No Internet, No Service? How Enforced Online Migration Affects Business

HUI, Kai Lung | PNG, Ivan P.L.

All over the world, businesses and governments are aggressively steering consumers away from counter and telephone towards online service. In 2011, the state of Florida enacted a law that required application for unemployment benefit through the internet, an online skills test, and regular reports on search for work. [At time of publication] German airline, Lufthansa, charges American customers more for bookings through its call center than those through its website, while the airline’s British reservations center charges for incoming calls. In Massachusetts, Bank of America charges a fee in any month that eBanking checking account customers use a (human) teller or request a paper statement. How would such migration to online service affect consumers?

Consumers who prefer internet service benefit from the convenience. Others, who prefer in-person or telephone service, might lose. Some might cope, somehow, incurring some monetary or psychic cost, to use the internet service. Still others would be unable to cope and be completely excluded from the service. It is important to identify the effects of migration to a digital platform. Managers need to know the loss of sales and profit. Policy-makers need to know the loss of consumer welfare. Both managers and policy-makers need to know how to address the consumers who suffer loss.

Kai-Lung Hui and I.P.L. Png exploited a natural experiment in the administration of the US federal “do not call” (DNC) registry. The registry was opened on June 27, 2003. From the start, all consumers could register through the internet. However, for the first 10 days, only people in states west of the Mississippi river could register by calling a tollfree line. From July 7 onward, all people could register through this line. This provided a unique opportunity to identify the causal effect of conventional access on consumer choice.

The researchers found evidence that some consumers cannot access service on the internet. These people were only able or willing to access service through conventional means. Such consumers, however, are less prevalent among better-educated people. The study also led them to conclude that compulsory migration of service to the internet may result in a loss of customers. In the first 10 days, registrations were 27% lower in areas without tollfree telephone registration. Once the registration became available, most of that loss was recovered, but 4.3% were still lost after two weeks. Interestingly, the initial loss as the result of unavailability of telephone registration was less than the proportion that lacked home internet access, which was 41%. This suggests that policy-makers, managers and scholars do not need to be so pessimistic about migrating customer service to the internet.

For public policy and management practice, an important direction for future research is how to manage the segment of consumers who cannot use online service. One choice is simply to cut them off – as happened in Florida with applications for unemployment benefit. An alternative is to provide conventional access selectively – targeting conventional access to consumers who cannot adapt to internet service. The challenge is how to implement the self-selection. Lufthansa offers lower fares for online booking in one market – in other words, an incentive -- and charges a premium for telephone booking elsewhere – a disincentive. The service provider can limit the capacity of the conventional channel, which would naturally induce a delay in service time and, thus, encourage consumers to use the online channel.

They also discovered that newspaper reports influenced consumers. Where and when consumers could register by tollfree call, news reports including the tollfree number were associated with higher registrations. Where and when consumers could not register by tollfree call, reports that they could register by telephone after 10 days were associated with lower registrations.

Another important direction for future research is to estimate the size and characterize the segment of consumers who can cope with internet delivery despite preferring the conventional channel, and investigate how to steer them to the digital channel. Publicity is effective in persuading consumers to use the conventional channel. It is quite plausible that publicity would also raise consumers’ satisfaction and customer online efficiency, and so, persuade them to use to the digital channel.

HUI, Kai Lung

Senior Associate Dean, School of Business and Management, Deputy Head, Elman Family Professor of Business, Chair Professor, Academic Director, Kellogg-HKUST EMBA Program, Academic Director, HKUST EMBA Program, Academic Director, MScFinTech Program
Information Systems, Business Statistics & Operations Management