Available online at www.sciencedirect.com

Journal of Interactive Marketing 24 (2010) 96–110www.elsevier.com/locate/intmar

Interactive Technologies and Retailing Strategy: A Review, ConceptualFramework and Future Research Directions

Rajan Varadarajan, a,⁎ Raji Srinivasan, b Gautham Gopal Vadakkepatt, a Manjit S. Yadav, a

Paul A. Pavlou, c Sandeep Krishnamurthy d & Tom Krause e

a Mays Business School, Texas A&M University, USAb McCombs School of Business, University of Texas, Austin, USA

c Fox School of Business, Temple University, USAd Business, University of Washington, Bothell, USA

e Advance Auto, USA

Abstract

During the past decade, a number of interactive technologies, including the Internet, have fundamentally transformed how retailers compete inthe marketplace. In a similar vein, emerging interactive technologies can be expected to significantly alter the retailing landscape through theirimpact on retailing strategy and operations. Furthermore, it is conceivable that certain emerging interactive technologies will be perceived by someretailers as enablers (tools to more effectively compete in the marketplace) and by other retailers as disruptors of the present ways of doingbusiness. Interactive technologies can either be generic, a technology that is readily available from an information technology (IT) vendor and iswidely adopted by retailers, or proprietary. An interactive technology that is proprietary can enable a firm to generate economic rents from theinnovation for an extended duration of time. Investing in a generic interactive technology, however, may be perceived as a cost of doing businessfor a retailer, and not a potential source of sustainable competitive advantage. However, a retailer's complementary resource endowments mayenable the retailer to more effectively leverage a generic technology relative to its competitors and thereby achieve a sustainable competitiveadvantage. In this paper, we review the related literature, develop a process model delineating the mechanisms by which an interactive technologycan affect and necessitate changes in retailers' strategies and identify directions for future research.© 2010 Direct Marketing Educational Foundation, Inc. Published by Elsevier Inc. All rights reserved.

Keywords: Interactive technology; Interactive retailing technology; Retailing strategy; Strategic capabilities

Introduction

Historically, technological innovations have played a majorrole in shaping the retail landscape of the time. Today, a wave ofinteractive technologies, many of which are enabled by theInternet, are forcing retailers to rethink the way they do business(e.g., Pavlou and Stewart 2000; Stewart and Pavlou 2002). Forinstance, Internet-based interactive technologies have allowedretailers to employ radically new business models (e.g., Amazon.com; Netflix), reach customers in new ways (e.g., Google'sAdWords), revolutionize the supply, handling and delivery ofproducts (e.g., Customer Relationship Management (CRM)

⁎ Corresponding author.E-mail address: RVaradarajan@mays.tamu.edu (R. Varadarajan).

1094-9968/$ - see front matter © 2010 Direct Marketing Educational Foundation,doi:10.1016/j.intmar.2010.02.004

systems), allow customers to interact with each other (e.g.,blogs, feedback forums, online product reviews, Web 2.0),provide tools for communication and negotiation among buyersand sellers, and significantly enhance the customers' onlineexperience (e.g., through virtual try-on and online communities).

Interactive technologies are also reshaping the competitiveretailing landscape by rendering obsolete some traditionalbusiness models (e.g., the standalone offline travel agency),transferring more power to customers (e.g., with online andmobile technologies that enable consumers to engage in on-the-spot online and offline price comparisons anytime, from anylocation), and enabling smaller firms to overcome the traditionaleconomies of scale related advantages of larger firms byaggregating bargaining power (e.g., websites like GroupChinathat allow small companies to outsource manufacturing to

Inc. Published by Elsevier Inc. All rights reserved.

97R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

China). Increased deployment of interactive technologiesdramatically changes communication and purchase-relatedprocesses (Hoffman and Novak 1996; Yadav and Varadarajan2005) with the potential to significantly affect retailers'strategies, operations, and competiveness.

In this paper, we examine the potential impact of interactivetechnologies on retailers' strategies. The paper is organized asfollows. First, we define interactive technology and retailingstrategy, and elaborate on the definitions and their constituentdimensions. Second, to provide a historical perspective, wedescribe the effects of earlier technologies on retailing strategiesover time. Third, we provide a review of the extant research onthe effects of interactive technologies in retailing. Fourth, wepresent a process model delineating the various mechanisms bywhich an interactive technology can enable, disrupt, ornecessitate changes in retailers' strategies. Finally, we discussthe implications of interactive technologies for retailingstrategy, operations, and competitiveness and conclude byidentifying several avenues for future research.

Interactive Technology: Definition andConstituent Dimensions

While interactive technology can be generally viewed as atechnology that enables customers to interact with retailers, aformal definition is useful to guide academic discourse.Therefore, we offer the following definition:

“Interactive technology refers to methods, tools or devicesthat allow various entities (individuals, machines, or organi-zations) to engage in mediated communication to facilitate theplanning and consummation of exchanges between them.”

In specific reference to communication exchange relationshipsin retail settings, the principal entities of interest are the focalretailer, its current and potential customers, suppliers, partners,and employees. The term ‘technology’ is used broadly to includeknowledge and/or methods, tools or devices that mediate (i.e.,facilitate) communication, including Internet-enabled technolo-gies that convert inputs (e.g., information about consumers'preferences) into outputs (e.g., information about productofferings, product offerings etc.). The term ‘interactive’ denotesthat the mediated communication has the following character-istics: bidirectionality, timeliness, mutual controllability, andresponsiveness (see Bolton and Saxena-Iyer 2009; Deighton andKornfeld 2009; Shankar and Malthouse 2006; Yadav andVaradarajan 2005). The experience of the communicating entitiesdetermines the quality of mediated communication on thesecharacteristics of mediated communication.

Two specific aspects of our definition of interactivetechnology merit elaboration. First, our definition of interactivetechnology suggests that interactive technologies vary substan-tively on their degree of interactivity (Bolton and Saxena-Iyer2009). While at the low-end of interactivity, interactivetechnology includes static web pages and some self-servicetechnologies such as automated teller machines (Meuter et al.2000), at the high-end of interactivity, it includes highbandwidth mobile marketing technology technologies (Shankar

and Balasubramanian 2009) and Web 2.0 marketing with socialnetworking applications. Second, our definition of interactivetechnology is broad in terms of its scope. The communicatingentities can either be persons (e.g., communication between twoindividuals mediated by an interactive device), or a person and amachine (e.g., communication between an individual and acomputer mediated by an interactive device such as a kiosk at aretail outlet), or even two pre-programmed machines (e.g., twocomputers or websites negotiating the terms of a transaction).

Illustrative of uses of interactive technologies in the retailingcontext include information acquisition (e.g., a potential buyerbeing able to access information from a seller's computer), trialsof virtual products (e.g., a potential buyer being able to try outan apparel in various colors with the aid of a virtual mirror at aretail outlet), and facilitation of purchase decisions (e.g., apotential buyer being able to customize and place an order for aPC with the aid of a kiosk at a retail outlet). Business-to-business retailing applications also include technologies such asthe use of radio frequency identification (RFID) to create ahigh-visibility supply chain management infrastructure andsupply chain tools to enable automated information exchangeacross partners.

Retailing Strategy: Definition and Constituent Dimensions

Retailing strategy can be broadly conceptualized as how aretailer chooses to compete in the marketplace and the marketsand market segments that the retailer chooses to serve. Thequestion of how to compete in the marketplace includes anumber of inter-related decisions. A coherent retailing strategyalso requires that these decisions be internally consistent.Implementation of these decisions manifests in the behavior ofthe firm in the marketplace directed at customers, competitors,and/or other key constituencies including supply chain partnersand even employees. The constituent dimensions and sub-dimensions of retailing strategy include, but are not limited to,the following:

• Business model• Customer mix (e.g., markets and market segments to serve)• Retailing mix○ Positioning○ Distribution channels (e.g., single versus multi-channel)○ Product (e.g., merchandise assortment)○ Price (e.g., price points)○ Promotion○ Atmospherics

• Customer-focused retailing programs directed toward:○ Acquisition of new customers○ Retention of present customers○ Enhancement of customers' experiences

While the above activities reflect our perspective on theprincipal dimensions of retailing strategy, developments in themarketing literature provide a lens into an alternative perspec-tive as well. For instance, in 2007, the American MarketingAssociation (AMA) adopted the following as its official

Table 1Impact of Technologies on Retailing: A Historical Perspective.

A. Infrastructure Technologies

Electricity: Impacted store design, architecture, location, and hours of operation;also facilitated other innovations such as the electronic cash register thatallowed retailers to serve more customers and improve accounting controls.

Elevators: Allowed retailers to move customers more efficiently to differentlevels in a store; facilitated the development of the department store as aretailing innovation in urban areas where real estate was scarce.

Escalators: Same as elevators, but more convenient and more cost-efficient.Automobiles: Created mobility for customers; spurred the development of mallsas a retailing innovation.

Railroads: Transportation efficiencies allowed retailers to create regional andeventually national operations.

B. Communication Technologies

Telephone: Facilitated communication and allowed regional/national strategiccoordination.

Radio: In the early 20th century radio was a breakthrough technology thatenabled retailers to reach customers through a new media. This innovationwas eventually adopted by all major firms, but retailers were at the forefront inadopting and experimenting with this new technology. In fact, many earlyradio stations were owned by retailers.

Television: Like the radio, the impact of television on retailing was alsosignificant. The audio and visual capabilities of this technology allowedretailers to pursue new and creative branding efforts and strategies.

Catalogs: Facilitated by the transportation innovations — mainly the railroads.Newspapers and billboards: Synergistically connected with other innovationsthat expanded local, regional, and national markets.

C. Interactive Technologies

E-mail: While e-mails have allowed retailers to expand their reach and migratesome of their customer service applications to the electronic media, anunintended consequence of this interactive technology from the standpoint ofcustomers has been communications from retailers that consumers tend toview as junk e-mails.

Hyper-text technologies: Allowed the development of online stores.Web browsers: Allowed Internet technologies to be used by less technologicallysophisticated customers.

Instant messaging: Facilitates real-time communication between customers.Access technologies (e.g. dial up, broadband, WiFi, WiMax): Facilitate high-speed applications.

Cellular phones with web browsing capability: Mobile retail/advertising/information applications.

GPS technologies: Location sensitive applications.Social networking (e.g. Facebook, MySpace): Facilitates communication andbrand building efforts.

Search technologies (e.g. Google): Facilitate search and targeted advertising.Bookmarking/information organization technologies (e.g. Digg, StumbleUpon):Facilitate networking and search.

Notes: For additional details on these technologies, see Fidler (1997), Tamilia(2007) and Tedlow (1990).

98 R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

definition of marketing (Marketing News 2008, p. 28):“Marketing is the activity, set of institutions, and processesfor creating, communicating, delivering, and exchangingofferings that have value for customers, clients, partners, andsociety at large.” On the one hand, from the standpoint ofproducers, marketing intermediaries such as retailers play a keyrole in value delivery. However, viewed independent of theirrelationship with producers, value creation, value communica-tion, and value delivery are also central to retailing strategy.Hence, retailing strategy can also be broadly conceptualized as aretailer's choice of specific activities and behaviors in themarketplace for creating, communicating and delivering valueto its target customers.

Impact of Technological Innovations on Retailing:An Overview

The late 19th and early 20th centuries were characterized bytremendous changes on the technological front. Although manyof these technological developments neither originated in theretailing sector nor were developed primarily for transformingthe retailing sector, retailers were often among the earlyadopters of new technologies (Tamilia 2007).

In addition, new technologies also spurred a number ofsignificant disruptions in the retailing sector (Christensen andTedlow 2000). Table 1 provides an illustrative overview of theimpact of technologies on retailing strategies and operations.Broadly, we classify these technologies as (a) transportationinfrastructure technologies, (b) broadcast communication tech-nologies, and (c) interactive technologies. A retrospective look attechnological developments (see panelsA andB inTable 1) servestwo important purposes: they highlight the significant, long-termimpact of technology on retailing, and they provide insights forunderstanding the implications for retailing of new interactivetechnologies (see panel C), which we examine in this paper.

Infrastructure Technologies

The development and diffusion of infrastructure technolo-gies has had an enormous impact on retailing in the latter half ofthe 19th century and in the early 20th century. According toTedlow (1990), it was largely due to these technologies(primarily transportation-related) that retailing evolved fromits fragmentation stage to the unification stage. The fragmen-tation stage was associated with a large number of small-scaleretailers dispersed in local geographical markets that operatedwith relatively little influence on each other. Transactionvolumes during this stage tended to be low and prices (andmargins) were high. The unification stage in retailing, facilitatedby transportation efficiencies, saw the emergence of the firstdepartment store chains with regional (and later) nationalambitions. Transaction volumes rose during this period, whileprice levels (and margins) declined.

The development and rapid adoption of the automobilerepresents an excellent case study to illustrate the influences ofemerging technologies on retailing (see Tedlow 1990). Toappreciate how quickly these changes unfolded, it is worth

noting that, in 1899, when the automotive sector was firstmentioned in the US Census of manufacturing, it was rankedlast (150) among all manufacturing sectors. Ford MotorCompany sold a mere 5986 Model Ts in 1908; by 1916, saleshad increased almost tenfold. By the time, the Model T wasofficially discontinued in 1927, the automotive sector wasrapidly expanding and some prescient firms realized thepotentially far-reaching implications of these changes. Amongretailers, Sears was the first to recognize that the changes in theautomotive sector represented the end of the rural era in

99R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

America and that the automobile would continue to be a catalystfor even more rapid changes. By 1935, Sears had 428 stores (upfrom only 8 in 1925), accounting for more than half of its totalsales. A decade earlier, retail store sales represented less thanfive percent of Sears' business. By being prescient and rapidlyrolling out retail stores, Sears established a strong competitiveposition that would last for decades.

Direct competitors such as Montgomery Ward that failed tosee the far-reaching effects of the automobile on the retailingsector ended up ceding significant competitive positions toSears. By the time Montgomery Ward fully grasped thechanging retailing landscape and started its own retail storeexpansion strategy, quality real estate in the emerging suburbanareas was unavailable due to long-term leases or other con-tractual agreements.

Broadcast Communication Technologies

As with infrastructure technologies related to transportation,the growth of broadcast communication technologies alsotriggered many changes for retailers (Fidler 1997). Newtechnologies such as television and radio had many social andeconomic ramifications, although it took decades for thecomplete scope of those ramifications to become evident. Inthe case of radio, for instance, the basic technological ideaswere in place in 1899 when Guglielmo Marconi demonstratedwireless communication. For the next twenty years, radiotechnology remained in the realm of experimentation (e.g., bythousands of amateur broadcasters) and there was little clarityabout its commercialization possibilities. However, someprominent retailers (e.g., Strawbridge & Clothier's, Wanna-makers, and Gimbel Brothers) were attracted to this newmedium of communication and even opened their own radiostations (Tyler 1992). Smaller retailers who did not have thefinancial resources for owning radio stations formed alliances toshare costs. At that time, music was an important element ofradio programming, and retailers considered music an importanttool to enhance the ambiance of their store environments. Theuse of radio-in-stores, as a retailing strategy for attracting andretaining customers, waned in the latter part of the 1920s, inpart, due to the need for austerity measures during theDepression era. The combination of Radio Corporation ofAmerica (RCA) and National Broadcasting Corporation (NBC)created the first national market for radio programming,providing a new and low-cost way to reach a geographicallydispersed customer base. It was the creation of this nationalradio market that provided retailers, over the long-term, afoundation for more efficient, national advertising and promo-tion, which in turn, led to the growth of large, regional andnational retail chains.

Interactive Technologies

The developments listed in Table 1 (panel C) represent asmall sub-set of relatively new interactive technologies. Whatimpact are these technologies likely to have on retailingstrategy? A perusal of interactive technologies suggests that,

compared to the developments discussed above, many novelcommunication-related functionalities are embedded in them.For example, the scalability (the ability to grow a network ofcommunicators), precision (the ability to target particularindividuals), and mobility (the ability to serve a group ofmobile users in real time) of this generation of technologies aresuperior to earlier generation technologies. Yet, interactivetechnologies represent a continuation of capabilities thatresulted from earlier technological developments, such as thetelephone, radio, and television — specifically their potentiallydramatic effects on competitive landscapes across severalindustries, including retailing. While new applications arecontinually being developed, the current generation of interac-tive technologies is being deployed in a variety of differentways in retailing — facilitating search, targeted advertising,mobile payment applications, etc.

As we explore the potential effects of the current andemerging generation of interactive technologies on retailingstrategies, it is imperative that we keep in mind the insights andlessons from the previous generations of technologies (see, e.g.,Fidler 1997; Varadarajan and Yadav 2002; Yadav andVaradarajan 2005). Specifically, although many of thesetechnological developments neither originated in the retailingsector nor were developed primarily for transforming theretailing sector, they had substantial and dramatic effects onretailing. Second, these technologies not only providedopportunities to retailers, but also, in some cases, disruptedretailers' strategies. We expect this pattern to continue, andperhaps strengthen, in the future with new interactivetechnologies that offer even more sophisticated functionalitiesand tools.

Research on the Impact of InteractiveTechnologies:AReview

In this section, we provide a brief overview of the relatedliterature on interactive technologies. As shown in Table 2,researchers studying interactive technologies have used avariety of different methods including field studies, experi-ments, surveys, and secondary data. We organize prior researchunder three broad themes: (1) effects of interactive technologieson consumers; (2) effects of interactive technologies onretailers' capabilities; and (3) effects of interactive technologieson business models. A brief discussion of each of these themesfollows.

Effects of Interactive Technologies on Consumers

A dominant theme in the literature is the dramatic effects ofinteractive technologies on consumers. With respect to adoptionof interactive technologies by consumers, prior research hasexamined various factors, including the attitudes and experi-ences of consumers with an interactive technology (Reinders,Dabholkar, and Frambach 2008), their cognitive styles (Simonand Usunier 2007), the impersonal characteristics ofthe interactive technology (McCartan-Quinn, Durkin, andO'Donnell 2004), transaction uncertainty (Pavlou, Liang, andXue 2007), building institutional trust (Pavlou and Gefen 2004),

Table 2Research on interactive technologies: A review.

Study Research focus Empirical context Key findings

Effects of interactive technologies on consumersBa and Pavlou (2002) Feedback mechanisms in eBay's

online auctionsSecondary data fromeBay's auctions

The feedback mechanism facilitates transactions in eBay'sonline auctions by building trust in sellers.

Burke (2002) Technology and the customer interface Online customers New technologies can enhance the shopping experience, butapplications must be tailored to consumer segments andproduct categories.

Childers, Carr, Peck,and Carson (2001)

Hedonic and utilitarian motivationsin shopping behavior

Online retailers Creation of the online shopping webmosphere through moreeffective design of interactive retail shopping environmentscan improve customers' experiences.

Comer, Mehta, andHolmes (1998)

Information technology: retail usersversus nonusers.

Jewelry industry Information technology affects buyer–seller relationships inthe industry.

Fiore, Kim, and Lee(2005)

Effect of image interactivity technologyon consumer responses toward theonline retailer

Online retailing Image interactivity technology (IIT), which enables thecreation and manipulation of product images on a retailer'sweb site, improves experiential value and instrumental value

Hu, Pavlou, andZhang (2009)

Examines potential biases in productreviews on Amazon and other retailers

Product reviewson Amazon

Two self-selection biases in online product reviews render theaverage rating a biased estimator of true product quality.

Jones, Clarke-Hill,Hillier, andComfort (2005)

Highlight the benefits and challengesof RFID adoption

Not applicable RFID adoption involves balancing positive consequences ofadoption such as reduction of shrinkage, improved customersatisfaction with negative consequences of adoption such asincreased concerns of privacy.

Kim and Forsythe(2008a)

Adoption of virtual try-on Online apparel shopping The interactivity and customer involvement of virtual try-oncan enhance the online shopping experience.

Kim and Forsythe(2008b)

Sensory enabling technology Experiments Sensory enabling technology improves online shoppingexperience by reducing product risk perceptions or byincreasing perceived entertainment value.

Kim, Ko, Kim, andKoh (2008)

Benefits of RFID technologies Survey data from Koreaand USA

Technological infrastructure is critical in RFID driven benefitsthat is reaped by the retailer.

McCartan-Quinn,Durkin, andO'Donnell (2004)

Interactive voice retailing (IVR) Retail banking While IVR saves costs for banks, customers reject IVR,because of its impersonality.

Nantel (2004) Virtual reality Online apparel Description of virtual reality systems to help customers try onclothes.

Novak, Hoffman,and Yung (2000)

Examines what makes web a compellingconsumer experience by developingand operationalizing the flow construct

Large sampleweb based survey

Shows that a degree of challenge is important for continuedengagement of the customer. The more important theconsumers considered the web, the more likely they were tofocus their attention on the website. Higher levels ofinteractivity were not associated with greater attention.

Pavlou and Dimoka(2006)

Examines the content of text feedbackcomments on eBay that consumers writefor sellers

Combination of archivaland survey data

The content of feedback text comments has a much strongereffect on price premiums and transactions than the morequantified numerical feedback ratings.

Pavlou and Fygenson(2006)

Examines what drives consumers to browsewebsites and purchase products online

Large-scale surveyof online consumers

Theory of planned behavior can be used to identify and test themost important predictors of browsing and purchasing online.IT variables more important predictors than traditionalmarketing variables.

Pavlou and Gefen(2004)

Examines how institutional factors canhelp build effective online marketplacesby facilitating consumer transactions

Combination of archivaland survey data fromAmazon

Institutional structures (feedback mechanism, escrow services,credit card guarantees, intermediary) facilitate onlinetransaction by building trust and reducing risk.

Pavlou, Liang, andXue (2007)

Examines the antecedents andconsequences of transaction uncertaintyin electronic commerce

Two large-scalesurvey studies

Transaction uncertainty reduces actual transactions, especiallyfor important purchases, and it is reduced by trust, productdiagnosticity, and social presence.

Reinders, Dabholkar,and Frambach(2008)

Examines the impact of forcingconsumers to use technology basedself-service (TBSS)

Ticketing and travelinformation in the contextof Dutch railways

Forcing consumers to adopt TBSS has severe negativeconsequences. Negative attitudes towards TBSS aretranslated into reduced positive WOM intentions andincreased switching intentions. People who had previousTBSS experiences viewed it more positively.

Simon and Usunier(2007)

Consumer preference for personnel-in-contactversus self service technologies (SST) isexplained through the role of cognitive styles(namely rational vs. experiential)

115 questionnaires filledby people who had usedthe services in the past12 months

Rational engagement style has a strong positive effect on thepreference for using SST for complex services, whileexperiential style has a negative effect on SST

Szmerekovsky andZhang (2008)

Examines the affect of RFID tags onmanufacturer and retailer vendormanagement systems.

Not applicable When adopting a RFID supported VMI, one needs to considershelf-space availability and RFID tag costs in establishingprofits of the system.

100 R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

Table 2 (continued)

Study Research focus Empirical context Key findings

Uhrich, Sandner,Resatsch, Leimeister,and Kremar (2008)

Examines the opportunities for RFID toimprove a marketing relationship capability

Secondary data andinterviews

Six RFID applications are discussed that can influence customeracquisition, customer retention or recovery from failure.

Van Alstyne andBrynjolfsson(2005)

To show that improved communications accessand filtering technologies need not alwaysresult in a global village, but could leadto more fragmented social and intellectualinteraction (as communities are formedbased on individual preferences)

Not applicable Develop metric of knowledge distance. Show that under certainconditions, specialization and fragmentation can beeconomically efficient and stable in the sense that no individualcan be made better off by changing their personal affiliations.

Zhu, Nakata,Sivakumar, andGrewal (2007)

Self-service technology (SST) Computer-basedexperiments

The interactive effects of two SST design features, namely,comparative information and interactivity on customers'perceived control and interface evaluations.

Effects of interactive technologies on retailers' capabilitiesCudmore and Patton

(2007)Direct market strategies in wirelessenvironments

Not applicable Given the accessibility afforded by two-way communication andthe interactivity of the medium, firms can develop a moreintimate understanding of their customers resulting in morecustomized marketing.

Keeling, McGoldrick,and Macaulay(2006)

Modeling customer acceptance Electronic kiosks inretail service delivery

In store interactive kiosks using Internet technology represent achannel within a channel offering wide-ranging informational,transactional. promotional, and CRM benefits

Lustria (2007) The effects of Web interactivity oncomprehension, persuasion, and attitudes

Experiment with 441students

The Internet's interactive capabilities enhance the persuasionand comprehension capabilities of websites.

Mylonakis (2005) Converting offline to online consumers Survey with 512Internet users

The Internet's interactive technologies enable companies toconvert offline customers to loyal online customers.

Nakata and Zhu (2006) Information technology and customerorientation: a study of direct, mediated,and interactive linkages

Not applicable Greater IT capabilities are associated with higher customerorientation but in mediated and interactive ways withmarketing information quality and organizational trust.

Ou, Davison, Pavlou,and Li (2008)

Examines the existence and role of guanxi(buyer's perception of a close andpervasive interpersonal relationship witha seller) in Chinese online marketplaces

Combination of archivaland survey datafrom Taobao.

Retailers can build guanxi in their buyers by increasing theinteractivity and social presence of their storefronts byfacilitating Instant Messaging communication.

Shah and Murtaza(2005)

Customer relationship management andweb services

Not applicable Interactive technologies in the form of web services enhanceCRM effectiveness, improve customers' overall experience, andincrease their level of engagement with the firm.

Shi and Salesky (1994) Building a strategy for electronichome shopping

Not applicable Marketing managers develop versatile strategies forinteractive marking applications to account for the ever-changing nature of the IT infrastructure.

Zhang andKrishnamurthi(2004)

Decision-support system of micro-levelcustomized promotions.

Online stores An optimization procedure to derive the optimal amount ofprice discount for each household on each shopping trip.

Zhu and Kraemer(2005)

Interactivity of e-commerce technologies. Secondary data fromfirms in 10 countries

The interactivity of e-commerce technologies was shown toenhance the front-end and back-end capabilities of retailingfirms and contribute to e-business value.

Effects of interactive technologies on business modelsChen (2003) Value of business models: Key factors

determining the survival or failure ofnew business models

Not applicable New e-technologies such as mobile Internet phones andinteractive television are widely predicted to generate a wealthof opportunities through the creation of new e-businessmodels.

Granados, Kauffman,and King (2008)

Digital intermediaries in the travel industry Not applicable Interactive systems enabled by the Internet have transformedthe industry by reducing barriers to entry, increasing thenumber of new competitors and making existing players, suchas travel agencies, vulnerable to disintermediation.

Granados, Gupta, andKauffman (2006)

Transparent electronic markets Set of case studiesand cross-case analysis

Interactive information technologies enhance the transparency ofthe market pricing mechanism

Rayport, Jaworski,and Kyung (2005)

Companies' customer interfaces Not applicable Successfully integrating technology into the work forcerequires a wholesale reengineering of retailing operations.

101R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

and the characteristics of the underlying e-commerce technol-ogies (Pavlou and Fygenson 2006).

Much of the extant literature has focused on the positiveeffects of interactive technologies on consumers' experiences.For instance, Novak, Hoffman, and Yung (2000) examine the

role of the construct of “flow” (a psychological state when aperson is fully immersed in what he or she is doing) onconsumers' web experiences. Ba and Pavlou (2002) and Pavlouand Dimoka (2006) link the interactivity of eBay's feedbackmechanism to building trust in sellers and price premiums for

102 R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

high quality sellers. Childers et al. (2001) find that the creationof an online shopping webmosphere, through more effectivedesign of interactive retail shopping environments, improvesthe consumers' online experience. Hu, Pavlou, and Zhang(2009) link the interactivity of online product reviews toproduct sales. Finally, prior research shows that two features ofinteractive self-service technologies – comparative informationand interactivity – affect consumers' perceived control andinterface evaluation (e.g., Zhu et al. 2007).

Studies have also focused on the effects of specific interactivetechnologies on consumers' experiences. Fiore, Kim, and Lee(2005) show that image interactivity technologies (technologieswhich enable the creation andmanipulation of images of productson a retailer's website) improve consumers' experiential andinstrumental value. Kim and Forsythe (2008a) and Nantel (2004)highlight the role of virtual try-on functionality in enhancingconsumers' experiences. Ou et al. (2008) show that the use ofInstant Messaging tools in Taobao's (www.taobao.com) onlinemarketplace (termed WangWange) facilitate repeat consumer-seller transactions by facilitating the sense of interactivity andsocial presence. Leveraging sensory enabling technology toenhance consumers' experiences has also been examined in priorresearch (e.g., Kim and Forsythe 2008b).

While new interactive technologies generally tend toimprove consumers' experiences, their positive effects are notuniform across different consumer segments (Burke 2002).Furthermore, adoption of interactive technologies like mobiletechnology requires firms to consider trade-offs between theability to access customers at any instant versus the intrusivenature of these communications (Shankar et al. 2010).Interestingly, there is also some evidence that suggests thatinteractive technologies do not unilaterally improve consumers'experiences. In the context of retail banking, interactive voiceretailing has been reported to be too impersonal and to lower thequality of consumers' experiences, resulting in dissatisfactionamong many consumers (McCartan-Quinn, Durkin, andO'Donnell, 2004). Likewise, Hu, Pavlou, and Zhang (2009)report that online product reviews may offer misleadingestimations of product quality, thus resulting in poor purchasingdecisions and lower consumer surplus. Finally, Van Alstyneand Brynjolfsson (2005) show that improved communicationsaccess and filtering technologies can lead to more fragmentedsocial and intellectual interactions with consumers.

Effects of Interactive Technologies on Retailers' Capabilities

A second theme in the literature is that interactivetechnologies affect retailers' capabilities and strategies. Shiand Salesky (1994) note that marketing managers need todevelop versatile strategies for interactive marketing applica-tions to account for their ever-changing nature. Prior researchprovides insights into numerous mechanisms through whichinteractive technologies enhance retailer capabilities. In an earlystudy, Comer,Mehta, andHolmes (1998) reported that interactivetechnologies affected the dynamics of buyer–seller relationships,and thereby a firm's relational capabilities. Other studies (e.g.,Zhang and Krishnamurthi 2004) found that a retailer's marketing

mix decisions (i.e. promotions) can bemicro-targeted with the aidof interactive technologies. In-store interactive kiosks usingInternet technology, by serving as a channel within a channel, canoffer wide-ranging informational, transactional and promotionalbenefits, and thereby enhance the consumer relationshipmanagement (CRM) capabilities of producers and retailers(Keeling, McGoldrick, and Macaulay 2006).

Based on their study of the retailing industry in ten countries,Zhu and Kraemer (2005) report that the interactivity of e-commerce technologies, by enhancing the front-end and back-end capabilities of retailers, contributes to their value.Interactive technologies endow firms with greater informationcapabilities, which in turn, are associated with higher customerorientation; this relationship was shown to be mediated bymarketing information quality and organizational trust (Nakataand Zhu 2006).

Interactive technologies in the form of web services havealso been linked to effective customer relationship management(e.g., Shah and Murtaza 2005). These web services improveboth the customers' overall experience as well as their level ofengagement with the retailer. Further, as noted by Berry et al.(2010), interactive technologies provide the focal firm with apotential opportunity to quickly react to negative WOM (likeonline user comments), thereby maintaining high levels ofgoodwill. Given the accessibility afforded by two-waycommunication and interactivity, retailers can develop anintimate understanding of their customers to create moreeffective and customized marketing programs (Cudmore andPatton 2007). The interactive nature of the Internet also allowsretailers to convert offline customers to loyal online customers(Mylonakis 2005) and enhance the persuasion capabilities oftheir websites (Lustria 2007). Interactive technologies alsoallow retailers to enhance their operational efficiency. Case inpoint is the use of Radio Frequency Identification (RFID)technology by retailers to “improve inventory management,store operation and demand management” (Kim et al. 2008).RFID technology enables retailers to better serve customersthrough more precise targeting, better customer service, reducedshoplifting and easier product return processes (Uhrich et al.2008; Jones et al. 2005). RFID technology allows greatersharing of price information between retailers and manufac-turers leading to better pricing efficiency and flexibility(Szmerekovsky and Zhang 2008). Importantly, RFID technol-ogy affords retailers the ability to rapidly share pertinentinformation with their supply chain and ecosystem in order toeffectively respond to changes in the market (Jones et al. 2005).Taken together, interactive technologies, such as RFID, canhave a dramatic impact on retailing operations. However, it isimportant to acknowledge that Kim and Forsythe (2008b) foundthat successful integration of interactive technology into thework force necessitated a wholesale reengineering of retailingoperations.

Effects of Interactive Technologies on Business Models

In the context of business models (i.e., how firms createvalue and generate revenue), Chen (2003) discusses the effects

103R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

of new interactive technologies, such as mobile Internet phonesand interactive television, on the destruction and emergence ofbusiness models, and identifies key factors that affect the sur-vival (and failure) of new business models. Amit and Zott (2001)describe the wide variety of business models that firms canpursue in the online marketplaces with interactive Internet-basedtechnologies. An example of interactive technologies enabledby the Internet is the transformation of the travel industryby reducing barriers to entry, increasing the number of newcompetitors (mostly online agencies), and making existingplayers, such as travel agencies, vulnerable to disintermediation(Granados, Kauffman, and King 2008). Additionally, interactivetechnologies have also enhanced the transparency of the marketpricing mechanism in the travel industry, thus enhancing com-petition (Granados, Gupta, and Kauffman 2006) and altering thebusiness models of existing and new players in the travelindustry. In sum, our review of the extant literature suggests thatinteractive technologies have multi-faceted, pervasive effects onthe behaviors of customers and retailers, and the capabilities ofand the business models employed by retailers, all of which willsignificantly affect retailers' strategies.

Effects of Interactive Technology on Retail Strategy:A Process Model

Building on extant literature, we present a process modeldelineating the various paths through which an interactive tech-nology can affect and necessitate changes in a retailer's currentstrategy (Fig. 1). As shown in Fig. 1, an interactive technologycan either have a direct effect or an indirect effect on a retailer'sstrategy. Direct effect refers to the effect of the enhancement ofthe competitiveness of a retailer achieved by integrating aninteractive technologywith its other complementary resources onits strategy. Indirect effects refer to the effects of enhancements inthe competitiveness achieved by other entities in the retailingsystem (e.g., suppliers of goods and providers of services to thefocal retailer, potential and present competitors of the focalretailer, and present and potential customers of the focal retailer)by integrating an interactive technology with their other com-plementary resources on the strategies of retailers.

Consider for instance, link A → B1 → C in Fig. 1. Here, B1denotes a new interactive technology, a resource1 that enhancesthe competitiveness of an upstream supplier (i.e., the relativeattractiveness of its offering to retailers and/or other entities in theretailing system who comprise its customer base). The disruptiveeffect of the upstream supplier leveraging this resource maynecessitate changes in the present competitive strategy of thefocal retailer. The appropriate strategic response (responseconducive to superior performance) may be contingent uponcertain organizational (D1) and environmental characteristics(D2). Other links delineated in Fig. 1 (A→ B2→ C; A→ B3→C; A→ B4→ C; and A→ B5→ C) are to be interpreted along

1 Following Amit and Schoemaker (1993), we view resources as “stocks ofavailable factors that are owned or controlled by the firm” (p. 35). According tothis perspective, firms convert resources into goods and services by combiningthem with a range of other assets they own.

similar lines. Collectively, the various paths delineated in Fig. 1serve to highlight the need for retailers to proactively scan theenvironment to monitor emerging interactive technologies,assess their potential effects on their competitiveness in themarketplace, as well as the competitiveness of the other entities inthe retail system, and determine the timing, magnitude, andnature of specific changes in their current strategy that might bewarranted as a consequence of the emergent interactive tech-nology. In the discussion below, we provide illustrative examplesof how an interactive technology can have a direct effect and anindirect effect on a retailer's strategy.

Direct effect of interactive technology on retail strategy —internet enabled virtual try on of products (link A → B3 → C)

Interactive technologies that enable a virtual trial of productsnot only endow retailers with a new competitive resource, but theyalso have the potential to dramatically affect consumers' be-haviors, which in turn can affect the retailers' strategies. A majorchallenge that consumers face when purchasing eyeglasses andsunglasses over the Internet is the inability to physically try ondifferent frames, as is possible at a bricks-and-mortar retailer.FramesDirect.com (http://www.framesdirect.com), an onlineretailer of eyeglasses, sunglasses and related products, with itspatented FrameFinder Virtual Try-On™ System, enables con-sumers to virtually try on frames and sunglasses online. Theinteractive technology enables consumers to upload their photo-graphs, superimpose a frame on the photograph, and compare on asingle screen different frames fitted on to their digital photo. Bypartially overcoming one of the key limitations of Internet retailing(the buyer's inability to try a product before purchase), interactivetechnologies, like the one mentioned above, enable Internetretailers to effectively compete against large, incumbent bricks-and-mortar retailers. Such technologies also allow Internet re-tailers to change the basis of competition to better match theirdistinctive resources. In the Frames Direct example, the nature ofcompetition switches from consumers being able to physically try,albeit a limited choice set of frames, to being able to virtually try amuch larger choice set. The Internet and interactive technologiesenable Internet retailers to offer a considerably larger choice set interms of price points, brand names, and frame design (round,rectangular, oval, square, rimless, etc.) as a basis for achieving adifferentiation advantage vis-à-vis bricks-and-mortar retailers.

Indirect effect of interactive technology on retail strategy —proactive merchandising and targeted advertising based onfacial tracking (link A → B1 → C)

Facial tracking technology is an IT resource that providers ofmedia/creative services to retailers, such as advertisingagencies, can leverage to dramatically alter how retailerscompete in the marketplace. The act of a consumer watchingcontent appearing on a TV screen in a mall or a store triggers anunobtrusive video camera (e.g., embedded in the screen) and thetracking software determines the gender of the viewer and his/her approximate age (for details see Ramde, 2009). Based onthis information, a targeted advertisement (e.g., an ad for

Fig. 1. Impact of interactive technology on retailing strategy: a competitiveness enhancement framework

104R.Varadarajan

etal.

/Journal

ofInteractive

Marketing

24(2010)

96–110

.

2 Carr uses the term “infrastructural” to refer to generic technologies that areused by all firms. However, since the term infrastructure technologies iscommonly used to refer to firm-wide technologies, such as ERP systems, thatcan be a basis for competitive advantage, we use the term generic technologiesto refer to technologies that are widely available, such as off-the-shelf softwareand hardware.

105R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

cosmetics if the viewer is determined to be an adult female;razor if the viewer is determined to be an adult male; avideogame if the viewer is determined to be a teenager) isdelivered to the screen. According to the manufacturers of thesystem, the current level of accuracy in regard to determinationof the viewer's gender is between 80 and 85%. The potential ofthis interactive, yet unobtrusive, technology (the mere act of aperson looking at a TV screen triggers a response based ondetermination of the viewer's gender and age) includespossibilities such as targeted ads based on determination ofthe demographics of a group of consumers walking in front ofthe screen (e.g., an ad for a minivan, if the group's compositionis determined to be a man, woman and children). With theeffective exploitation of this technology, retailers can moreeffectively target consumers who are already in a retail mall,thereby causing a potential shift in the retailer's strategic focusaway from a more passive and traditional advertising mediatoward a more proactive and targeted in-store/near storeadvertising.

Indirect effect of interactive technology on retail strategy —internet and mobile device enabled anytime and anywhereinformation search capability of customers (link A → B5 → C)

Until recently, while shopping at a retail store, it was difficultfor customers to engage in online comparison of the prices,product features, and other aspects of competitors' offerings.Furthermore, it was in the best interest of bricks-and-mortarretailers to constrain or limit the ability of shoppers inside theirstores from engaging in online comparison of competingofferings via the Internet. However, the advent of third partyinteractive technologies is making it increasingly easier forcustomers to compare prices and research products with the aidof mobile devices. While inside a store, with the aid of anapplication (software) downloaded into a mobile device, it isnow possible for customers within the premises of a physicalstore to scan a product's barcode (with the aid of a camera builtinto the mobile device) and obtain information about prices atwhich the product can be purchased from other retailers— bothoffline and online (for a detailed discussion of advantages anddisadvantages of mobile price check applications, see Fowlerand Kane 2009).

The ability of customers to engage in comparison shoppingfrom anywhere and at anytime with the aid of interactivetechnology enabled mobile devices, is both a threat and anopportunity for retailers. The interactive technology, byproviding instant access to relevant information diminishesthe information asymmetry between the seller and the buyer. Itenables customers to negotiate for a better price or walk awayfrom a retail outlet at which a product is priced higher relative toits competitors. A growing number of customers engaging incomparison shopping with the aid of interactive technologyenabled mobile devices will pose a real threat to the viability ofretailers who are at a competitive cost disadvantage (due tosmaller scale of operation and higher overhead costs) and as aconsequence constrained in their ability to compete on the pricedimension. However, interactive technology enabled mobile

devices that enable customers to engage in comparisonshopping from anywhere present as an opportunity to prescientretailers. For instance, retailers whose business models arepredicated on a low price strategy, by facilitating the diffusionand use of such technology can achieve a competitive advantagein the marketplace.

In summary, interactive technologies can have both directand indirect effects on retailers' strategies. An interactivetechnology that enables a retailer to compete more effectively inthe marketplace (such as more effectively targeting consumerswith facial tracking technology), can have a profound effect onits competitiveness. Moreover, interactive technologies canalter industry dynamics and allow smaller firms to successfullycompete with larger incumbent players.

Discussion

Porter and Millar (1985) noted that information technology(IT) can affect competition in three major ways: (1) by changingindustry structure, and as a consequence, altering the rules ofcompetition; (2) creating competitive advantage by offeringfirms new ways to outperform their rivals; and (3) spawningnew business models, often from within a firm's existingoperations. With specific reference to retailing, the impact of theInternet (an IT-based interactive technology/interactive IT) isevident in respect of all of the above mechanisms. Interestingly,Carr (2003), in an article titled, “IT Doesn't Matter,” contendedthat the strategic importance of IT had diminished as aconsequence of its ubiquity. He noted that scarcity, ratherthan ubiquity, is critical in order for a resource to be trulystrategic (i.e. a basis for a firm to achieve a sustainedcompetitive advantage). Carr distinguishes between infrastruc-tural technologies (or generic technologies) and proprietarytechnologies and notes that IT evidences all the hallmarks of theformer.2 To the extent Carr's cautionary note applies to variousinteractive technologies with the potential for deployment in aretailing context, investing in generic interactive technologies isessentially a competitive imperative for retailers. That is,investing in generic interactive technologies is a cost of doingbusiness that all competitors must incur in order to be able toeffectively compete in the marketplace and not a potentialsource of competitive advantage for any retailer. However, evenwhen an interactive technology is not proprietary to a firm (i.e.,a technology developed by vendors that can be acquired anddeployed by all competitors in an industry), a retailer withsuperior insights into the potential of a new interactivetechnology (relative to its competitors) and/or complementaryresources may be able to effectively leverage the fullestpotential of a generic technology, and thereby achieve acompetitive advantage.

106 R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

While it may be meaningful to view the Internet as a genericinfrastructure technology in the context of the current businessenvironment, proprietary Internet-enabled interactive technol-ogies, such as Taobao's IM tool and FramesDirect's patentedFrameFinder Virtual Try-On™ System, shed insights into themechanisms through which retailers can leverage a genericinfrastructure technology to achieve a competitive advantage inthe marketplace. Such technologies, by enhancing the effec-tiveness of the competitive strategy of a retailer, provideopportunities for rent appropriation, even if it were tosubsequently become ubiquitous. For example, even ifTaobao's IM technology is ultimately replicated by competi-tors, the critical mass of buyers and sellers that already transactin its marketplace is unlikely to be replicated by competitors dueto network externalities. Also, while FramesDirect's patent willeventually expire, the base of loyal customers is unlikely to bereplicated, which can enable the retailer to invest in otherproprietary applications. Therefore, there are several possibil-ities for retailers to develop proprietary interactive technologiesthat build on generic interactive technologies, and therebyachieve a sustainable competitive advantage.

Accordingly, complacency on the part of a retailer and amisleading belief that all interactive technologies are essentiallygeneric technologies with little potential to provide competitiveadvantage may be fraught with risk. Varadarajan and Yadav(2002) highlight the importance of developing and nurturingtwo firm-specific skills and resources in the context ofcompeting in an Internet-enabled market environment:

• Information acquisition skills and information resources —the ability of a firm to create information resources bycapturing and accumulating information relating to searchbehavior and purchase behavior of customers. Interactivetechnologies play a critical role in the accumulation of suchinformation resources.

• Information processing skills and information technologyresources — the ability of the firm to use IT resources toanalyze its information resources to gain insights aboutcustomers and effectively use this knowledge to personalizeits future interactions with these customers and customize itsofferings to them.

A firm's skills and resources in the above two areas tend tobe strategy enablers in that they determine its ability (or lackthereof) to pursue specific competitive strategies in an Internet-enabled market environment. For instance, a firm's ability toengage in suggestive selling (i.e. recommending products to acustomer based on perceived similarity of their purchasepatterns with those of other customers, such as Amazon's andNetflix's recommendation systems) depends on its informationresources and information processing skills and resources.Similarly, in the area of pricing, a firm's information resourcesand information processing skills determine the extent to whichit would be able to engage in more fine-tuned pricediscrimination (e.g., inferring buyers' price sensitivity fromtheir web navigation and purchase behavior and offeringproducts at prices customized to the level of individual buyers).

A firm's IT resources are also a critical determinant of its abilityto pursue other competitive strategies in the realm of pricing,such as dynamic pricing (e.g., changing the price at which aproduct is offered on the basis of prevailing supply and demandconditions). Kaplan, Roberts, and Sikes (2008) highlight thepotential impact of the IT capabilities of firms on theirperformance that arise from the incorporation of customerinsights in their pricing strategies (e.g., reducing revenueleakage due to unnecessary price discounting). Therefore,complementing either generic or proprietary generic technolo-gies with the retailer's existing resources can engendercomplementary resource endowments that are unlikely to bereplicated by the competition and can be a basis for competitiveadvantage.

Future Research Directions

While the proposed conceptual framework (Fig. 1) providesinsights into various paths through which an interactivetechnology can impact retailing strategy, there are severalopportunities for further refinements. In this section, we brieflydiscuss directions for further conceptual refinement andempirical research in this rapidly evolving area.

1. A more fine-grained view of the effect of interactivetechnologies on retailer's strategies: In the proposedconceptual framework (Fig. 1), interactive technology isviewed as enabling retailers or other entities in the retailingecosystem. However, some retailers may view a particularemerging interactive technology as an enabler (a tool formore effectively competing in the marketplace) and by otherretailers as a disruptor of the present ways of doing business.What makes a retailer view a specific interactive technologyas an enabler or disrupter? Prior research sheds light on firmspecific factors that can result in these differing perspec-tives. For instance, complementary assets (Tripsas 1997a),external integrative capacity (Tripsas 1997b), absorptivecapacity (Tripsas 1997b), related market-based assets(Mitchell 1992) and technological opportunism (Srinivasan,Lilien, and Rangaswamy 2002) have been found to play animportant role in the adoption of new technologies. Despitethe advances made, some questions still remain unanswered.Specifically, there is a need for research that addresses thefollowing issues and questions with regard to interactivetechnologies:

a. Day (1994) distinguishes between three broad types ofcapabilities, outside — in capabilities, inside — outcapabilities and spanning capabilities. Research isneeded to examine how interactive technologies enhanceany of these three capabilities of retailers, and theroles of different classes of capabilities in the suc-cessful implementation and leveraging of interactivetechnologies.

b. When does an interactive technology enhance the corecapabilities of retailers, and when does it enhance itscomplementary (or peripheral) capabilities?

107R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

c. Do interactive technologies, capabilities of retailers, andindustry characteristics co-evolve? If so, what are thepotential trajectories for their co-evolution?

2. Asymmetries in advantages to firm adoption of interactivetechnologies: There is a rich stream of research thatexamines who introduces more radical innovations —incumbents or nonincumbents (e.g., Chandy and Tellis2000). Two schools of thought are dominant in thisliterature. One school of thought maintains that reasonssuch as technological inertia allow nonincumbents tointroduce more radical innovations, while the opposingschool of thought maintains that incumbents possessresource advantages that allow them to introduce moreradical innovations (see Chandy and Tellis 1998; 2000 for adiscussion on the relationship between firm type, firm sizeand radical innovation). Other research on technologychange highlight scenarios where incumbents are quick toadopt a new technology. For instance, incumbent firmsadopt a new technology if innovations are linked to thecurrent value network (Christensen and Rosenbloom 1995)and when core products are at risk or when supporting assetsexist (Mitchell 1989). Building on these insights, researchthat examines the following questions in specific referenceto interactive technologies, firm type (incumbent retailersvs. nonincumbents) and retailing strategy can be undertak-en:

a. Who adopts emerging interactive technologies first?Incumbent retailers or nonincumbents? Are there asym-metries in advantages to retailer adoption of interactivetechnologies based on whether the retailer is anincumbent or a new venture? Do interactive technologycharacteristics and other characteristics of the retailermoderate this relationship?

b. Do newcomers to retailing (both online and offline) putinteractive technologies to more innovative uses? Arenew entrants to retailing more likely to integrateinteractive technologies as a core capability comparedto incumbents?

c. Are retailers likely to embrace new technologies on theirown or does the impetus come from their suppliers?

d. Under what conditions are new entrants into the retailingindustry likely to exhibit greater involvement with anemerging interactive technology? Are these conditionsany different from those under which incumbent retailersshow greater propensity to adopt an emerging interactivetechnology?

3. Demand side evolution of interactive technologies: Re-search on disruptive technologies suggests that initially,disruptive technologies “introduce different set of featuresand performance attributes relative to the existing productsand is offered at a lower price; a combination that isunattractive to mainstream customer value” (Govindarajanand Kopalle 2006, p. 198). This idea explicitly puts thefocus on customer heterogeneity as a driver of technology

evolution and highlights the need for research focusing ondemand side changes. However, a review of literature ontechnology change suggests that the effect of demandenvironment on the development and evolution of technol-ogy is relatively underexplored (Malerba et al. 1999 andAdner 2002 are examples of notable exceptions). Hence,there is a need for research examining the followingquestions with respect to interactive technologies:

a. How do changes in customers' characteristics drive theadoption and development of new interactive technolo-gies by retailers and customers?

b. What specific customer-related factors should retailerstake into account while implementing an interactivetechnology?

c. Under what conditions are interactive technologies likelyto be more (or less) quickly adopted by customers?

4. Investments in interactive technologies and financialperformance: The litmus test for any interactive technology,whether a cost-reducer or a demand-enhancer, is itspotential impact on the financial performance of the retailer.There is a rich stream of research on how IT affectsthe performance of firms, in general (e.g., Bharadwaj,Bharadwaj, and Konsynski 1999). However, to the best ofour knowledge, past research has not examined whether andhow investments in interactive technologies improve thefinancial performance of retailers. Given the rising popu-larity of interactive technologies, coupled with the well-publicized failure of many online retailing initiatives duringthe dot-com meltdown in early 2000, there is a need forresearch focusing on the following questions in the contextof the effect of interactive technologies on the performanceof retailers:

a. Do financial markets respond favorably to the adoption ofinteractive technologies by retailers? If so, when is theresponse more favorable?

b. What is the relationship between investments in interac-tive technologies and firm performance? What contin-gencies moderate the presumably positive relationshipbetween investments and performance?

c. How do the characteristics of the interactive technology(e.g., new to firm vs. new to world) impact the financialmarket's evaluation of adoption of interactive technologies?

5. The next era of technological ferment: Anderson andTushman (1990) model technology change as cycles whichbegin with disruptive technology followed by an era offerment during which firms engage in intense competitionfor the next dominant design. Once the dominant designemerges, an era of incremental change ensues. Consider, forinstance, MMORPG (Massively Multiplayer Online Role-Playing Games) which has the potential to be a disruptivetechnology that ushers in a new era of technological ferment.MMORPG is generating considerable interest, although itslong-term prospects remain uncertain. Second Life, one of

108 R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

the more predominant MMORPG currently available, hasreceived attention in light of the unique transformationaleffects. For instance, Second Life allows handicappedindividuals to live a virtual life where they are handicapfree. It also serves as a richer medium for people to meet eachother, interact and develop meaningful relationships withoutlimitations of geographical boundaries. In fact, there aredocumented cases where virtual life individuals have goneon to establish real-life relationships. MMORPG is alsoattracting attention in the business world, and many firmshave experimented with a virtual presence. Some firms viewthe virtual world as a medium to gain valuable consumerfeedback and test new products, while others view the virtualworld as their primary business domain. Still other firms aredeveloping business models that incorporate both virtual andphysical business environments. Given the growing prom-inence of MMORPG and its potential disruptive effects oncurrent business models, there is need for researchexamining the following questions:

a. How do (how can) retailing firms leverage MMORPG tobuild brands, test new products and increase customerinteraction with the firm?

b. Can (does) MMORPG change customers' characteristicsand how they perceive and view products?

c. Can (does) MMORPG reduce barriers to entry and allownew entrants to compete against incumbent retailers?

Conclusion

Retailers, during good times and bad times, have learned thatthe key to long-term survival and success is finding a way tocontinually stay differentiated from their competitors. Thisdifferentiation is typically focused in the areas of price,selection, convenience, customer service, and/or the shoppingexperience. As shown in this paper, the history of retailersadopting various technologies, both generic and proprietary, toachieve a competitive differentiation advantage spans severaldecades. However, the enabling and disruptive effects ofrecent technological advances on retailing strategy, especiallyadvances in the realm of interactive technologies, are dramatic,lacking historic parallels. Such being the case, retailers whoremain focused on (or are sidetracked by) traditional operationalconcerns, and fail to stay abreast of developments in interactivetechnologies and their potential impact on retailing, will be atperil. Such a course leaves them vulnerable to new competitorsthat may design much of their business model around the newinteractive technology or, at aminimum, use it to offer customersa better shopping experience and/or to better satisfy customers'needs. In a number of industries, it is commonplace for a ChiefTechnology Officer (CTO) of Chief Information Office (CIO) tobe assigned the responsibility for monitoring and evaluating newinformation technologies. Along similar lines, retailers mayconsider creating a senior level position and/or a dedicateddepartment in their IT function (if they have not already doneso), with primary responsibility for monitoring and evaluating

new interactive technologies and their potential impact on thecompetitive strategy of retailers and/or other firms (e.g.,suppliers of goods and providers of services to retailers). Sinceinteractive technologies are essentially IT-based technologies,greater involvement of the CIO or CTO as a member of the topmanagement team (the CEO and executives directly reporting tothe CEO) that is responsible for identifying, selecting, andimplementing new interactive technologies, both generic andproprietary, is a competitive imperative. In the absence of agreater focus on interactive technologies and their opportunitiesand risks, achieving a competitive differentiation advantage intoday's intensely competitive and turbulent retail marketplacemay be elusive.

Acknowledgments

The authors thank the Thought Leadership Conferenceparticipants, co-editor Venky Shankar, and the reviewers fortheir comments and suggestions on previous versions of this paper.

References

Adner, Ron (2002), “When Are Technologies Disruptive? A Demand-basedView of the Emergence of Competition,” Strategic Management Journal,23, 8, 667–88.

Amit, Raphael and Paul J.H. Schoemaker (1993), “Strategic Assets andOrganizational Rent,” Strategic Management Journal, 14, 1, 33–46.

——— and Christoph Zott (2001), “Value Creation in E-Business,” StrategicManagement Journal, 22, 6/7, 493–520.

Anderson, Philip andMichael L. Tushman (1990), “Technological Discontinuitiesand Dominant Designs: A Cyclical Model of Technological Change,”Administrative Science Quarterly, 35, 604–33.

Ba, Sulin and Paul A. Pavlou (2002), “Evidence of the Effect of Trust BuildingTechnology in Electronic Markets: Price Premium and Buyer Behavior,”MIS Quarterly, 26, 3, 243–68.

Berry, Leonard L., Ruth N. Bolton, Cheryl H. Bridges, Jeffrey Meyer, A.Parasuraman, and Kathleen Seiders (2010), “Opportunities for Innovation inthe Delivery of Retail Interactive Services,” Journal of InteractiveMarketing, 24, 2, 155–67.

Bharadwaj, Anandhi S., Sundar G. Bharadwaj, and Benn R. Konsynski (1999),“Information Technology Effects on Firm Performance as Measured byTobin's Q,” Management Science, 45, 6, 1008.

Bolton, Ruth N. and Shruti Saxena-Iyer (2009), “Interactive Services: aFramework, Synthesis and Research Direction,” Journal of InteractiveMarketing, 23, 1, 91–104.

Burke, Raymond R. (2002), “Technology and the Customer Interface: WhatConsumers Want in the Physical and Virtual Store,” Journal of the Academyof Marketing Science, 30, 4, 411–32.

Carr, Nicholas G. (2003,), “IT Doesn't Matter,” Harvard Business Review, 81,May, 41–9.

Chandy, Rajesh K. and Gerard J. Tellis (1998), “Organizing for Radical ProductInnovation: The Overlooked Role of Willingness to Cannibalize,” Journal ofMarketing Research, 35, 474–87.

——— and Gerard J. Tellis (2000), “The Incumbent's Curse? Incumbency,Size and Radical Product Innovation,” Journal of Marketing, 64, 1–17.

Chen, Stephen (2003), “The Real Value of e-Business Models,” BusinessHorizons, 46, 6, 27.

Childers, Terry L., Christopher L. Carr, Joann Peck, and Stephen Carson (2001),“Hedonic and Utilitarian Motivations for Online Retail Shopping Behavior,”Journal of Retailing, 77, 4, 421.

Christensen, Clayton M. and Richard S. Rosenbloom (1995), “Explaining theAttacker's Advantage: Technological Paradigms, Organizational Dynamicsand the Value Network,” Research Policy, 24, 233–57.

109R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

——— and Richard S. Tedlow (2000), “Patterns of Disruption in Retailing,”Harvard Business Review, 78, January–February, 6–9.

Comer, James M., Raj Mehta, and Terence L. Holmes (1998), “InformationTechnology: Retail Users Versus Nonusers,” Journal of InteractiveMarketing,12, 2, 49–62.

Cudmore, Andrew B. and John R. Patton (2007), “The Intimate Marketer:Personalized Direct Marketing Strategies in a Wireless Environment,”Journal of Internet Commerce, 6, 4, 73–96.

Day, George S. (1994), “The Capabilities of Market-driven Organizations,”Journal of Marketing, 58, 4, 37–52.

Deighton, John A. and Leora Kornfeld (2009), “Interactivity's UnanticipatedConsequences for Markets and Marketing,” Journal of Interactive Marketing,23, 1, 2–12.

Fidler, Roger (1997), Mediamorphosis: Understanding the New Media.Thousand Oaks, CA: Pine Forge Press.

Fiore, Ann Marie, Jihyun Kim, and Hyun-Hwa Lee (2005), “Effect of ImageInteractivity Technology on Consumer Responses Toward the OnlineRetailer,” Journal of Interactive Marketing, 19, 3, 38–53.

Fowler, Geoffrey A. and Yukari Iwatani Kane (2009), “PriceCheck: FindingDeals With a Phone,” Wall Street Journal, D1 (December 16, 2009).

Govindarajan, Vijay and Praveen K. Kopalle (2006), “Disruptiveness ofInnovations: Measurement and an Assessment of Reliability and Validity,”Strategic Management Journal, 27, 2, 189–99.

Granados, Nelson F., Alok Gupta, and Robert J. Kauffman (2006), “The Impactof IT on Market Information and Transparency: A Unified TheoreticalFramework,” Journal of the AIS, 7, 3, 148–78.

———, Robert J. Kauffman, andBradleyKing (2008), “HowHasElectronic TravelDistribution Been Transformed? A Test of the Theory of Newly VulnerableMarkets,” Journal of Management Information Systems, 25, 2, 73–95.

Hoffman, Donna L. and Thomas P. Novak (1996), “Marketing in HypermediaComputer-mediated Environments: Conceptual Foundations,” Journal ofMarketing, 60, 3, 50.

Hu, Nan, Paul A. Pavlou, and Jennifer Zhang (2009), “Why Do Product ReviewsHave a J-shapedDistribution?”Communications of theACM, 52, 10, 144–147.

Jones, Peter, Colin Clarke-Hill, David Hillier, and Daphane Comfort (2005),“The Benefits, Challenges and Impacts of Radio Frequency IdentificationTechnology (RFID) for Retailers in the UK,” Marketing Intelligence &Planning, 23, 4–5, 395–403.

Kaplan, JamesM., Roger P. Roberts, and Johnson Sikes (2008), “Managing IT in aDownturn: Beyond Cost Cutting,” The McKinsey Quarterly, September, Fall,67–71.

Keeling, Kathy, Peter McGoldrick, and Linda Macaulay (2006), “ElectronicKiosks in Retail Service Delivery: Modeling Customer Acceptance,”Journal of Marketing Channels, 14, 1/2, 49–76.

Kim, Jiyeon and Sandra Forsythe (2008a), “Adoption of Virtual Try-OnTechnology for Online Apparel Shopping,” Journal of Interactive Marketing,22, 2, 45–59.

——— and ——— (2008b), “Sensory Enabling Technology AcceptanceModel (SE-TAM): A Multiple-Group Structural Model Comparison,”Psychology & Marketing, 25, 9, 901–22.

Kim, Eun Young, Eunju Ko, HaeJung Kim, and Chang E. Koh (2008),“Comparison of Benefits of Radio Frequency Identification: Implications forBusiness Strategic Performance in the U.S. and Korean Retailers,” IndustrialMarketing Management, 37, 7, 797–806.

Lustria, Mia Liza A. (2007), “Can Interactivity Make a Difference? Effects ofInteractivity on the Comprehension of and Attitudes Toward Online HealthContent,” Journal of the American Society for Information Science andTechnology, 58, 6, 766–76.

Malerba, Franco, Richard Nelson, Luigi Orsenigo, and Sidney Winter (1999),“‘History-Friendly’Models of Industry Evolution: The Computer Industry,”Industrial and Corporate Change, 8, 1, 3–40.

Marketing News (2008), “Marketing Defined,” Marketing News, 42, 28–9(January 15).

McCartin-Quinn Danielle, Mark Durkin, and Aodheen O'Donnell (2004),“Exploring the Application of IVR: Lessons from Retail Banking,” ServiceIndustries Journal, 24, 3, 150–68.

Meuter, Matthew L., Amy Ostrom, Robert Roundtree, and Mary Jo Bitner(2000), “Self-Service Technologies: Understanding Customer Satisfaction

With Technology-Based Service Encounters,” Journal of Marketing, 64,50–64 (July).

Mitchell, Will (1992), “Are More Good Things Better, or Will Technical andMarket Capabilities Conflict When a Firm Expands?” Industrial andCorporate Change, 1, 2, 327–46.

——— (1989), “Whether andWhen? Probability andTimingof Incumbents Entryinto Emerging Industrial Subfields,” Administrative Science Quarterly, 34,208–34.

Mylonakis, John (2005), “Information Technologies' Services and LoyalCustomers: A Synthesis of Findings from the Hellenic Market,” Interna-tional Journal of Information Technology & Management, 4, 1, 1–11.

Nakata, Cheryl and Zhen Zhu (2006), “Information Technology and CustomerOrientation: A Study of Direct, Mediated, and Interactive Linkages,”Journal of Marketing Management, 22, 3/4, 319–54.

Nantel, Jacques (2004), “My Virtual Model: Virtual Reality Comes intoFashion,” Journal of Interactive Marketing, 18, 3, 73–86.

Novak, Thomas P., Donna L. Hoffman, and Yiu-Fai Yung (2000), “Measuringthe Customer Experience in Online Environments: A Structural ModelingApproach,” Marketing Science, 19, 1, 22.

Ou, Carol, Robert M. Davison, Paul A. Pavlou, and Maggie Y. Li (2008),“Leveraging Rich Communication Tools: Evidence of Online Trust andGuanxi in China,” Proceedings of the 28th International Conference onInformation Systems (ICIS), Paris France, December 14–17, 2008.

Pavlou, Paul A. and David W. Stewart (2000), “Measuring the Effects andEffectiveness of Interactive Advertising,” Journal of Interactive Advertising,1, 1 (Online: http://www.jiad.org/article6).

——— and David Gefen (2004), “Building Effective Online Marketplaces withInstitution-Based Trust,” Information Systems Research, 15, 1, 27–53.

——— and Angelika Dimoka (2006), “The Nature and Role of Feedback TextComments in Online Marketplaces: Implications for Trust Building, PricePremiums, and Seller Differentiation,” Information Systems Research, 17, 4,391–412. 1161.

——— and Mendel Fygenson (2006), “Understanding and PredictingElectronic Commerce Adoption: An Extension of the Theory of PlannedBehavior,” MIS Quarterly, 30, 1, 115–43.

———, Huigang Liang, and Yajiong Xue (2007), “Understanding andMitigatingUncertainty in Online Environments: A Principal-Agent Perspective,”MIS Quarterly, 31, 1, 105–36.

Porter, Michael E. and Victor E. Millar (1985), “How Information GivesYou Competitive Advantage,” Harvard Business Review, 63, July–August,149–60.

Ramde, Dinesh (2009), “As You Watch the Screen, It May Watch You Back,”Houston Chronicle, D3 (February 02, 2009).

Rayport, Jeffrey F., Bernard J. Jaworski, and Ellie J. Kyung (2005), “Best FaceForward: Improving Companies' Service Interfaces with Customers,”Journal of Interactive Marketing, 19, 4, 67–80.

Reinders, Machiel J., Pratibha A. Dabholkar, and Rudd T. Frambach (2008),“Consequences of Forcing Consumers to Use Technology-based Self-service,” Journal of Service Research, 11, 2, 107–23.

Shah, Jaymeen R. and Mirza B. Murtaza (2005), “Effective CustomerRelationship Management Through Web Services,” Journal of ComputerInformation Systems, 46, 1, 98–109.

Shankar, Venkatesh, and Edward C. Malthouse (2006), “Moving InteractiveMarketing Forward,” Journal of Interactive Marketing, 20, 1, 2–4.

——— and Sridhar Balasubramanian (2009), “Mobile Marketing: A Synthesesand Prognosis,” Journal of Interactive Marketing, 23, 2, 118–29.

———, Alladi Venkatesh, Charles Hofacker, and Prasad Naik (2010), “MobileMarketing in the Retailing Environment: Current Insights and FutureResearch Avenues,” Journal of Interactive Marketing, 24, 2, 111–20.

Shi, Christiana Smith and Andrew M. Salesky (1994), “Building a Strategy forElectronic Home Shopping,” McKinsey Quarterly, 4, 77–95.

Simon, Franciose and Jean-Claude Usunier (2007), “Cognitive, Demographic, andSituational Determinants of Service Customer Preference for Personnel-in-Contact over Self-Service Technology,” International Journal of Research inMarketing, 24, 2, 163–73.

Srinivasan, Raji, Gary L. Lilien, and Arvind Rangaswamy (2002), “Techno-logical Opportunism and Radical Technology Adoption: An Application toE-business,” Journal of Marketing, 66, 47–60 (July).

110 R. Varadarajan et al. / Journal of Interactive Marketing 24 (2010) 96–110

Stewart, David W. and Paul A. Pavlou (2002), “From Consumer Response toActive Consumer: Measuring the Effectiveness of Interactive Media,”Journal of the Academy of Marketing Science, 30, 4, 376–96.

Szmerekovsky, Joseph G. and Jiang Zhang (2008), “Coordination and Adoptionof Item-Level RFID with Vendor Managed Inventory,” InternationalJournal of Production Economics, 114, 1, 388–98.

Tamilia, Robert D. (2007), “Technological Innovation and the Rise ofDepartment Store in the 19th Century,” International Journal of TechnologyMarketing, 2, 2, 119–39.

Tedlow, Richard S. (1990), New and Improved: The Story of Mass Marketing inAmerica. New York, NY: Basic Books, Inc.

Tripsas, Mary (1997a), “Unraveling the Process of Creative Destruction:Complementary Assets and Incumbent Survival in the Typesetter Industry,”Strategic Management Journal, 18, 1, 119–42.

——— (1997b), “Surviving Radical Technological Change through DynamicCapability: Evidence from the Typesetter Industry,” Industrial andCorporate Change, 6, 2, 341–77.

Tyler, Linda (1992), “Commerce and Poetry Hand in Hand: Music in AmericanDepartment Stores, 1880–1930,” Journal of the American MusicologicalSociety, 45, 1, 75–120.

Uhrich, Fabian, Uwe Sandner, Florian Resatsch, Jan Marco Leimeister, andHelmut Kremar (2008), “RFID in Retailing and Customer RelationshipManagement,” Communications of AIS, 23, 219–34.

Van Alstyne, Marshall and Erik Brynjolfsson (2005), “Global Village or Cyber-Balkans? Modeling and Measuring the Integration of Electronic Commu-nities,” Management Science, 51, 6, 851–68.

Varadarajan, Rajan and Manjit S. Yadav (2002), “Marketing Strategy and theInternet: An Organizing Framework,” Journal of the Academy of MarketingScience, 30, 296–312 (Fall).

Yadav, Manjit S. and Rajan Varadarajan (2005), “Interactivity in the ElectronicMarketplace: An Exposition of the Concept and Implications for Research,”Journal of the Academy of Marketing Science, 33, Fall, 585–603.

Zhang, Jie and Lakshman Krishnamurthi (2004), “Customizing Promotions inOnline Stores,” Marketing Science, 23, 4, 561–78.

Zhu, Kevin and Kenneth L. Kraemer (2005), “Post-adoption Variations inUsage and Value of E-business by Organizations: Cross-country Evidencefrom the Retail Industry,” Information Systems Research, 16, 1, 61–84.

Zhu, Zhen, Cheryl Nakata, K. Sivakumar, and Dhruv Grewal (2007), “Self-serviceTechnology Effectiveness: The Role ofDesign Features and Individual Traits,”Journal of the Academy of Marketing Science, 35, 4, 492–506.