Reputation Building in Electronic Commerce

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Short-run players invest little in reputation. A shop selling mainly to tourists, for example, has little incentive to maintain its reputation of selling a certain quality consistently. Reputation pays off when consumers and firms intend to stay in the market for the long haul. Internet commerce is relatively new and there is no clear long-run profit incentives to induce heavy investment in reputation. Some Internet services, however, are already recognized as essential for the success of electronic commerce. In those areas of service, the clear winners are the ones who have built some reputation. The success of

Yahoo! (http://www.yahoo.com) as the leader in search services, for example, depends largely on its reputation as a pioneer. In certification and security services, RSA Data Security, Inc. (http://www.rsa.com) is the front-runner due to its reputation in cryptography technologies (see fig. 6.6). Visitors at RSA Data Security, Inc. are informed that the firm's product is the world's brand name for cryptography, is implemented in many familiar products, and is the de facto standard on the Internet. The firm's selling point is its reputation.

Figure 6.6 The home page of RSA Data Security, Inc. Page 241

Although these Internet-native firms have built their reputation based on new products, firms with an established reputation in physical markets may be able to transfer their firm-specific reputation to the electronic marketplace. Microsoft (http://www.microsoft.com) and IBM (http://www.ibm.com) try to use their reputations and brand names in physical markets as an entry strategy to Internet commerce. This may give them an advantage over new Internet-native firms and, if successful, signal a possible dominance by existing firms in the new marketplace. Such transferred reputation, however, needs to be reinforced by continued approval by consumers in terms of products and services in the new market. Thus, in electronic commerce, the value of transferred reputation may be short-lived if product quality is not met consistently.

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