Desirability Combinations

Location

Activity Preference Blocks

Bea

ch

His

tori

cal

Ad

ven

ture

Wil

dli

fe

En

tert

ain

men

t

Wa

ter

Sp

ort

s

Sci

ence

Bo

tan

ica

l

Din

ing

& F

oo

d

Ed

uca

tio

na

l

Great Barrier Reef 1 0.2 0.8 1 0.8 1 1 1 0.3 1

Botanic Gardens 1 0.4 0.5 0.2 1 1 0.8

Outback Tour 0.1 0.8 1 0.5 1 1 1 1

Rainforest Tour 0.8 1 0.5 0.2 1 1 1 1

Rainforest Sky-Train 0.5 0.5 1 0.5 1 1 0.1 1

City Night Markets 0.5 0.5 0.3

Night Shopping 0.2 0.5 0.2

Dining out 0.3 1 0.2

Morning Skydiving 1 0.2 1 1 0.5 0.5 0.3

White-water Rafting 1 0.4 1 1 1 1 0.5 0.5

Historic Train Ride 0.8 0.4 0.4 0.5 1 0.5 0.2 1


BUSINESS INTELLIGENCE FRAMEWORK DECISIONS Extending the above BI tourist selection framework systems, a customer targeting framework may be developed. In this framework the most appropriate BI tools may be integrated and programmed to deliver specific business-focused or customer-focused outcomes. Figure 3 depicts a general BI software selection approach. This approach may be combined with various degrees of customer response requirements, and so may yield the optimal customer or end-user output decision set. This general BI customer-responsive framework engages a range of intelligent software drivers – called ‘BI agents’. These BI agents work across tourism-related business segments or fields including: (1) customer relationship management, (2) yield management, (3) overbooking, (4) employee scheduling, and (5) market intelligence (Hamilton and Selen, 2008). These business segments, along with their response zones and outputs, may further help the tropical tour business operator and the tropical tourist select an appropriate travel and activity mix. Each tourism-related business segment behaves differently and so places different requirements on the business systems. Hence, each net outcome may require different levels of BI engagement. The components of the required BI solution are compiled as a net-business-segment-generated, outcomes set. Here, both the business, and/or the tourism-customer receive the combined, differentiated, and optimized solution. For each business segment the BI tools most appropriately used in engaging across this tourism-related business and its BI segments are now discussed.

Figure 3: BI Customer Responsive Framework Model SELECTING BUSINESS INTELLIGENCE TOOLS FOR TOURISM BUSINESS SEGMENTS BI: Customer Relationship Management Customer Relationship Management taps business-customer relationships by matching potential goods or services with user requests. If targeted well, sales increases and strong customer perceived satisfaction may be generated (Fluss, 2008). Multiple-agents are most appropriate here as they may be focused on personalised services like sending informative emails, extending special offers to the requesting user, and where possible responding quickly to user enquiries providing the complexity of the request is manageable. Agents may also help in segregating similar information into best selling and most popular products, or establishing the profile of the requesting user, or helping to develop a market positioning picture to target-marketing campaigns. A GSOM also has value here as the requesting users, the number of users, size and type of market, user expectations and competitors are each likely to change frequently with changes in industry and market mix structures. A GSOM can accommodate and grow with such requirements. Thus agent systems, multi-agents and GSOM approaches offer the likely mix required.

Major associations

Minor associations

Major associations

Minor associations

Customer Relationship Management

Market Intelligence

YieldManagement

OverBooking

Employee Scheduling

BIAgents

BI GrowingSelf Organizing Maps

BIIntelligent Agents

BIIntelligent Multi-Agents

BISelf Organizing Maps

Key Travel

TourismFront-End Business

BISegments

Tourism BI Fields Intelligence Tools


BI: Yield Management Yield Management targets maximizing profits. It manipulates available capacity against pricing variations to maximize business at differing times and from varying market segments (Badinelli 2000). Yield Management can be captured using intelligent agent frameworks, and at times may also tap into a SOM. BI: Overbooking Overbooking allows a tourism business to strategically over-commit its available services in order to minimise losses incurred when a service user fails to take-up an ordered booking. Thus this available user service is lost or waisted. A series of intelligent agents may be engaged to achieve this outcome (Netessine & Shumsky, 2002), and simple SOM linkages may also be useful BI: Employee Scheduling Employee scheduling typically links employees to daily rosters, times, and workplace tasks and/or activities. As various factors may contribute to these decisions, intelligent agents in conjunction with SOMs can capture the normal requirements to maximize employee work tasks efficiency, resources utilisation and lowest labour and associated operational costs. On rare occasions a SOM approach may be required to assess human capital. and advise on cost effectiveness and efficiency considerations. In rare cases a multi-agent framework also may be used to balance occasional special and multiple factor decisions. Market Intelligence Market Intelligence captures relevant information concerning the business’s targeted and peripheral markets. It gathers, analyses, and disseminates this information to relevant sections within the business (Cornish, 1997). The algorithms applying here fit across the gambit of the displayed BI toolkit options. Simple agent solutions may offer daily visitors, multi-agents may sales, and visitors and compute simple ratios. Intelligent agents may add decision making fields to such information like projecting future sales based on past, present and estimated future passenger arrivals and on percentage capture. Rather than a SOM approach, a better solution is a GSOM approach, which allows for approximation, expanding business knowledge and learning and growing database solutions which may be required to accommodate the continuously changing business environment. CONCLUSION Business intelligence (BI) in the travel tourism services, industry can be enhanced by suitably deploying appropriate BI tools. BI tools may be used in the capture of tourist desired activities and constraints. They may also be engaged by the tourism business to link business segments intelligently to the tourist’s desired activities. Key business segments including: market intelligence, customer relationship management, yield management, overbooking and employee scheduling may be included. The selection of BI tools for each segment is dependent on the levels and complexity of response required. To maximise the potential benefits of intelligence tools available to travel tourism businesses, a combined GSOM – multi-agents approach offers a generally suitable approach and this should be considered across an integrated tourism business network system. By first analysing the desired business requirements and then adding the desired tourism-customer outcomes appropriate BI tools may be selected, task programmed and incorporated into the tourism business’s smart data networks. Such selected BI business segment responses should be planned for, and incorporated into a travel tourism business’s data warehouse and knowledge management systems. An additional step may be to build relevant tourism business BI tools into a services gateway platform – where the close tracking of business-customer relationships, and the agile response to customer drift are deliverable.


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EXPLAINING CONSUMER BEHAVIOR IN A MULTI-CHANNEL CONTEXT: A QUALITATIVE EXPLORATORY STUDY

Eric Brunelle, Ph.D. Department of Management

HEC Montréal 3000, chemin de la Côte-Sainte-Catherine

Montreal, Quebec, Canada H3T 2A7

Telephone: 1.514.340.7316 Email: [email protected]

Abstract

Why do some consumers use only one channel and others a mix of channels? Why do consumers switch from one channel to another? What are the mechanisms underlying consumer behavior in a multi-channel context? Based on the analyses of 48 semi-structured in-depth interviews from consumers who had recently bought a computer, this article presents the results of a qualitative exploratory study that investigates the mechanisms governing consumer behavior in a multi-channel context. The results suggest that a new approach must be considered to explain consumers’ channel choices in their information search, the execution of the transaction, and their channel-switching behavior. It seems that the search for the best possible fit between consumers’ information needs and their perception of channels in building a satisfying mental representation of each consumption element is central to explain this behavior. Keywords: electronic commerce, consumer behavior, multi-channel

Introduction

The geographic and temporal distances that arise from the use of communication and information technologies such as the Internet, smart cards and automation have profoundly transformed commercial practices. Among other things, these technologies have allowed the emergence of electronic commerce and new business models such as e-tailing and e-brokering, as well as the advent of the cyberspace and the virtual world (Quader, 2006); Liu et al., 2004). These new business practices allow companies to reach a larger pools of consumers, be accessible anytime and from anywhere, develop new promotional approaches, reduce the cost of information diffusion and exchange, cut down on payment time, facilitate message and product customization, and set up mass customization practices (Wind and Rangaswamy, 2001). The use of these technologies considerably increases the number of channels with which a company can interact with consumers (Yao and Liu, 2005). The fast growth in technological innovations, the impressive number of technologies available and their multiple functionalities increase the complexity of managers’ task (Bradshaw, and Brash, 2001). What channel mix should a company set up to improve its commercial performance? Which criteria should be used to guide the choice of one channel mix rather than another? On what basis should companies manage their consumer interface? There are several challenges and problems involved in designing an effective and efficient channel mix (Rosenbloom, 2007). Studies concerned with bricks and clicks, CRM (customer relationship management) and multi-channel environments have shown how important consumer behavior in a multi-channel context


is in designing an efficient mix of relational resources (Verhoef, 2003; Willcocks and Plant, 2001). The choice to use a channel is the first decision that consumers make and it shapes their entire shopping process (Keen et al., 2004). Furthermore, many studies concerned with the strategic dimensions of electronic commerce conclude that one key factor for the success of e-commerce practices is the deployment of a channel mix focused on consumer needs (Slack, et al., 2008)Lin, 2003). To put it succinctly, companies that take the lead invariably pay close attention to the mechanisms that govern consumer behavior in a multi-channel context and adapt their channel mix to this behavior. Our literature review reveals that few studies have investigated this issue. However, the growing number of technologies that provide new relational and commercial approaches is a clear indication that understanding the mechanics of consumer behavior in a multi-channel context is now and will remain an important factor in consumer interface management and e-commerce practices. The development of such knowledge would help businesses make better decisions about spending on Web sites, implementing e-commerce and designing channel mixes geared to consumers. This knowledge could enable them to stand out from the crowd and enhance the value of their products and services (Currie and Parikh, 2006; Porter, 2001; Tapscott, 2001). This article presents the results of a qualitative exploratory study that investigates the mechanisms of consumer behavior in a multi-channel context. Accordingly, we first review the literature; then, we describe the methodology used; next, we present the results of our research; and finally, we discuss the managerial and theoretical implications of our research.

Literature Review

Consumer Behavior in a Multi-Channel Context Consumer behavior in a multi-channel context refers to the way that consumers use the different commercial channels in their consumption process. This behavior constitutes a dynamic process that includes the full sequence of channels that a consumer uses from the very beginning of the information search process to the post-purchase stage, including the entire transaction process. To explain consumer behavior in a multi-channel context, one needs a profound understanding of the mechanisms that lead to this sequence and an explanation of why consumers use a specific channel at a specific time and for a specific purpose, as well as why and when consumers switch from one to another channel. From our literature review, we have identified a few studies that present categories of consumer behavior in a multi-channel context. One kind of classification is based on observed behavior such as browsing and purchasing. For example, (Schoenbachler, and Gordon, 2002) distinguished between the single-channel buyer and the multi-channel buyer. (Kaufman-Scarborough, and Lindquist, 2002) identified five shopper groups: Web non-shoppers, who neither browse nor shop on the Internet; e-browser I, who browses retail Web sites but makes no purchases; the e-browser II, who browses retail Web sites and makes infrequent purchases; occasional e-shoppers, who browse retail Web sites and purchase online a few times a year; and e-shoppers, who browse retail Web sites and purchase online on a regular basis. Other studies present typologies of online shoppers based on shopping motives. For example, the results of (Rohm, and Swaminathan, 2004) suggest the existence of four shopping types: the convenience shopper, the variety seeker, the balanced buyer and the store-oriented shopper. Finally, some studies use personality traits to establish consumer’s profile. For example, (Goby, 2006) uses the Myers-Briggs Type Indicator to show that personality affects channel choice, and that there is a significant correlation between the choice of online or offline shopping and the dimensions of Extraversion-Introversion, Judging-Perception and Thinking-Feeling, but not with the Sensing-Intuition dimension. Moreover, to study consumer behavior in a multi-channel context, as (Keen, et al., 2004) and (Anderson, and Anderson, 2002) suggested, one must distinguish between information search behavior and purchase behavior. Although empirical evidence shows a relationship between the channels chosen for information


search and for conducting the transaction, the factors that explaining the choice seem to be different ((Verhoef, et al., 2007). Factors Impacting the Use of a Channel

Why do some consumers only use one channel and others a mix of channels? Why do consumers switch from one channel to another? What are the mechanisms underlying consumer behavior in a multi-channel context? To properly understand this behavior, it is relevant to review the factors that other studies have identified to explain consumers’ use of channels. For example, Saeed et al. (2003), Constantinides (2004), Chang et al. (2005), and Zhou et al. (2007) presented the results of meta-analyses that amalgamate and integrate all the studies carried out concerning consumer behavior in a multi-channel context. Based on these studies and on the other research that we found in the literature, we have identified three categories of factors that impact consumer channel strategies. The first category of factors is related to individual characteristics. Because e-commerce activities are technology-intensive and therefore entail only limited human contact (Subramanian et al., 2007), factors such as confidence level and perceived risk (Yang et al., 2006; Bart et al., 2005; Chang et al., 2005), attitude towards the channel and the retailer (Madlberger, 2006; So et al., 2005; Fayawardhena, 2004; Balabanis and Reynolds, 2001), level of channel experience and expertise (Frambach et al., 2007; Montoya-Weiss et al., 2003), and type of consumer motives influence consumer behavior (Sivaramakrishnan et al., 2007; Sanchez-Franco and Rolden, 2005; Joines et al., 2003). Overall, empirical evidence shows that the higher the consumer’s level of confidence in the Web site, the lower the level of perceived risk, the more positive the attitude, the more experience and expertise the consumer has with the use of Internet, and the more convenience-oriented his or her motives are, the more likely the consumer will be to choose to use Web sites rather than bricks-and-mortar stores. The second category is related to channel characteristics (Kim and Park, 2005; King et al., 2004). Overall, the research shows that the use of a channel by a consumer is a function of the functionalities and nature of the channel (Kim and Park, 2005; King et al., 2004). Usability and interactivity are two important channel characteristics that can influence consumer behavior in a multi-channel context. Usability refers to the ability to locate desired information, to know what to do next, and, very importantly, to do so with minimal effort (Nah and Davis, 2002). Central to this idea of usability are the concepts of ease of navigation and ease of searching. Elements enhancing the usability of a Web site are the convenience of using the site, site navigation and information architecture. These factors influence the consumer’s channel choice by influencing the perceived overall quality of the Web site (Masters and Michael, 2007; Venkatesh and Agarwal, 2006). Interactivity mainly refers to Web interactivity. It can therefore be seen as underpinning two basic elements of the Internet revolution: personalization and networking. Elements enhancing interactivity are facilities that allow interaction with vendors in case consumers have questions or difficulties using the site, and online helpdesks for technical assistance and support. Networking opens up the possibility of establishing contact with other users. These interactive elements make online experiences more positive and increase the channel strategy by reducing uncertainty during the online transaction and cognitive dissonance afterwards (Lee, 2005; Yadav and Varadarajan, 2005). Finally, the third category is related to product characteristics (Zhang and Li, 2006; Peppard and Rylander, 2005). Factors such as product nature (Lee and Huddleston, 2006; Hassanein and Head, 2005) (one example of product characteristics is being a fully digitizable product, such as music), product complexity (Zhang and Reichgelt, 2006; Klein et al., 2004), and product intangibility (Eggert, 2006) affect consumer behavior regarding the channel. Overall, the research shows that the more digitizable the product is, the less complex it is, and the more tangible it is, the more likely consumers are to use electronic channels. The literature review revealed that, although an understanding of the mechanisms underlying consumer behavior in a multi-channel context is a vital input in the deployment of e-commerce strategies, we still know little about this topic. The research has identified many factors that impact consumer use of a channel and some empirical evidence supporting the relationship between these factors and consumer behavior. But


only a few studies present an integrated model that helps us to understand the mechanisms and the relationship between those factors, and empirical validation is still needed. Accordingly, the objectives of this research were to explore the mechanisms that explain consumer behavior in a multi-channel context and to investigate the relationship between the factors identified in the literature review. The following section presents the methodology used to reach these objectives.

Research Methodology Previous research indicates that qualitative methods are useful for gaining an in-depth understanding of consumer behavior and of Internet users (Maignan and Lukas, 1997; Calder and Tybout, 1987). In this line of thought, a qualitative mode of inquiry was considered most appropriate, given the exploratory nature of the investigation. Thus, we used an in-depth interview-based approach. To operationalize the research, we chose to limit the study to the buying process for only one product: a personal computer. This product appears appropriate for two main reasons. First, consumers can carry out their information searches and their transactions for personal computers via several channels, such as bricks-and-mortar stores and online stores. Second, as Gabrielsson et al. (2002) showed, consumers perceive personal computers differently. For some, this product represents a highly complex, high-involvement product. For others, it represents a less complex, low-involvement product. Thus, the study of consumer behavior in this context should result in a rich variety of data on a comparable situation. Data was collected by conducting individual semi-structured interviews. An interview guide containing questions about each factor and about the information search and transaction processes was developed. Interviews lasted between 20 and 110 minutes. Notes were taken during the meeting and were rewritten immediately afterward. The interviews were recorded, and the tapes were used to complement the notes. As suggested by (Shneiderman, 1992) and (Gould, et al., 1997), an iterative data collection process was used. In this approach, the interview guide was improved after each interview by integrating new knowledge acquired in order to check out our comprehension of the mechanisms of consumer behavior in a multi-channel context. We therefore interviewed new subjects until saturation and redundancy of acquired knowledge occurred. At the end, 48 subjects had been interviewed.

Results

The profile of the respondents As we can see in Table 1, the profile of respondents is relatively heterogeneous in terms of their income, age and profession; as well, there are fairly equivalent numbers of men and women. A description of consumers’ behavior and the behavior profiles observed is also relevant. Eight respondents (16.7%) executed their purchase process exclusively on the Web, 16 exclusively in a store (33.3%) and 24 opted for a mixed approach in their search for information (50%). Of these 24 respondents, 12 conducted the actual transaction online and the other 12 in a store. Thus, 20 respondents purchased the computer online (41.7%) and 28 in a store (58.3%).

Consumer Channel Use and the Search for a Satisfying Mental Representation One of the most interesting observations we made in analyzing our data is that the behavior of every consumer that we interviewed can be explained by one central mechanism: the consumer’s search for a satisfying mental representation. We define mental representation as the way that individuals represent an object in their minds (Dellaert, et al., 2008). This object could be a person, a product, an idea, etc. No study has yet investigated mental representation to explain consumers’ use of a channel (or a channel mix).


However, based on our results, this mechanism seems to be the most important factor in explaining consumer behavior in a multi-channel context. Indeed, our observations for every subject in our sample indicated clearly that the main objective consumers have, often without being explicitly aware of it, is to build a sufficiently clear mental representation of the product, of the retailers, of the purchase process, and of the after-sale service, before they conduct a transaction. As we explain in the next section, this objective is the basis of the mechanism that explains why consumers start their information search stage with a specific channel, why they switch from one channel to another, and why they execute the transaction on a particular channel. Every single respondent that we questioned about their computer purchase process had the implicit goal of obtaining a satisfying mental representation of each consumption element at each stage of the process. As we showed in the literature review section, past research established relationships between many factors that explain channel use. Our research expands upon this and shows that these factors do have an impact, but the mechanism that explains consumers’ channel use and the relationships between the factors that we reviewed are quite different from what we had expected. The following sections present the dynamic that we observed.

Table 1

Sample Description

What is a satisfying mental representation?

28

20

Male

Female

Gen

der

12

17

11

8

18-30

31-44

45-59

>60

Ag

e

10

19

5

8

6

Students

Professionals

Retired

white-collars

IT specialists

Occ

upatio

n

6

19

14

9

<25K

25-50K

50-75K

>75K

Inco

me

28

20

Brick-and-mortar

Online

Ch

anne

l use

d fo

r th

e tr

ansa

ctio

n

24

16

8

Mix

Brick-and-mortar

Online

Ch

anne

l use

d fo

r the

in

form

atio

n re

sear

ch


Understanding what a satisfying mental representation is essential to adequately explain the mechanisms behind consumers’ use of channels. This is because what constitutes a satisfying mental representation is quite different from one consumer to another. As we observed, some consumers are more tolerant of uncertainty and ambiguity when buying a computer. Those consumers need a less detailed mental representation to take the decision to buy, or not buy, a computer. For example, some consumers only need a minimal mental representation of after-sale services. For these people, simply knowing that the retailer offers after-sale services is sufficient. However, other consumers need a richer mental representation of the retailer’s after-sale services; they need to know how and when to get after-sale services, the quality of the service, other consumers’ assessment of the service, etc. In the same vein, differences were observed regarding what level of product information is needed; some consumers need to know the exact characteristics of the computer, while others only need to know what they can do with it. The same kinds of differences were observed concerning computer applications, retailers, the purchase process – in fact all aspects of the commercial process. Thus, each consumer has different expectations concerning the quality and clarity of the mental representation that they have to construct before making the transaction. A satisfying mental representation corresponds to the level of clarity that a given consumer needs in understanding each element of the buying process. We also observed that this level varies during the purchase process. The variation is related to a number of factors, including the consumer’s mood and frame of mind, the time he or she has invested since the start of the information search process, fatigue, etc. As we observed, to build a satisfying mental representation, consumers seek information. This information is of different kinds and has different importance. At the very beginning, mainly depending on their personal experiences, every consumer that we interviewed had certain assumptions about and knowledge of computers, the retailers that sell them, and the commercial process for each of these retailers. Based on those assumptions and knowledge, each consumer starts the consumption process with a particular mental representation. The consumers we interviewed told us that they were looking for information with the goal of building up a more appropriate mental representation of the computers, retailers and computer consumption process so they could increase the quality and clarity of their knowledge and confirm some of their assumptions. Because consumers look for a lot of information in their decision process, we saw that a priority list, based on each piece of information’s importance, is implicitly developed. The establishment of this priority list is usually not conscious, but our analyses show that all respondents had ranked the information they needed to find. The preference for a specific channel at the beginning of the information search corresponds to the channel that the consumer perceives as offering the best fit between his or her perceptions of the nature of the information presented through that channel and the information that he or she needs and that is at the top of the priority list. Each of the 48 subjects that we met insisted on the importance of this fit in explaining their preference for using a particular channel at the beginning of the information search task. This observation is an important new input in explaining consumers’ channel use. No previous study has explored this mechanism. However, an understanding of the dynamic of a consumer trying to get the best fit between the specific information that he or she seeks to build a satisfying mental representation and his or her perception of the kind of information the channel presents opens up a new way of understanding consumer behavior in a multi-channel context. This is a new paradigm for thinking about and explaining consumers’ use of channels. In the next section, we present our explanation of this mechanism.

The mechanism of searching for the best fit Three concepts that influence information processing can be used to explain the mechanisms behind consumers’ preference for a channel and their search for the best fit: uncertainty, ambiguity, and consumer perception. Uncertainty occurs when there are no answers to an explicit question. It is defined by the absence of information; thus, as information quantity increases, uncertainty decreases (Daft, and Lengel, 1986). On the other hand, ambiguity originates from the existence of multiple and conflicting


interpretations of a situation. Ambiguity means confusion and lack of understanding even when information is accessible (Daft, and Lengel, 1986). The space and time distances that result from the use of Web sites have an impact on the level of uncertainty and ambiguity. As a result, for example, though if we noted differences between subjects in terms of their perception of the information presented through a channel, all of them stated that a channel such as a bricks-and-mortar store is perceived as better at reducing ambiguity than a channel such as an online store, which is perceived as better at reducing uncertainty. Thus, consumers tend to prefer a particular channel depending on whether they are mainly seeking to reduce ambiguity or to reduce uncertainty. For example, a consumer who mainly wants information about the differences between the characteristics of various computers and their prices tends to prefer the use of a Web site because this channel presents more factual information and offers convenient applications that permit users to easily compare this information. That reduces uncertainty. On the other hand, a consumer who mainly wants information about how to use a computer and how it works tends to prefer the channel that provides advisors, such as a bricks-and-mortar store. This channel offers the opportunity to obtain personalized information that reduces ambiguity. We should make it clear that these examples of best-fit situations are not obvious, because best fit is a matter of perception and many factors impact this perception. The perceived nature of the information presented by a channel is a complex phenomenon. We identified many factors that influence a consumer’s perception of the best-fit channel and that should be taken into account. First, a channel does not present only one kind of information; in fact, each channel presents information of different kinds. Thus, even if there are strong tendencies, we cannot link a channel with only one specific kind of information. For example, bricks-and-mortar stores, which, at first glance, are mainly associated with the presentation of sensory information such as the feeling created by using a computer and the personalized information provided by the sales representatives, also provide factual information such as prices and the model’s technical specifications, on the descriptive sheets in the display stands. The same is true of Web sites, which are considered to be particularly good at presenting factual information such as technical specifications and prices. Nevertheless, Web sites also present sensory information such as images, 3D animations and movies. Consequently, despite certain strong tendencies, each channel is able to offer a wide and varied range of information. Moreover, even in the case of a single channel, information differences can be observed depending on the use the retailer makes of it. For example, consider the Web sites of computer retailers. If we compare the Dell Computer site, which presents numerous images and multimedia animations, with the Tradeloop.com site, which presents primarily charts describing and comparing computers, we can see that, even though they are both Web sites, there is a considerable difference in the richness of the information presented: the first is clearly richer than the second. We can also compare bricks-and-mortar stores, which include small, specialized boutiques that offer a lot of personalized information, provided mainly by the consultants and specialists, and big box stores that tend to present information primarily by means of displays, rather than personalized information. Finally, consumers’ perception of the nature of the information presented on a single channel by a single retailer differs from one person to the next. These differences are mainly due to the consumers’ experience and their level of expertise with the channel. The more experience and expertise consumers have, the better able they are to decode the information presented. Consequently, some consumers find information easier to understand and interpret than others do. For example, compared to a novice, a consumer who has experience and a high level of expertise with a channel finds it easier to understand and obtain sensory information through a highly virtual channel, such as a Web site. Thus, since the consumer finds it easier to interpret the information, he or she also has less trouble constructing a satisfying mental representation. Overall, we identified two main channel characteristics that influence the perceived nature of the information presented on a given channel: usability and interactivity. For example, a Web site with great usability design helps to reduce uncertainty by facilitating access to information. Moreover, interactivity in Web sites helps to reduce ambiguity by offering the opportunity to get personalized information that increases one’s understanding of the information and reduces possible confusion about its meaning.


Like a satisfying mental representation, the perception of the best-fit situation differs from one consumer to another. To understand the mechanisms underlying consumer behavior in a multi-channel context, it is important to understand that every consumer has their own perception of the nature of the information presented in a channel. This situation increases the difficulty of predicting consumer behavior in a multi-channel context. Thus, the following sections present some details and explanations. Why is the preferred channel not always used?

“I wanted to use the Web to obtain info about the prices of computers, but since I didn’t have a computer at

home, I couldn’t see any other option than going directly to a store […].”

“I would have far preferred to go to a store to talk to a consultant. But since it was late in the day, the

stores were going to close soon and I live more than 30 minutes from the shopping area, I chose to do my

research on the Internet […].”

As these quotations illustrate, consumers do not always use the channel that they prefer. The majority of past studies have developed and tested models based on the consumer’s channel choice. Based on our data analyses, we concluded that this approach could only partially explain the phenomenon. As we observed, to explain consumer behavior in a multi-channel context, we must first understand the consumer’s preferred channel and then explain their actual choice. Indeed, there seems to be a clear distinction between the preferred channel and the channel used, but both factors must be taken into account to explain a consumer’s channel use. Past studies have focused either on channel choice or on channel preference, but no study has explained the relationship between them. This section presents new insight into this topic. As we described above, the consumer’s preferred channel corresponds to the one that offers the best perceived information fit. This is the central mechanism in our respondents’ behavior in a multi-channel context. It must be considered as the starting point. So why do consumers not always actually start their information searches in their preferred channel? Every respondent whom we interviewed who had not chosen their preferred channel told us that they picked another channel to start their search for information because they had no other choice. This was their alternative choice. The alternative choice is acceptable for consumers only in some circumstances. In others, the consumer refuse to use the alternative channel and finds another solution, including asking help from a friend or family member or even stopping the consumption process. First, the alternative channel must be perceived by the consumer as providing information that could improve the quality of his or her mental representation. The consumer implicitly knows that, even if the channel fit is not optimal and more effort is needed to use the alternative channel, it still could lead to a satisfying mental representation. Moreover, sometimes, the consumer’s satisfying mental representation may be reconsidered, depending on the context. But it is very important for consumers to believe that the channel can improve their mental representations if they are to use an alternative channel. Second, the consumer must consider that the extra effort incurred by the use of the alternative channel is reasonable and acceptable. The reasonable and acceptable level depends on the context. Here, a few extrinsic factors should be considered. We identified two main factors from our data: access to the channel and time constraints. Sometimes, because the consumer has difficulties accessing the preferred channel or is affected by time constraints, he or she decides to use an alternative channel. In those cases, the cost of using an alternative channel is less than the benefit. Finally, we noted an interesting behavior that occurs when access to the preferred channel is temporarily not available. We observed that consumers tend to start their search for information by using an alternative channel to find the next information in their priority list. Thus, consumers move on to the secondary information in the priority list and answer these questions until they can use the best-fit channel. They are therefore in “wait mode.” The acceptable waiting time again depends on the context and on each individual. However, all the subjects in our study who dealt with this situation explicitly described such a waiting period, which ranged between one hour and three days. After the waiting period, either the channel


became available again and the consumer used it or an alternative channel strategy was set in motion or the purchase process was interrupted.

Why do consumers switch from one channel to another?

“[…] In the beginning, I was trying to obtain information on the “computer market.” What I was really

looking for was advice about the features that I needed to take into consideration to make a decision. So I

went to talk to the consultants at a small specialized boutique, which I thought was the place where I could

get the best answers to my questions. The more advice I got, the more comfortable I felt with the idea of

shopping for my computer alone. I gradually increased my knowledge about how computers work and

about software and Internet connections by trying out the computers in the store. I then felt ready to move

on to the next step: comparing the various offers. The consultant tried to convince me that the computer he

was recommending was perfect for my needs, but I felt that I had to compare his offer with the other

retailers’. […] I found out that there were Web sites that allow you to quickly compare computers based on

their prices and features. So I decided to go back home and use these sites to compare the various offers. I

could have got in my car and gone from one store to another, but that would have taken a lot more time

and I don’t think I would have been able to compare all the offers. The Internet was more appropriate

because I had access to information that corresponded to what I was looking for.. […]” We also saw a complex phenomenon that explains channel-switching events. For each respondent that we interviewed, we observed that they naturally sought to improve their performance in their search for information. As we observed, the search for the best fit between consumers’ perceptions of the nature of the information presented through a channel and the information they are looking for in their attempt to build a satisfying mental representation is related to channel-switching. This is because consumers feel that the best fit increases information quality and reduces the search time in their buying process. But, even though this search for the best possible fit is important in explaining channel switching, we must further explore the underlying mechanisms. Our analyses of the data led us to the conclusion that we must also have to add a cost-benefit perspective to the explanation of channel-switching. In other words, the relationship between the best perceived fit and channel-switching is moderated by a cost-benefit calculus. The dynamic is as follows. As discussed above, to increase the quality of their mental representations, consumers start their information search, when possible, with the channel that they perceive as offering the best information fit. When they get information, the uncertainty and/or ambiguity level changes and, thus, the information priority lists change too. New information rises to the top of the priority list. Thus, consumers seek new information to construct a satisfying mental representation. This new information could be quite different from the previously sought information. If the nature of the new information is similar to that of the previous information, the perceived best channel fit usually remains the same and no switching occurs. The consumer continues to seek information from the same channel. This is what happened in the quotation above. This consumer first looked for information about what he should consider in his decision process. After he felt comfortable, he wanted to try some computers. The same channel was considered as the best fit. Thus, no switching occurred. But, when the nature of the new information at the top of the list is different, then the perceived best fit changes and thus the preferred channel changes too. As we already noticed, the fact that a channel is preferred does not necessarily mean that the consumer will actually use it. The same is true of switching. A consumer does not necessarily switch because another channel is preferred. Our analyses showed that switching from one channel to another occurs when consumers perceive that the other channel is better at building a satisfying mental representation. But, even if they perceive that another channel is better and even if they prefer to use another channel, consumers switch only when they consider that the cost of switching (i.e. time, transport, access) is lower than the benefit (i.e. reduced searching time, increased information quality). This is what happened in the above example, when the consumer switched from a specialized store to a Web Site. He perceived that he would save significant time by using the Internet to compare different retailers’ offers.


Our analysis states that the most important benefit for a consumer is achieving a mental representation that corresponds to a satisfactory quality and clarity. Thus, if a consumer cannot reach the expected level of mental representation with a specific channel, he or she will eventually switch to another channel. But, if a consumer can reach the expected level, even if the channel does not correspond to the best fit, switching is not guaranteed. That depends on the perceived cost-benefit relationship. Why are consumers not ready to buy online?

“[…] If I buy my computer on the Internet, I have no idea how I’ll actually be able to get my computer.

Since I’m never at home to receive parcels, I don’t know where, when and, above all, how I can get the

thing. Furthermore, if there was ever a problem with the computer, I’m not convinced I really understand

how it works. Who should I phone? When can I get it serviced and where? […] I wasn’t ready to invest the

necessary time to find this information and get a good understanding of how things work. So I decided to

go to a store, pay and leave with the computer. Because I often make this kind of purchase, I knew what to

expect.”

Our analyses led us to observe that not all consumers are willing to consider the use of an online store to carry out a transaction. Our respondents mentioned several reasons for this situation. Some emphasized their fears concerning the security of the transaction process, while others mentioned their fears concerning the delivery process and after-sale service, and still others did not believe they would be able to make the purchase correctly in the online store and consequently preferred to go to a bricks-and-mortar store to carry out the transaction. However, when we drilled down a bit deeper, we found that all our respondents explicitly said that their fears were mainly due to the fact that they had a fuzzy mental representation. This inadequate mental representation led to a poor understanding of the purchase process and therefore to a decision not to conduct transactions online. As well, our respondents all indicated that they were not ready to invest the time and effort to clarify their mental representations and that it was much easier to use a channel they were already familiar with. Overall, then, a satisfying mental representation is still important in explaining the transaction task. The main difference from the search for information task is that, in a search, the mental representation is more focused on the product and related elements such as retailer quality, manufacturer quality, etc., whereas, for the transaction, it is more focused on the transaction process and related elements such as the retailer’s reliability, after-sale services, etc.

Discussion and Conclusion

Practical Implications This study shows the importance of managing consumers’ mental representations in electronic commerce relationships. Consequently, companies must pay special attention to consumers’ information needs. As we have shown, consumers naturally prefer a channel that presents the best fit between their information needs and their perception of the nature of the information presented on a channel in building a satisfying mental representation of the product, the retailer, etc. From our point of view, a consumer-centric orientation in developing consumer interfaces is obviously a solid approach. A better understanding of consumers’ information needs and behavior is essential to adequately manage the virtuality resulting from electronic commerce. Companies can act as agents of change in trying to encourage consumers to use a particular channel. To do so, companies must remember to offer elements that create value for consumers. If they do not, consumers will not change their behavior or adopt new channels. Our study points out that the highest priority for consumers is achieving a satisfying mental representation of each consumption element. For companies, this is a complex objective to meet.


Theoretical Implications On a more scientific level, contrary to what previous studies had indicated, our results show that confidence in the use of the Web, perceived risk and attitude to the channel had only an indirect relationship with a consumer’s preference for a particular channel. In fact, our results tend to support a causal relationship that seems to differ from those presented in earlier studies. According to our analyses, it is really the quality of the mental representation that explains a consumer’s preference for a given channel. The quality of the mental representation also explains the consumer’s level of confidence, perception of risk and attitude to a channel, a retailer, etc. Consequently, the anticipated relationships based on the results of earlier research must be revisited. Limitations and Future Research This study has several limitations. This research is an exploratory study based on qualitative data and a restricted number of subjects. It was limited to the analysis of the purchase process for only one product and to the distinction between only two channels. Consequently, it is obvious that further research will have to be carried out to more thoroughly validate a new model and generalize the results of this study. However, the results obtained are encouraging and open up a new paradigm for studying consumer behavior in a multi-channel context.

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Identity Theft Prevention using E-retailers’ Websites

Marion Schulze and Mahmood H Shah

[email protected]

University of Central Lancashire, PR1 2HE Preston, UK

Abstract: Identity theft is the fastest growing crime in the 21st century, causing e-commerce organizations

substantial costs and lost revenues every year. Consumers perceive the risk of becoming a victim of

such crimes as a significant threat which often negatively influences their buying behavior online.

Therefore organizations need to think about ways of gaining and keeping consumers’ trust. This paper

investigates what well-known retailers in United Kingdom are doing to address this issue.

Firstly it aims to analyze how organizations communicate their commitment to prevent identity theft

related crimes on their websites. For this purpose we analyze secondary data (literature and websites of

ten organizations). Secondly we investigate the good practice in this area and recommend a practical

framework which we call Inform – Support – Trust – Empower – Prevent (ISTEP).

The key findings are that some organizations only publish minimum security information to comply

with legal requirements. This approach rarely facilitates trust. Other organizations use this opportunity

to provide consumers with information on how they actively try to prevent identity theft, and how

consumers can protect themselves. Some organizations inform consumers additionally about supporting

actions when identity theft related fraud actually happens. From these findings we developed the ISTEP

framework that combines the promising practices we found in our analysis. It helps to prevent identity

theft, and is also a way of gaining and keeping consumers’ trust which is essential for e-retailers in a

climate of rising fraud.

Key words: Identity Fraud; Identity Theft; Customers’ Behavior; websites; Security; Privacy; E-retailer; Inform,

Support. Trust, Empower, Prevent (ISTEP) framework

Introduction

This paper aims to investigate how e-retailers in the UK communicate identity theft on their websites, and what can be considered as promising practice. Identity theft related fraud is a growing problem and can be seen as the fastest growing type of fraud in the UK (CIFAS, 2008). We distinguish between identity theft and identity theft related fraud. Identity theft is “… the misappropriation of the identity (such as the name, date of birth, current address or previous address) of another person, without their knowledge or consent” (CIFAS, 2008). Identity theft is often followed by identity fraud which “… is the use of misappropriated identity in criminal activity, to obtain goods or service by deception” (CIFAS, 2008). e-Retailers become victims of identity fraud when fraudsters take over customer accounts, e.g. after getting hold of user name and password by “phishing” (Myers, 2006). Fraudsters may also set up new accounts with stolen identities and stolen payment card details. Internet fraud clearly damages Internet businesses. (Lindsay, 2005; SOPHOS, 2007) Not only trading goods are lost, also the trust of consumers, damaging the Internet


economy as a whole (Tan, 2002; Berkowitz and Hahn, 2003; Sullins, 2006; PITTF, 2007; Acoca, 2008). Therefore it is important for e-retailers to find ways to gain consumers’ trust in times of rising fraud. Publishing information on websites is one way of achieving this. Collins (2005) points out that legal requirement about what to publish are merely superficial. In addition, it should offer information on how customers can help secure their own privacy. She recommends that organizations should perform a website security assessment to measure the performance of their website in terms of how security is perceived by customers. Collins’ recommendation on how to communicate identity theft on websites focuses on perceived security. Our analysis aims to investigate if this approach is enough and how it is used in practice on websites of well-known e-retailers in the UK. The next section describes our research methodology. The findings section outlines what UK e-retailers are communicating on websites regarding identity theft and related fraud. The discussion section proposes what can be considered as promising practice, we call it the ISTEP framework. The final section concludes with a critical evaluation of our findings.

Research methodology

The nature of this research required an analysis of organizations’ websites. This paper is an analysis of websites of ten large online retailers in the United Kingdom, shown in Appendix 1 and Table 1. Our sampling criteria were that all selected organizations must be selling consumer goods online and large enough to provide UK wide coverage. For this reason SMEs were excluded from the study. One of these retailers included in this study is the sponsor of this research, name of which is not mentioned for confidentiality reasons.

Table 1. Chosen Sample of Retailers

No E-retailer

A Computer Supermarket.com B Bodyshop C Laura Ashley D Multizoneav.com E PC World F Amazon.co.uk G Sainsbury's H Debenhams I Marks & Spencer Plc J Shop Direct (Littlewoods) We identified all possible actions companies mention or perform on their websites that are related to identity theft and identity fraud. Based on a first sample we developed an analysis sheet, containing five categories of information that will be presented separately in the findings section: Accreditation, prevention of identity theft, prevention of identity fraud, empowerment of customers, and reaction when fraud occurs.


findings

Trust-building Information

It is important to publish security and identity theft related information on websites because consumers have the legal right to be informed. Consumers may also gain trust if they get the impression that a company takes these issues seriously. We found that some e-retailers try to establish trust on websites by letting customers know what they do to battle the crime: accreditation, prevention of identity theft, and prevention of identity fraud but practice varies a lot. These attempts are described here and evaluated in the discussion section.

Accreditation

One way of gaining trust is demonstrating an accreditation with companies who check the safety of internet pages. Information on different accreditation programs can be followed up by links given in Appendix 2. The Table 2 shows how our sample of e-retailers makes use of it.

Table 2. Information given about Accreditation of Data Security

A B C D E F G H I J

Participant of the Safe Harbor Framework x

ISIS accredited by IMRG x

Certified Tier 1 PCI DSS Compliance x

SafeBuy Web Code of Practice x

VeriSign SSL certificate x

IMRG member (e-retail industry body) x

Link to accreditation website x x x

When a website links to an accreditation program, it does not always mean that the organization is accredited, e.g. the ISIS link on Laura Ashley’s (C) website. Half of the e-retailers of our sample do not mention accreditation at all.

Prevention of Identity Theft

A second way of gaining trust is to demonstrate organization’s efforts to prevent identity theft. The statements we found on the analyzed websites are described in following Table 3. Most of these points reflect the requirements of the Data Protection Act 1998 (ICO, 2009). Organizations in the UK are legally obliged to protect customers’ data from identity theft and publish a security statement on their websites. The security statement should inform consumers about who is collecting their personal information, which data are stored, what the data are used for, their rights of accessing the data and refusing their storage and usage, and finally the use of cookies and other tracking systems. Additionally the Data Protection Act 1998 demands a transcription-based transmission system.


Sensitive personal information should be secured by encryption or similar techniques on a website operator’s server.

Table 3. E-Retailers’ Actions to prevent Identity Theft

A B C D E F G H I J

Protect customers' data when they are transferred or stored

Secure online data transfer

Mention that secure sockets layer (SSL) software is

used x x x x x x x

Mention that you only accept orders using SSL software x

Mention that encryption is used x x x x x

Secure storage of data

Encrypted sensitive data when stored (e.g. credit card

data) x

Stored data on separate server / secure server x x x x

Delete payment card data when account has not been used

for a while x x

Secure transfer of data

Onward transfer of data only to reliable sources or

not at all x x

Choose reliable delivery firm x

Reveal only part of the debit or credit card when

confirming the order x x

The analysis of organizations’ websites in Table 3 reveals that some of the organizations just mention the minimum requirements of the Data Protection Act 1998; others put a lot of effort in to show how serious they are about data security.

Prevention of Identity Fraud

There are no legal obligations in the UK about how companies should inform consumers on websites about identity fraud.

Table 4. E-retailers’ Actions to prevent Identity Fraud

A B C D E F G H I J

Fraud-monitoring systems in place

Check details with fraud prevention agencies x

Credit Card checks - passing details to credit reference

agencies x x x

Have procedures in place to detect fraud x x x

Automated decision making systems when assessing

customers x

Making identity fraud more difficult

Multi-factor authentication for customers' accounts

Ask for password and postcode x

Additional protection for payment cards

3D Secure Schemes (MasterCard

SecureCode, Verified by Visa) x x x x

Inform customer what happens when identity fraud is detected x


The Data Protection Act 1998 (ICO, 2009) only obliges organizations to publish their physical address on their website. This enables consumers who are victims of identity fraud to ask for relevant information. Nevertheless the website analysis, shown in Table 4, reveals that some organizations describe other means to protect customers from becoming fraud victims.

Empowering Information - How Customers can protect themselves

Apart from gaining customers’ trust as shown above, organizations use websites as well to inform customers how they can secure their own privacy, illustrated in Table 5. Again, some of the organizations mainly focus on the minimum requirements of the Data Protection Act 1998; others such as Shop Direct put much more effort into providing information and support for their customers.

Table 5. E-retailers’ Information for Customers to deal with Data Security

A B C D E F G H I J

Information about legal requirements

Give notice how data are handled x x x x x x x x x x

Tell customers that they have the choice of

submitting data or not x x x x x x x

Let customers know how they can access

their data x x £10 x x £10 £10

Mention that data are used in accordance with

legal requirements x x x x x x x x x

How to protect personal information

Contribution to secure data transfer

How to recognize secure websites x x x x

Inform customers about secure

versions of their internet software x

Account protection

How to create safer passwords x x

Remind customers to keep

password safe x x

Prompt customers to sign off

before leaving the website x

Prompt customers to close

browser when finished on public

computers

x x

Protect customers from Spoof/false e- Mails and

false phone calls

Explain the nature of spoof/false

e-mails x x

Let customers know how you do

not contact them x x x x x

Advise customers never to enter

sensitive data into an email x x x x x

Let customers know how you

contact them x x

Inform customers about data security and

secure online shopping in general

10 Tips of ISIS x x

Data transfer via internet is never

100% safe x x

Explain what is identity theft x

Advice to check security of linked x x x x


A B C D E F G H I J

websites before entering data

Advice to ensure that customers'

personal details are kept

confidential

x

Advice to destroy documents with

personal details by using paper

shredders

x

Advice to check payment

statements regularly for

unknown transactions

x

Advice to fully close accounts

when customers do not need them

anymore x

Supporting Information - What Companies do when Identity Fraud occurs

Three e-retailers of our sample communicate on their websites what they do when identity fraud occurs, shown in Table 6, not been considered by Collins’ (2005).

Table 6. E-Retailers’ Information what happens when Identity Fraud occurs

A B C D E F G H I J

In case of unusual orders, drivers can reserve the right to query the order x

Identity theft team - Personal case worker x

Inform fraud prevention agencies x

Pay for up to £50 of damage if payment card is fraudulently used x Information for customers how to apply for a personal credit report x

FAQ - what do I do when my card has been used fraudulently? x Security and identity theft as help topic x

Providing this kind of support can facilitate customer’s trust a great deal and Shop Direct provides a good example of how to do it. Although they can also do better by promising a compensation and providing FAQ of what to do when customer’s card is used fraudulently.

Types of Information Policies on Websites

We can summarize that we found three main approaches in battling identity theft on e-retailers’ websites. Firstly, the minimalist approach just fulfils legal requirements and does not seem to put much emphasis on trust-building, e.g. the website of Bodyshop (B). This finding supports Collins’ hypothesis that the minimalist approach is still used by practitioners. Secondly, the prevention approach aims to gain customers’ trust by highlighting how securely data are handled and by informing customers of how they can protect themselves. It has been recommended by Collins (2005) and is used by most e-retailers of our sample. Finally there is a holistic approach, e.g. the website of Shop Direct / Littlewoods (J), which combines the prevention approach alongside giving


additional information of what happens after identity fraud occurs. In the following section we will discuss the components of these approaches and develop promising practice which we call the ISTEP framework.

Discussion

Although legal requirements mean that all organizations have to follow at least the minimalist approach, we propose that e-retailers should do more on their websites. We are proposing the ISTEP framework which stands for Inform - Support – Trust – Empower – Prevent (ISTEP).

Figure 1. The ISTEP Framework

Empower customers to keep their data safe

Support customers on what to do when identity fraud occurs

Inform customers on what you do to prevent identity theft

Inform customers on what you do to prevent identity fraud

Create Trust

Prevent damage for

You Customer


This holistic framework, presented in Figure 1, is based on our findings presented in the section three of this paper. All aspects of this framework are interlinked as shown by the arrows.

“I” for Inform

Information stands for informing customers about the nature of identity theft and fraud and what the company does to prevent it. Examples are given in Table 3 and 4. Promising practice of communicating prevention of identity theft above legal standards is e.g. the choice of a reliable delivery firm or showing only parts of the debit or credit card on the order confirmation. Some e-retailers emphasize how secure their data transfer and storage is, selling the legal standards very well. Amongst our research sample, two e-retailers avoid mentioning identity fraud related prevention methods on their websites, Bodyshop (B) and multizoneav.com (D). Firstly they miss out on informing customers which would facilitate trust. Secondly fraudsters may be more likely to target a company when such information is not provided. Therefore we recommend including it on websites. 3D secure schemes, credit card checks and procedures to detect fraud are the most popular prevention methods mentioned in our sample. We recommend additionally implementing multi-factor authentication and communicating it on websites as this seems to be one of the safest prevention methods.

“S” for Support

Support means that organizations should provide the best possible support for consumers when the latter become victims of identity fraud. Identity fraud does not only cause financial losses, it can have tremendous impacts on consumers’ health. Collins (2005) points out that identity fraud can cause an emotional component comparable to the effects of rape and calls the crime “identity rape”. Therefore we suggest E-retailers should not only provide support for victims but also make their support processes /procedures visible on their websites. Promising practice is presented in Table 6 which may be used as guide. We recommend positioning this information in the Help or Customer Services menu and under frequently asked questions. It should contain information about who to contact when identity fraud happens; and provide general information about the first essential steps the consumer needs to take, e.g. how to contact credit reference agencies for credit reports. A fully trained personal case worker seems to be a promising way of dealing with the emotional upset of victims. A good example for this kind of support is the website of Shop Direct / Littlewoods (J) which provides a personal advisor to the victims of frauds which occur at the company. Victims are not necessarily customers when a fraudster has set up a fraudulent account in their name. E-retailers can see this as an opportunity to win victims of such crimes as new customers by supporting them in a best possible way and winning their trust.


“T” for Trust

Trust means that consumers should have evidence that they can trust the website. For many well-known companies trust is implicit given their long-standing reputation. Younger and less well-known companies may benefit from some form of accreditation. Research (cited by Safebuy, n.d.) suggests that consumers are more likely to buy when they find accreditation symbols on websites. Our sample shows in Table 1 that larger well-known e-retailers might not need this kind of confirmation of their trustworthiness. As shown in figure one, trust can be as well obtained or reinforced by informing customers what else organizations do, apart from following legal requirements, to keep customers’ data safe and to prevent identity fraud. Finally there is an expected positive effect on trust when e-retailers support victims of identity fraud. Trust is, as shown in figure one, beside prevention one of the two central themes of the ISTEP framework.

“E” for Empower

Customers have a vital role in the war against identify theft. It is widely known that many occurrences of identity theft happen because customers don’t know enough about how to protect themselves against identity theft related frauds. For example, many customers throw away their bank or card statements to the bins which may be used for these crimes. Simple shredding of personal information related papers can help a great deal. Another way in which customers can protect themselves is, securing their personal computers by installing suitable security software. Thus education can play an important role in prevention and a company website, if used properly, can act as a valuable education tool. We recommend that e-retailers should include detail about the nature of identity fraud, how it usually occurs, and its impact on victims. Table 5 gives an overview what kind of information should be given. It is especially useful to inform customers about “phishing” and ways how they can avoid becoming a victim of this crime. This includes spoof / false e-mails. The websites of Amazon (F) and Marks & Spencer Plc (I) are good examples. Customers should be made aware how they can protect there payment card details, how important it is to logoff their accounts, and how they should choose their passwords to make them more secure. The more information is given, the better the empowerment. Empowerment is also about sharing responsibility of ID theft prevention with customers. It is good practice to work with consumers to reduce the real risk of identity theft and identity fraud. The empowerment of customers to deal with data security has two main advantages, as shown in figure one. Firstly consumers are more likely to protect themselves when they are aware of the risk of identity theft and know how they can minimize it. This reduces the losses for the e-retailer. Secondly consumers will be more interested in the security statement when it applies to them and probably gain the impression that this organization takes their security seriously. Getting customers involved in fraud prevention efforts by creating frauds prevention e-forums on e-retailing


websites may be one way of doing so. This will make customers feel empowered and may help generate useful ideas about frauds prevention.

“P” for Prevent

As shown in figure one, support, trust, and empowerment ensure that the e-retailer heads for a better level of prevention than with the minimalist approach or the prevention approach that has been proposed be Collins (2005). The likelihood for the e-retailer of becoming a victim of identity fraud can be reduced. If prevention methods are communicated on websites fraudsters may be less likely to target that company. Customers are more likely to prevent crime when they are empowered and have necessary knowledge to do so. We would expect less account takeovers and cases of application fraud for an e-retailer who provides such information, and therefore reduced losses. The support within the ISTEP framework adds one additional preventative point; as arrows demonstrate in figure one. Negative effects of occurred identity fraud on customers, especially emotional damage, can be better prevented when supportive information is in place. Customers are more likely to stay loyal when they are treated with care/respect, and when trust is created through this experience. The advantage for the e-retailer might be the reduction in losses and greater customers’ trust/custom.

Conclusion

We reached our aim and identified three approaches of communication on websites in practice regarding identity theft and identity fraud, the minimalist approach, the prevention approach, and the holistic approach. We favor the holistic approach and recommend the ISTEP framework that combines different ways of good practice we have found on the reviewed websites. The outcome of this paper can be used by e-retailers to review their current websites and their identity theft risk management approaches. It proposes guidelines on how to inform customers on websites not only to gain trust, but also to better prevent crime. It is as well a good starting point for further research. We acknowledge that the result of this paper is based on a limited sample of organizations in one country and extended research with a greater sample base and a comparison with practice in other countries will be useful. This research is also limited because it uses websites as the main source of gathering information. A more detailed research using questionnaires or interviews at the e-retailers may provide greater insight.


REFERENCES

Acoca, B., 2008, Online Identity Theft, OECD Observer, 268: 12-13

Berkowitz, B., and Hahn, R. W., 2003, Cyber Security: who’s watching the Store, Issues in Science & Technology, 19

(3): 55-63

CIFAS, 2008, Identity fraud and identity theft, CIFAS Online, (December 12, 2008);

http://www.cifas.ork.uk/default.asp?edit_id=561-56

Collins, J. M., 2005, Preventing Identity Theft in Your Business: How to Protect Your Business, Customers, and

Employees. John Wiley & Sons, Hoboken, pp. 156-161 and pp. 173-177

ICO, n.d., Data Protection Act 1998 - Data Protection Good Practice Note for collecting personal Information using

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http://www.ico.gov.uk/home/for_organisations/data_protection_guide.aspx

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Wiley & Sons, Hoboken, pp. 1-29

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2008); http://www.idtheft.gov/reports/StrategicPlan.pdf

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354

APPENDIX 1: WEBSITES OF THE ANALYZED SAMPLE

Amazon.co.uk. (n.d.), (March 10, 2009); http://www.amazon.co.uk/

Bodyshop, (n.d.), (March 24, 2009); http://www.thebodyshop.co.uk/

Computer Supermarket.com, (n.d.), (March 24, 2009); http://www.computersupermarket.com/

Debenhams, (n.d.), ( March 24, 2009); http://www.debenhams.com/

Laura Ashley, (n.d.), (March 24, 2009); http://www.lauraashley.com/

Marks & Spencer Plc, (n.d.), ( March 24, 2009); http://www.marksandspencer.com/

Multizoneav.com, (n.d.), (March 24, 2009); http://www.multizoneav.com/

PC World, (n.d.), (March 11, 2009); http://www.pcworld.co.uk/

Sainsbury’s online, (n.d.), (March 10, 2009); http://www.sainsburys.co.uk/home.htm

Shop direct group: Littlewoods, (n.d.), (March 24, 2009); http://www.littlewoods.com/

APPENDIX 2: WEBSITES FOR ACCREDITATION

Certified Tier 1 PCI DSS Compiance by venda, (March 24, 2009); http://www.venda.com/

IMRG, (March 24, 2009); http://www.imrg.org/

ISIS, (March 24, 2009); http://isisaccreditation.imrg.org/

Safebuy, (March 24, 2009); http://www.safebuy.org.uk/

US-EU Safe Harbor Framework, (March 10, 2009); http://www.export.gov/safeharbor/

VeriSign SSL, (March 24, 2009); http://www.verisign.co.uk/ssl/


TAX ISSUES OF E-BUSINESS: DOMESTIC VERSUS INTERNATIONAL

By James G.S. Yang, M.Ph., CMA, CPA

Professor of Accounting Montclair State University

Montclair, New Jersey [email protected]

INTRODUCTION Nowadays, more and more transactions are executed online, and this e-business has increasingly become international and thus borderless. As a consequence, it raises a host of tax issues. When a sale is made it immediately incurs sales tax on the buyer and income tax on the seller. However, who should collect sales tax? It depends on the residencies of both the buyer and the seller. Does the U. S. government have the jurisdiction to impose income tax on the seller? It again depends on the seller’s residency. Evidently, residency has great impact on taxation. When the seller exists only on an international Website, the residency can become elusive and hence hard to decide. In addition, today many products can be digitalized and downloaded on the buyer’s computer hard drive. The buyer may only use it but does not necessarily own it. It complicates the transaction. Is a digitalized product different from a regular tangible product in terms of tax aspect? Does it concern whether it is a domestic or an international e-business? This paper attempts to answer these questions with great emphasis on the comparison between the domestic and the international internet commerce. DOMESTIC VERSUS FOREIGN SELLERS When merchandise is sold it must identify who the buyer is and who the seller is. More importantly, what their residencies are. The buyer is charged with sales tax, while the seller burdens income tax. The sales tax belongs to the state government, whereas income tax goes to the federal government. The state government has tax jurisdiction over its residents but not the non-residents. If a in-state resident purchases merchandise from a in-state seller, there is no complication. Even if the seller is an out-of-state resident, the state government still has the authority to impose tax on its resident. This is known as “use tax.” Therefore, the state residencies of both the buyer and the seller become quite important. Conversely, for income tax the aspect of state residency is irrelevant because it is a national tax. If the seller happens to be a resident in a foreign country, how should the sales tax be charged? Can the state government require a seller in a foreign country to collect sales tax from an in-state buyer? It should be noted that any imported goods are subject to custom duties that are national tax. Exported goods are not subject to taxation. Therefore, the answer is absolutely negative. The state government has no jurisdiction over a seller in a foreign country. However, in the case of income tax, it depends on whether the seller has a sales office in the United States. If yes, the seller may have “income effectively connected with the trade or business in the United State.” As a consequence, a portion of its income may be subject to the U. S. taxation. If no, none of the seller’s income is subject to the U. S. taxation.


It shows that, to a domestic seller the residency matters for the sales tax but not so for income tax. On the contrary, to a seller in a foreign country the residency does not matter for custom duties but it may matter for income tax. SALES TAX VERSUS CUSTOM DUTIES The domestic e-business involves sales tax, while the international e-business entails custom duties. The seller’s residency makes the distinction. In the old days, there was no difficulty in determining the seller’s residency. However, nowadays, most transactions go online. The seller sets up a store on the Website by using an Internet server, such as Yahoo, American Online, etc.. This will enable the buyer to purchase merchandise via its Website. Now two parties are involved: the Internet server and the seller. Where is the seller’s residency? Can the Internet server be used as the seller’s residency? In the United States it is negative; however, in many European countries, it is affirmative. It creates a difference between the domestic and the international e-businesses. The following example demonstrates the importance of knowing a seller’s residency. EXAMPLE 1: Professor Ed Chen of New York University is the author of a book in mathematics. He resides in New York State, U. S. A. He sets up a Website on Yahoo’s blogger to sell his book at www.yahoo.com/chen. Yahoo is located in Sunnyville, California, U. S. A. Professor Tom Wang of Beijing University in China is the author of a book in chemistry. He resides in Beijing, China. He also sets up a Website on Yahoo’s blogger to sell his book at www.yahoo.com/wang. A student in New Jersey State, U. S. A., purchases both books online from these two different Websites. What are the residencies of these two sellers and what taxes should this student pay? Although both authors have their Websites on the same Internet server, their residencies are completely different. Professor Ed Chen is a domestic seller that requires this student to pay the due amount of “use tax” to his own New Jersey State government. However, Professor Tom Wang is a seller in a foreign country that entails this student to pay custom duties to the U. S. government, not to the New Jersey State government. However, practically, this student may not know the residencies of these two sellers. Worse yet, this student may be misled to believe both are domestic sellers because they are on the same Internet server. The online transaction has caused the confusion. This example indicates that the Internet server’s location does not determine the seller’s residency; instead, the seller’s physical location does. This principle has far reaching consequences on the tax aspect of the international e-business. NEXUS AND SALES TAX Once the residencies of the buyer and the seller are determined, who should collect the sales tax? If the buyer and the seller reside in the same state, it is the seller’s responsibility to collect sales tax from the buyer and remit the amount of tax to the buyer’s state government. Unfortunately, if they don’t resident in the same state, is the seller still responsible for collecting the sales tax from the buyer? This question triggers two U. S. Supreme Court decisions. One is Scripto vs. Carsoni in 1960, and the other is Quill vs. North Dakota in 1992.ii


In the former case, Scripto was a pen manufacturer in Georgia. It used an “independent contractor” to sell the product in Florida on commission basis, not as an employee. The State of Florida attempted to collect sales tax from Scripto. Scripto in turn argued that there is no connection between Florida and Scripto because the independent contractor was not an employee. Hence, the State of Florida has no tax jurisdiction over Scripto. The U. S. Supreme Court ruled in favor of the State of Florida on the ground that there is no significant difference between an independent contractor and an employee. This case has established the proceeding that,as long as the seller has employment relationship with the state, there is a connection, and thus the out-of-state seller is required to collect the sales tax from the in-state buyer. In the latter case, a North Dakota resident purchased merchandise from an out-of-state seller, Quill. The State of North Dakota attempted to collect sales tax from Quill. Quill in turn argued that Quill is located in other state and thus North Dakota has no authority over Quill. The U. S. Supreme Court ruled in favor of Quill. This case has established another legal guideline that, If the seller has no physical presence in the state, the out-of-state seller has no obligation to collect the sales tax from the in-state buyer. Instead, it is the buyer’s responsibility to remit the due amount of “use tax” to his/her own state government. This is known as “nexus.” These two cases have been serving as guiding principles In deciding the collectability of sales tax. In other words, if the buyer and the seller do not reside in the same state, the seller is not required to collect the sales tax from the buyer, unless there is a “nexus” between the seller and the state. The requirement of “nexus” can be satisfied by physical presence of a sales office, warehouse, customer services, repair shop, etc. In fact, the second case is the extension of the first case in the sense that an independent contractor is only one way to establish a nexus between the seller and the state. Actually, there are many ways. Are these two U. S. Supreme Court cases applicable to the situation where the seller is located in a foreign country? It should be noted that the imported goods are subject to custom duties, which are national tax, not state tax. The state government loses its tax authority over the custom duties. Although the seller in a foreign may have a “nexus” with the state, the state government cannot require the seller in a foreign to collect sales tax from a in-sate buyer. Therefore, the above two U.S. Supreme Court decisions are not applicable to a seller in a foreign country. Here is an example to illustrate the collectability of sales tax. EXAMPLE 2: A resident in New York State purchased the following four items of goods online from four different sources. Are the sellers required to collect sales tax from the buyer? (A) A shirt from K-Mart online at www.kmart.com. The answer is affirmative because K-Mart has many branches in New York State. There is a “nexus” between K-Mart and the State of New York. The kmart.com online retailer is required to collect sales tax from the buyer in New York. (B) A pair of shoes from Amazon Company online at www.amazon.com. The answer is negative because Amazon Company is located in Seattle, Washington. It does not have a branch in New York State. Hence, there is no “nexus” between Amazon


Company and the State of New York. The amazon.com online seller is not required to collect sales tax from the buyer in New York. (C) A DVD movie from Korea Film Company in Seoul, South Korea, online at www.koreafilm.com.kr. Korea Film Company has no office in New York State. The answer is negative because the seller is located in a foreign country. There is no “nexus” between Korea Film Company and the State of New York. The koreafilm.com online seller is not required to collect the sales tax from the buyer in New York. (D) A bicycle from China Bicycle Company in Shanghai, China, online at www.chinabike.com.cn. China Bicycle Company maintains a bicycle repair shop in New York City. Although China Bicycle Company is located in a foreign country, its bicycle repair shop in New York City serves as a “nexus” between China Bicycle Company and the State of New York. It looks like that the New York State government is entitled to the sales tax and the chinabike.com online seller is required to withhold sales tax from the buyer in New York. However, since the bicycle is an imported merchandis from a foreign country, it is subject to custom duties that belong to the national tax. Therefore, chinabike.com.cn online seller is practically not required to collect sales tax from the buyer in New York because the buyer has already paid the custom duties. So, the answer is negative. NEW YORK’S AMAZON TAX LAW In recent years, the Internet commerce has exploded to become a $156 billion business a year.iii It involves $13 billion in state sales tax.iv Many online buyers failed to pay “use tax” to their own state governments. In an attempt to collect these unpaid sales taxes, effective June 1, 2008 the State of New York enacted a so called “Amazon tax law.” Specifically, the tax law provides that “The term vendor includes persons who solicit business within the state through employees, independent contractors, agents or other representatives and, by reason thereof, make sales to persons within the state of tangible personal property or services that are subject to sales tax.”v Thus, an out-of-state seller is required to register as a vendor and collect sales tax from the buyers in New York State if the following two conditions are met:

• “The seller enters into an agreement or agreements with a New York State resident or residents under which, for a commission or other consideration, the resident representative directly or indirectly refers potential customers to the seller, whether by link on an Internet Web site or otherwise. A resident representative would be indirectly referring potential customers to the seller where, for example, the resident representative refers potential customers to its own Web site, or to another party’s Web site which then directs the potential customer to the seller’s web site.

• “The cumulative gross receipts from sales by the seller to customers in New York State as a result of referrals to the seller by all of the seller’s resident representatives under the type of contract or agreement described above total more than $10,000 during the preceding four quarterly sales tax period.”vi


This New York’s Amazon tax law exclusively deals with the case of online retailer having an affiliate in New York State. The affiliate may have a Website with a link to the online seller’s Website to enable the New York residents to place an order. The online retailer will pay commissions to the affiliate on the basis of the dollar amount of sales which must be more than $10,000 a year. In that situation, the affiliate is construed as a sales agent for the online retailer and thus there is a “nexus” between the online retailer and the State of New York, though the online retailer has no “physical presence” in the State of New York. The online retailer is now required to collect sales tax from the buyers in New York State. The law is similar to the U. S. Supreme Court case of Scripto vs. Carson. Is this New York’s Amazon tax law legal? Amazon.com Corporation and Overstock.com Corporation filed a lawsuit against it in New York Supreme Court.vii They lost the case on January 12, 2009, but they are currently appealing. If the law prevails the concept of “nexus” has been extended from “physical presence” to an online link. In other words, a linkage on the Website is considered as physical presence. Is the New York’s Amazon tax law applicable to an online retailer in a foreign country? The answer is negative because the imported goods are subject to customer duties which belong to the Federal government. The state government has no jurisdiction over custom duties. Here is an example to show the application of the New York’s Amazon tax law. EXAMPLE 3: In New York State, U. S. A., there is an organization called “New York Book Society” (the Society), which has several thousand members. The Society maintains a Website for its members to engage in many literary activities. In order to encourage its members to buy books it provides the following four links to four different book publishers. When the members purchase a book from each of them, is the publisher required to collect sales tax from the buyers in New York State? (A) A link to the Website of Barnes and Noble Book Company in New York City, U. S. A.. However, Barnes and Noble will not pay any commission to the Society. The answer is affirmative because Barnes and Nobles is located in New York City. No matter whether or not Barnes and Noble pays the Society commission, it has physical presence in New York State, and thus there is a “nexus” between Barnes and Noble and the State of New York. The Barnes and Noble online retailer is required to withhold sales tax from the buyers in New York.

(B) A link to the Website of Amazon Book Company in Seattle, Washington, U. S. A. In return, Amazon will pay the Society commissions at a rate of 2% on the dollar amount of sales. The answer is affirmative because by the 2% commission it indicates that the Society is acting like a sales agent for Amazon in New York State. Although Amazon is located outside of New York State, the affiliate in New York State provides “nexus” between Amazon and the State of New York. Therefore, the Amazon online retailer is required collect sales tax from the buyers in New York. (C) A link to the Website of China Book Company in Beijing, China. However, China Book will not pay any commission to the Society. The answer is negative because there is no profit- making activity involved. China Book is located in a foreign country. There is no “nexus” between China Book and the State of New York. Therefore, China Book online retailer is not required to collect sales tax from the buyers in New York. However, since the book is a imported merchandise, it is subject to custom duties and paid by the buyer.


(D) A link to the Web site of Korea Book Company in Seoul, South Korea. In return, Korea Book will pay the Society commissions at a rate of 2% on the dollar amount of sales. . Although Korea Book is located in a foreign country, the 2% commission indicates that the Society is engaging in sales activities on behalf of Korea Book. It provides “nexus” between Korea Book Company and the State of New York. It looks like that, according to the requirement of the New York’s Amazon tax law, the Korea Book online retailer is required to withhold sales tax from the buyers in New York. However, since the Korean book is an imported merchandise, it is subject to custom duties and paid by the buyer. Therefore, koreabook.com.kr is not required to withhold sales tax from the buyers in New York. This example shows that, the New York’s Amazon tax law has extended the meaning of “nexus” to the arena of Website linkage. If there is a Website link between the online retailer and an affiliate in New York State for a fee, it is construed to have “nexus” between the online retailer and the State of New York, and hence the online retailer is required to withhold sales tax from the buyers in New York. However, in the event that the online retailer is located in a foreign country, the merchandise is subject to custom duties and paid by the buyer. The online retailer is not required to collect sales tax from the buyers in New York. In this respect, the New York’s Amazon tax Is really not extended to international e-commerce. U.S.-SOURCE INCOME VERSUS FOREIGN-SOURCE INCOME The above discussions were aimed at the sales tax on the part of the buyer. What is the problem with respect to income tax on the part of the seller? It should be noted that income tax is a national tax, not a state tax. In the case of a domestic seller, the entire amount of income is subject to U. S. federal taxation. There is no complication. However, in the case of a seller in a foreign country, how should its income be taxed? It involves the U. S. government and a foreign government. The situation can become quite complicated. A U. S. multinational corporation may engage in production in the U. S. and sell the product to a buyer in the U. S. or a buyer in a foreign country. Likewise, a U. S. multinational corporation may engage in production in a foreign country but sell the product to a buyer in the U. S. or a buyer in a foreign country. A sales transaction involves two efforts: production and sales. Income is taxable only when it is sold, and thus income is taxable at the place where the product is produced and transferred. Therefore, if a product is produced and transferred in the same country, the entire 100% of the income is taxable in that country. However, if a product is produced in one country but transferred in another country, only 50% of the income is taxable in the country of production and the remaining 50% is taxable in the country of transfer.viii In other words, in an international transaction, income must be classified into U.S.-source income and foreign-source income. Only the U.S.-source income is subject to the U. S. taxation, but not the foreign-source income. When the Internet commerce goes to international on a Website, it may be elusive as to where the buyer is and where the seller is. Therefore, there may have four different situations of production and transfer, as illustrated below: CASE A: U.S. production and U. S. transfer. The product is produced in the U. S. and also sold and transferred to a buyer in the U. S. In that situation, the entire 100% of


income is a U.S.-source income that is subject to U. S. taxation. For example, IBM produces computers in the U.S. and puts the computers for sales on its Website. A resident in New York State places an order also online. IBM delivers the computer in the U.S. to the buyer also in thee U. S. The entire IBM’s income is subject to the U. S. taxation. It should be noted that, if a buyer in China places an order online and IBM transfers the computer in the U. S. to a buyer in China, the efforts of both production and sales are made in the U. S. Therefore, the entire 100% of income is still a U.S.-source income that is subject to the U. S. taxation. . CASE B: U. S. production and foreign transfer. The product is produced in the U. S. but it is sold and transferred to a buyer in a foreign country. In that situation, only one-half (50%) of the income is a U.S.-source income, while the other half (50%) is a foreign-source income. For example, Ford Motor Company is a U.S.-registered company and produces cars in the U. S. and puts the cars for sales on its Website. Ford also sets up a sales office in Beijing, China, to promote sales to the Chinese customers. A buyer in China places an order online and Ford delivers the car from the U. S., but the title is transferred in China. In that situation, the effort of production is made in the U. S., but the effort of sales is made in China. Therefore, only one-half (50%) of the income is a U.S.-source that is subject to the U. S. taxation, whereas the other half (50%) is a foreign-source income that is not subject to the U. S. taxation; instead, it is subject to the Chinese taxation. This will involve foreign tax credit which will be discussed later. CASE C: Foreign production and U. S. transfer. The product is produced in a foreign country but sold and transferred in the U. S. In that situation, only one-half of the income is U.S.-source, while the other half is a foreign-source income. For example, Hewlett-Packard is a U. S.-registered company and produces printers in Japan but ships them to the U. S. for sales. Hewlett-Packard maintains its headquarters in the U. S. and sets up a Website to sell the printers. A buyer in the U. S. places an order online and Hewlett-Packard delivers and transfers the printer from the U. S. to the buyer also in the U. S. The effort of production is made in Japan, but the effort of sales is made in the U. S. Therefore, only one-half (50%) of the income is a U.S.-source income that is subject to the U. S. taxation, whereas the other half (50%) is a foreign-source income that is not subject to the U. S. taxation; instead, it is subject to the Japanese taxation. CASE D: Foreign production and foreign transfer. The product is produced in a foreign country and is also sold and transferred to a buyer in a foreign country. In that situation, none of the efforts of production and sales are made in the U. S. Therefore, none of of the income is a U.S.-source income, and thus none is subject to the U. S. taxation. For example, Westinghouse is a U.S.-registered company and produces television sets in Mexico. It sets up a sales office to promote sales in Brazil. A buyer in Brazil places an order online to purchase a television set. Westinghouse delivers the television set from Mexico to the buyer in Brazil, but the title is transferred inn Brazil. The effort of production is made in Mexico, and the effort of sales is made in Brazil. Therefore, the entire 100% of the income is a foreign-source income. None of the efforts of production and sales are made in the U. S. Hence, none of the income is a U.S.-source income. Therefore, none of the income is subject to the U. S. taxation. Instead, one-half (50%) of the income is a foreign-source income from Mexico, while the other half (50%) is another foreign-source income from Brazil. The above four situations can be summarized in the following table:


Transfer

U. S. Foreign

Production U. S. CASE A (100% U.S.) CASE B (50% U.S.+50% foreign)

Foreign CASE C (50% U.S.+50% foreign)

CASE D (100% foreign)

The above four cases show that a transaction may involve two countries. A country engages in production, while the other makes an effort for sales. The income is divided equally between them. One is a U.S.-source income, whereas the other is a foreign-source income. Only the U.S.-source income is subject to the U. S. taxation, but not the other. This distinction can become obscure when the transaction is executed online. The seller puts the product on Website for sale, whereas the buyer places the order online. Both are faceless. So, where are they? The sales tax depends on the buyer’s state residency, while the income tax relies on the seller’s nationality. The online transaction nowadays makes the taxation problem even harder to handle. To make the situation even worse, income in an international transaction involves U.S.-source income on one hand and foreign-source income on the other. The U.-S.-source income is subject to the U. S. taxation, while the foreign-source income is subject to taxation by a foreign government. Unfortunately, the U. S. residents and corporations are subject to U. S. taxation on worldwide income. However, the income tax paid to a foreign government can be claimed as a tax credit against the U. S. tax liability to the extent of the U. S. tax liability attributable to that foreign-source income.ix What is the due amount of “foreign tax credit?” This is another tax problem that the international commerce can raise. TANGIBLE PRODUCT VERSUS DIGITIZED PRODUCT What is taxable on e-business? Is there any different between a domestic e-business and an international e-business? It should be noted that current taxation on Internet commerce Is governed by “Internet Tax Freedom Act of 1998.” (the Act)x It stipulates that the Internet access fees are free from any telecommunication taxation. Tax-free are also any related Internet services provided by the Internet access provider, such as e-mail, chat room, news reports, stock market quotes, medical information, real estate listings, yellow pages, search of information, library service, job search sites, consumer product information, journals, magazines, Website hosting, etc. There was a deadline for this Act, but it has been permanently extended. xi This is true no matter whether the Internet access fees are paid to a domestic Internet access provider or an internet access provider in a foreign country. For example, the monthly fees paid to American Online at www.aol.com or the fees paid to Sina in China at www.sina.com.cn are both tax-free. The Act did not change the tax status that sale tax on the merchandise purchased online belongs to the state jurisdiction, while custom duties on the merchandise purchase from a foreign country is a national tax. Taxable items are tangible personal properties and services, such as books, cloths, computers, printers, software, toys, appliances, equipment, gym fees, theater admission fees, airline tickets, etc. Nontaxable items include real properties, intangible assets, compensation for human services, material as an input for a product, etc., such as purchase of a house,


acquisition of a book’s copyrights, an employee’s salary, a salesman’s commission, auto parts to produce a car, a software installed in a microwave oven, etc. For example, Microsoft Word software sold to a student is taxable, because this student is the final consumer. However, if a heat-controlling software is sold to GM to be installed inside a car for the purpose of controlling the heat level, it is nontaxable because the software is only an input to make a car as an output. GM is not the final consumer; instead, the car buyer is. These aspects of taxable/nontaxable items should make no difference between a domestic e-business and an international e-business. Nowadays, many products can be digitized, such as e-book, e-newspaper, e-magazine, e-journal, e-music, e-game, etc. These products are no longer printed on paper and physically delivered to the consumers. Instead, they are produced on electronic format and downloaded from the seller’s computer hard drive to the buyer’s computer hard drive. Are these products tangible properties or intangible personal properties? Are they taxable or nontaxable? The electronic format misleads consumers to perceive these e-products are intangible properties and thus nontaxable. In reality, the e-products are nothing more than an electronic version of a tangible product. The format may be different, but the substance is the same. An e-book for a college student is an example. Therefore, these e-products are tangible personal properties and hence taxable. The Act did not change the tax aspect of an e-product. It should also make no difference between a domestic e-business and an international e-business. However, the digitized products complicate the international e-business in one aspect: customer duties. Since the digitized products are downloaded from one computer to the other across the national border, there is no product to be be physical delivered. How should the customer duties be imposed? There is a practical difficulty. The World Trade Organization (WTO) has granted waiver for this kind of product. This leads to an unfair treatment between a tangible product and a digitized product. Therefore, with respect to custom duties, digitized products do make a difference between a domestic e-business and an international e-business. The digitized products complicate the e-business even further. A consumer can purchase a digitized product by paying the price with ownership, which is known as “copyrighted property.” Alternatively, a consumer may also use the digitized product by paying rental without the ownership, which can be termed “copyrighted use.” Is there any difference in tax aspect? With respect to the “copyrighted property,” the product is sold. The buyer is charged with sales tax, while the seller entails income tax. On the contrary, in the caes of “copyrighted use,” the product is not sold, instead, it is only rented. As a result, it is not involved with sales tax on the “user.” Rather, it only involves “rental income” on the part of the property owner. Then, what is the source of income? It depends on the “user’s residency,” not the “owner’s residency.” That is because the owner does not produce income; instead, it is the user that gives rise to rental income. If this is a domestic e-business, it is always a U.S.-source income, which is subject to the U. S. taxation. It is simpler because both the owner and the user reside in the U. S. Unfortunately, if the user is in a foreign country, it is a foreign-source income, which is not subject to the U. S. taxation; instead, it is subject to taxation by a foreign government. Here is an example to demonstrate the difference between a “copyrighted property” and a “copyrighted use.” EXAMPLE 4: Microsoft Corporation, which is a U.S.-registered corporation in Redmond, Washington, U. S. A., has developed word processing software, which is


called “Word.” Microsofit puts it on its Website. The consumer can purchase it for a price of $1,000. Microsoft will download World to the buyer’s hard drive and the buyer will own it. Alternatively, a consumer can also rent it at a rate of $20 per application of Word. Microsoft will give the consumer a password to enable the user to open up Word and use it, but the user can not own it. The following transactions have occurred. How should these three transactions be taxed?

(A) Andy is a resident in New York State, U. S. A. He purchases Word by paying $1,000.

Andy’s transaction is a domestic e-business. Since Word is sold, and Andy and Microsoft reside in different states, Microsoft is not required to withhold sales tax from Andy. Instead Andy should pay the due amount of “use tax” to his own New York State government on the basis of the $1,000 sales price. Microsoft has a U.S.-source income. It should pay income tax to the Internal Revenue Service on the basis of profit from the $1,000 sales revenue. (B) Bob is a resident in Paris, France, a foreign country. He also purchases Word by paying $1,000. Microsoft does not maintain a sales office in France. World is sold and transferred in the U. S. Bob pays no custom duties to the French government because Word is a digitized product. Word is not delivered through a custom; instead, it is only downloaded from the Microsoft’s computer hard drive to Bob’s computer hard drive. The entire $1,000 in sales revenue is Microsoft’s U.S.-source income, because Word is transferred in the U. S., which is subject to the U. S. taxation. It is not a foreign-source income because Microsoft does not maintain a sales office in France. Therefore, Microsoft must pay income tax to the U. S. Internal Revenue Service on the the amount ofprofit from the $1,000 sales revenue. (C) Charles is a resident of New Jersey State, U. S. A. He did not purchase Word. Instead, he only rents it by paying $20 in rental. Word is not sold. The transaction does not involve sales tax on the part of Charles. Microsoft has only “rental income” in the amount of $20. Since Charles also resides in the U. S., the rental income is a U.S.-source income, which is subject to the U. S. taxation on the entire amount of $20 rental income. (D) David is a resident in Beijing, China, a foreign country. He did not buy Word. He only rents it by paying $20 in rental. Word is not sold. The transaction does not involve custom duties on the part of David. Microsoft has only “rental income” in the amount of $20. Is it a U.S.-source income or a foreign-source income? It depends on the user’s residency. Since David resides in Beijing, China, Microsoft’s “rental income” is a foreign-source income, which is not subject to U. S. taxation. Instead, it may be subject to the Chinese taxation. Microsoft may have to pay income tax to the Chinese government. Since Microsoft is a U.S.-registered corporation, it is subject to U. S. taxation on worldwide income. It may claim the income tax paid the Chinese government as a tax credit against the U. S. tax liability, but not more than the U. S. tax liability attributable to $20 foreign-source income. This example illustrates a rather complicated transaction involving digitized products. If a digitized product is sold online to a buyer in a foreign country, the buyer pays no custom duties. The income is a U.S.-source income on the part of the seller in the U. S. If the digitized product is rented to a user in a foreign country, it is a foreign-source income on the part of the owner in the U. S. The income may be subject to


income taxation by a foreign government. However, the foreign tax paid can be claimed as a tax credit against the U. S. tax liability. Since digitized products are increasing popular, the taxation on an international e-business can become more complicated. PROBLEM OF VALUE-ADDED TAX In lieu of sales tax, many countries impose value-added tax, such as China at 17%, France at 20%, Germany at 16%, Italy at 20%, Spain at 16%, etc. In sales tax system, input to make the output is not taxable. Only the output to the final consumer is taxable. In value-added tax system, each time when a product is transferred from one hand to the other, it is taxed. However, the tax paid at the previous stage can be claimed as a credit against the tax in the next stage. In other words, the product is taxed at different stages, not until the last stage when it reaches the consumer. It is relatively simple if the product is transferred in the same country. However, when the product is shipped across the national border, imported goods are subject to customer duties on the part of the buyer, but the exported goods are custom duties-free on the part of the seller. The custom duties are imposed by the importing country on the basis of the final sales value of the merchandise. How should it be done with the value-added taxes that have already been paid to the exporting country? In China, these taxes are refunded to the previous buyers. The purpose of the refund is to avoid double taxation between these two countries. Here is an example to illustrate how it works. EXAMPLE 5: Take China as an example. Andy purchased cottons from a cotton grower for a price of $10,000. He paid $1,700 ($10,000 x 17%) in value-add tax to the Chinese government. He turned the cottons into fabrics and sold them to Bob for a price of $15,000. The value-added tax in Bob’s hand is now $2,550 ($15,000 x 17%). Nonetheless, the $1,700 tax previously paid by Andy can be claimed as a credit against the $2,550 tax in Bob’s hand. Therefore, Bob paid only $850 ($2,550 – 1,700) to the Chinese government. Bob now used these fabrics to make clothes and sold them to Beijing Department Store in Beijing, China, for a price of $21,000. The value-added tax in the hand of Beijing Department Store is $3,570 ($$21,000 x 17%). However, the $1,700 and $850 taxes previously paid by Andy and Bob, respectively, can be claimed as credits against the current tax. Therefore Beijing Department Store paid only $1,020 ($3,570 – 1,700 – 850) to the Chinese government. Finally, Beijing Department Store sold all clothes to consumers in China for a price of $28,000. How much value-added tax should Beijing Department Store collect from the consumers and pay it to the Chinese government? The value-added taxes in the hand of the consumers are now $4,760 ($28,000 x 17%). Nevertheless, the previous three taxes paid ($1,700, $850 and $1,020) can be claimed as credits against the current tax. Hence, the consumers should pay sales tax in the amount of only $1,190 ($4,760 – 1,700 – 850 – 1,020) to the Chinese Government. This is the procedure of value-added tax for the case where all clothes were sold to the customers in China. What if Beijing Department Store sold all of these clothes to the customers in the United State? The U. S. government will impose custom duties on the buyers on the basis of the final value of $28,000. What should the Chinese government do for the value-added taxes that were previously paid? The Chinese government should not have imposed value-added taxes to the exported goods. Therefore, the Chinese government should refund all three amounts of the value-added taxes to the former buyers, i.e., $1,700 to Andy, $850 to Bob, and $1,020 to Beijing Department Store, totaling $3,570.


This shows the difference between a domestic transaction and an international trade when it involves the value-added tax. Alternatively, what if the customers in the United States ordered all of these clothes online? The clothes are tangible products rather than digitized products. The clothes will physically be delivered through the U. S. custom and the U. S. government will impose custom duties. Therefore, there should make no difference whether the closes are ordered online or on paper Further, instead of clothes, what if the product is computer software developed by Beijing Software Company in Beijing, China, also through three stages of production paying the same amounts of value-added taxes at each stage, in the same way as the case of clothing product. A buyer in the United States ordered the software online, and Beijing Software Company downloaded it from its computer hard drive to the buyer’s computer hard drive. How should the United States government impose the custom duties and what should the Chinese government do with respect to the three value-added taxes that were already paid? This situation greatly complicates the tax problem. The United States government has no way to enforce the custom duties because it is a digitized product. The software exporter now applies for tax refund from the Chinese government. How much should the Chinese government give out the refund? The clothes are sold only once, but software can be sold over and over again in many times. What is the basis to allocate the refund? The basis could probably be infinite and indeterminable. Even if all tax refunds are fully exhausted, it results in consequences that the the Chinese government receives no value-added tax and the United States government imposes no custom duties either. No taxes are collected. These are the tax problems of a transaction involving international e-business. CONCLUSION This article points out the tax problems of online business in international arena. When a transaction is occurred, It involves either sales tax or custom duties. If the buyer purchases merchandise from a domestic seller, the buyer must pay sales tax. Conversely, if merchandise is purchased from a seller in a foreign country, the buyer must burden customer duties. The seller’s residency becomes important in an international transaction. In the world of online business, the seller’s residency may be elusive because the seller sits on a computer server only. This paper explains that the computer server is not the basis to determine a seller’s residency; instead, its physical location is, but it is hard to locate it. Even in a domestic transaction, who should collect the sales can become quite controversial. If the buyer and the seller reside in the same state, it is the seller’s responsibility to collect sales tax from the buyer. If they reside in different states, it is the buyer’s responsibility to pay “use tax” to his/her own state government. If the seller resides in other state, but it has physical presence in buyer’s state, the seller is construed to have the same residency as the buyer. New York State enacted a so called “Amazon tax law” that extended the concept of physical presence to include affiliate in that state engaging in sales activities on behalf of the online seller for a fee. This paper offers some explanations. An international transaction may involve a situation where a product may be produced and transferred in two different countries. It must distinguish the U.S.-source


income from the foreign-source income. The U.S.-source income is subject to the U. S. taxation, but not the foreign-source income. If a product is produced and transferred within the United States, the entire 100% of the income is a U.S.-source income. If a product is produced and transferred in another country, none of the income is a U.S.-source income. The entire 100% of the income is a foreign-source income. However, if a product is produced in the United State but transferred in another country, or the product is produced in another country but transferred in the United States, one-half (50%) of the income is the U.S.-source income, while the other half (50%) is a foreign-source income. This tax aspect has great impact on a transaction across the national border. Nowadays, many products can be digitized, such as e-book, e-magazine, e-newspaper, e-music, e-game, software, etc. The product is downloaded from seller’s computer hard drive to the buyer’s computer hard drive. They should not change the taxable basis of a product. They are still taxable. However, it the e-product is delivered across the national boundary, it becomes nontaxable, because there is no way to impose the custom duties. An international transaction makes it tax-free. Imported goods are subject to custom duties, but exported goods are tax-free, Many countries impose value-added tax in lieu of sales tax. The product is taxed at different stages. If merchandise is imported from a foreign country, the United States government imposes custom duties, but the foreign government has charged value-added tax. It becomes double taxation. Therefore, the foreign government should refunds the value-added taxes to the former buyers in previous stages. The aspect of value-added tax has greatly complicated an international transaction. This paper gives an example for illustrative purposes.


E-BUSINESS, SECURITY AND TRUST: PROBLEMS AND PROSPECTS.

* M.Senthil velmurugan Kogilah A/P Narayanasamy Faculty of Business and Law Faculty of Business & Law Multimedia University Multimedia University Melaka, Malaysia Melaka, Malaysia Phone: +606252-3740 +606252-3104 Fax: +606-2318869 +606-2318869 E-mail: [email protected] [email protected]


*Corresponding author


Abstract

Electronic Business (e-business) is revolutionalizing the way of communication between internal and

external stakeholders in an organization. Connecting numerous information systems and integrating data

stream can significantly increase the operational efficiency of the film. Besides, e-business can lead to

competitive advantage and at the same time, increase profitability. There are several factors resulting on the

success of e-business. One of the most important factors is trust. Acquiring customers’ trust depends on

many things that an e-business controls. Some relating factors for gaining customers’ trust are: appeal of

the website, product/service offering, branding, quality of service, and trusted seals. Actually, trust can be

viewed from many angles such as transaction, information content, product, technology, and institution. On

the other hand, we are facing a huge numbers of impact on the way businesses think about designing,

developing, and deploying Web-based applications. Web services may be an evolutionary step in designing

distributed applications; however, they are not without problems. Therefore, we have to concern on the

issue which is relating to the security in web-services of e-business. This paper discussed the issues relating

to problems and prospects rose of the trust and security in e-business and also addressed security concerns

in web services. It also identified on the role of trust from the transaction perspective and analyses the

things that what business could do in building customer trust.

Keywords: e-business, security, trust, problems and prospects



Introduction

Electronic Business which is commonly referred to as e-business, which is the utilization of information

and communication technology (ICT) in conduct business on the internet, not only buying and selling but

also servicing customers and collaborating with business partner. Electronic business methods enable

companies to link their internal and external data processing systems more efficiently and flexibly, to work

more closely with suppliers and partners, and to better satisfy the needs and expectations of their

customers.

Trust is the key to the success of e-business and lack of trust is the significant problem on the way to e-

business success. During every business transaction, the parties involved should feel trust with the people

and the companies. It must be established and managed continuously in business transaction activities.

Security services offering protection from security threats are: identification, authentication, confidentiality,

integrity, access control, and non-reputation. Today, e-business applications are doing more than ever to

increase efficiency and improve relationships with partners and customers. Mergers, acquisitions, and

multi-company collaboration are increasing the need to secure critical integrated applications from

unauthorized use, both from external and internal sources.

In relation to trust and internet technologies, consumers are concerns about two main things which

are privacy and security. In this research, we are going to look at the relation between e-business, trust and

security. We will look at the relation between 3 of them and how they are going to help each other during a

business transaction. Besides that, we will discuss about the perspectives and problems.

Research Problem

E-business is very widely implemented by many companies in order to simplify purchasing processes by

customers. There is almost an uncountable number of ways that an e-business setup could be attacked by

hackers, crackers and disgruntled insiders. Common threats include hacking, cracking, masquerading,

eavesdropping, spoofing, sniffing, Trojan horses, viruses, bombs, wiretaps, etc. The research problems are:


� Lack of understanding on how e-business operation works.

� Lack of awareness regarding the security involved in e-business.

� Lack of understanding relating the trust involved in e-business.

� Lack of confidentiality relating to e-business or online transactions.

� Lack of availability regarding trust and security in e-business.

Objectives of Study

The objectives of this research are as follows:

� To learn about e-business and how its business operation works.

� To analyse and increase the awareness regarding security involved in e-business.

� To analyse the understanding relating the trust involved in e-business.

� The increase the confidentiality and availability of trust and security relating to e-business.

� To provide solutions in order to overcome e-business trust and security problems and also its

prospects.

Scope of Study

The scope of study of this research is focusing on the issues relating to e-business, such as its importance,

the security and trust issues relating to e-business, the solutions in order to overcome the security and trust

issues related to e-business, and the prospects related to the security and trust in e-business.

Literature Review

Alan D. Smith and William T. Rupp (2002) 2 have stated that one of the most important issues in E-

lending is security. In the paper, there was a statement from Richard Biell of Tower Group: “it’s one thing

to submit a credit card number online to buy a product. It’s quite another thing to put your entire personal

dossier online and hope that no one intercepts it, particularly if you’re not familiar with the lender. ” It

stated that a borrower will not proceed to exchanging personal information without a sufficient level of

confidence, and the impact is the customers will not peruse other products and services without being

familiar with the vendor and the process. In order to improve the trust among the customers, the

suggestions given are keeping the customers informed through web presences and shared database where

the paper is not included.


Avinandan Mukherjee School of Business, Montclair State University, Montclair, New Jersey, USA, and

Prithwiraj Nath Nottingham University Business School, Nottingham, UK (2007)52 stated that trust and

commitment are the central tenets in building successful long-term relationships in the online retailing

context. In the absence of physical interaction between the buyer and the seller, how websites can gain the

trust of the buyers and deliver on the promises made have become central issues in online customer

relationship management. This paper aimed to re-examine the commitment-trust theory (CTT) of

relationship marketing in the online retailing context. It sought to theorize the antecedents and

consequences of commitment and trust in the online context and identify how CTT can be adapted in a

digitized business environment. Online retailing is the carrying out of retailing activities with customers

that leads to an exchange of value, where the parties interact electronically, and using network or

telecommunications technologies. The electronic hypermedia environment poses new challenges for

relationship retailing, where it is in the interest of retailers to establish and maintain long-term bonds with

customers. This new marketing medium and channel is now an integral part of the multi-channel strategy

for most retailers. Online trust is different from offline trust on the following parameters:

• Physical distance between buyer and seller, absence of salespeople, and separation between buyer

and products;

• Absence of simultaneous existence in time and space;

• Absence of human network attributes (i.e. audio, video, and sensual); and. absence of feedback

and learning capability.

The limitation of this article that it did not discover was fraud may increase since customers might not

received the goods they had ordered, and sometimes the goods are not reached to the customers.

Bhavani Thuraisingham (2005)77said that developing secure Semantic e-business applications requires

focusing first on securing the Semantic Web, knowledge management and e-business processes. Semantic

Web is about machine understandable Web pages. One of the main reasons for the rapid development of

the Semantic Web is to host e-business applications, which utilize not only the Web, but knowledge

management technologies such as ontology and intelligent information integration. Attention of security

has been paid in building Semantic Web and a research program focusing on Semantic Web security is


needed. The paper has discussed 3 types of security: secure e-business, secure knowledge management and

secure integration. In the paper, it stated that secure knowledge management involves incorporating

security into the knowledge management life cycle which means by a corporation must protects its

intellectual property and trade secrets using secure knowledge management strategies, processes, and

metrics. Moreover, privacy aspects have been included in this paper where it stated that data mining is

useful for many applications, but it is also a serious threat to security and privacy. This research paper is

just a beginning. Semantic Web consists of many layers whereby security should be addressed to those

layers where this was one of the limitations that the paper has not discovered it yet. Besides, privacy

implications due to Semantic Web mining also need attention as does the need to develop a security

framework for Semantic E-business applications

Carlos Flavia´n and Miguel Guinalı´u Faculty of Economics and Business Studies, University of

Zaragoza, Zaragoza, Spain (2005)12, stated about the Consumer trust, perceived security and privacy policy

and the three basic elements of loyalty to a web site is to analyze the effect of privacy and perceived

security on the level of trust shown by the consumer in the internet. It also aims to reveal and test the close

relationship between the trust in a web site and the degree of loyalty to it. The increasing use that

organizations are making of new technologies, aimed at obtaining and processing data regarding consumer

characteristics and behavior, has meant that consumers are very concerned about the use, treatment and

potential transfer of their private data, as well as security in information systems. The limitation of the

paper is that it didn’t discuss on the constant references in the media that call into question the supposed

security of the internet (e.g. the spreading of viruses or hacker attacks) only serve to aggravate the already

low confidence that consumers have with regard to online purchasing.

Clifford Chance, (2002)17 stated that e-business can brings great benefits to organization. However, the

new ways and new methods that introducing to e-business will create new challenges and risks, which

included misuse of personal data, loss of contact with customers and suppliers, and system failure during

business transaction. To establish trust, organizations are recommended framework that involves human


attitudes like customer relationships and technical issues such as technical aspects. A successful e-business

project will consider trust from different points of view. In the framework of building trust, it is include

1) Earning the trust of your partners,

2) Placing trust in your partners and

3) Protecting data and information.

To earn trust, e-business must deliver consistency of performance and expectations must be met. Besides

that, human factors such as ease of use and confidence will also have a major impact on the success of e-

business activity. Clifford also mentioned that terms of trade and legal compliance must be accessed for

their impact on trust to ensure that business transaction meets regulatory requirements all the terms

proposed are clear and effective. When considering placing trust in e-business transactions, we need to

consider not just external suppliers and customers but also internal such as employees and consultants.

Accordingly, ensure that you consider the extent to which all users of e-business activities have access to

sensitive information and the level of risk associated with that trust. Besides that, e-business should

contain the intellectual property protection to avoid people accidentally misuse it. Thus, in protecting data

and information of e-business, security policy should be developed and ensure that responsibility of

security is clearly allocated within the transaction. Security training should also provide to ensure that is no

undermined by a casual approach to implementation. However, the limitation of this article is that have no

mentioned about the barriers that may be occurred during application of trust in e-business.

Dieter Fink, Tobias Huegle and Martin Dortschy (2006)19 discussed the role of corporate governance in

relation to the security of information technology and information and communications technology (ICT).

The purpose of this paper is to develop a model that aligns IT governance with security management in an

e-business environment through a review of existing approaches and synthesis of concepts and principles.

The new environment has created new sets of technological risks. Methods of attack are numerous include

viruses that can be introduced through data obtained from the Internet. The opportunity of hacker attacks is

provided since the Internet enables others sharing the network to penetrate information systems in an

unauthorized manner. Data and messages being forwarded on this network are potentially subject to

interception and modification while being transmitted. In response to these concerns, e-business should


implement a system of security measures. These measures include those that ensure the availability of

systems, integrity, confidentiality and authenticity. In addition, an organization should implement broad

security approaches, including the use of security policy, contingency planning, and disaster discovery.

These will ensure that the e-business continues to operate efficiently and effectively. Besides, the paper

also discussed a model for information security which is consist of 2 major components, namely,

information security governance and e-business security management. Within the former are strategic high-

level processes (e.g. setting objectives) as well as lower level operational processes (e.g. IT value delivery).

While the e-business security management component deals with security issues, again at a high level (e.g.

developing a security policy) and at a lower level (e.g. implementing security to ensure system

availability). The guidelines for an organization in implementing the model have been discussed in this

paper too. Besides, the paper stated that effective risk management is a key objective of IT governance.

Due to e-business needs for flexibility and responsiveness (e.g. to react to emerging customers demands),

an ongoing and more dynamic risk management approach is required. This implies that an e-business

should capable to quickly adapt IT structures, including security, to business conditions while being able to

adequately monitor the changing risk environment. But, the limitation where this paper did not achieve as it

involved a large amount of cost and expertise and it also hardly to fix (IT structures) especially when it has

to react with unpredictable customers’ demands.

Eben Otuteye (2003) 23 presented and reviews the impact of information security for e-business with

emphasize on the security threats and potential losses that could arise from those vulnerabilities. E-business

security is analyzed as consisting of 6 dimensions: confidentiality, integrity, availability, legitimate use,

auditing and non-repudiation. This paper has proposed that designing a comprehensive and systematic

security policy is a need for implementing e-business security. A viable security policy should have the

following characteristics:

- The policy must be clear and concise.

- The policy must have built-in incentives to motivate compliance.

- Compliance must be verifiable and enforceable.

- System must have good control for legitimate use: access, authentication and authorization.


- There must be regular backup of all critical data

- There must be a disaster discovery and business continuity plan.

The main thesis of this paper was that e-business security can only be effective if it was regarded as part of

an overall corporate information security risk management policy. For that purpose, a six-stage security

management strategy is proposed.

Stage 1: develop a corporate risk consciousness and risk management orientation.

Stage 2: perform a thorough risk assessment of the whole business. Identify and ranked risked based on

threats, vulnerabilities, cost and countermeasures.

Stage 3: devise a systematic risk-management based e-business security policy.

Stage 4: put risk control mechanisms in place. Implement technological best practices with regard to e-

business infrastructures components: clients, servers, networks, systems and applications, and transport

mechanisms. These “best-practices” security measures will be validated and certified by a security

certification authority.

Stage 5: follow systematic risk assessment and risk management procedures determine the level of risks

after implementing the best practices on each component. Insure residual risk of low probability but high

cost events and manage the rest

Stage 6: monitor and audit diffusion of risk management culture, policy implementation and enforcement,

and revise policy and procedures as needed.

The limitations of implementing the framework were there was lack of building blocks in place and the

following issues have to be dealt with:

- Devising efficient and affective technology for monitoring vulnerabilities and identifying threats

in a preventive manner.

- Developing software for information security risk management, similar to those developed for

nuclear risk management, environmental risk management, or commodity price risk management.

- Identifying and implementing best practices in information security risk management – identifying

the processes and corresponding metrics.

The drawback from this paper that very costly for a company to developing software regarding to the

increasing of the security.


Graham Winch The University of Plymouth Business School, Plymouth University, Plymouth, UK, and

Philip Joyce School of Information Technology, Swinburne University, Melbourne, Australia, (2006)84,

mentioned that the dynamic nature in building and losing trust in business to consumer (B2C) E-Business

in an effort to better understand the casual nature of trust. Consumer trust is acknowledged as a key element

in determining the success of B2CeBusiness offerings. As a result, it has attracted research and many

models have been developed and published in the literature. The purpose of this paper is not to present yet

another model, but to suggest how to move from the information and knowledge those models provide into

a better understanding of the problem of trust in B2C. Past models are largely descriptive and static in

nature. This work helps to give a new understanding of trust building and maintenance as a dynamic

process within what is, in significant part, a closed-loop system. The paper has taken the stock-flow

diagramming approach from business dynamics modeling to reflect the structure of the trust building

systems. This emphasized that the management of system levels, such as trust, has to be through the control

of the in and outflows – if a company needs to build trust it has to work through the flows resulting from

consumers’ beliefs about how and whether problems might arise. The four element model then suggests the

cycle of management actions the company must consider if potential customers progressing to purchases is

unsatisfactory – the limitations the paper that it did not mention are can they reduce trust from extrapolated

problems by improving visitor’s knowledge and understanding of web processes and the processes of the

organization? How can they reduce actual risks in the company and its process and in e-transactions itself,

and how can they ensure perceived risks are close to reality (it is, of course, assumed that the responsible

vendor wants customers to understand any real risks and not to conceal them)? This representation is an

invitation to debate and a checklist, it is not an attempt to prescribe what would be the best actions in

particular circumstances.

IBM Global Services (1998) 31 has shown that Deutsche Bank which is one of the largest financial

institutions in Europe where the bank headquartered is located in Frankfurt, Germany has implemented

several successful projects to be among the first of its peers to offer Identrus connected services with the

help of IBM Global Services. Financial institutions are known for their ability to cultivate long-standing


relationships with their clients based on integrity and trust. With the advent of the Internet, the banking

industry is extending those relationships to establish itself as the backbone for trusted electronic

transactions. One of the challenges facing the industry today is developing online transactions that can

quickly go to market in a security-enhance environment. To fulfill this need, Deutsche Bank and seven

other financial institutions joined together to found Identrus which is a global e-commerce trust

organization that provides identity trust and risk-management services. The drawback where the paper lack

is there were still a lot of the financial institutions that do not join Identrus resulting from several factors,

and the paper has never discussed on how if the customers place their property into those institutions that

are insecure and it might cause fraud which will therefore makes the customers lost their confident to the

financial institutions.

IBM Global Services, Sharon Hagi (2005)67 discovered that e-business applications provide critical linkage

between customers, suppliers, and partners. Enterprises today have realized that their success will

necessitate considerable attention to the security and privacy of their application software, and particularly

their e-business applications. Vulnerabilities and threats related to e-business application programs can be

seen as occurring at all the different levels of the application system, including:

- Denial-of-service attacks proliferating from mal-ware or worms.

- Sophisticated application Web Services interface exploits or script-based injections that cripple

and damage the application and its data.

- Network interception due to protocol weaknesses.

- Defeat of encryption due to faulty cryptographic key management or encryption methods.

- Database administrators being able to easily steal and sell database content or sensitive

configuration parameters.

- Application programmers who place undetected malicious code that can cause widespread security

failure and can even enable subverted and malicious masquerading of critical business

transactions.

All of these vulnerabilities and threats result in loss of confidentiality, integrity and authenticity.

Applications, data and business processes can be attacked even when a very good work and infrastructure


security program is in place. For example, good network perimeter defense using firewall, intrusion

detection systems (IDS) and other network security components must still ensure the applications can be

accessed by legitimate users and therefore at the same time can facilitate an opportunity for a so called

“legitimate” user to attack impudently at the vulnerable application interface level. This paper highlighted

the methods and recommendations that can be utilized by organizations working through the complex maze

of application security. Organizations require a methodical approach as part of a cost-effective enterprise

remediation and assurance program to improve security and privacy compliance for their critical e-business

operations. The paper has discovered that it is necessary to create security culture where employees,

contractors, and partners are educated on security policies, specific processes, why security is important

and what behavior is expected from them through training. The limitation of this paper is that it lack of

explanation and discussion about how costly the training is since it requires a number of experts and other

resources in conducting training. Only the large corporations with sufficient resources are able to do that.

Furthermore, it is hardly to ensure that their business partners will send their employees to go for training

since it involved a large amount of cost.

Jari Salo and Heikki Karjaluoto, Department of Marketing, University of Oulu, Oulu, Finland, (2007)63

stated that trust is an important factor for successful online transactions. Although the importance of trust

has been examined from various perspectives, the studies on online trust have been fragmented in nature

and are still in their infancy. This paper explored factors that affect the formation of end-user trust in online

environments. The study proposed a conceptual framework, which categorizes the affecting elements under

internal and external factors affecting end-user trust formation. He also mentioned that there has been a

rapid increase in the deployment of the internet and especially the World Wide Web for conducting

electronic transactions. Hence, the interest of researchers has also turned to examining trust as an important

element in successful online businesses. Trust relationship is widely recognised as one of the most

significant factors for many successful companies or organisations. Trust can benefit companies by

reducing their transaction costs, increasing their flexibility and efficiency, and helping them to design their

future marketing plans or strategies more accurately. In general, trust refers to a dependence on the

integrity, ability, or character of a person or a thing. In other words, it means that the truster has confidence


that the trustee will care about his or her benefits, and that the truster is willing to rely on the trustee’s

decision even when the result is not visible immediately. Trust can also be defined as a belief that one party

can rely on a word or promisegiven by another party, and it can also help to develop or maintain a

relationship between the two parties. Different streams of literature have defined the meaning of trust in

different ways. In psychology, for example, the term trust is defined in terms of disposition to trust. In

sociology, studies prefer to define trust as institution-based trust, and in social psychology, trust usually

refers to trusting beliefs and trusting intentions. Furthermore, some researchers argue that trust can be

separated into two basic types, namely direct trust and third-party trust. Direct trust is a trust relationship

developed by the two parties themselves. Third-party trust is a trust that develops between two parties who

might not know each other from before but are willing to trust each other thanks to the contribution of a

reliable third party. Since it is very common that online transactions might happen between two parties

unfamiliar to each another, third-party trust is of especial importance in the online world. Others argues that

trust is not unlimited, relating to the idea that if an individual chooses to trust one party to a greater extent,

then he or she will reduce his or her trust in the other parties. Therefore trust can reduce the trusters’

willingness to enjoy the services or products offered by the trusted company’s competitors. Moreover, trust

is able to increase the end-users’ motivation to cooperate with the other party in an uncertain situation.

End-users are usually more willing to work with the party they trust than a party with whom they have not

developed any kind of a trust relationship, especially in an environment they are unfamiliar with or unable

to control. The limitation of this paper that it did not mention on what a company can do in order to

increase the trust among the customers.

John Desmond (2001) 37 examined that in the experience of Marriott International, Inc, Christ Zoladz has

brought the message that e-business security is a process, not a project. The critical success factors for any

company embarking on a comprehensive e-security strategy should include the following, Zoladz advised:

- Enlist the executive sponsor.

- Maintain the businessperson’s perspective.

- Ensure security is part of e-business funding.

- Be flexible.


- Promote security as a process, not a project.

Actually, it is not much to critic in this paper. From what Zoladz has advised, enlist the executive sponsor

is one of the critical success factors for any company embarking on a comprehensive e-security strategy.

But the drawback the paper miss it is quite hard and takes time to find several executive sponsors to support

a company e-security strategy. The longer the time taken in finding executive sponsors, the more the

company might lost in terms of their profits as there is lacks of trust from its customers.

Marcia Savage, (2000)64, Trivoli lists top E-business Security recommendations, stated that security can be

used to grow an e-business instead of being an inhibitor, says Bob Kalka, product line manager for the

Tivoli Security Business Unit. Tivoli also recommends ensuring that security policies are "holistically

defined and enforced across the e-business, from applications and networks to physical servers and

laptops." Implementing a security policy individually at each level could lead to extra costs, Kalka says.

Also key is looking at least six months ahead to avoid creating an e-business security infrastructure that

becomes another legacy system in a few months, he says. Integrators need to avoid security solutions that

only support Web environments that can't work with existing applications. The limitation of this paper is

that it is costly to develop the security system especially in Small and Medium Enterprise (SME).

Marie Christine Roy, Olivier Dewit and Benoit A. Aubert (2001)61 mentioned that web retailing is

expected to grow at aggressive rates in future years, but lack of trust on the part of potential customer can

impede this growth. So as transactions through the internet develop and mature, success will largely be

dependant on gaining and maintaining this trust. It has been suggested that the quality of the user interface

of the web site is a determinant of the initial establishment of trust. The limitation of this paper is that it did

not mention on the familiarity of the people from rural areas about online retailing and this is one of the

most important issues for online retailing to continue their business in particular rural areas.

Mary Ann Davidson, (2001)45 proposed that having business on the internet offers potentially opportunities

for increasing efficiency and reducing costs but it also offers unlimited risks. The much greater access to


data will attract hackers and criminals. The importance of business security will bring benefits to e-

business such as:

a) Increased data access where users who are not employees like customers, suppliers, and partners

are able to access to business information.

b) Much more valuable data. E-business are also depends on most up-to-date information available

to users. Thus, companies can streamline their operations and reduce overhead by allowing

suppliers to have direct access to consolidate other information. Security will protect the

information.

c) Large user communities. The internet creates challenges n terms of scale ability of security

mechanisms, management of those mechanisms and the need to make them standard and

interoperable.

d) Hosted systems and exchanges. The principal security challenge of hosting is keeping data from

different hosted user communities separate. However, it need separate computer systems and

software and it is disadvantages of this approach.

The examples of security systems are virtual private database, which provides a set of tools to enforce fine-

gained access control within the database and oracle label security, which is useful for hosting

environments in which access to information can be formalized. The limitation of this article is that author

has not explained details about the impact of security in e-business.

May W.C. So and Domenic Sculli, (2002)47 stated that, in relation to trust and internet technologies,

consumers are concern about the privacy and security. Trust must exist at all levels for the maintenance of

cooperation, fundamental for any exchange and most routine of everyday interaction. Nowadays, in

uncertain and uncontrollable future, trust has become an important factor in needed in buyer-seller

relationship in order to facilitate the transactions. They have summarized trust in the context of business

transaction as follow

• Different parties’ relationship.

• It take times when build relationship.

• It has exchange of tangible and intangible favors.


• Risks may recognised.

The advantages brought by trust in business included:

• Reduce the transaction complexity.

• Lower the transaction cost.

• Trust enhances stable co-operation.

• Long-term relationship development and maintenance.

• Ease the concern for important and confidential information sharing.

• Reduce the perceived of risks.

Besides that, trust is a critical factor in business is not enough; company must also build customer’s trust

because customers will attempt to evaluate supplier’s trustworthiness before committing to business

transactions. It’s included appearance, performance and reputation. Combination all of these factors, e-

business will able to gain the higher return and customers will have satisfaction during a business

transaction. However, the limitation of this paper is that the authors did not stated about the problems may

be occurred when applying trust in business transactions.

Mortaza Bargh, Wil Jansen and Alko Smit, (2002)51 said that lack of trust in e-business transaction will

become a significant problem on the way of business success. Trust must be applied to all parties that

involved in business no matter is people or company. However, e-business needed new understanding of

trust because it does not like traditional business transactions; e-business does not involved human

interaction. The first step towards establishing trust is to be able to depend on the computing and

communication system. Besides that, there is relying party and trusted party existed in trust relation, and

the former one will trusts the latter one. Normally, the trust relationship between two parties is mutual.

Furthermore, for e-business security and trust, information security threats include communication and

resources related threats. Security services offering protections like identification, authentication,

confidentially, integrity, access control and non-reputation. Besides that, information security also clarified

the position of security in providing trust within a business activity where a digital item is transferred.

Trusted parties can help trust business. The limitation in this research is that the authors didn’t focus much

on the importance of security and trust in e-business.


Mothers Direct (2007)87 is the retail arm of Australian Breastfeeding Association has provided a range of

maternity aids, clothing and educational resources and it mentioned that due to the nature of the

information been supplied, providing a secure socket layer (SSL) in their online transactions is very

important to ensure trust. According to Mothers Direct, secure socket layer (SSL) is a protocol designed for

secure communication over the Internet. These protocols encrypt data transmissions. When connected to a

web server using one of these protocols, a gold lock icon will appear on the bottom right hand side of the

browser status bar. Mothers Direct have planned their future in seeing their website evolve to integrate

more closely with their Customer Relationship Management system as well as introduce real-time

transactions. Mothers Direct has stated to provide fully integrated online shopping solution aimed to service

new customers particularly from rural areas. In this case, the limitation of this paper is that the authors did

not focus on the lack of customers from rural areas who can actually use online shopping since most of

them are not familiar with IT where the paper has not pointed it out. Therefore, they may not really trust

with the online shopping and SSL here might not be appropriate way to increase the trust among the

customers from rural areas.

Pauline Ratnasingham (1998)58 mentioned that Electronic commerce is about business. Businesses are

built on relationships and relationships are built on trust, especially in today’s virtual competitive world.

Trust is an essential ingredient for electronic commerce in creating loyal and very satisfied customers. This

paper discusses the concept of trust and its importance for secure electronic commerce. The paper also says

that the two most significant areas plaguing the successful implementation of electronic commerce (EC)

globally are Internet security and transaction security. The importance of trust is based on the potential use

of the technology to increase information sharing. Trust increases the probability of a trading partner’s

willingness to expand the amount of information sharing through EDI and explore new mutually beneficial

arrangements. There are few types of trust available through out this paper, which are Deterrence-based

trust, knowledge-based trust, and identification-based trust. The Web has captured the attention of

businesses and consumers, causing the number and types of electronic transactions to grow rapidly.

Nevertheless, many feel that electronic commerce will not reach its full potential until customers perceive


that the risks of doing business electronically have been reduced to an acceptable level. Customers may

have legitimate concerns about transaction integrity, control, authorization, confidentiality and anonymity.

The limitation of this paper is it did not mentioned is how a company can increase the confidentiality of

customers regarding to online buying.

Peter Lord, Mary Ann and Kristy Browder (2002)43 concluded that e-business is essential to reduce cost

resulting from less overhead, greater economies of scales, and increased of efficiency. E-business’ greatest

promise is more timely, more valuable information accessible to more people, at reduced cost of

information access. While putting business system on the Internet offers potentially unlimited opportunities

for increasing efficiency and reducing cost, it also offers potentially unlimited risk. The Internet provides

greater access to data, not only to legitimate users, but also to hackers, disgruntled employees, criminals

and corporate spies. In a traditional office environment, any access to sensitive business information is

through employees. Although employees are not always reliable, at least they are known where their access

to sensitive data is limited by their job functions. But making business information accessible via the

Internet increases the number of users who may be able to access the information. Companies may know

little or nothing about the users who are accessing their system. It is therefore important that companies

manage access to sensitive information, and prevent unauthorized access to that information before it

occurs. The greater sizes of the user communities which can access business system via the Internet not

only increase the risk to those systems, it also constrains the solutions which can be deployed to address

that risk. The Internet creates challenges in terms of scalability of security mechanisms, management of

those mechanisms and the need to make them standard and interoperable. It is essential to have security for

e-business but one of the limitation is that the authors did not focus is it needs highly cost to develop and

maintain it. Besides, it is costly to hire an expert to develop and manage it especially if the company is only

a small or medium enterprise.

Ramesh Kolluru and Paul H.Meredith (2001)38 stated that since businesses will attain long-term cost-

reduction by forming closer working relationship with select suppliers and customers, the information that

an organization communicates with its supply chain partners is among the most critical of its assets. The


paper has been discussed the purposes of emphasizing security services to supply chain partners as from the

following:

- Destruction, unauthorized use of information and resources.

- Corruption or modification of information and resources.

- Theft, removal or loss of information and resources.

- Unauthorized disclosure of information.

- Unauthorized use of resources.

- Deception via presentation of false data

- Disruption and usurpation of system components.

In order to overcome aforementioned security breaches, architecture specifies several of the security

services such as authentication, delegation, access control, confidentially, integrity, auditing and non-

repudiation. Besides, the security architecture recognizes the implicit diversity in the types of supply chain

partnerships that required different levels of security (3 levels) for the different types of data sharing needs

between supply chain partners. But, the drawback that has been determined where the paper did not

mention will it be possible for all the organizations to have these full sets of security tool like SSL since it

might involve a large amount of cost to develop it.

S. Srinivasan Department of Computer Information Systems, College of Business and Public

Administration, University of Louisville, Louisville, Kentucky, USA (2004)70, stated that success of an e-

business rests on many factors. One of the important contributors is trust. Trust is something that an e-

business must strive to achieve over a period of time. Acquiring customer trust depends on many things

that an e-business controls. However, customer’s trust as such is not under the control of the e-business.

Some contributing factors for gaining customer trust are: appeal of the Web site, product or service

offerings, branding, quality of service and trusted seals. Trust can be viewed from many angles such as

transaction, information content, product, technology and institution. This paper analyses the role of trust

from the transaction perspective and highlights the things that an e-business could do for building customer

trust. Factors contributing to trust are not easy to measure. It is developed over time. People trust a business


based on their own past experience as well as by third party recommendations. In the world of online

commerce the factors that significantly contribute for enhancing transaction trust are:

• Easy access to description of products and services

• Ease of placing orders;

• Order confirmation;

• Order tracking;

• Post-sales service.

Trust is one of many factors that contribute to e-business success. There are many ways to build trust. It is

an ongoing process that never stops. Many of the trust builders that apply in the BAM world apply to e-

businesses as well. Since the e-businesses are accessible from anywhere at any time, there are additional

impediments in building and maintaining trust. The limitation of this paper is that it did not focus much on

how a company can enhance the security when doing online commerce.

Vasilis Katos (2006)82 analyzed the attitude of both e-business and e-customers or perspective e-partners

towards the risks which are born by using the Internet as the communication channel. The risks are highly

correlated and shape the trust of an e-customer towards an e-business. Starting from the organization’s

attitude towards risks, a number of criteria that influence the customer’s trust are discussed.

In order to have cooperation and eventually a sustained relationship between an e-business and a customer,

the former must meet the trust expectations of the latter. In the world of e-business, the characteristics

which influence and shape the trust of an organization included:

- The presence history of the site. As a rule of thumb, the older the site the higher the trust. This can

be combined with the fact that if the site belongs to a successful and known company, then the

presence history is expanded.

- The site’s attack history and the company’s reaction towards the attacks. More specifically, the

company’s response time following a security related event is an indication of the organizational


readiness towards external threats. Furthermore, when multiple sites suffer synchronously from

advanced attacks, the response and recover time is a very important differentiator.

- The existence of a privacy statement, as well as the existence of the security policy statement.

These statements must be placed in easy-to-reach locations, without requiring the user to consume

considerable time to track down the links to these statements.

- The application of the security policy. Although the procedures and security mechanisms of the

systems must be transparent in order not to discomfort the legitimate user, from a trust perspective

the presence of the security mechanisms is essential. For example, the existence of a password

policy could be succeeded with a respective web page educating the user about the password rules

(e.g. minimum number of characters, denial of use of names, etc.)

- The financial and accounting information of the company.

From his paper, he has mentioned in the criteria of the characteristics which influence and shape the trust of

an organization that: “the older the site, the higher the trust (in the first characteristic)”. But the question is

if the site has offered products or services where the customers have high desired to own even though it is

still new, the trust and the security of the website might be the least criteria for the customers to gain

advantage especially if the product offered is cheap. Therefore, the limitation of the paper is that it did not

mention that the sites those are able to offer a very useful and advanced product can also easily gain the

trust from the customers. Sometimes, people will think that the site which is able to offer good product, that

particular site should not have much of critical security problems since it needs powerful security tool or

software to prevent other companies from imitate their products.

Verisign, (2008)81 mentioned that gaining the trust of online customers is vital for the success of company

that requires sensitive data to be provided over the web. Such as e-commerce, consumers concern about

identity theft therefore justifiably leery of providing personal information. E-business gain much when

overcome customer fear. Thus, the potential business that can be reaped by building trust is huge indeed.

Furthermore, consumers will gain a lot from hurdling the trust barrier. Fortunately nowadays, the

developed of technology helps online businesses protect sensitive customer data and build customer trust.

Thus, to survive in the market, e-business need to incorporate with SSL, Secure Sockets Layer (the world


standard of web security) in protects the data. The limitation of this paper is that there were no further

descriptions about the importance of trust towards E-business.

VeriSign, Inc (2000)80 has found that many people deliberately limit the transactions they do online

because they do not fully trust the e-commerce process. These people simply fear for the security of

personal and financial information transmitted over the web. The paper focused on Secure Socket Layer

(SSL) as the world standard for web security. SSL technology is used to encrypt and protect information

transmitted over the web with the ubiquitous HTTP protocol. SSL provides user’s website with the

assurance of access to a valid, “non-spoofed” site and it prevents data interception or tampering with

sensitive information. Many savvy online shoppers understand that 128-bit encryption is the strongest

offered for SSL today. One of the limitations of SSL is people with the computer of Windows 2000 system

will fail to step up to 128-bit encryption unless a SGC-capable SSL certificate is available but it is usually

costly to get that certificate. The limitation of this paper is that it did not cover on it is costly to develop the

software in a company.

Zeinab Karake Shalhoub (2006)66, stated that the lack of trust in online transactions is one of the main

reasons for the relatively low electronic commerce adoption, especially in developing and emerging

economies such as those of the countries of the Gulf Cooperation Council (GCC). It is found that a large

percentage of sites with privacy statements address the issue of notice and awareness, while none of the

sites has a provision to inform users in case of any complaint, as to whom they should address their

complaint, what is the arbitration and settlement methods, who is the enforcement body and finally what

are the penalties and sanctions applicable. However, one can conclude that from a functional perspective

trust can be seen as a different but potentially coexisting mechanism for reducing the uncertainty, anxiety

and complexity of transactions and relationships in electronic markets. There are four types of styles of

interpretation which are notice and awareness, choice and consent, access and participation and integrity

and security. It is mentioned that there are no regulations in the GCC dealing with privacy or privacy

issues, in general. The UAE enacted an Electronic Transactions and Commerce Law (2002) which deals

with digital signatures and electronic registers. It prohibits ISPs from disclosing information gathered in


providing services. The penal code also contains some provisions; it does not address cyber crime or data

protection, though. It is worthwhile mentioning that a cyber-crime act is currently being developed in the

UAE. The limitation of this paper is that it did not mention on how a government can regulate the law in

order to reduce the cyber crime.

Research Methodology

All the information and data presented in this paper were gathered from various sources of secondary data.

The sources came from online resources such as EBSCO, EMERALD, ScienceDirect and Yahoo databases

have been used as well as Google search engine. Other resources such as textbooks and online articles have

been also included in this study. To discuss and analyze the various issues and problems on e-business

security and trust, a research framework is presented in the form of charts in Figure 1. This framework is

presented with a view to identify discussion points, analysis and findings, limitation and conclusion for the

research.

Problems Solutions with to E-business, overcome Security these

and Trust problems

Lack of trust

Degree of confidentiality

involve

Outdated Law & Regulation

Unaware how e-business

transactions take place

Confidence

Of Trust

Being aware of e-business transaction.

Making sure that degree of confidential is reached

Updating the Law &

Regulation


Figure 1: Research Framework

Discussion, Analysis and Findings

Lack of trust

It is known that e-commerce has becoming one of the most important elements in running business

successfully particularly for small business. Managers have realized on how e-commerce can benefits their

business and thus, many organizations have started their business online. Internet is becoming more and

more powerful tools for a film to run their business as internet helps to connect the stakeholders from all

over the world which has improved the efficiency of an organization.

The emerging and popularization of internet creates another opportunity for businessmen to do their

business where they can do their business online. However, internet Watch Fraud (NCL, 2005) reported

that they have received large amounts of complaints from the customers in 2005 where the numbers of

complaints had increased two times compared to 2004 and the worst is they found out that the most

common complaints they have received were from the customers who were not satisfied with the products

they had purchased though online. Traditionally, customers bought their product from shops where they

can touch, feel, and test the products they want which are impossible to do so when buying through online

(S. Srinivasan, 2004)70.

Furthermore, the customers who are buying their products online will face another risky problem on

dealing with the vendors where the vendors cannot be observed, and sometimes they are unknown (S.

Srinivasan, 2004)70. Besides, customers not only have to receive the products which are unacceptable in

quality, but they have to face the risks of not receiving the items they had ordered at all after they made

their payment through online (S. Srinivasan, 2004)70. Moreover, personal information and credit card

numbers of customers might disclosed to other people during or after their online trades when the vendors

are incapable to protect the customers’ data.

Due to the reason stated above, it in impossible for customers to do their online trades safely and because

of those cases happened before, it caused the customers to lost their confident in buying through online and

it does make customers lost their trust towards online trading.

Confidence of Trust


To solve this major problem of trusting in E-Business, a large amount of trust will be very important to

prove to the users that the certain website which the users are accessing are trust worthy. The trust makes a

website in a good condition and all the users who are using it will feel comfortable dealing any type of

business with them. As the issue of trust occurs in every thing in the internet and E-Business, it is very

important that the value of trust is big and it is able to gain the trust and the loyalty of the users and making

sure that they stay loyal to the particular website. This trust can be achieved by taking few steps which can

help gain this trust. The steps are making sure that all private data about the user are kept save, well

maintained and kept up-dated. By doing this we can prevent the lack of trust a users puts towards the

particular website. When we have enough trust amongst the users, an E-Biz website can perform well and

at full speed and makes sure that all the information are kept safe and making sure that no hackers go

through the website and steal users information.

Unaware of how e-business transactions take place

E-business allows all employees, customers or clients, suppliers and other stakeholders, regardless of their

geographical to be interconnected (Rodgers, Yen & Chow, 2002) 60. E-business has made an organization

to run their business more efficient where the customers can get their products just in time. Through e-

business like by using extranet, the suppliers are able to access to an organization’s database on when the

wan to receive what they have ordered and that enable them to make the products available to the particular

company just in time. Besides, with the co-operation from suppliers, a company can try to have their

products sent to clients’ house on the time.

But, there are still some of the customers who are unaware on how e-business transaction takes place. Some

of the customers have the perception of buying things in shops is much more faster than buying through

online as they can get the products immediately where they thought that buying through online might have

to wait for another days in order to get the products arrived to their house. They do not realize that a close

integration between the suppliers and the company can put the clients in the way that they still can receive

their order on the time they want.


Besides, the people who are living in the rural area are less exposed to the outside environment where some

of them do not even realized that business has been taking place through internet. They still performing the

traditional way in purchasing and those people do not possess the knowledge on how e-business

transactions take place. Managers will find their way hard in promoting their products through internet into

rural areas and it is hard to build the trust with the customers from rural areas.

Being aware of e-business transaction

The issue of being unaware of not knowing about how online transaction works can lead to a lot of issues

as stated above. This problem is a threat to users who don’t seem to understand that their money can be

blacked out if hackers hacks their account. To prevent this problem, the E-Biz has to make sure that they

have enhanced versions of security and good transaction system for the users to cash in their money. By

making this transaction system secure, we can no longer be afraid of hackers. In the mean time, E-Biz need

to teach the users about the online transaction system. By teaching them how the system functions, users

can learn and they too can be aware of the system’s processes. All this learning will alert the users to be

more caution on their online transaction. E-Biz websites with online transaction systems should list down

all the possibilities of doing online transaction and all the misuses possible.

Degree of confidentiality involves

There is uncountable of ways that an e-business set up will be attacking by hackers, crackers, and

disgruntled insiders (Otuteye, 2003)23. These have immediately decreased the degree of confidentiality of

clients towards e-business. According to Otuteye (2003)23, confidentiality is defined as making information

accessible to authorized users, and prevents the access from unauthorized users towards information. The

problem of degree of confidentiality is always taken place in health centre. The recent surveys reported by

Georgetown University Institute for Health Care Research and Policy contain statistics regarding to the

people’s concern for the confidentiality, there were about 63 per cent of internet “health seekers” and 60

per cent of all internet users oppose the ideas of keeping medical records online, even with a secure,

password protected site since they worried that other people will see the detail of their records (Otuteye,

2003)23. Majority of internet users are worried about others finding out about their online activities where


89 per cent fear that internet companies might sell or give away and 85 per cent fear that insurance

companies might change their coverage after finding out what online information they accessed (Otuteye,

2003) 23.

Making sure that degree of confidential is reached

In order to maintain the web user’s information from being viewed by unauthorized users, organizations

have to find out ways that keep the information from accessing by unauthorized users. Therefore,

organizations have to keep secured of clients’ personal information and stored in a way that it is unable to

be accessed by other unauthorized users.

In order to build the confidence of users, the system has to be secure and tight so that no bugs or viruses

could enter the website or the transaction system. This prevention of this system can enlarge the safety and

can ensure the safety of the users using the system and this confidentiality is essential because of the fear

towards forgery and hacking. Confidential are privacy of data and safety of an individuals property and

assets. In E-Biz, hackers always are on the wait for any loophole to enter the system and hack information

about the user’s confidential folders. In these folders, there may be a lot of important information which

can be useful and harmful to others. So to prevent all this from happening, the administrator has to use a

powerful system which has the latest technology the world has to offer. By using this powerful system,

hackers will find it difficult to hack the system, and due to this users will have more confident on the E-Biz

website and they will certainly cash in their money and deal their businesses thru the internet.

Outdated law and regulation

The emerging of internet in a relatively short time benefits people and it is successfully making people’s

life become easier. People are using internet for study, communicate with others, sharing knowledge, and

recently, people use it to run business as to fulfill the demand of society. From here, people are able to do

online trades and it facilitates the way we live where we obtain what we need by just staying at home.

Internet enables people to find new opportunities in running their business but at the same time, criminals

have find their new ways to crime others and criminals nowadays tend to use cyberspace for crime. There


are several factors that had been recognized to be the potential factor in the growth of crimes where one of

those factors is outdated law and regulation.

New technologies are changing frequently and the changes of new technology is much advanced and faster

enough till the criminal laws of some jurisdiction have not caught up with the challenge of new

technologies (Tan, 2004)73. Some countries may have address the threat , and some of these laws are

already in need of amendment to address the new kinds of cyber crimes, but there are still countries

especially those from developing and less develop areas are under the condition of not seeing cyber crimes

as an important issue that must be addressed (Tan, 2004)73 and ,additionally, there are only several

countries that have attempted to address the issue of prosecuting cyber crimes committed by criminals from

another jurisdiction. Therefore, it is not hard to find out that some of the countries cannot even recognized

the types of crimes occurred and the criminals who are conducting the crimes.

According to Kentucky Cabinet for Health and Family services, in some cases, there are countries where

the law and regulation may simply be out-dated and some even have not changed in decades to reflect to

the current practices. The process of updating privacy and security status and regulations is difficult

because these status and regulations are scattered throughout state codes.

Updating the Law & Regulation

Cyber crime is a serious issue and hackers are a real threat to E-Biz. All this threats can give severe break

down on E-Biz websites if proper care is not given. And sometimes users may think that the law and

regulation in the internet are lousy. We have to prove them wrong by giving updated law & regulations

which will help keep an E-Biz safe and secure. Laws & Regulation are very important to prevent the users

to miss use their priority and their freedom and to not do useless things such as hacking to others account

and getting away with it. Frauds in E-Biz can be punished and jailed if all this laws & regulation are kept

well and updated regularly.


These laws must be strict and the people who regulating the laws should be honest and punish all who

misuse the system. Any misuse and misconduct of the system have to pay the penalty.

Recommendations

In our opinion, the concepts and theories on e-business trust and security can guide the managers and

companies to develop their own unique customer retention strategies. The customer retention strategies are

necessary to be understood by the employees who are in the area of serving customers. While developing

trust between companies and customers in e-business, managers should understand that different service

qualities might lead to different level of customer buying behavior and customer retention. Once there are

trust from customers, it will increase the reputation of e-business companies and bring increase the profits

of companies. Therefore, the security systems are strongly needed to handle the process of developing the

customer retention strategies in e-business transaction process in an attempt to capture the relationship

within organization and with the customers.

The benefits of applying trust and build up security in e-business is quite obvious. To develop a better

relationship between customers and e-business, there are certain steps that could be considered for future

preferences such as the attitudes of employees towards the customers, the usage of technologies in

developing security in e-business transaction, and protect customers during business transactions.

Researches have caused executives to think on what do exactly customers want? And it was concluded that

customers are in need of protection when doing transaction online such as protection of personal data and

trust towards a companies. Therefore companies have to find best solutions in improving service quality

and develop trust in relation between e-business and customers.

Limitations

The limitations of this paper is that some of the cases or article that were worked on it tend be narrowly

defined of the topic is focus on one area. On the other hand, some is too wide in scope where it covers

many portion of e-business. In addition to that, there is also too much focus on advantages when apply


security and trust in e-business but less in real-world examples which may not be accurate over time and

based on current situation.

Researchers are too focused on one topic or sector and they tend to forego other sub-topic related to it.

Instead they should be collaborative in all section where application of security and trust in business

transaction and covers the direct interaction with customers, for a variety of different purposes, including

feedback and issue reporting.

Besides, they should have a clear and unique strategy. Most of the articles have mentioned about the

importance of applying trust and security in e-business, however there are lack of information on how to

build trust and security in e-business since trust is intangible and hard to be implemented.

The objectives of e-business trust and security strategy must consider a company’s specific situation and its

customer’s needs and expectations. Since e-business is very close with customers’ life, the usage of trust

and security must fulfill customer’s requirements.

Conclusion

Nowadays, e-business has a very close relationship with consumers. Most of the time, people are tend to

consume products and services online because it save time and more convenience. Furthermore, the

development and improvement of technologies have brought successful towards e-business. However, the

improvements of technologies have its disadvantages too. High technologies have attracted people misuse

the technologies such as hackers and cybercrime which they can access to e-business privacy easily. Lack

of security protection towards e-business will reduce customers trust towards companies and their

management system.

Thus, e-business companies should build trust and using security during the business transaction. To

provide value to the customers through service and goods provided, research found that companies should

build up trust and security to protect their customers.

Benefits of application trust and security include improved customer service, build customers trust, avoid

the misuse of technologies, protect customer’s privacy and maintain the companies’ reputation. Other

benefits include global connectivity, high accessibility, scalability, interoperability, and interactivity.

In order to create an effective infrastructure for securing E-business, it requires a comprehensive

development of several elements including laws, policies, industry self regulation, technical standards and


law enforcement. These elements may provide positive environment and infrastructure to support the

growth of E-business and relation with customers.

Therefore, trust and security are attempt to increase transactional efficiency and effectiveness in all aspects

of the design, production, marketing and sales of products or services for existing and developing good

relation through the utilization of current and emerging electronic technologies. As a conclusion, we do

hope that the development of e-business will improve and become more efficiency in the future life.

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THE ROLE AND EFFECTIVENESS OF E-BUSINESS IN BUILDING RELATIONSHIP EQUITY IN THE CULTURAL INDUSTRY

Mark A.A.M Leenders, Amsterdam Business School, University of Amsterdam, The Netherlands, [email protected]

ABSTRACT The paper draws on key literature related to hedonic consumption and the way how customer equity is build in the cultural industry. Cultural organizations operate in an industry where hedonic, emotive, and affective factors determine demand. New technologies in E-business, however, enable cultural organizations to actively manage the relationships with audiences. For example, online presence, E-mailings, and online contests may be relatively important for a cultural organization in order to build a loyal customer base. Especially since most organizations are active in only a certain period of the year (e.g., summer). Using a survey in the Netherlands (N=100), we test the effectiveness of E-business tools relative to value (price/ quality) and brand factors. The results show that especially sticky websites that promote revisits during the year can be effective in building a loyal customer base but brand and value equity seem to be more important than relationship equity in general. INTRODUCTION Cultural industries such as music, film and theatre are becoming more prominent in the marketing literature. Especially the motion picture industry has received much attention with respect to theatre success of movies and consumption behaviors in general. Other creative industries that have seen a growth in attention are music, theatre, television, opera, and festivals (Leenders et al. 2006). Cultural organizations face many issues that are similar to other organizations such as competition, new technologies, and globalization. However, cultural and artistic organizations are also different in a sense that customer orientation seems to be less important and often needs to be balanced with other non-commercial priorities (Voss and Voss 2000). With the expansion of the number of music festivals in the last 30 years, competition within the music festival industry has grown enormously. Some festivals are beginning to experience difficulties in attracting sufficient visitors. Even large and established festivals such as Pinkpop have experienced problems in getting sold out lately. Festival organizers thus need to keep looking for new, innovative ways by which they can differentiate themselves and stay attractive to visitors (Leenders et al. 2006). The key question is what drives audiences and what matters most to audiences. This question is not easy to answer as there are many facets that need to be managed to create a memorable experience and obtain a loyal audience. Gursoy et al. (2006) showed that while both the perceived hedonic (intangible) and utilitarian (tangible) attributes of a festival represent motives for people attending a festival, perceived hedonic attributes are likely to have a stronger impact on attendance patterns and the degree of satisfaction of the visitor. Recently, research on customer equity (Rust et al 2005) – a steam of research focusing on the discounted monetary value of all current and future customers – has shown that there are three components that drive customer equity. These components are: the brand (brand equity), the value of the product (value equity) and the relationship (relationship equity). The relative value of these components is likely to differ across industries and the key focus of this study is to investigate where the next marketing dollar should go in the music festival industry. The question is what factors (tangible or intangible) have more influence on the success of music festivals and where does festival organisers need to focus on to differentiate and get their events sold out? Leenders et al. (2006) investigate the tangible factors of success of music festivals in the Netherlands. These factors can be seen as value equity assets as they relate to the price/ quality of the offered experience. Value equity is one of the components of overall Customer Equity: the total of the discounted lifetime values summed over all of the firm’s current and potential customers (Rust et al., 2005). Customer equity exists of three key drivers: 1. Value equity, 2. Brand equity, 3. Relation (retention) equity. These components work independently and together (Lemon, et al., 2001). Customer equity is critical to a firm’s long-term success (Lemon et al., 2001) and therefore in this paragraph the link will be made between customer equity and the success of a music festival and how this can be made operational for this research.


CONCEPTUAL MODEL Combining customer equity models with insights from studies on success factors in cultural industries provides the first comprehensive model of customer equity drivers in non-traditional industries such as the music festival industry1. The conceptual model is presented below.

Brand features

- Attitude Associations and imageGood experience (having fun)Atmosphere during the eventEmotions- AwarenessUniquenessExpectation

Festival succes

- Customer equity- Future Attendance

Relationship features

-- LoyaltyMailingsWebsiteMeet & GreetsSatisfaction - RetentionAge of first visitOther cultural interests

Value features

ProgramLine-up qualityAge/editionsHaving a themeBudgetTicket priceLocationMaximum visitor capacity

Figure 1: Conceptual model: Determinants of Success of Music festivals in the Netherlands.

RESEARCH METHOD To provide an answer to our research question, we opted for street interviews using a questionnaire among festival goers. Overall, 200 people were asked to participate and ultimately 107 questionnaires were collected. The answers relate to their last visited festival and not to one festival in particular. The sample consists of 61 male respondents and 46 of the respondents were female. The age of all the respondents is between 16 and 55 years. The mean of the age of the respondents is 25. RESULTS Table 1 Regression analysis for expected attendance in next five years

Variable Beta Significance

Value Ticket price -.278 .054 Travel expenditures -.007 .951 Quality line-up -.125 .311 Having a theme -.070 .542

Brand Positive image .173 .175 Positive atmosphere .187 .171 Happy .134 .303

1 A Music festival is defined as an event oriented towards music, where several performers/artists perform live for an

audience. Festivals are commonly held outdoors, and most of the time they include other activities and attractions besides the performances, such as food and social activities. Festivals are annual, or repeat at some other interval. Some are organized as for-profit concerts and others are organized for a particular cause.


Aroused .280 .029 Calm -.216 .064

Relationship Visiting website .196 .180 Receiving mailings .138 .287

Organizing contests .023 .847 R² = .231

Dependent variable is: Expected future attendance

From the results it can be concluded that e-business plays some role in customer equity in the music festival industry. Especially a sticky website seems to be important. However, given the current state of implementation of e-business tools or the nature of the industry in general, the brand and value seem to be more important. IMPLICATIONS For organizers of music festivals, the results of this research suggest that the brand plays a key role. As a result, music festivals should evaluate how the lineup, price, and e-commerce/ online efforts for example relate to the long term health of the brand. Many festival organizations seem to be oriented towards the lineup, ticket sales/ sponsors but this research clearly shows that a long term brand strategy is vital. Brand features like image, atmosphere and emotions attract people and make them loyal. It also seems to be important to emphasize aroused emotions. Also interestingly, little evidence is found for the importance of relationship equity in this creative industry for future attendance and customer equity. It does seem important to some extend that festival organizations keep in touch with their (potential) visitors by means of a sticky website and mailings, especially because most of the festivals are held once a year and still have an awareness problem. BIBLIOGRAPHY Frey, B. S. (1994) The economics of Music Festivals. Journal of Cultural Economics 18, 29-39

Frey, B.S. (2000) The Rise and Fall of Festivals. Reflections on the Salzburg Festival. Gursoy et al. (2006) The Hedonic and Utilitarian Dimensions of Attendees’ Attitudes Toward Festivals. Journal of Hospitality and Tourism Research 30, (3) 279-294 Hirschmann, E. S. and Holbrook, M. B. (1982) Hedonic consumption: Emerging Concepts, Methods and propositions. Journal of Marketing 46, (3) 92-101

Holbrook, M. B. and Hirschmann, E.S. (1982) The Experiential Aspects of Consumption: Consumer Fantasies, Feelings, and fun. The Journal of Consumer Research 9, (2) 132-140

Leenders, M.A.A.M. and Telgen et al. (2006) Success in the Dutch Music Festival Market: The Role of Formal and Content. The International Journal on Media Management 7, (3&4) 148-157 Leenders, M.A.A.M (2008) Music Festivals and the social and economic landscape in the Netherlands. Working paper, Amsterdam Business School, February 2008 Minor, M. S. et al. (2004) Rock on! An elementary model of customer satisfaction with musical performances. Journal of services marketing 18, (1) 7-18

Rust, R.T. et al. (2005). Customer Equity Management. New Jersey, Pearson Prentice Hall Thrane, C. (2002) Jazz Festival Visitors and Their Expenditures: Linking Spending Patterns to Musical Interest. Journal of Travel Research 40, 281-286


FROM E TO M-COMMERCE: IMAGE SPILL-OVER EFFECT OF M-APPLICATIONS: THE CASE OF A DANISH MALL Martin Hannibal, Department of Marketing and Management,

University of Southern Denmark [email protected]

Erik S. Rasmussen, Department of Marketing and Management,

University of Southern Denmark [email protected]

ABSTRACT When applying a new technology like Mobile Commerce or M-commerce – the use of Mobile phones for commercial purposes – it is often taken for granted that the users will focus on convenience and new services as the main drivers. In the case study of a large Danish mall we show that these benefits are of course important for the customers but that the image and branding of the mall through the mobile applications is just as important. The conclusion for the mall is thus that the use of mobile applications must be seen as a part of the overall branding. INTRODUCTION Since its introduction in the 90’s, the cellular phone has had an immense success - as it is today the cellular phone outsells the personal computer two fold (Ahonen & Moore, 2007) Such is the success that today the mobile handset is considered the fourth technology worn by man adding to the traditional wallet, keys, and arguably the wrist watch, which by younger generations are seen to be substituted with – the cellular phone (Moore, 2007; p.2). But the handset acts as much more than just a phone as the latter generations of cellular phones find their use as organizers, etc. supplementing and in many cases substituting the traditional office palm pilot (Ling, 2004).Though these possibilities are offered to the user of the mobile handset, research shows that not all of these applications have seen any common use to the ordinary customer. Since WAP and GPRS net-browsing and similar services were introduced, these applications have been available on most of the newer generations of mobile phones and yet these functions are seldom used (Constantiou et al., 2007). In Ling (2004) it is thoroughly argued that the use of mobile communications is influencing how we go about our daily lives from both a social and economic perspective (Ling, 2005). In this developmental context we have seen the emergence and latter consolidation of E-commerce changing how we go about our business’ or in other words resulting in new business models. Lately the evolutionary process described by (Ahonen & Moore, 2007) has seen an off – spring in the business sector as M-commerce has emerged as an area of both interest to practitioners as well as researchers. With M-commerce still in its infancy, relatively few attempts have been made to explore the opportunities and challenges it poses. Research has primarily focused on the consumers’ perception of mobile applications pointing out that the main value-adding elements of M-commerce are to be found in functional benefits – such as greater degree of convenience and these seem to be the primary drivers for adopting mobile services (Carlsson & Walden, 2002; Magura, 2003). This line of thought stems in part from the seminal Technology Acceptance Model conceived in (Davis, 1989) in the late 80’s to be improved in (Venkatesh & Davis, 2000) at the turn of the century. However, it still remains unclear if these functional benefits are satisfactory impetus though (Mahatanankoon et al., 2005) show a large number of distinctive features of mobile commerce which in term are considered drivers to adopt an M-application both from the consumer perspective as well as from a managerial perspective. Recent research has a focus on the tangible benefits of the M-application. The present paper proposes an alternative focus as the attention is turned to the intangible beneficial spill-over effects of implementing an M-application as a managerial tool. AIM This study provides empirical data on the perception of mobile applications from the consumers’ and the providers’ perspective. The two perspectives are compared to gain insight into which aspects of the M-applications are viewed as paramount. A major mall plans to implement M-commerce as a part of their services. A consumer perception survey was conducted to reveal which of an M-application attributes are perceived as important. To complement


this survey, we included qualitative studies of two sub-suppliers and a mall representative to reveal their perception of the M-applications. Our pilot survey (We would like to thank the master student Soeren Hoegh who did the practical work in the mall as part of his master thesis.) shows that mall visitors perceive the M-application primarily as an improvement of the mall’s image and this point to strategic brand-management as the primary driver to adopt M-commerce applications for malls and shops. The pilot survey, conducted on a sample of 188 visitors at the mall, addresses three key issues in respect to this. Firstly it addresses how M-marketing in the form of an in-store M-application influences the image of the mall. Secondly the survey was aimed at clarifying which functionalities brought by an application are rated as most important by the visitors. As a third parameter of importance the survey should enable the differentiation of a typical consumer to which M-marketing is most appealing. FROM E TO M-COMMERCE: LESSONS ADAPTED A the end of the 90’s the emergence and power of the internet was witnessed as an electronic managing tool to businesses both internally through different data mining tools as well as externally through web marketing. The concept of E-commerce has been introduced to describe these new ways of doing business even though no single definition has been agreed upon internationally as some studies use a broad definition including all business activities varied out on both the internet and other electronic media. Opponents to this stresses that E-commerce in the narrowest of senses is defined as internet based transactions resulting in the purchase of goods or services (Colecchia et al., 2000). As already mentioned in the introductory paragraph of this paper, since the early 90’s we have seen the introduction and the immense success of the mobile handset making it one of the most commonly owned technologies in many societies (Ahonen & Moore, 2007). This makes it an interesting media for marketing as the cellular phone is always worn and thus describes the ideal media to reach potential customer. Like E-commerce, M-commerce represents a huge opportunity for businesses to connect to consumers (Venkatesh et al., 2003). The mobile internet is emerging faster and as an even more potent marketing tool – partly caused by leverage of lessons learnt from the introduction of E-commerce. As a result M-commerce appeared very similar to E-commerce when it was introduced fifteen years ago (Venkatesh et al., 2003). It is not the aim of this paper to explicitly address the technological aspects of M-service adoption even though it has been discussed by several authors (Constantiou et al., 2007; Mahatanankoon et al., 2005; Venkatesh & Davis, 2000; Venkatesh et al., 2003) but we are aware of the technical difficulties following the use of a specific M-technology such as the M-application provided at the case mall. As an example of these problems, the individual mobile sets have to facilitate the technology by which the M-application is provided. If this is an SMS information system the problems seem minimal but by the smallest increase in tech-level as in an MMS system the reach of the service is limited to many of the malls visitors as their sets are not compatible with this technology or/and they have no habit of using the MMS service capability. Both the technological limitation and the habitual limitation are argued as barriers to M-application (Constantiou et al., 2006) but the problems in relations to technology adoption will only be introduced as a waypoint to analyze the results of the pilot study. In his seminal paper, Davis (1989) aims at building a ‘Valid measurement scales for predicting user acceptance of computers’. Davis (1989) argues that the acceptance of new technologies is closely linked to two distinct variables which are the fundamental determinants of user acceptance. The first of these – perceived usefulness – is drawn from the organizational research literature. In the organizational context employees are generally awarded for good performance; thus, a system which is perceived to enhance the job performance is the more likely to be accepted. Secondly Davis (1989) argues that a technology with a high degree of – perceived ease of use – will have a higher potential to be accepted as the effort put into mastering a new technology is drawn from a finite pool resource of the user. The easier to use technology would seem the most appealing choice as it leaves room to allocate effort into other activities. In sum the ’technology acceptance model’ (TAM) put forward by (Davis, 1989) highlights the importance of relationship between ’perceived ease of use’ and ’perceived usefulness’ in the adoption phase of any given technology this being an E-applications, an M-service or an M-application.

The TAM is developed further in the latter paper of (Venkatesh & Davis, 2000) resulting in the TAM2 which introduces three additional variables or forces to predict the adoption of a given technology (see figure 1 below).


Figure 1:

OutputQuality

ResultDemonstrability

JobRelevance

Image

SubjectiveNorm

Experience Voluntariness

UsageBehavior

Intention to Use

PerceivedEase of Use

PerceivedUsefulness

The TAM (Davis, 1989)

The TAM2 – extension of the Technology Acceptance Model (Venkatesh & Davis, 2000)

OutputQuality

ResultDemonstrability

JobRelevance

Image

SubjectiveNorm

Experience Voluntariness

UsageBehavior

Intention to Use

PerceivedEase of Use

PerceivedUsefulness

The TAM (Davis, 1989)

The TAM2 – extension of the Technology Acceptance Model (Venkatesh & Davis, 2000)

The TAM2 embeds the original technology acceptance model – defined by the broken line – in a social context stressing subjective norms, voluntariness, and – most prominent to this study – image as interrelated social forces influencing the adoption or rejection of a new system (Venkatesh & Davis, 2000). The TAM highlights problems in respect to barriers to the use of an M-application as vehicle to marketing. The TAM2 concurs to these barriers but concurrently stresses the importance of the social context in predicting the shortcoming or success of introducing an M-application to market a product or a service. Applying the original model to our pilot survey seems to pose a dilemma as our survey shows a spill-over effect from the M-application to the image of the mall. On the one hand – according to the model – the mall should chose a technology that is perceived as both easy to use and useful mirroring the traditional argued primacy of convenience as an incentive to implement M-services. On the other hand imitating state-of-the-art technology seems to maximize the image spill-over effect and thus gives a major pay-off in brand and image. It could be argued that the criteria of usefulness could – to a certain degree – be a trade-off compared to the image of the state-of-the-art technology. METHODOLOGY OF THE STUDY Our case study follows the guidelines of the seminal work of (Eisenhardt, 1989; Yin, 1993) as our research design focuses on a single setting which is embedded in a context both spatially and temporally. The case study facilitates a study of change as it focuses on the unit in its context. Our focus is the network alliance drawn between the two M-application providers – ‘OC’ and ‘KC’. The paper is primarily dedicated to describing how the end product of this network partnership is received by a sample of the visitors of the mall. To reach insight into the process leading to the product, it is necessary to have a clear understanding of the case network partners. Below the partners are explicitly described to contextualize the data material drawn from the survey. Case description The modern Mall: the case of ‘R’ The Mall – ‘R’ – in our case study is a medium to large size mall relative to the typical Danish mall. It is situated in the outskirts of the top three largest provincial cities in Denmark. In and around the city where ‘R’ is situated there are no matching competitors though a number of smaller malls reside in the city area. Apart from these, the main competitors to ‘R’ are situated approximately one hour drive from its location respectively ‘F’ in the capital area and ‘K’ in another provincial city centre. ‘F’ is a newly built mall which has its primary customer group residing in the capital area. Surveys show that these customers do not see visiting a mall outside of the capital area as a real alternative to ‘F’ or other malls in the capitol area which is why ‘F’ is not seen as the primary competitor to the managers of our case mall ‘R’. The mall ‘K’ is a traditional well established mall situated in a provincial city centre with approximately the same population density as in the case of ‘R’. ‘K’ is a well known similar sized mall established in the early 90’s. It draws customers from a large area intersecting the potential customers to ‘R’. But time has taking its toll on the facility and today the mall looks much too traditional adding to the image of an old maroon coloured mall.


‘R’ contains around 145 shops spanning fast consumer goods, sports retail, a veterinarian, a law firm and a day care centre for children. Recently this broad span of shops has been further expanded as a 1400 square meters gym has been added to the mall premises this adding to the already considerably size of 32.000 square meters. Development plans for the next calendar year are set on adding a further 9000 square meters shopping floors. The continuous development, expansion and modernisation of the ‘R’ are part of the strategic plan to offer a mall to the visitors which stands out as a modern shopping facility. The physical development is as much aimed at making the shopping experience convenient – to have a wide assortment of all conceivable shops gathered at one place – as it is meant to underpin an image of the modern mall differentiating ‘R’ from other malls in the local region and the main competitor ‘K’. The physical development of the mall has been manifested through the increase of natural lighting of the centre through the use of skylight windows opening the shopping milieu while concurrently reducing the cost of lighting the facility. Also the managers of ‘R’ have manifested the modern image of the facility through the use of colours aiming at a constant refurnishing of the centre once every second year. Tech-competences: the case of ‘OC’

‘OC’ has its primary competence in web technologies (E-commerce, E-marketing, and CMS) as well as the innovative field of mobile technologies such as gateways and mobile-applications. The business relations of ‘OC’ is primarily characterised through business to business as the firm has its core business in acting as sub-supplier of M-applications to other firms such as ‘KC’ described below and the bus transportation firms. One of their latest products has been together with ‘KC’ to supply the M-application to the regional bus service company. This M-application enables passengers to download the bus schedule to their handset. The schedule is live as it is contentiously updated thus minimizing the time the passenger/customer will have to spend waiting at the bus stop. They will be able to see if the bus is delayed and if so wait inside at their office instead of waiting outside (in the rain) at the bus stop. ‘OC’ was founded in 1999 by two of the now three formal owners. Since the late 90s mobile technology has leapfrogged; today the market differs a lot from the market into which ‘O’ found it self. When ‘OC’ was founded it had a natural focus on SMS-services as this market had a high growth potential at the time. This rather narrow focus has since expanded a great deal and as a consequence the firm has in spite of its relatively short evolutionary track obtained a broad tech-knowledge based both in web and mobile technologies. Currently the firm has seven employees counting the three founders as well. The broad business focus paired with the relatively small number of employees has resulted in outsourcing of standard assignments to sub-suppliers. This policy has to a large extent kept the new ‘difficult to handle’ but concurrently innovative jobs at the firm thereby continuously adding to the company’s broad as well as deeply founded tech-knowledge base. Customer relations: the case of KC ‘KC’ had it original focus on E- as well as M-application to industrial gardening. As this market showed little sign of growth the founder of ‘KC’ decided to focus on another business sector and entered into passenger information services as this had many similarities with gardening. ‘KC’ initiated a business relation with the local municipality to deliver passenger information screens with live information at the bus stops for the municipality’s transportation service. The deal was to a large extent the result of the local networks the founder of KC had managed to create in the preceding five years. The business relation has since been expanded as KC, in corporation with both the local bus transportation service and – most prominently – with the technical sub-supplier ‘OC’, has launched the SMS-ticket the most successful product of the firm to date. The founder of ’KC’ aims at growing from the now three employees to around seven full time employees to eliminate the main present problem of the venture. The very small number of employees have in some cases acted as bottle necks to large contracts but concurrently the cash flow of ‘KC’ does not allow for new employees as it is through the business model of the already marketed products that a steady income to the venture is secured. This problem comes twofold to ‘KC’ as they are dependent on their primary network partner ‘OC’ which has also had a relatively small size as described above resulting in a bottleneck too. ‘KC’ is consequently scanning the business environment for an alternative partner. The founder of ‘KC’ has explicitly informed the founders of ‘OC’ of this intent. This has by no mean meant a decrease in trust or commitment in the corporation by neither ‘OC’ nor ‘KC’. The ability to act as connection between technical competencies and the end user of a product has in many cases proven to be the core competence of ‘KC’. The founder points at understanding of the technology behind the customer interface, the ability to visualise the product to the potential customer, and the ability to


establish a network containing the right competencies to solve a problem as key success factors of the venture. The two firms have thus been used to work in both very tight alliances and in more informational relations to each other.


Mall Mobile Marketing

As stated in the above description of ‘R’, the mall seeks to appear ever more modern. Most recently the managers of ‘R’ have followed the SMS-ticket project with the greatest interest. Partly stemming from the success seen as a consequence of the implemented payment system – the 5 percent increase factor, they have come to recognize M-applications as a promising strategic tool to further the development of the convenient and modern customer service. The director of marketing at ‘R’ initially contacted ‘OC’ to clarify the possibilities of using M-applications as a strategic tool in the marketing mix of the mall. As a result ‘OC’ had the natural lead of the partners in the new project (labelled MMM below) as they had the initial contact to the mall ‘R’ as opposed to the habitual role being that of a sub-supplier to ‘KC’. Figure 2: Diagram of the Network involved in the Mall Mobile Marketing project

OC(Networking

liaison/Supplier of

tech-solutions)

Phone service

operator

The mall ’R’

(Large sized

provincial mall)

KC(User interface)

Contractual

agreements

Non-contractual

relation

Alliancepartners

OC(Networking

liaison/Supplier of

tech-solutions)

Phone service

operator

The mall ’R’

(Large sized

provincial mall)

KC(User interface)

Contractual

agreements

Non-contractual

relation

Alliancepartners

The network formed in the new project describes a change in the roles of the two partners. As illustrated in the above figure 2 ‘KC’s habitual role of being liaison to the end user or external network partner is interchanged with a sub-suppliers role supplying user interface to the project leader ‘OC’. Concurrently to this ‘OC’ is situated as a gatekeeper ‘KC’ thereby mirroring the habitual role of ‘KC’ as illustrated in figure 2 (SMS-ticket network). Thus ‘OC’ acts as liaison of the alliance to the network partner ‘R’. To ‘R’, M-applications has an obvious appeal as marketing tool. Firstly it allows the mall to advertise on location. But as well as enabling on site advertisement the application – once allowed by the visitor – enables the mall to advertise to the visitors at their location – most importantly when they are at home. In addition to these obvious incentives, the mall managers looked upon with great interest how an implemented application might be received and perceived by the mall visitors. This was recognized to potentially have an effect on their image of the mall as an added benefit of implementing an M-application as managerial marketing tool. The initial discussions between ‘R’ and ‘OC’ – and the latter’s consultancy with ‘KC’ – saw a consumer perception survey as the result. The survey was aimed at revealing which part of an M-application attributes are perceived as important to the visitor. The alliance KC/OC – lead by OC – perceived their entry into the Mall-project as part of an innovation of an existing product, namely the SMS-ticket application. This seemed the most natural entry mode to the tech-competent partner ‘OC’. Both ‘OC’ and ‘KC’ saw an opportunity to use the existing knowledge from the SMS-ticket system and to apply this into another context. As a result the alliance partners found it paramount to create an easy-to-use application that could be used by the everyday visitor at the mall as this would be in the spirit of the ticket-product. To the mall ‘R’, implementation of a mobile-application was initially seen as an improvement of the visitors experience as it was thought to increase the already offered convenience of having all shops situated at one location through strategic use of an application which potentially could provide visitors with information, on-site ads as well as individualized home advertisements. As a result of the negotiations primarily between ‘OC’ and ‘R’ the resulting pilot survey conducted describes a sample of 188 visitors at the mall. It addresses three key issues stemming from the perspectives


of the network members. Firstly it addresses how M-marketing in the form of an in-store M-application influences the image of the mall. Secondly the survey was aimed at clarifying which functionalities brought by an application are rated as most important by the visitors. As a third parameter of importance the survey should enable the differentiation of a typical consumer to which M-marketing was most appealing. THE SURVEY Our pilot survey shows that mall visitors perceive the M-application primarily as an improvement of the malls image. This points to strategic brand management as the primary driver to M-commerce adoption – in the form of M-applications – to malls and shops. As stated in the introductory paragraph the survey describes a pilot study which is meant as a probe to underpin decisions to implement or not implement an M-application as a managerial tool to ‘R’. The survey is based on a relative small sample (188 respondents) which brings the validity of the results into question. The below table I addresses the first issue to be clarified in the project of implementing an M-application as a strategic tool in ‘R’’s marketing mix. Confronted with the possibility of a M-application offered ‘in-store’ to effectively guide the individual visitor through their shopping experience thus offering an added convenience to the visitor the respondents show only little sign of a positive attitude as 44 percent (n=82) of the respondent completely agree or agree with this adding to a better (shopping-) experience. The pilot results bear only minimal significance as the respondents’ answers describe a distribution centred on the middle of the spectre showing signs of a positive attitude prevailing. Table I: The visitors’ perception of in-store M-services (functionality)

Though we must stress the study’s relative small number of respondents and its implication to the results drawn from it, the result shows a relation between the perceived added in-store experience and the implementation of a M-application supplying added convenience in the form of maps, sales offers, etc.. Thus the result describes a clear incentive to implement an M-service with primarily the goal of adding in-store convenience. In the below table II respondents were confronted with the possibility of M-applications which – contrary to the applications referred to in both table I and table III – reaches the visitors at their home location. Again the respondents have a positive attitude towards the possibility of being reached at home through M-marketing as 38% of the respondents have put their answer in the top layers of completely agree and agreement with the statement though this tendency seems less dominant than the positive tendency towards in-store M-services seen in table I. Table II: The visitors’ perception of at-home M-services (functionality)


Again the problem of validity must be stressed as the conclusions drawn on behalf of the pilot study rest on a relatively small number of respondents. But the above result shows – at least – a relation between the added incentive to visit the mall and an at-home convenience supplied to the visitor through ads on the cellular phone. This result points to an insignificant relation between cellular ads and the incentive to visit the mall. It seems obvious that this must be clarified through a more thorough survey. Neither in-store services nor individualized at-home ads show any decisive incentive structure to implement M-applications as a managerial tool of ‘R’. Though they cannot be decisively ruled out as significant factors in deciding to the implementation of M-applications, the functionalities proposed to the respondents result in neither strongly positive nor negative attitude. The survey was conducted to clarify which aspects of an M-application was the most appealing to the typical visitor. Table I and II address the perception of the functionality of the proposed M-application. In other words through the survey respondents are asked to rate how they perceive the functional benefits of the M-application. But in addressing which of the M-applications’ attributes are perceived as important respondents rated how their perception of ‘R’’s image as a modern mall were to be influenced by the existence of an in-store M-application. Keeping the relative small sample in mind the survey shows a seemingly solid tendency of significance. 65 percent of the respondents completely agreed or agreed on a perceived improvement of the image of ‘R’ as the result of the proposed introduction of an M-application. This indicates an alternative incentive to introduce M-application as the bulk of the research literature point to the convenience to the customers – or in this case the visitors – as primary drivers to implementation of any E- and M-application must be found in (Carlsson & Walden, 2002; Magura, 2003; Davis, 1989). The survey results – illustrated in table III below – seem to indicate emergence of a new primacy in the incentive structure to implement M-application as a managerial tool in a company as the imagery effects of implementing a M-application seems much more pronounced than the mere functional benefits. In the below paragraph this alternative effect will be elaborated further as we illustrate the argument of image spill over effect through a reflective perspective on branding (Arnould & Thompson, 2005) and the adaption of the Kapferer (2008) model of the brand system. Table III: The visitors’ perception of M-service (image)

But to propose the primacy of image spill-over to that of convenience necessitates that there is no clear connection between a – perceived – increase in convenience to the individual visitor and the introduction of an M-application. This as far as our small sample shows is exactly what seems to be the case.


REFLECTIVE BRANDS AND THEIR IMAGES To get a grasp on how brands and their images come in to existence we turn our attention to the seminal work of Sidney Levy (1959). In the original work “Symbols for Sale” Levy (1959) argues that the consumer cannot be seen as a rational agent but must be thought of as an irrational actor. As a result the marketer must rethink his or her sales tactics and focus on the symbolical representation of the product not the rational argument of product functionalities. Belk (1988) elaborates on this thought as he points to the fact that possessions can be thought of as extensions to our personalities. Belk (1988) argues that the consumer through control, construction and/or close knowledge of a product of symbolic or material character will slowly incorporate the product as part of or an extension of his or her identity – “the self”. As a consequence the consumer consumes products that fit their personalities. This relates to the building of an image which is frequently regarded as the main purpose of the branding strategy (Hankinson, 2001; Aaker, 1996). The building of a brand image departs in understanding and matching the feelings, attitudes and ideas of the target consumer. The brand image can be narrowed down as the answer to the question of how are we seen by the surrounding. Numerous authors have pointed to the fact that image and reality is often if not always two different things (Dutton & Dürkerich, 1991).

Research in the tradition of consumer culture theory (CCT), a notion which covers a broad research tradition outlined in the article ”Consumer Culture Theory (CCT): Twenty Years of Research”, (Arnould & Thompson, 2005)& Thompson (2005), points to an overarching theoretical perspective, in which the consumer should not merely be defined as a perceptive irrational consumer. Instead the CCT-tradition conceptualizes the consumer as an individual situated in the process of constructing his or her individuality through interpretation and adaption of symbolic meaning and through this is reinforcing his/her identity. Consumption can thereby in the CCT perspective be seen as a productive process through which the individuality is produced (Arnould & Thompson, 2005). The CCT tradition describes the same change in perspective as seen in branding strategies. In the early stages the product was the centre of attention in the branding strategy. Since the 80’s though, the strategy of branding has shifted its exclusive focus on product added value and visual representation to an inward assignment of building the identity or personality of the organisation behind the branded product (Aaker, 1996). This revised perspective includes all aspects of the organisation in the branding strategy as everything the organization communicates decides or does is an expression of the brand identity or personality (Ramsay, 1996). Branding is thus today much more of an identity project reaching into the producer’s own organization rather than a project of reaching out to an external public through positioning, logo’s, etc. (Whelan & Wohlfeil, 2006). In this project the members of the organization have become a central feature as they will act as and be a part of the collective impression of the product, place or service thereby resembling the role of ambassador (Olins, 2003). As a consequence branding should not only be seen through an external and narrowly defined perspective. Instead brand management should be stressed in every aspect of the marketing mix and be involved in every managerial action of the company of which corporate branding is a statement (Christensen & Morsing, 2005). Figure 3: The Brand System


Range of ’products’ ie businesses

Strategic product

Brand

Vision

And

Purpose

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personality

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management

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The vision for the Mall

Illustration adapted from the brand system (Kapferer 2008)


Strategic product

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personality

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Strategic product

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territoryRange of ’products’ ie businesses

Strategic product

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And

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personality

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management

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perception

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Outside

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territoryRange of ’products’ ie businesses

Strategic product

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And

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personality

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perception

process

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Illustration adapted from the brand system (Kapferer 2008) Drawing on this argument the above adaption of Kapferer (2008)’s brand system (figure 3) illustrates that the actual brand is conjured in the interaction of management of the brand – in this case the brand of the mall ‘R’ – and the visitor’s interaction with these managerial actions. It must be stressed that visitors’ actions are not defined as reactions but rather interactions as a distinction between the message which is (sought to be) delivered to the visitors – the brand vision (Hatch & Schultz, 2003) and the actual brand image perceived by the same visitor must be stressed (Dutton & Dürkerich, 1991). In other word – and following the arguments in the above paragraph – the customer has constructed meaning through interpretation and adaption of symbolic meaning and thereby produced an individual image of the brand (Arnould & Thompson, 2005). It became clear through the survey that a large part of the sampled visitors perceived the mall as more modern if it were to use M-applications as a managerial in store tool. Concurrently to this a large proportion of the sample cannot see an increase in convenience if the mall was to use M-application to either guide visitors while visiting or to visit the mall (see table II and III). Following Hertzberg’s’ theory of hygiene (Herzberg et al., 1993) convenience is argued to be a strategic and managerial tool in consumption settings (Jensen, 2004) as it has influence on the success of any selling proposition (Maddox, 1981). The above study though shows that the spill over effect of the proposed M-application is primarily stated through a spill-over on the image of ‘R’. Thus the thought of future implementation of M-service should not only be considered in terms of added convenience to the shopping experience as the visitors perceive it otherwise. CONCLUSION Though the initial incentives to implement the M-service applications at the mall were primarily aimed at making shopping as convenient as possible increasing the perceived use of the M-application as argued as the principal variable in the acceptance of a new technology in the original TAM described by Davis. The survey clearly shows a concurrent and more prominent pay-off as the mall visitors refer to an image spill-over effect as the primary pay-off. This supports the overall strategy of ‘R’ as it is the intention to differentiate the mall from other malls in the region by presenting an image of the more modern mall as opposed to the dusty maroon color half empty mall containing uninspiring shops. To ‘R’ this poses a future challenge in keeping up with the image of being the state of the art shopping mall thus continuously introducing new services to the shopper, artificial improvement of the shopping facilities such as cafés and modern light setting and of course attract new and inspiring shops to the mall to differentiate the mall from the competitors. The case shows – though we have a rather limited dataset – that new business models in M-commerce has to look further than just the usability and convenience for the user. Image and brands – also personal brands or the extended self – are maybe more important parts of the business model. The mobile phone is not just another way of communicating with the customer as E-business is not business-as-usual but business-on-the-Internet (see e.g. (Mahatanankoon, 2005; Smith, 2006; Vrechopoulos, 2003)). To see M-commerce


from the point of the mall and other sellers as a way of pushing information out to the customer in a new channel can be dangerous as the customers expect more from the company. It has not been researched in depth in this case study but the customer clearly expects interactivity and personalized information; Information when I want it – and the information that I want. FURTHER RESEARCH It could prove valuable to extend the above research by a proper survey on visitor’s perception of simple but useful application and compare this to the perception of state-of-the-art solutions which are not that useful. If the latter is preferred to usefulness this could prove an important result as it would in reality remove the incentive structure of M-application from the argued primacy of convenience to that of image spill-over as driver to implementation. The obtained pilot data shows some signs of respondent grouping as some demographic characteristic are shared by the visitors with the most positive attitude forwards the supposable implementation of an M-application. A more elaborate investigation of the exact characteristics of these groupings would prove valuable in the quest of ever more individualized advertisement to which the handset is the ideal media (Abuelyaman & Wen, 2004). REFERENCE LIST

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i The U. S. Supreme Court, 362 U.S. 207 (1960), Scripto. Inc. v. Carson. ii. Ibid, 504 U.S. 298 (1992), Quill v. North Dakota.


iii. Perry, Joanna, Retail Week, April 24, 2009. iv. Wall Street Journal, July 3, 2005, page D2. v. New York Department of Taxation and Finance, Office of Tax Policy Analysis, Taxpayer

Guidance Division, “New Presumptions Applicable to Definition of State Tax Vendor,” TSB-M- 08(3)S, Sales Tax, May 8, 2008. vi. Ibid. vii. Fowler, Geoffrey A. and Alini, Erica, “State Plot New Path to Tax Online Retailers,” New York Times, July 3, 2009, page B1. viii. Internal Revenue Code, Section 865(b) and Regulations 1.863-3(b) and (c). ix. Ibid, Section 904(a). x. Internet Tax Freedom Act of 1998 (Public Law 105-277), October 22, 1998. xi. U.S. Senate bill S. 43, Permanent Internet Tax Freedom Act of 2009, 111th Congress.

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