Does Trust matter to develop Customer Loyalty in Online Business

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Does Trust matter to develop Customer Loyalty in
Online Business?

• by
• Pattarawan Mai Prasarnphanich, Ph.D.
• Assistant Professor
• City University of Hong Kong
• Presented at 24th SEARCC
• November 18, 2007

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Issues

• Online vendors Building customer loyalty,
  long-term relationships through one-to-one
  marketing
• Personal information needed, credit card info.
• Customers Should I trust this website?
• Privacy and security concerns
• How long have they been in business?

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Research questions

• Trust -? customer loyalty in online businesses
• Trust as a multidimensional construct
• How and why customers perceptions of trust in
  Internet retailers lead to customer loyalty?
• What dimensions of trust are more important in
  influencing customer loyalty?
• Knowing the priority for resource allocation

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Theoretical Foundation

• Customer relationship/marketing relationship
  literature (e.g., Morgan and Hunt 1994)
• Trust
• Commitment
• Customer loyalty

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Trust

• Belief and expectation about the partners
  expertise, reliability, and intentionality
  (Genesan 1994)
• Credibility required expertise to perform the
  job effectively and reliably (i.e., deliver as
  promised) ---cognitive-based
• Benevolence interest in the partner welfare
  being honest ---affect-based
• Consistent with privacy/security concern
• Global trust measures confound or mask different
  effects on interested outcomes

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Commitment

• An enduring desire to maintain a valued
  relationship (Moorman et al. 1992)
• Long-term and consistent
• Commit in something they value

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Customer loyalty

• Nonrandom purchase expressed over time toward a
  brand
• Behavioral repurchase behavior such as large
  proportion of purchase, probability of purchase,
  etc.
• Insufficient to explain how and why
• Attitudinal loyal consequences
• Positive word-of-mouth, search motivation,
  resistance to counter-persuasion

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Research Model
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Research method

• Cross-sectional surveys
• Samples undergraduate and graduate students of a
  university in the US.
• Shopping experience at Amazon.com, a successful
  online bookstore
• 83 respondents (45 response rate) 61 is male
  and 39 is female
• Measures existing scales
• Data analysis Structural Equation Modeling (SEM)

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Results

• Measurement model -- adequate fit
• Model fit indices Chi-square86.37 with df80
  (ratio1.08) GFI0.88 AGFI0.82 NFI0.86
  CFI0.98 RMSR0.06
• Psychometric propertiesgood
• Convergent validity
• Discriminant validity
• Structural model adequate fit
• Model fit indicesChi-square99.57 with df109
  (ratio0.91) GFI0.87 AGFI0.86 NFI0.85
  CFI1.00 RMSR0.07

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Structural model
Perception of Retailers Credibility
Behavioral Consequences
0.56 (5.59)
0.04 ns (0.39)
Customer Commitment
0.46 (3.30)
0.36 (3.04)
0.26 (1.81)
0.71 (6.22)
Perception of Retailers Benevolence
Repeat Purchasing
Note Path coefficients with t-values in
parentheses plt0.05, plt0.01,
plt0.001, ns indicates nonsignificant at 0.05
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Discussion

• Customers build their trust, see value in the
  relationship, want to maintain, commit to, repeat
  their purchases, consider that retailer as a
  first choice, recommend to others
• Benevolence is the sole differentiator of loyalty
  in the online business
• Support privacy and security issues
• Credibility is a minimum requirement