Does the Quality of Online Customer Experience Create a Sustainable Competitive Advantage for E-commerce Firms?

By Shivaram RajgopalMohan VenkatachalamSuresh Kotha
2000| Working Paper No. 1666

Claims have often been made that the quality of the online customer experience in terms of web site ease of use, selection of goods offered, quality of customer service, the effectiveness of virtual community building, and site personalization are crucial to the success of e-commerce firms. If differences in the quality of online customer experiences provide a long-term competitive advantage, we would expect a positive relation between quality of online customer experience and shareholder value. Skeptics, however, argue that any advantage arising from the quality of online customer experiences would simply be competed away through imitation and innovation. To test these opposing views, we use scorecards of online customer experience provided by Gomez Advisors for a sample of 48 e-commerce firms during the period 4Q:1999 to 3Q:2000 and examine the relation between the scores and shareholder value. We measure shareholder value as the price-to-sales ratio, a measure commonly used for e-commerce firms. On average, we find that the association between online customer experience scores and the price-to-sales ratio is positive. In addition, the magnitude of the positive association is decreasing in the extent of competition (especially from brick-and-mortar firms) and the probability of failure, as measured by the amount of cash left to fund operations. The stock market appears to view differences in the quality of online customer experience as a viable competitive advantage even after the April 2000 stock market crash.