Journal of Service Research

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A Product-Process Matrix for Electronic B2C Operations: Implications for the Delivery of Customer Value Gregory R. Heim and Kingshuk K. Sinha Journal of Service Research 2001; 3; 286 DOI: 10.1177/109467050134002 The online version of this article can be found at: http://jsr.sagepub.com/cgi/content/abstract/3/4/286

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JOURNAL OF SERVICE Heim, RESEARCH Sinha / ELECTRONIC / May 2001 B2C OPERATIONS

A Product-Process Matrix for Electronic B2C Operations Implications for the Delivery of Customer Value Gregory R. Heim Boston College

Kingshuk K. Sinha University of Minnesota, Minneapolis

Electronic business-to-customer (B2C) operations are making it possible for companies to deliver service products—conceptualized as bundles of physical goods, offline services, and digital content—to customers almost anywhere and at any time. In this article, the authors develop a product-process matrix for electronic B2C operations. The building blocks of the matrix are an electronic service product structure and an electronic service process structure. The electronic service product structure, characterized by the digital content of service products and the target market segment, defines four service product categories. The electronic service process structure, characterized by the flexibility of process technologies, defines four service process stages. Positions on the matrix capture the product-process interrelationships in electronic B2C operations. The authors present propositions relating customer value to positions on the product and process structures and on the matrix. They also present illustrative applications of the matrix to examine the B2C operations of two electronic food retailers.

Electronic commerce—defined as the electronic exchange of information, goods, services, and payments— used to be the preserve of large companies that could afford to build or lease the necessary proprietary networks (Harrington and Reed 1996). Early applications of elec-

tronic commerce were largely limited to business-tobusiness transactions, such as electronic data interchange and electronic funds transfer. These early applications typically required mainframe computer systems, complex and purpose-specific software, and extensive systems integration. However, decreasing costs of computing and communication, ongoing advances in digital technology, and convergence of previously disparate telecommunication technologies and consumer appliances have made it possible to engage in electronic transactions from workplaces, homes, and places in between (Bane, Bradley, and Collis 1998; Krantz 1998). Companies of all types now can choose to deliver service products—conceptualized as bundles of physical goods, offline services, and digital content—electronically to individual customers almost anywhere and at any time (Collis, Bane, and Bradley 1997; Rust and Oliver 2000). This class of service operations, namely, electronic business-to-customer (B2C) operations, is the subject of our article. Although the ability to deliver service products electronically provides companies with unprecedented opportunities to create value for customers, it also presents unlimited possibilities to fail (Biro 1998; Hagel and Armstrong 1997; Harrington and Reed 1996; Yoffie 1997). Many electronic service providers already have dissatisfied customers (Hansell 1999; Post 1999; Sherman 1999). We conclude from our literature review that the increasingly dynamic translation of transient customer

Journal of Service Research, Volume 3, No. 4, May 2001 286-299 © 2001 Sage Publications, Inc.


Heim, Sinha / ELECTRONIC B2C OPERATIONS

needs into service products will be fundamental to the success of B2C operations. In particular, two recent studies (Rust and Oliver 2000; Wind and Rangaswamy 1999) have discussed the importance of decreasing product standardization to move to aggregate demand beyond mass market levels. According to these studies, dynamically personalized relationship marketing and mass customization will require companies to design products in a one-to-one, real-time manner. The studies suggest that embedded and networked software intelligence will provide the key to designing processes for delivering service products electronically on a real-time basis. The opportunities and challenges associated with delivering service products electronically point toward the need for developing “a paradigm for the field of service operations management that allows us to capture the technological dimensions of 21st century services” (Chase 1996, p. 305). In a similar vein but more provocatively, Glazer (1999) contrasts emerging “smart” (i.e., “dynamic, turbulent, and information rich”) markets against traditional “dumb” (i.e., “static, fixed, and information poor”) markets and argues for the need to develop new strategies and techniques for competing in a smart market. This article is a step toward addressing such needs. Our premise is that an understanding of the complex and often dynamic interrelationships between electronic service products and their underlying process technologies is at the heart of managing B2C operations effectively. We infer from Cook, Goh, and Chung (1999)—a comprehensive review and synthesis of the extant service operations literature—that there is no framework for examining the product-process interactions found in B2C operations. Therefore, in this article, we report the development of a conceptual framework in the form of a product-process matrix for B2C operations. The matrix makes it possible to examine the interrelationships between electronic service products and service processes, as well as the customer value implications of such interrelationships. Managers of new and emerging forms of operations, such as B2C operations, must understand how operations can enhance customer value. Perceived value of a good or service is the construct most closely related to customer purchase decisions (Zeithaml 1988). According to Zeithaml, perceived value is the customer’s “overall assessment of the utility of a product based on perceptions of what is received and what is given” (p. 14). Similarly, Woodruff and Gardial (1996) have defined customer value

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as the “customers’ perception of what they want to have happen (i.e., the consequences) in a specific use situation, with the help of a product or service offering, in order to accomplish a desired purpose or goal” (p. 54). Therefore, we conclude that the customer’s perception of value will determine the rate and the extent to which customers will switch from conventional service providers to electronic service providers. As we noted earlier, many electronic service providers already have dissatisfied customers (Anthes 1999; Hansell 1999; Post 1999; Sherman 1999), suggesting the need for a better understanding of how customer value can be delivered through B2C operations. Jeffrey P. Bezos, founder and chairman of Amazon.com, has observed, “I hear a lot of people talking about business models, but I don’t hear much about customer value” (Caruso 1999, p. C3). The development of a product-process matrix requires the conceptualization of its two building blocks: (a) the product structure—a classification scheme of product categories—and (b) a process structure—a classification scheme of process stages (Hayes and Wheelwright 1979). Hence, in the ensuing two sections of this article, we describe the development of an electronic service product structure and an electronic service process structure, respectively, and present propositions on customer value corresponding to the product and process structures. In the fourth section, we present the product-process matrix and a proposition relating the interrelationship between the categories of the service product structure and stages of the service process structure to the delivery of customer value. We illustrate applications of the matrix in examining B2C operations of two electronic food retailers. The fifth and final section contains our concluding remarks.

ELECTRONIC SERVICE PRODUCT STRUCTURE As noted earlier, we conceptualize service products as bundles of physical goods, offline services, and digital content—a conceptualization that is consistent with that of Rust, Zahorik, and Keiningham (1996). Figure 1 is a two-by-two matrix that differentiates electronic service products according to their digital content (either static or dynamic) and target market segment (either unique or broad). Static digital content is downloaded to customers’ service delivery technology without modification, where-

The study is supported by a grant from the Alfred P. Sloan Foundation by way of the Retail Food Industry Center and a Grant-in-Aid of Research from the University of Minnesota. An earlier version of this article was presented at a workshop on the Information Technology/Operations Interface at the University of Florida (February 25-27, 1999) and has benefited from the comments of the workshop participants. We acknowledge the assistance of Chuck Anderson, Joy M. Field, James A. Fitzsimmons, Michael J. Houston, Akshay R. Rao, David L. Reinders, and Roger G. Schroeder in this study. We are grateful to three anonymous reviewers and to Roland T. Rust for their valuable comments on earlier drafts of this article.


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as dynamic digital content is generated when requested based on the inputs and actions of the customers and the current state (e.g., system settings, database records) of the electronic service system (Hanson 2000). Target market segment is essentially an inverse of target market dichotomies derived from competitive scope (Porter 1985) and represents relative frequencies of customer needs. Digital content and target market segment—the two primary dimensions along which we differentiate service products—also describe related customer needs. Demand for static and dynamic digital content results from nonsituational and situational customer needs, respectively (Shocker and Srinivasan 1979). Static customer needs remain unaffected by time-specific situations and can be fulfilled through static content designed prior to an electronic service transaction. In contrast, dynamic customer needs necessitate a real-time service product (Rust and Oliver 2000) designed for the characteristics of a customer’s situation at a time and place, or it may result from a high level of complexity in an existing bundle of service product attributes. Thus, dynamic customer needs often must be evaluated and fulfilled dynamically. Designing static products for situational customer needs could provide lower utility or may not lead to a purchase when customer needs are situational (Shocker and Srinivasan 1979). The four cells in Figure 1 correspond to the four categories in the electronic service product structure: niche market, market extender, dynamic mass market, and customized mega-market. The secondary dimensions along which service products in the four categories can be differentiated include scale (volume), scope (variety), online customization,1 and the nature of joint branding of the service product. The categories of the electronic service product structure are ordered, as indicated by the direction of the arrow in Figure 1, according to their relationship to increasing product design flexibility. Product design flexibility provides the ability to translate similar segments of customer needs into targeted digital content segments. The static digital content cells are representative of product designs where the assumptions of stable, physical product environments are valid. The dynamic digital content cells are representative of product designs that are more difficult to accomplish than static, or nonsituational, product designs. Whereas modular, dynamic product design is now being used for broad market segments, one-to-one product design technologies for the customized mega1. Following Hanson (2000), we define online customization as (a) targeting specific preferences or behavior of an individual and (b) creating a tie between an individual and the packaging, positioning, and imagery used to describe a service product. In our discussion of each of the four categories of online customization, we present examples of online customization.

FIGURE 1 Electronic Service Product Structure and Its Four Categories

market (i.e., unique-dynamic) cell are just emerging (Rust and Oliver 2000; Wind and Rangaswamy 1999). We now describe each of the four categories of the electronic service product structure. Niche Market The niche market service product category serves small sets of idiosyncratic customers who generate low demands for service products with unique and static attributes. In this category, static online content is often packaged with offline services. Customers are likely to perceive offline services as a core service product dimension. Dynamically customized online content provides little strategic advantage when customer needs are unique but not time critical. Companies are not likely to develop service products with high online customization when the core attributes of their service products are idiosyncratic physical goods and offline services. Many small companies deliver service products in the niche market category. For example, Eatwell Farm (http://www.eatwell.com), a pick-up grocery service, packages fresh organic produce based on customer orders received via the Internet. Eatwell Farm’s service products are at the low end of online customization, including static content such as ordering information, culinary tips, and information about its current produce. After an order is placed, Eatwell Farm assembles the order in an offline fulfillment process. Customers must then go to a neighborhood location to pick up their orders. Niche market service products can contain offline services that meet individual customer needs, as with the personalized fortune cookie baking services of Fancy Fortune Cookies (http://www. fortunecookiesonline.com).



Market Extender The market extender service product category expands the static digital content of its service product. The digital content is used to describe a broad portfolio of mass market goods and service attributes. Together, they fulfill the common needs of a higher volume of customers than the niche market category. Large volumes of varied static digital content can facilitate greater self-customization by customers but also can create a complex and time-consuming task for customers. Because demands for goods and offline services in this category can rise to levels that are difficult to customize, market extender service products are characterized by increased standardization of offline services and increased online customization. Numerous electronic food and wine retailers offer market extender service products. Virtual Vineyards (now http://www.wine.com), an electronic retailer of wines, entered the market with a broad offering of California wines targeted at a national market using static content containing product reviews and recommendations (Gerace et al. 1996). Virtual Vineyards’ long-term online customization strategy was to transform its static content over time into a personalized, automated shopping system offering wines and complementary foods that would be chosen by the customer or suggested by customized online information resources. Golden Stream (http://www.goldenstream. com) sells a broad variety of snack foods. As part of its online customization, Golden Stream offers an online educational factory tour and a “Snackland” entertainment section in its service product. Omaha Steaks International (http://www.omahasteaks.com) sells a broad variety of meat products, appetizers, and side dishes to U.S. and Canadian customers. As part of its online customization, Omaha Steak provides online recipes.

Dynamic Mass Market The dynamic mass market service product category meets situational needs in a time-critical manner for a broader group of customers than can be targeted by market extender service products. As demand increases, customization of goods and services becomes increasingly complex and costly. Furthermore, with a greater breadth of service product offerings, the volume of digital content creates a situational need in which customers need online customization to help them search through service product attributes and filter out those that are irrelevant. In spite of the variety in dynamic mass market service products, their large target markets provide incentives for competitors to deliver similar service product attributes, potentially leading them to become commodities. Providers of dynamic

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mass market service products may attempt to differentiate their service products by jointly branding them to create service products that are more difficult to imitate. The dynamic mass market category is often the destination of electronic service providers that want to establish a dominant brand. For example, Peapod (http://www. peapod.com/) offers dynamic mass market service products for many metropolitan markets and for national drop-shipment of food packages. Peapod and similar service providers can ally and jointly brand themselves with major grocery and consumer product chains such as Jewel and Walgreens. With an offering of more than 10,000 goods, Peapod must deliver customized digital content so that customers can find what they need. As part of its online customization, Peapod provides features such as express shopping, search facilities, and dynamically generated lists of products organized into shopping aisles, personal shopping lists, and previous order lists. As Peapod expands to additional metropolitan markets, its service product can be further customized to accommodate regional customer needs. Travelocity (http://www. travelocity.com), an online travel agency, also has designed a service product of dynamically updated travel service attributes. Among other attributes, Travelocity can regularly update its customers about changes in flight information and fares. Finally, Virgin Interactive Entertainment (http://www.vie.co.uk) has developed Subspace (see http://www.subspacezone.com) and other interactive online games that provide dynamic content for interactive gaming services. Providers of electronic gaming services such as HEAT.NET (http://www.heat.net) provide these games to players for free and for membership fees. Multiplayer games with a high level of dynamic interactivity make video game experiences enjoyable because customers can shoot down opposing players and send messages to each other while they play. To enhance their enjoyment of Subspace, individual players must self-segment themselves into one of several skill levels prior to playing a game. Customized Mega-Market The customized mega-market service product category caters to the situational, idiosyncratic needs of customers that can only be satisfied through online customization. These providers avoid the problem of imitation in the dynamic mass market category by offering service products that deliver unique value for these unique needs. This approach builds significant barriers for other service providers intending to enter the same market. When the service product of an individual service provider is limited to mass market attributes, it may employ alliances to aggregate its brand with other brands, making it possible to deliver less


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substitutable service products to aggregated groups of customers. The customized mega-market category is growing rapidly. IndiSonic (http://www.indisonic.com), a music retailer, provides a smaller scale illustration of this service product. IndiSonic builds customer relationships with musical groups that cooperate with IndiSonic to sell CDs and related goods. In doing so, IndiSonic aggregates lesser known brands and removes supply chain intermediaries. This, in turn, allows IndiSonic to deliver services to aggregated groups of niche customers who have needs that are different from customers in the mass market. Amazon.com (http://www.amazon.com), a retailer of books and almost any other product, presents a larger volume example. As part of its online customization, Amazon.com employs dynamic search systems for finding books, collaborative filtering, and data-mining technology to suggest products to customers; it also has capabilities that allow customers and authors to comment on books for sale. Amazon.com has joint-branded its service product with thousands of other retailers through its Auctions and zShops sections, each of which brings together the goods and services of thousands of small retailers. Autoweb Automotive Superstore’s (http://www.autoweb.com) service products are another example of the customized megamarket category. Autoweb offers service products branded by State Farm Insurance, NationsBank, Car and Driver Online, and BarnesandNoble.com. Autoweb makes it easy and convenient for customers to take care of all of their automotive needs in one online location. Finally, the retailing services of Excite (http://www.excite.com/ shopping), Yahoo! (http://shopping.yahoo.com), AOL (http://www.aol.com/shopping), and OnlyOnSale (http://www. onlyonsale.com) provide highly customizable retailing environments that integrate the brands and service products of many different electronic service providers. Customer Value Propositions Electronic service products deliver customer value when they become reasonable or preferred substitutes of conventional services. This follows from compensatory models of customer decision making (Shocker and Srinivasan 1979). The assumption underlying such models is that utility, or customer value, will be inversely related to the distance between a product design’s attributes and the point in product attribute space that relates to a customer’s actual needs. Moving to the right of the service product structure, a trade-off takes place between the value created by attributes of conventional services and attributes of electronic service products. The extent to which these electronic service product attributes substitute for at-

tributes of conventional services will determine whether they provide value to a customer. Electronic service products on the right of the product structure are targeted toward extremely fragmented markets and cater to transient and diverse customer preferences. Quick customization and interactive media can create rich experiences, lower search costs, and provide efficient self-service transactions, each of which translates into enhanced customer value. Online customization lessens the possibility of service product heterogeneity that results when service personnel and customer perceptions are at odds. Furthermore, online customization lets customers control the delivery of service products. Based on the above arguments, we state the following proposition: Proposition 1: Electronic service products positioned toward the right of the product structure will deliver greater customer value than service products positioned toward the left of the product structure when customer value is primarily derived from online customization and joint branding. With conventional services, personnel and technology are employed for direct interaction with people, physical objects, and information. Electronic service products positioned on the left of the product structure often involve elements of conventional services adapted to an electronic delivery channel. For example, service products of smallto medium-sized electronic retailers—positioned on the left of the product structure—are not constrained by static content, because of their ability to combine offline services. These retailers can use simple catalogs and order forms through which customers can order goods and services, and they can include written directions for how the service product attributes should be modified. However, it is unlikely that offline services will satisfy the transient needs of customers. Hence, we state the following proposition: Proposition 2: Electronic service products positioned toward the left of the product structure will deliver greater customer value than service products positioned toward the right of the product structure when customer value is derived primarily from offline services.

ELECTRONIC SERVICE PROCESS STRUCTURE We conceptualize service process as a configuration of technologies through which electronic service providers sense and respond online to the dynamic and complex needs of customers. The electronic service process structure differentiates service processes on a continuum of flexibility of process technology. Choosing flexibility as



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FIGURE 2 Electronic Service Process Structure and Its Four Stages

NOTE: The appendix contains a glossary of acronyms and terminology related to electronic service process technology.

the continuum for differentiating the service process stages is consistent with the growing recognition that companies in the electronic commerce era—characterized by dynamic and turbulent market environments (Glazer 1999)—should develop capabilities to quickly sense and respond to customers’ needs (Bradley and Nolan 1998; Garud and Kotha 1994). Figure 2 presents the electronic service process structure and relates the four stages of the process structure to typical technologies used in each stage, beginning with the

least flexible technologies and ending with highly flexible technologies. As shown in Figure 2, earlier process stages are embedded within each subsequent stage. Technologies used in an earlier process stage of B2C operations are often required in later stages. A glossary of acronyms and terminology related to electronic service process technology is presented in the appendix. The flexibility dimensions used to differentiate between the process stages of the electronic service process structure can be further partitioned into several subdimensions,


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TABLE 1 Dimensions of Electronic Service Process Flexibility Service Process Flexibility Dimension Product and customer interaction Mix Security Order processing Intraservice process Volume Changeover Interservice process Backward integration Forward integration Full integration

Type of Uncertainty

Market acceptance of different kinds of service products Privacy of the electronic transactions

Description

Willingness of customers to order and pay during an electronic transaction

The ability to change the range of electronic service products offered within a given period of time The ability to keep electronic transactions private between provider and customer The ability to change the range of methods used for ordering and payment

Fluctuations in the aggregate service product demand Variations in the length of service product life cycle

The ability to respond to the aggregate level of service product demand The ability to respond to the additions to and subtractions from the service product mix over time

Entry into or exit from other companies’ networks Other companies’ entry into or exit from a company’s own network Entry into or exit from other companies’ network and a company’s own network

The ability to manage and modify partnerships to participate in other companies’ networks The ability to manage and modify partnerships to allow other companies to participate in a company’s own network The ability to manage and modify partnerships to participate in other companies’ networks and allow other companies to participate in a company’s own network

which are presented in Table 1. Although some of these dimensions (e.g., mix, volume, and changeover) are adapted from the literature on manufacturing flexibility (Gerwin 1993), the remaining dimensions are relevant for responding to the uncertainties in delivering electronic service products. The dimensions in Table 1 differentiate between flexibility related to an individual electronic service provider (i.e., intraservice process flexibility) and to multicompany alliances (i.e., interservice process flexibility). In each case, uncertainties stemming from interdependencies between process stages can be effectively responded to by developing process flexibility. The names of the four stages of the electronic service process structure depicted in Figure 2 are chosen to evoke relationships to traditional operations already found in the marketplace. Service kiosk evokes the notion of small stands set up in shopping malls and airports through which individuals deliver services. Service mart evokes the notion of a store that chooses to deliver a larger number of options to customers but is limited in what it can deliver by capacity and capabilities. Mass service customization evokes the notion of a provider who employs a modular system to deliver a large number of service designs that can satisfy dynamically changing customer preferences. Finally, joint alliance service customization evokes the notion of several service providers integrating their flexible process technologies. We now describe each of the four stages of the electronic service process structure.

Service Kiosk The service kiosk exemplifies a make-to-stock delivery strategy and is designed to provide identical experiences in a similar manner to all customers. The service kiosk uses inflexible but widely available static technologies such as HTML, static image files, and static sound files. This leads to low flexibility of service processes and thus little or no ability to sell online. Electronic service providers with service kiosks may choose not to operate the technology infrastructure used to deliver digital content, such as servers, security systems, and telecommunication lines. Instead, they may outsource these needs to vendors who design and maintain such systems. Outsourcing servers and infrastructure can constrain the technological capabilities of electronic service providers and, in turn, limit the overall service product variety and the number of customers served simultaneously. The service kiosk can serve as the primary delivery process for service providers or as an inexpensive extension of their existing physical operations. Service kiosks have been used by manufacturers, distributors, and traditional retailers as a means to enter electronic delivery channels. These service kiosks are basic storefronts that allow customers to specify and order offline services. For example, font designer Chank Diesel uses ChankStore (http://www. chank.com) to sell his fonts online and to advertise and sell his offline font design services. ChankStore technologies



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include static HTML and graphic files. ChankStore outsources its server requirements to Internet service provider Bitstream Underground (http://www.bitstream.net) and uses MAKAMBO.COM (http://www.makambo.com) for secure payment transactions and order fulfillment. Raisin Rack Specialty Food Emporium (http://www. raisinrack.com) also uses a service kiosk process. Raisin Rack is a natural-food store that sells produce, grains, herbs, and vitamins for a chain of Ohio stores. The Raisin Rack HTML order form e-mails a customer’s information and order to Raisin Rack and requests that customers call or fax their credit card payment information.

all encrypted by SSL. Virtual Vineyards, a retailer of wine and gourmet food, initially employed a service mart process consisting of secure HTML forms delivered through Perl CGI scripts (Gibson 1997). Other examples of service mart include the processes used by Salami.com and 3E Market. Salami.com (http://www.salami.com), a purveyor of Italian specialty foods, uses the SoftCart CGI program to insert shopping cart identification numbers into checkbox HTML order forms. 3E Market (http:// www.3emarket.com) uses a CGI program that assigns a shopping cart identification number to each customer and inserts that number into HTML template files.

Service Mart

Mass Service Customization

The service mart exemplifies an assemble-to-order delivery strategy that builds on technologies used in the service kiosk process stage. The service mart stage involves processes that use very simple to very complicated executable scripts and programs (Greenspun 1999). In service mart processes, the static technologies used in a service kiosk may be created dynamically or assembled together by programs residing on a server. This approach can lead to more service product variety but often at a loss of some of the discretion and scope available in the service kiosk. Service marts typically use CGI scripts to increase the flexibility of electronic service processes. The scripts assemble customer identification numbers, names of graphics files, hypertext links, and text templates into packets of hypertext sent to the customer. Small database files also increase the ease of performing offline tasks in the service mart. Database files can be modified manually when product prices or inventories change. The database contents are then assembled with standard HTML templates when customers request them. The databases are connected to the front end of the service process through interfaces built from CGI scripts and server-side query systems such as Cold Fusion and Active Server Pages. However, performing back-office service updates manually also limits the flexibility of the service mart. Finally, server and telecommunication capacity must become more robust as volume increases. The limitations of service mart technology, particularly from executable scripts and programs, impose upper bounds on the volume flexibility of the service mart stage. The service mart process can be found in Baltimore Coffee and Tea (http://www.baltcoffee.com), which uses a CGI shopping cart system to sell more than 1,000 varieties of coffee and tea. Customers can choose whether to shop in a text or graphically rich shopping environment. During the checkout process, the CGI system collects shipping and payment information and calculates a total order cost,

Mass service customization exemplifies a make-to-order delivery strategy and uses the most flexible singlecompany implementation of electronic service process technologies. The mass service customization stage involves personalized services delivered from databases (Greenspun 1999). Massive databases are built to collect customer data. The databases are analyzed to better understand customers or interlinked to collaborative filtering and data-mining systems to enhance customer relationships and customer experiences. Service processes with high-demand imposition (e.g., millions of service requests per hour) require scalable systems of servers that can handle wildly varying aggregate customer demands without decreasing the effectiveness of service delivery. Server system capacity is load balanced and distributed geographically to improve responsiveness. Backup systems of redundant hard disks, servers, power generators, and telecommunication infrastructure connections are put in place to improve system reliability. A scheme involving redundant security systems is implemented to protect the process technology itself and sensitive customer information during electronic transactions. Travelocity (http://www.travelocity.com), the online travel agency mentioned earlier, employs mass service customization. Travelocity offers reservations and ticketing on hundreds of airlines, continuously updated information on more than 15,000 worldwide destinations, travel events, schedules, chat rooms, travel forums, and a travel merchandise mall. Travelocity was built around the SABRE travel reservation system, initially developed by American Airlines. Travelocity uses HTML, JavaScript, CGI scripting, massive database systems, and secure channels for searching and booking. Travelocity uses its databases to proactively e-mail travel information to customers and to maintain personal travel pages for customers. The extensive customer data collected through Travelocity has motivated the SABRE group to build a


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data warehouse to explore and develop new services (Deck 1998). Friend Finder is another example of the mass service customization process stage. Friend Finder (http://www. friendfinder.com), an online dating service, customizes its service products according to customer interests and previous transactions. As a customer uses Friend Finder’s services, the system attempts to update the customer’s interests by examining the appeal of people with whom it previously matched them. Friend Finder offers several levels of service options at different prices and employs a modular system to extend the same service processes to diverse customer lifestyle segments. The service levels allow customers to decide how much they value flexible self-service and to pay for access to a service process having the capabilities they desire. Joint Alliance Service Customization Joint alliance service customization also exemplifies a make-to-order delivery strategy but one in which service products are designed and delivered via interlinking or recursive systems developed between several companies. This process stage represents operations oriented toward multiple-company delivery of service products. More specifically, the process stage is characterized by its ability to deliver service products using technology separated by organizational boundaries. Joint alliance service customization is similar to the shop-within-a-shop model often used in physical retailing, for example, Microsoft selling Internet services through point-of-sale terminals in Radio Shack stores. Companies pursuing joint alliance service customization integrate mass service customization technology across several companies. Joint alliance service customization can be found in the Autoweb Automotive Superstore (http://www.autoweb. com), an alliance of automotive service providers that provides one-stop shopping for automobiles, automotive insurance, and other related needs. Another example is the wine retailing site WineAccess (http://www.wineaccess.com). WineAccess integrates the services and inventories of approximately 30 specialty wine sellers into a joint alliance service operation that accesses, collects, and shares information about the wine connoisseurs. The AOL.com (http://www.aol.com/shopping) store and Amazon.com’s ShopTheWeb and zShops (http://www.amazon.com) integrate product information from hundreds of electronic retailers. In the case of AOL.com, customers can use a personalized gift search system that lets them search across all of the products of participating retailers, based on self-reported personality profiles.

Customer Value Proposition As B2C operations move toward mass service customization and joint alliance service customization, the increased flexibility of these process stages facilitates scale, scope, online customization, and process integration. Customers can employ these technologies to search and sort through information and self-customize service products. Electronic transaction data also can be collected and used to build B2C relationships by personalizing service product attributes that create a desire in the customer to return. With increasing personalization, large and complex databases are required to collect customer data, and tools such as collaborative filtering are required to analyze the data and modify service products. Consumer agents, expert systems, and automated statistical techniques can use the data to infer which type of service products are of interest to a particular customer. Electronic service products delivered by alliances provide more value by giving customers flexibility to self-customize a service product that contains a portfolio of complementary offerings. Intercompany integration of service processes is likely to reduce customers’ search costs. As service product variety increases, customer purchasing information becomes even more useful for suggesting and designing service products that meet customer needs. Jointly operated service processes facilitate joint branding, affect perceived value, and benefit customers when service products are new, experience based, or used infrequently. Based on the above arguments, we state the following proposition: Proposition 3: Electronic service processes positioned toward the bottom of the process structure will deliver greater customer value than electronic service processes positioned toward the top of the process structure.

THE PRODUCT-PROCESS MATRIX Figure 3 presents the product-process matrix for B2C operations. The two sides of the matrix are the electronic service product structure and the electronic service process structure. Positions on the matrix can be used to depict the interrelationship between the product category and the process stage of an electronic service provider’s B2C operations. By way of examples, we depict in Figure 3 the positions of a number of electronic service providers whose products and process technologies were cited as examples in the previous two sections. Using the product-process matrix as the reference framework, we present a customer value proposition and illustrative applications



FIGURE 3 Product-Process Matrix for Electronic Business-to-Customer Operations

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like the upper-right-hand corner, leads to a mismatch between service expectations and service delivered. Based on the above arguments, we state the following proposition: Proposition 4: B2C operations positioned along the matrix diagonal will deliver greater customer value than B2C operations in the off-diagonal positions of the matrix. Illustrative Applications of the Product-Process Matrix We now present illustrative applications of the product-process matrix for examining B2C operations of two electronic food retailers: Alpha and Beta. The names of the two retailers have been disguised at their management’s request. Both Alpha and Beta use the World Wide Web to deliver their service products.

of the matrix to examine the B2C operations of two electronic food retailers. Customer Value Proposition B2C operations positioned toward the upper-righthand corner of the matrix link a market segment that wants a breadth of customized online services with service processes that use inflexible technologies. Service kiosk process is limited in its ability to deliver customized online services. Service kiosk process creates static content that supports repetitive transactions but cannot support the scale and customization required for delivering a multitude of varying service transactions and experiences. Service providers using the service kiosk process to deliver customized, jointly branded service products will discover a mismatch between customer service expectations and experience. B2C operations positioned toward the lower-left-hand corner of the matrix are more technologically feasible but will deliver less value than B2C operations positioned along the diagonal. B2C operations positioned in the lowerleft-hand corner use technologies capable of delivering high online customization to target customers who desire offline services. The lower-left-hand corner also creates perceived costs for customers because the customer has to learn to operate the self-service technology. This corner,

Alpha Co. This company is a small, yet profitable, electronic food retailer located in the upper Midwest. Alpha’s target market is the urban and rural areas of the Midwestern states. Alpha takes orders online for groceries through the World Wide Web and delivers the groceries through a system of fixed delivery routes. When asked to identify Alpha’s position on the product-process matrix, the chief operating officer (COO) stated that its service product corresponded to the dynamic mass market category of the electronic service product structure. He described Alpha’s service process as an outsourced transaction system that corresponded to the mass service customization stage of the electronic service process structure. According to the COO, Alpha’s operational concerns related to movement toward higher demand levels and to eventual alliances perceived necessary to fulfill plans for broader service product variety such as in the customized mega-market category. The COO was certain that Alpha’s service process would be able to handle higher online demands and provide greater online customization as it incorporates suppliers and alliance partners. However, he stressed the importance of scalability in Alpha’s supply chain as it expands into a multiple-company service product design and delivery process. Essentially, the COO indicated that the business plan at Alpha is to move to the joint alliance service customization stage of the process structure. Finally, he emphasized the importance of offline services for the company. Alpha’s grocery delivery personnel are expected to develop trust and personal relationships with customers. To this end, Alpha assigns a fixed delivery route to each delivery person, ensuring that the same delivery person repeatedly delivers grocery to a customer’s home. Figure 4 depicts an application of the product-process matrix to trace the planned progression of Alpha’s B2C operations.


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Beta Inc. This company is an electronic food retailer with headquarters in the upper Midwest. Beta operates a nationwide grocery delivery service through centralized B2C operations at the headquarters and a nationwide network of delivery centers located in several large U.S. metropolitan centers. Beta entered food retailing as a small, telephone-based delivery service catering to a few suburbs of a single, medium-sized city. Presently, Beta uses a process that has moved beyond the mass service customization stage into the joint alliance customization stage of the electronic service process structure. Beta integrates traditional retailers that have strong regional brands into its service product. This allows Beta to provide broad product variety, particularly in categories related to specialty foods and nonfood goods. As a result of this strategy, Beta’s process has to perform daily electronic data interchange downloads of costs and advertised prices from each alliance partner and dynamically update the prices presented in the World Wide Web system used by customers. The flexibility of Beta’s process allows it to respond quickly to price adjustments made by other electronic food retailers that serve the same geographical area. Also, Beta’s warehouse operations cross-dock goods in a just-in-time manner into food containers that are delivered to customers’ homes only hours later. Beta’s vice president of marketing appeared to be concerned with developing broader product variety and supply chain design and efficiency and with creating and managing brand alliances. Beta’s vice president of operations specifically stressed the importance of integrating Beta’s B2C operations with the warehouse operations as it moves toward higher volume and targets additional customer segments. He also mentioned that offline services provided by Beta’s support staff are an important part of Beta’s service product. Beta still operates a small call center that takes orders from homebound customers who do not have computers. The call center staff has been empowered to make service recovery decisions when fielding customer order problems. Beta’s vice president of operations emphasized the importance of intelligent and sensitive grocery delivery personnel. The delivery personnel are expected to develop personal relationships with customers and are empowered to make on-the-spot modification of an order, especially if there were errors filling the order. Figure 4 depicts an application of the product-process matrix to trace the progression of Beta’s B2C operations.

CONCLUDING REMARKS In this article, we developed a parsimonious conceptual framework in the form of a product-process matrix for examining the complex and dynamic interrelationships be-

FIGURE 4 Illustrative Applications of the Product-Process Matrix: Mapping the Evolution of Electronic Business-toCustomer Operations of Two Food Retailers

tween electronic service products and service processes and their implications for the delivery of customer value. The primary contributions of our article are (a) the two building blocks of the matrix: electronic service product and service process structures; (b) the matrix itself; and (c) the accompanying insights on delivering customer value. Classification schemes such as the electronic service product structure and the electronic service process structure, a framework such as the product-process matrix, and the propositions relating product-process interrelationships to customer value are amenable to cross-sectional and longitudinal empirical analyses (Collier and Meyer 1998; Doty, Glick, and Huber 1993; Safizadeh et al. 1996). This article, we believe, is one of the very first theory development research initiatives on B2C operations management. From a practitioner standpoint, the product-process matrix has the potential to be useful both as a diagnostic tool and as a planning tool. As a diagnostic tool, the matrix can be useful to service providers for examining the causes of poor service quality and customer dissatisfaction resulting from a mismatch between electronic service products and service processes. As a planning tool, the matrix can be useful to service providers designing or redesigning B2C operations by aiding in the choice of service products



and appropriate service processes. A logical extension of this article would be to conduct empirical analyses to validate the categories of the electronic service product structure and the stages of the electronic service process structure and, in turn, develop taxonomies of electronic service products and service processes. Another logical extension would be to empirically investigate how the fit between categories of the product structure and stages of the process structure affects customer value. APPENDIX Glossary Following is an abbreviated description of electronic service process technology terminology. For more detailed information, see the Techweb Technology Encyclopedia (http://www.techweb.com/ encyclopedia). Active server pages. An alternative to CGI scripts. Active server page Web pages include programming code used to interact with databases and programs on a server. AIFF (audio interchange file format). A digital audio file format from Apple. AVI (audio video interleaved). A digital multimedia video file format from Microsoft. CGI (common gateway interface). A WWW-to-server interface that receives requests from a WWW server to execute programs stored on a server computer. The CGI executes these programs and returns the program output to the WWW server, which in turn sends the output to the customer’s service delivery device. Typically, CGI programs are written in scripting languages such as PERL or are executable programs written in C or C++. Client application. A computer program used to deliver electronic service content to a computer or other service delivery device owned by a customer. Cold Fusion. An alternative to CGI scripts. Cold Fusion Web pages use the Cold Fusion Markup Language to interact with databases. Collaborative filtering. Technology that analyzes actions of a customer and compares them to prior actions of other customers. When a customer’s actions are found to parallel those of a group of customers, the system can make recommendations to the customer based on the characteristics of that group. Consumer agent. A computer program or system that can help customers accomplish some task, such as purchasing a product, based on decision criteria provided by the customer to the agent, such as a desired price range. For a futuristic example, see Alba et al. (1997). Data warehouse. A massive database that supports organizational decision making. Data warehouses integrate organizational data, such as operational data or a customer’s purchasing history, into a single database management system. Data-mining system. A system that facilitates either manual or automated examination of databases of customer information to discover patterns and relationships between variables.

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Digital certificate. A digital identification system that employs public key encryption. Digital certificates attempt to provide verification, through a trusted third-party certification authority, that a participant in a transaction is in fact valid and that content sent during a transaction is from a certain participant. Encryption. A security procedure that uses cryptography to encode electronic service content into a collection of computer bits that appear to be random, making them virtually impossible for anyone other than the service provider and customer to decode. Encryption is used in electronic services to protect customer credit card numbers and other sensitive data. Expert system. A information system for problem solving that employs artificial intelligence procedures to make inferences from a knowledge base of human expertise. Federated databases. A system of independently managed, heterogeneous database systems that facilitate controlled sharing of data. GIF (graphics interchange format). A digital graphics file format developed by CompuServe. GIF files can display one graphic or several graphics presented in a repeatable sequence. HTML (hypertext markup language). A presentation language used to define the page layout of digital documents on an electronic service delivery device. Identity-based access. A security scheme that uses an identifier to manage customer access to electronic services. Common schemes involve Internet protocol (IP) address numbers and cookie text strings placed on a customer’s computer. Future electronic services may use identifiers such as digital fingerprints or smart cards. Internet service provider. A company that resells digital telecommunication line capacity, leases server computer disk space, and leases digital technologies that can be used to develop and deliver electronic services. The companies also perform contract work to develop and manage electronic service operations. Java applet. A computer program module, written in the computer language Java. Java was designed so that Java programs could theoretically run on any device capable of digital processing, including personal computers. Java applets are shipped as object code from a server to a customer’s service delivery device, upon which they are run by a Java virtual machine programmed to run applets on that device. JavaScript. A scripting language embedded inside HTML that can be used to enhance electronic services and to control electronic service delivery devices, such as windows in a World Wide Web browser. JPEG, JPG (Joint Photographic Experts Group). A compressed digital graphic file format. Load-balancing system. A capacity management system that dynamically allocates electronic service processing to individual servers based on their current workloads. MIDI (musical instrument digital interface). A digital audio file format. MOV. The QuickTime digital multimedia video file format developed by Apple.


(continued)

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APPENDIX Continued

MPEG (Moving Pictures Experts Group). A compressed digital video file format. Password. A security scheme in which customers input a username and a password to access electronic services. RA, RAM. RealAudio and RealVideo digital audio and video file formats playable by Progressive Networks Inc. programs. These file formats facilitate transfers of static audio and video files as well as streams of dynamically generated audio and video. Scalability. How easily a system can be expanded without a breakdown or without requiring major changes in system procedures. Scripting language. Computer languages used to define the layout and timing of audio and visual elements of electronic services. Security scheme. A collection of security systems that limits access to electronic services to paying customers and forbids access to those who want to play with or damage the server computers used in the service operations. Server. Software installed on a computer that receives service requests sent across a telecommunication network from a customer service delivery device. Servers fulfill these requests by sending documents, querying databases, or executing programs. Server-side include. Server side refers to operations performed at the server. Prior to sending the HTML file to the user, the server scans the HTML file for commands that require additional processing and insertion before sending the page to the user. The commands may request the insertion of boilerplate HTML or up-to-date data or the execution of a CGI script. SET (secure electronic transaction). A secure credit card payment protocol developed by MasterCard and Visa. Shopping cart system. A computer program used by electronic retailers. The shopping cart system manages the list of products selected by each customer through the point of a successful payment transaction. Shopping cart systems also often facilitate the management of product information and prices presented to the customer. SHTML. Server-parsed HTML in which a file extension, typically .shtml, identifies HTML pages that contain one or more server-side include commands. SSL (secure sockets layer). A security protocol developed by Netscape Communications Corporation. T1, T3. Point-to-point dedicated telecommunications lines. T1 communication lines operate at a capacity of 1.544 megabits per second. T3 lines operate at a capacity of 44.736 megabits per second. WAV. A digital audio file format developed for Microsoft Windows.

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Gregory R. Heim is assistant professor in the operations and strategic management department at Wallace E. Carroll School of Management, Boston College. He holds an A.B. in economics from the University of Chicago and a Ph.D. in business administration from the University of Minnesota. Prior to his academic career, he worked as an econometric consultant to clients in regulated service industries. His research interests include service operations and electronic service operations, operations strategy, management of technology, and quality management. Kingshuk K. Sinha (corresponding author) is associate professor in the operations and management science department, Carlson School of Management, at the University of Minnesota. He received an interdisciplinary Ph.D. in operations management and strategic management from the University of Texas at Austin. His research interests lie at the intersection of management of technology and operations strategy. Currently, the empirical context of his research is e-business and high-technology operations. His articles have appeared or are scheduled to appear in Academy of Management Journal, Annals of Operations Research, European Journal of Operational Research, Interfaces, Journal of Operations Management, Management Science, and Manufacturing & Service Operations Management.
