AN INVESTIGATION INTO THE DETERMINANTS OF SUCCESS FOR ONLINE SECURITIES TRADING SERVICES. Roger Perry and Robert E Widing University of Melbourne

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1 AN INVESTIGATION INTO THE DETERMINANTS OF SUCCESS FOR ONLINE SECURITIES TRADING SERVICES Roger Perry and Robert E Widing University of Melbourne Abstract This paper presents work-in-progress research on the factors which enable success in the delivery of Online Securities Trading (OST) services (eg Commonwealth Securities or E*TRADE). The paper finds that service attributes that support effective consumer decision making are likely to be key contributors to OST service success. It further finds that the ability of the system to induce a state of flow (Hoffman and Novak, 1996), where the consumer is both enjoying and is deeply involved in the interactive experience, will also become increasingly important. In essence the paper postulates that the OST service providers, whilst having been successful to date, will now need to move into a different competitive paradigm where the online trading capability (with its associated convenience and low cost) is simply a hygiene factor and the next competitive battlefield will revolve around value added services. The paper proposes that the nature of these value added services will both enhance the consumers ability to make appropriate decisions whilst making the services more fun to use. Introduction An Online Securities Trading (OST) service is defined here as one which provides the ability to place buy/sell orders for investments/financial instruments through an interactive, multi-media based service. The World Wide Web (WWW) - through the use of a personal computer - would represent the most common channel for such services at time of writing. However, a range of additional interactive channels are possible in the not so distant future - including set-top boxes for interaction through the television set and attached cable networks. The above definition is deliberately broad in order that it does not presuppose any of the attributes or supporting services which might influence a consumer s satisfaction in the service (such attributes will be discussed later in the paper). The research focuses explicitly on the Australian marketplace and on the consumer market in particular. Importance of the Research The Market Significance of the OST Services OST services have been more successful than many internet service offerings from the perspectives of: commercial profitability: and the marketplace diffusion of the product/ service.

2 OST services have been one of the few early interactive services offerings which have enjoyed profitable operations (Ferranti, 1999). Whilst one would normally consider this a mandatory characteristic of any business - it has not proved so with many internet start-ups (eg Amazon.com). OST services in the United States now account for 28% of retail equity trades (PricewaterhouseCoopers, 1998). Considering such services were not available until 1996, this is a remarkable achievement. Now even traditional full service brokerages (such as Merill Lynch) have over-ruled their early determination to become involved in what they perceived as a purely discount market and are implementing online services to complement their traditional broker based (and advice based) services (Phillips, 1999). In the Australian marketplace itself the pioneer OST services such as Commonwealth Securities are enjoying significant popularity, and have been the focus of significant press attention. As an indication of the importance of these services - Commonwealth Securities (after only 4 years of operation) controls around 7% of daily Australian share market trades (Phillips, 1999). Recognising the importance of the OST services, other banks (such as the ANZ) are now moving to incorporate a fuller OST offering into their online banking systems (ANZ Press Release, August 1999). Yet, in spite of the manifest importance of this phenomenon, the authors are not aware of any detailed and rigorous research (to-date) into Australian OST services. The Relevance of the Research to Interactive Home Shopping The authors believe the OST services to be an early manifestation of Interactive Home Shopping. (IHS). This is postulated on the basis of Alba et al (1997) discussions in that shopping for investments is conducted in an environment that is:! interactive in that it is a two-way communication with relatively short response time and a significant degree of response contingency (where the response of one party is a function of the response by the counter-party);! conducted from home given the broad Alba et al (1997) definition of home as being a location other than a store. Given, that OST services are an example of Interactive Home Shopping (albeit, shopping for investment instruments), there is the potential for generalised lessons to be drawn from OST research. Summary of Research Importance So, OST services are important from three perspectives:! they are rare examples of profitable WWW based services;! they are having a significant impact on the stockbroking marketplace;! and they could be instructive for IHS at large.

3 Hypotheses Under Investigation and Their Foundations in Literature The OST services offer much more than an inexpensive channel to buy/sell shares. They are now offering a wider range of investment categories (eg managed funds as well as shares, options and warrants), with significant amounts of supporting information online (eg company research). Given that the competitors in this marketplace are already competing on a range of value adding services beyond price - this research examines a range of attributes that are of significance to the OST customer. However, whilst it broadly examines the attributes of import, its principal hypotheses relate to the contribution of online decision support and the experience of flow to high customer satisfaction. These hypotheses are discussed below. Decision making support Alba et al (1997) presented an examination of the implications of IHS for consumers, retailers, and manufacturers. When applying their analysis to the OST situation we examined 3 broad hypotheses. In essence we hypothesised that successful OST services would deliver the following attributes - a broad range of options (multiple investment categories and depth in the options available within each category); significant information available on each of the options (including independent 3rd party assessment of each of the investment options); a means of processing such a plethora of information across so many options. The direction of these hypotheses is entirely consistent with the writings on consumer policy (Russo et al, 1996; Widing and Talarzyk, 1989) in that two fundamental goals of consumer policy have been to increase the availability and processability of useful product information (Widing and Talarzyk, 1993). In essence, the hypotheses state that in order to encourage consumers to remain loyal to a particular OST service, the service providers must supply a framework for making effective decisions. In IHS terms they must maximise consumption utility net of price and search costs (Alba et al, 1997). Indeed, the key value added benefits of the traditional full service stockbrokers revolve around the delivery of decision support in the form of both research and the advice of the broker. So in conducting the research, not only will the researchers test the above hypotheses but they will also compare the effectiveness both OST services and traditional full service stockbrokers in delivering against key service attributes. Services Which Encourage Flow The theory of flow was originally developed by Csikszentmihalyi (1990) who described flow as being the state in which people are so intensely involved in an

4 activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it. Ghani and Deshpande (1994) maintain that flow has two key characteristics: total concentration in an activity; the enjoyment which one derives from an activity. Hoffman and Novak (1996) developed a framework for navigation in a computermediated environment which encapsulated the concept of flow. This and the research of Ghani and Deshpande (1994) led to the hypothesis that successful OST services were likely to be those which encouraged flow. In essence, the research examines the extent to which flow explains the variance in measures of customer satisfaction. This research does not delve further into how the OST services encourage flow experiences nor does it examine the means by which enhanced flow might lead to customer satisfaction. Other Attributes The researchers for this study have conducted a review of the capabilities and services offered by today s service providers. Whilst more than 30 attributes have been identified, they have been grouped into 10 attribute categories. Whilst work is still being conducted on refining these attribute groups, at present they are as follows: availability of the service; quantity of information; quality of information; decision making support; service efficiency; ease of use; service independence; price; number of investment categories; range of products within investment categories. The respondents will be asked to rate the importance of these attributes, and then to assess the performance of their OST service against that of a full service stockbroking service. Method & Current Research Status Having conducted their literature review and assessed the capabilities delivered by current OST service providers, the researchers have prepared a questionnaire. The questionnaire is being tested for relevance, completion time, and ease-of-use. To do this, the researchers are currently engaging with users of the services and industry participants.

5 The 8-page questionnaire uses attitude, intention and behavioural constructs to measure customer satisfaction. The service attributes that might explain variance in customer satisfaction are collected in questionnaire sections following the measures of customer satisfaction. The questionnaire ends with sections that collect demographic and investment profile information. The research focuses explicitly on the Australian marketplace and on the consumer market in particular. The researchers are currently working with industry participants to establish the most effective sampling method for the target population (Australian users of OST services). The researchers expect the questionnaire to be distributed during September The questionnaires are expected to have been received and analysed by end-december References Alba, Joseph, Lynch, John, Weitz, Barton, Janiszewski, Janis, Lutz, Richard, Sawyer, Alan and Wood, Stacey (1997), Interactive Home Shopping: Consumer, Retailer, and Manufacturer Incentives to Participate in Electronic Marketplaces, Journal of Marketing, 61(July 1997), ANZ Press Release (August 25, 1999), ANZ corporate web site, anz.com.au Csikszentmihalyi, M. (1990), Flow: The Psychology of Optimal Experience, New York: Harper and Row. Ferranti, M. (1998), High Finance Goes Downscale, InfoWorld, July Ghani, Jawaid, A. And Deshpande, Satish, P.(1994), Task Characteristics and the Experience of Optimal Flow in Human-Computer Interaction, Journal of Psychology, 128(4), Hoffman, Donna, L. And Novak, Thomas, P. (1996), Marketing in Hypermedia Computer-Mediated Environments: Conceptual Foundations, Journal of Marketing, 60 (July 1996), Phillips, B (1999), Going for Broke, at a Premium, Business Review Weekly, June Russo, J. and Dosher, B. (1983), Strategies for Multiattribute Binary Choice, Journal of Experimental Psychology: Learning, Memory and Cognition, 9 (October),

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