Assessing Consumer Reactions to Unfamiliar Internet Businesses

Richard Yalch, U. Washington – Seattle

Eric Spangenburg, Washington State - Pullman

What Do These Sites Have In Common?

• Pets.com

• Furniture.com

• Garden.com

• Etoys.com

• Kozmo.com

• PlanetRx

• WebVan/HomeGrocer

All have closed

And the bankruptcies haven’t stopped

BizTravel closed on September 24th

Buy.com, facing a Sept 1 deadline for losing its credit card processing, ran a Not Going Out of Business Sale

See f***company.com for a daily log

Consumer Problems with Internet Shopping Can be Serious

• CyberRebate

• Founded by Joel Granick, 24-year old law school student

• Based on CompUSA–Office Depot Promos

• “Free After Rebate”

CyberRebate in February 2001

• 6th most popular shopping site

• 7.7 million unique visitors

• Lois Lazan purchased $8,000 worth and got a full refund for everything

CyberRebate in May, 2001

CyberRebate

• May 18th 2001 – filed for bankruptcy

• Owe $83 million in consumer rebates

• Some individuals owed $80,000!

Possible Consumer Fallout

• Increased concern about the financial viability of internet retailers

• Willingness to pay more in order to purchase from a safer business. (WSJ, Aug 13, 2001)

– Large firms like Amazon are raising their prices and still increasing their market share

Point of Difference

• Brick & Mortar– See the investment in real estate & merchandise– Speak to live person– Possess product upon purchase

• Pure Internet Site– Investment is hidden– Interact with computer program– Wait for product to be delivered

Market Problem(Asymmetric Information)

• When evaluating a store in cyberspace, consumers have little information about the store’s operations

• Who manages it, where are the products inventoried, how do they handle customer problems, & what is their financial status

• These qualities must be inferred from whatever information is available

Solution to Market Problem (“Signaling”)

Problem for Relatively New Internet Retailers

• How do you signal to consumers that you are a “safe” choice?– Advertise? – Offer free shipping? – Associate with a celebrity?– Develop a slick, professional site?– Hope customer service improves your 3rd party

ratings?

Research Questions

• What are the perceived risks for internet shopping?

• What information sources are used to select shopping sites?

Research Questions

• How do consumers predict their likely satisfaction before purchasing from an unfamiliar internet retailer?

• Does the preference for certain types of information vary depending on customer characteristics such as extent of internet shopping experience and level of perceived risk?

Cue Utilization Model

• Olson & Jacoby 

• Product Information Evaluated in 2 Ways

• Predictive Value – How useful is the cue in predicting actual performance?

• Confidence Value – How well can the consumer understand and use the cue?

Cue Utilization ModelPager Example

  LowUsefulness

High Usefulness

Low Confidence

FrequencyRange

PagingSensitivity

High Confidence

Retail Outlets

ConsumerReports

Cue Utilization ModelPager Example

  Low Usefulness

High Usefulness

Low Confidence

FrequencyRange

PagingSensitivity

High Confidence

Retail Outlets

ConsumersReport

Cue Utilization ModelPager Example

  Low Usefulness

High Usefulness

Low Confidence

FrequencyRange

PagingSensitivity

High Confidence

Retail Outlets

ConsumersReport

Cue Utilization ModelPager Example

  Low Usefulness

High Usefulness

Low Confidence

FrequencyRange

PagingSensitivity

High Confidence

Retail Outlets

ConsumersReport

Cue Utilization ModelPager Example

  Low Usefulness

High Usefulness

Low Confidence

FrequencyRange

PagingSensitivity

High Confidence

Retail Outlets

ConsumerReports

Cue Utilization Research

• Schellinck

• Moderating Effects of

– Time Pressure

– Perceived Risk

High Time PressureSchellinck

  Low Usefulness

High Usefulness

Low Confidence

High Confidence

High Risk PurchasesSchellinck

  Low Usefulness

High Usefulness

Low Confidence

High Confidence

Research Objective

• To apply the cue utilization model to understand how consumers evaluate new or unfamiliar internet shopping sites

Electronic Shopping

Too Many Choices?

Manufacturer’sAuthorization1-800

Number

Research Method

• Developed a questionnaire booklet that presented subjects with an internet shopping scenario

• Followed this with a series of scales measuring their reaction to the site and internet shopping.

Research Procedure

• After reading through the shopping scenario, respondents evaluated the risks in shopping on the internet and indicated how they would evaluate the attributes of internet shopping sites.

Questionnaire

• 5 Sections

1- Internet Shopping Experience

• Years using internet

• Hours per week using internet

• Different types of items purchased (e.g, airline tickets, books, music, clothes, etc).

2 - Sources of Information(judged importance)

1. Friend’s recommendation

2. Newspaper or magazine article

3. Online discussion group

4. Online advertisement

5. Association with brick & mortar store

6. Found with search engine

7. Found in search for lowest price

3 - Causes of Internet Shopping Risk(likelihood of occurring?)

1. Receive a defective product

2. Delayed shipment

3. Product never arrives

4. Product costs more than expected

5. Product not the same as what was ordered

6. Unable to return the product

7. Unable to get a refund

8. Product does not perform as described

4 - Internet Site Evaluation Judged usefulness &

Confidence in ability to understand

Lowest price3rd Party ratingsTelephone numbersStreet addressesCompany history Professional lookExtensive product info Manufacturer endorsedFree shipping

Easy returnsDiscussion groupsPrint adsRadio/tv adsSophisticated PersonalizationAccept all credit cardsCelebrity endorsementsShipment tracking

5- Risk Coping Methods(use or not?)

1. Contact Better Business Bureau

2. News stories

3. Look for financial information

4. Trust credit card company

5. Don’t worry

6. Other?

Results

• 403 WSU undergraduates completed the booklet as part of their marketing course research requirement

% Purchasing Different Products on the Internet

0%

10%

20%

30%

40%

50%

60%

% Purchasing

AirlinesClothesBooks, cdsComputerElectronicsFinancial

Importance of Internet Information Sources

1

2

3

4

5

6

7

8

9

FriendPrice SearchNews or MagBrick & MortarSearch EngineOnline adOnline Discussion

MySimon-type Site

Perceived Risk of an Internet Purchase

4.4 4.3 4.2 4.1 4.13.8 3.8

3

1

2

3

4

5

6

7

Delayed Shipments Bad Performance No Refund No Return

Costs More Different Product Defective Product Never Arrives

Very likely Little Concern about Most Severe Problem

Cue Utilization Model

• Usefulness in predicting

• Confidence in using

• 17 different store site characteristics

• XY – scatter plot/Quadrant Analysis

Exhibit 6Usefulness-Confidence Analysis

Celebrity

CompanyHistory

3rd PartyRatings

StreetAddress

Personalization

Radio/tv

Print ads

DiscussionGroups

FreeShipping

EasyReturns

ProductInformation

CreditCards

ProfessionalLook

TelephoneNumber

LowestPrice

ShipmentTracking

ManufacturerEndorsement

LowConfidence

HighConfidence

LowUsefulness

HighUsefulness

Usefulness-Confidence Analysis

Celebrity

CompanyHistory

3rd PartyRatings

StreetAddress

Personalization

Radio/tvPrint ads

DiscussionGroups

FreeShipping

EasyReturns

ProductInformation

CreditCards

ProfessionalLook

TelephoneNumber

Low estPrice

ShipmentTracking

ManufacturerEndorsement

LowConfidence

HighConfidence

LowUsefulness

HighUsefulness

Most Valuable

Usefulness-Confidence Analysis

Celebrity

CompanyHistory

3rd PartyRatings

StreetAddress

Personalization

Radio/tvPrint ads Discussion

Groups

FreeShipping

EasyReturns

ProductInformation

CreditCards

ProfessionalLook

TelephoneNumber

Low estPrice

ShipmentTracking

ManufacturerEndorsement

LowConfidence

HighConfidence

LowUsefulness

HighUsefulness

Least Valuable

Exhibit 6Usefulness-Confidence Analysis

Celebrity

CompanyHistory

3rd PartyRatings

StreetAddress

Personalization

Radio/tv

Print ads

DiscussionGroups

FreeShipping

EasyReturns

ProductInformation

CreditCards

ProfessionalLook

TelephoneNumber

LowestPrice

ShipmentTracking

ManufacturerEndorsement

LowConfidence

HighConfidence

LowUsefulness

HighUsefulness

Valuable – High Risk & Low Time Pressure

Exhibit 6Usefulness-Confidence Analysis

Celebrity

CompanyHistory

3rd PartyRatings

StreetAddress

Personalization

Radio/tv

Print ads

DiscussionGroups

FreeShipping

EasyReturns

ProductInformation

CreditCards

ProfessionalLook

TelephoneNumber

LowestPrice

ShipmentTracking

ManufacturerEndorsement

LowConfidence

HighConfidence

LowUsefulness

HighUsefulness

Valuable – HighTime Pressure

Moderating Effect of Prior Internet Shopping Experience

on Cue Utilization

• Split sample based on prior shopping experience – None 15.4%– 1-2 categories 48.4%– 3 or more categories 36.2%

Major Cues

• Factor Analysis of 17 Usefulness & Confidence Ratings

• 3 factor structure explained about 70% of the variance

3 Factors• Shopping Convenience

– Free shipping, easy returns, lowest price, accept all credit cards, extensive product descriptions, track shipments

• Company Information– company history, street address, telephone number,

manufacturer endorsement, 3rd party ratings, professional look

• Promotions– Radio/TV ads, print ads, celebrity endorsements,

personalization, discussion groups

Cue Ratings by Prior Internet Shopping Experience

44.5

55.5

66.5

77.5

8

Convenience

Information

Promotion

Convenience

Information

Promotion

Non Light Heavy

ConfidenceUsefulness

Moderating Effect of Perceived Risk on Cue Utilization

• Median split based on perceived risk – Low 49 %– High 51 %

Cue Ratings by Perceived Risk

4

4.5

5

5.5

6

6.5

7

7.5

8

Convenience

Information

Promotion

Convenience

Information

Promotion

Low Risk High Risk

UsefulnessConfidence

Conclusions - 1

• Consumers perceive only a moderate amount of risk when shopping on the internet

• Electronic shopping agents are second to friends as a source of retail site location

Conclusions - 2

• Support for the use of the Cue Utilization Model to assess Internet shopping sites

• Usefulness and confidence varied across the different characteristics

Conclusions - 3

• Most useful attributes were those related to actual transaction– Free shipping, easy return, credit cards,

telephone numbers extensive product information, professional look

• Items used to promote sites were considered least useful

– Advertising, 3rd party recommendations, hosting discussion groups, celebrity associations

Conclusions - 4

• Experienced shoppers were relatively more concerned with returns, inexperienced shoppers with free shipping

Conclusions - 5

• Factor analysis showed 3 major considerations

– Convenience in shopping

– Company information

– Promotions

• Experienced and low risk shoppers were more confident than inexperienced and high risk shoppers

Marketing Implications

• Pure internet shopping sites face a difficult dilemma as many of the activities used to promote a new site (mass media advertising and celebrities) have become associated with high marketing costs and likely failure.

• 3rd Party rating services may not be well-understood or trusted.

• Internet shopping sites associated with brick & mortar stores have an inherent credibility that may give them the marketing edge.

Fear of Being Amazoned?

Barnes & Nobled?

Low versus High Risk Shoppers

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

3.50 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50

Low Risk

High Risk

MostUseful

FreeShipping

EasyReturns

FreeShipping

EasyReturns

Celebrity

Celebrity

CompanyHistory

CompanyHistory

CreditCards

CreditCards

StreetAddress

StreetAddress

LowestPrice

LowestPrice

DiscussionGroups

DiscussionGroups3rd Party

Ratings

3rd PartyRatings

ManufacturerEndorsement

ManufacturerEndorsement

TelephoneNumber

TelephoneNumber

MostPredictive

LeastPredictive

LeastUseful

TrackShipment

TrackShipment

ProductInformation

ProductInformation

PrintAds

Radio/TVAds

PrintAds

Radio/TVAds

Personalization

Personalization

ProfLook

ProfLook

Experienced and Inexperienced Shoppers

4

5

6

7

8

4 5 6 7 8 9

Experienced

Inexperienced

MostUseful

LeastUseful

MostConfident

LeastConfident

FreeShipping

FreeShipping

ProductInformation

ProductInformation

EasyReturns

EasyReturnsTrack

Shipments

TrackShipments

LowestPrice

LowestPrice

CreditCards

CreditCards

ProfessLook

ProfessLook

TelephoneNumber

TelephoneNumber

Manufacturer

Manufacturer

Celebrity

Celebrity

3rd Party

3rd Party

DiscussionGroups Discussion

Groups

CompanyHistory

CompanyHistory

StreetAddress

StreetAddress

Ads

Ads