Signaling Quality and Product Information
The importance of advertising in the marketplace is evidenced by a large body of economic and business literature on that topic, and, accordingly, advertising models for the electronic marketplace have become a hot topic. Currently, however, Internet advertising and marketing literature focuses on adapting the conventional advertising framework to the peculiarities of the Internet. In other words, the Internet is seen as an alternative channel for advertising (in addition to traditional media such as newspapers, magazines, and television). We analyze advertising and marketing activities in the broader economic context of an electronic marketplace, not just as a new channel.
Selling a product is one of fundamental processes of interaction between market players. This chapter, therefore, reevaluates the nature of advertising and other types of signaling devices adopted by digital product sellers to convey product information and prices to consumers. Particular attention is paid to the problem of quality uncertainty. The primary economic concern in this chapter is the effectiveness of various seller-initiated signaling devices in electronic commerce in which products are highly customized and consumers are searching for products based on their needs. Product information is provided by e-mailing, electronic billboards and banners, and product information pages on the web. Although the possibility of targeted advertising has excited many Internet advertisers, a viable strategy depends on how a product's characteristics match those of consumers, which in turn requires more detailed information about consumer tastes, technologies to process that information, and an effective means to convey it. Targeting, however, is only a procedural problem; other peculiarities arise in electronic commerce, such as the following:
Digital products are often difficult to describe without allowing consumers to try them out. Product information about an information product must be detailed enough to convince customers about the quality but should not reveal the information being offered for sale. Web storefronts can be used as a marketing platform but must combine other functions related to production, sales, and customer service.