Academic journal article Journal of the Association for Information Systems

Assortment Size and Performance of Online Sellers: An Inverted U-Shaped Relationship

Academic journal article Journal of the Association for Information Systems

Assortment Size and Performance of Online Sellers: An Inverted U-Shaped Relationship

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1Introduction

Going too far is as bad as not going far enough.

-The Analects of Confucius, Chapter 11

To cater to consumers' disparate demands, online sellers often offer a large assortment of products in their stores. Correspondingly, assortment size has become one of the most complex and risky strategic decisions. Assortment size refers to the number of product categories that a seller carries (Kök et al. 2008). Although large assortments represent enticing competitive advantages (Kahn et al., 2014), managing multiple product categories is quite complex (Hashai, 2015). Moreover, increasing assortment size is particularly risky in the online retailing setting. Due to the turbulent retail environment, sellers often experience difficulty responding quickly to consumers' preference changes concerning the assortment of products they offer (Dekimpe, Gielens, Raju, & Thomas, 2011). When sellers' assortment decisions are incorrect, their performance suffers. Thus, it is of managerial relevance to examine the effect of assortment size on seller performance.

Despite the strategic value of assortment size for online sellers, there has been minimal research to guide assortment size decisions. The widespread assumption is that the more product categories sellers carry, the better their performance will be (Ma, 2016). However, it is not clear whether the industrial practice of "the more, the better" is actually beneficial to online sellers on e-commerce platforms. Furthermore, although inconsistent findings have suggested that the uniqueness of a context shapes the effect of assortment size (Ma, 2016), related research has seldom focused on specific contextual characteristics. In particular, ecommerce platforms are characterized by lowered search costs and switching costs, but also by the inability to touch or examine the quality of goods before purchase. Such characteristics influence consumers' preferences concerning assortment and retailers' ability to compete based on their assortment decisions, making the relationship between assortment size and online retailers' performance difficult to predict.

Online consumers have capitalized on reductions in both search costs and switching costs, greatly increasing their efficiency in choosing online retailers. Therefore, each seller experiences greater competition (Cachon, Terwiesch, & Xu, 2008), and market density, defined as the number of firms in a market (Baum & Korn, 1996), has become a critical issue in sellers' assortment planning. Furthermore, while online consumers can obtain relevant information about search goods prior to purchase (e.g., quality, dimension, and size), experience goods are products with attributes that cannot be examined or judged objectively prior to purchase (Nelson, 1970). Due to the inherent limitations of the Internet interface, sellers may also be less capable of describing product quality and disclosing the hidden defects of experience goods (Dimoka, Hong, & Pavlou, 2012). Since experience goods are associated with high levels of uncertainty for consumers, online retailers must manage their assortment of offerings in a way that mitigates the particular risks associated with experience goods, which constitute the main source of store-level product uncertainty. As shown in Figure 1, we attempt to address the following research questions:

RQ1: Should online sellers on e-commerce platforms carry more product categories, and what is the relationship between assortment size and seller performance?

RQ2: For online sellers on e-commerce platforms, how do market density and product uncertainty shape the relationship between assortment size and seller performance?

To address these two questions, we investigate the effect of assortment size on the performance of online sellers and the moderation effects of market density and product uncertainty. Theoretically, broadening assortment size brings both benefits and liabilities. …

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