Assessing Consumer Reactions to Unfamiliar Internet Businesses

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Assessing Consumer Reactions to Unfamiliar
Internet Businesses

• Richard Yalch, U. Washington Seattle
• Eric Spangenburg, Washington State - Pullman

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What Do These Sites Have In Common?

• Pets.com
• Furniture.com
• Garden.com
• Etoys.com
• Kozmo.com
• PlanetRx
• WebVan/HomeGrocer

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All have closed
And the bankruptcies havent 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 fcompany.com for a daily log
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Consumer Problems with Internet Shopping Can be
Serious

• CyberRebate
• Founded by Joel Granick, 24-year old law
  school student
• Based on CompUSAOffice Depot Promos
• Free After Rebate

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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

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CyberRebate in May, 2001
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CyberRebate

• May 18th 2001 filed for bankruptcy
• Owe 83 million in consumer rebates
• Some individuals owed 80,000!

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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

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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

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Market Problem(Asymmetric Information)

• When evaluating a store in cyberspace, consumers
  have little information about the stores
  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

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Solution to Market Problem (Signaling)
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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?

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Research Questions

• What are the perceived risks for internet
  shopping?
• What information sources are used to select
  shopping sites?

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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?

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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?

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Cue Utilization ModelPager Example
  LowUsefulness High Usefulness
Low Confidence FrequencyRange PagingSensitivity
High Confidence Retail Outlets ConsumerReports
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Cue Utilization ModelPager Example
  Low Usefulness High Usefulness
Low Confidence FrequencyRange PagingSensitivity
High Confidence Retail Outlets ConsumersReport
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Cue Utilization ModelPager Example
  Low Usefulness High Usefulness
Low Confidence FrequencyRange PagingSensitivity
High Confidence Retail Outlets ConsumersReport
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Cue Utilization ModelPager Example
  Low Usefulness High Usefulness
Low Confidence FrequencyRange PagingSensitivity
High Confidence Retail Outlets ConsumersReport
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Cue Utilization ModelPager Example
  Low Usefulness High Usefulness
Low Confidence FrequencyRange PagingSensitivity
High Confidence Retail Outlets ConsumerReports
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Cue Utilization Research

• Schellinck
• Moderating Effects of
• Time Pressure
• Perceived Risk

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High Time PressureSchellinck
  Low Usefulness High Usefulness
Low Confidence
High Confidence
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High Risk PurchasesSchellinck
  Low Usefulness High Usefulness
Low Confidence
High Confidence
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Research Objective

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

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Electronic Shopping
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Too Many Choices?
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ManufacturersAuthorization
1-800 Number
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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.

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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.

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Questionnaire

• 5 Sections

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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).

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2 - Sources of Information(judged importance)

1. Friends 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

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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

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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
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5- Risk Coping Methods(use or not?)

• Contact Better Business Bureau
• News stories
• Look for financial information
• Trust credit card company
• Dont worry
• Other?

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Results

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

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Purchasing Different Products on the Internet
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Importance of Internet Information Sources
MySimon-type Site
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Perceived Risk of an Internet Purchase
Very likely
Little Concern about Most Severe Problem
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Cue Utilization Model

• Usefulness in predicting
• Confidence in using
• 17 different store site characteristics
• XY scatter plot/Quadrant Analysis

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Most Valuable
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Least Valuable
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Valuable High Risk Low Time Pressure
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Valuable HighTime Pressure
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Moderating Effect of Prior Internet Shopping
Experienceon Cue Utilization

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

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Major Cues

• Factor Analysis of 17 Usefulness Confidence
  Ratings
• 3 factor structure explained about 70 of the
  variance

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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

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Cue Ratings by Prior Internet Shopping Experience
Usefulness
Confidence
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Moderating Effect of Perceived Risk on Cue
Utilization

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

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Cue Ratings by Perceived Risk
Usefulness
Confidence
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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

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Conclusions - 2

• Support for the use of the Cue Utilization Model
  to assess Internet shopping sites
• Usefulness and confidence varied across the
  different characteristics

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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

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Conclusions - 4

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

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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

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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.

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Fear of Being Amazoned?
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Barnes Nobled?
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