Doing Business with Strangers: Reputation in Online Service Marketplaces

Antonio  Moreno; Christian  Terwiesch

Article | Information Systems Research

Doing Business with Strangers: Reputation in Online Service Marketplaces

by Antonio Moreno and Christian Terwiesch

Abstract

Online service marketplaces allow service buyers to post their project requests and service providers to bid for them. To reduce the transactional risks, marketplaces typically track and publish previous seller performance. By analyzing a detailed transactional data set with more than 1,800,000 bids corresponding to 270,000 projects posted between 2001 and 2010 in a leading online intermediary for software development services, we empirically study the effects of the reputation system on market outcomes. We consider both a structured measure summarized in a numerical reputation score and an unstructured measure based on the verbal praise left by previous buyers, which we encode using text mining techniques. We find that buyers trade off reputation (both structured and unstructured) and price and are willing to accept higher bids posted by more reputable bidders. Sellers also respond to changes in their own reputation through three different channels. They increase their bids with their reputation score (price effect) but primarily use a superior reputation to increase their probability of being selected (volume effect) as opposed to increasing their bid prices. Negative shocks in seller reputation are associated to an increase in the probability of seller exit (exit effect), but this effect is moderated by the investment that the seller has made in the site. We conclude that participants in this market are very responsive to the numerical reputation score and also to the unstructured reputational information, which behaves in a similar way to the structured numerical reputation score but provides complementary information.

Keywords: online service marketplace; procurement; Auctions; Reputation; Bids and Bidding;

Format: Print

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Citation:

Moreno, Antonio, and Christian Terwiesch. "Doing Business with Strangers: Reputation in Online Service Marketplaces." Information Systems Research 25, no. 4 (December 2014): 865–886.

The first two cases in this series are set in the financial services industry, and explore whether it is better for back-office workers to be generalists who provide the flexibility of being able to handle the complete range of transactions that the company faces or specialists who focus on a subset of the overall transaction mix. The objective is to introduce the advantages of demand pooling in reducing the variability associated with the forecasting of highly variable workloads, while also demonstrating the benefits to worker learning and efficiency improvements that can come from specialization.

The case is set at the Retail Investor Group Operations of the Vanguard Group, the mutual funds and ETF giant. Karin Risi, the managing director, is faced with a back-office operation that hasn’t kept up with massive transaction growth, one that is struggling under the weight of mounting client phone call and transaction volumes, client complaints, and buckling employee morale. And worse, the press was taking notice. The (A) case details the complexity in the growing backlog and frames the question of whether they should pursue a specialist model. The (B) case, for distribution in class, details the impact of an initial segmentation of workload into eight categories and poses additional questions for class discussion and analysis.

The case opens in August 2020 as Ozgur Tort and Mustafa Bartin, CEO and chief large-format and online retail officer of Migros Ticaret A.S. (Migros), Turkey’s oldest and one of its largest supermarket chains, are navigating Migros through COVID-19 and the unprecedented surge in demand in online groceries. Between the first official case in Turkey in March and August, customers have flocked to online shopping and Migros’ teams have been busy trying to solve the picking, fulfillment, and logistics bottlenecks. In the six months, the company recruited and trained new pickers, expanded its delivery fleet, and converted less busy stores into dark stores. Quick to react, Migros was able to add new customers to its base and was proud of its accomplishments.
Now, unable to forecast how much of the surge in demand for online was here to stay, how should Migros plan for the future of Sanal Market and Hemen? Was there anything the company could do to sustain the number of hybrid shoppers it acquired during the past few months?

Case | HBS Case Collection | August 2020 (Revised September 2020)

Migros Turkey: Scaling Online Operations (A)

Antonio Moreno and Gamze Yucaoglu

The case opens in November 2019 as Ozgur Tort and Mustafa Bartin, CEO and chief large-format and online retail officer of Migros Ticaret A.S. (Migros), Turkey’s oldest and one of its largest supermarket chains, are contemplating what the best fulfillment format and delivery model for the company’s growing online arm, Sanal Market, and its under-30-minutes grocery service arm, Hemen, are. Migros’s online operations had grown over 50% year-on-year in the previous three years, and the target for 2020 was to grow 100%. With all of these considerations in mind, Bartin and Tort needed to decide which levers to pull for the last mile and fulfillment to best serve the future of Migros.

The case chronicles the founding and growth of Migros as well as Sanal Market and lays the ground for food and grocery retail in Turkey complete with the competitive outlook. The case then provides a detailed overview of how Migros built online channels, Sanal Market and its recently introduced Hemen, and how Tort and Bartin have thought about fulfillment and delivery as well as omnichannel mentality. The case goes into detail about the three different fulfillment models, store pick micro-fulfillment center, and dark store, that Migros is piloting in 2019 as well as providing an understanding of what the company is thinking about logistics and last mile delivery as its online sales grow.

While globally, online shopping and consumer preferences were changing fast, particularly in terms of how and with what frequency customers shopped online and how fast they wanted their groceries delivered, Migros was trying to find the optimum model for fulfillment and last mile delivery. What was the best way to optimize last mile with regards to pooling store catchment areas and pooling stores, and which of the fulfillment models would yield the best results in terms of picking speed and accuracy and customer expectations? Additionally, the company needed to figure out how to position Hemen; facing fierce competition from fast-delivery grocery startups, for whom burning cash to achieve growth was not a concern, should Hemen remain as a stand-alone offering or should it be integrated within the Sanal Market app?

Keywords: retail; grocery; Business Model; Emerging Markets; For-Profit Firms; Strategy; Technology Platform; Information Technology; Technology Adoption; Value Creation; Globalization; Competition; Expansion; Logistics; Profit; Resource Allocation; Corporate Strategy; Turkey;

Citation:

Moreno, Antonio, and Gamze Yucaoglu. "Migros Turkey: Scaling Online Operations (A)." Harvard Business School Case 621-026, August 2020. (Revised September 2020.) View Details

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