July Master Thesis ( Characters) Master of Science in Strategy, Organization & Leadership. By: Tim R. Mikkelsen

Transcription

1 Aarhus University, Business and Social Sciences Department of Economics and Business Administration Trust building strategies available to small e-commerce stores: How to build initial trust and impact consumer purchase intentions. An analysis of the determinants and antecedents of initial trust and purchase intention in an online environment July 2014 Master Thesis ( Characters) Master of Science in Strategy, Organization & Leadership By: Tim R. Mikkelsen Advisor: Mogens Dilling-Hansen

2 Abstract The purpose of this thesis was to provide empirical evidence about the antecedents and determinants that affected online consumer s levels of initial trust and consequently had an impact on their purchasing decisions. Based on initial literature review, three research questions were formulated. The first question was to measure the effects signal cues and situational normality had on consumer purchase intention. The second research question concerned which factors that could influence the consumers perceived trust and risk towards e-commerce websites. And the third research question concerned which factors had a direct effect on consumer s online purchasing behavior. Answers to the research questions were obtained using an online survey conducted in Denmark. The survey link was distributed using social media, targeting and relevant forums. A total of 314 samples of were collected. The results were analyzed using SPSS 21. The results indicated that six constructs had a direct effect on the consumer s intent to purchase from an unfamiliar website. It was found that; Signal cues, Situational normality, Trust, Perceived risk, ease of use and perceived usefulness were all significant indicators of behavioral intent. Furthermore results indicated that Structural Assurance, Third-party seals, perceived social presence, situational normality and perceived ease of use all had a significant impact on building initial trust towards a website. The results provided by this study found support for most of the hypotheses stated in chapter 4. Although not all of the relationships were significant, the model still provided sufficient data needed as a starting point for small e-commerce companies to create a framework for initial trust. An interesting notion that the analysis found was that trust and perceived risk was not as closely related as previously thought, neither was the impact of signal cues on perceived risk. It seems that the consumers can have a certain amount of trust towards a website and even though they still perceive the situation as risky they are willing to participate in an intended transaction. Key words: Initial trust, Signal Cues, Perceived Risk, TAM, Perceived Ease of Use (PEOU), Perceived Usefulness (PU), Structural Assurances, Third-Party seals, Social Presence, online Purchase intention and E-commerce 1

3 Acknowledgments First off I would like to express my sincere gratitude to Mogens Dilling-Hansen, my advisor, for guiding and helping me in the last steps of the thesis. I could not have finished the thesis without your help. I also want to thank my friends and family for all of their support and their participating help in my study. Tim R. Mikkelsen July 1st,

4 Table of Contents 1.1. Introduction Problem Statement Research Objectives Methodology Research Design Structure Delimitations...9 Theoretical Background and previous studies Signaling theory Theories of Trust Consumer behavior theory Empirical Literature Review Technology acceptance model (TAM) TAM and E-commerce Initial online consumer Trust Online Signaling cues Situational Normality Perceived Risk Conceptual Framework Research Hypotheses Hypothesis Hypothesis 2 and 3: Hypothesis 4, 5 and Hypothesis Hypothesis 8 and Hypothesis Hypothesis Hypothesis 12, 13 and

5 Methodology Research instruments Research design Sampling Data analysis Missing values and recoded variables Reliability analysis and variable reduction Preliminary PCA analysis Principle component analysis Situational Normality Structural assurance Perceived Risk Final constructs Hypothesis 1: Situational normality will positively affect trust in an e-vendor Interpreting the output Hypothesis 2: Situational normality will positively affect PEOU Interpreting the output Hypothesis 3: Situational normality will positively affect consumer purchase intention Interpreting the output Hypothesis 4: Signal cues will negatively affect perceived risk in an e-vendor Hypothesis 5: Signal cues will positively affect trust in an e-vendor Interpreting the output Hypothesis 6: Signal cues will have a positive effect on the consumers purchasing intention Interpreting the output Hypothesis 7: PEOU will positively affect trust in an e-vendor Interpreting the output Hypothesis 8: PEOU will positively affect PU of an e-vendor Interpreting the output Hypothesis 9: PEOU will positively affect consumers purchasing intentions toward an e-vendor Interpreting the output

6 6.16. Hypothesis 10: Initial trust towards an e-vendor will positively affect perceived usefulness (PU) Interpreting the output Hypothesis 11: Trust will negatively affect perceived risk towards an e-vendor Hypothesis 12: Perceived Risk will negatively affect purchase intentions towards an e-vendor Interpreting the results Hypothesis 13: Trust will positively affect purchase intentions towards an e-vendor Interpreting the results Hypothesis 14: Perceived Usefulness (PU) will positively affect purchase intentions towards an e- vendor Interpreting the results Hypothesis overview Discussion and implications Conclusion References Appendix 1: Questionnaire

7 Chapter Introduction Trust is an essential part in any interaction with another party. Every day we place our trust in other people and companies. The internet and e-commerce is often considered to be an unfamiliar environment and trust is therefore paramount in building new relationships. Trust is difficult to build and even more critical to maintain especially in online environments (Harrison McKnight, Choudhury, & Kacmar, 2002). According to Mcknight (2002) consumers have realized that e-commerce offers great opportunities and potential for purchasing and gathering information about products. However there is considerable evidence that online consumers perceive significant risks and uncertainty associated with online transactions (Harrison McKnight et al., 2002). Many small e-vendors have no noticeable reputations and are unfamiliar to the consumers that enter their sites. Building initial trust is strategically important for such e-vendors as this helps lowering perceived risk and increases the likelihood that the consumers are willing to perform transactions with them. Because the webenvironment does not allow the consumer to inspect products and services directly the users therefore find it more difficult to assess if the vendor will deliver on its commitments. The lack of initial trust towards an e-vendor means that the consumer is more hesitant at engaging in relationships and making online purchases (McKnight, D. H., & Chervany, N. L., 2002). For e-commerce vendors it is therefore critical to promote a safe environment that fosters initial trust, so they can turn any potential customers into actual consumers who are willing to transact through their sites. In order to build initial trust, it is of great importance to understand both the consumer behavioral intentions and the antecedents needed to create initial trust. (Murphy, 2003). The focus of this thesis is to find ways and strategies to promote initial trust. In this context, initial trust referrers to situations where no previous experience with the company exists (Murphy & Smart, 2000). This thesis is complementary to the existing theories of trust building and tries to provide an understanding of what factors that influence trust and how trust influence the consumer to participate in e-commerce. The objective of this thesis is find ways in which small e-commerce companies with no reputation or marketing budget can increase their perceived trustworthiness and hopefully increase their sales. All relevant outputs from the analysis can be found on the attached USB drive. 6

8 1.2. Problem Statement Trust is a crucial part in any buyer-seller relationship, as purchasing a product or service contains some sort of risk for the buyer. This is especially true in the online environment. Because the consumer can t psychically inspect the products and have no knowledge about the buyer, asymmetry of information develops, which is often to the sellers advantage. Trust is the expectation that the other party one does business with won t behave opportunistic and take advantage of the situation. Trust is normally generated with interactive experience with the other party or through brand or company awareness. Small e-commerce stores do not have a very large marketing budget to build and create consumer and brand awareness. It can therefore be difficult for these small e-commerce stores to build initial trust amongst possible consumers, because the consumers don t have experience with or knowledge about the company. This in turn creates uncertainty and might deter the consumer from purchasing products from the company. Initial cues as the ones you find in bricks & mortar shops, such as, the physical product, design of the store or the presence of staff are not directly present on websites. Small e- commerce stores face big challenges in the online market as advertisement and getting new customers can be expensive (Murphy & Smart, 2000). Even if the small e-commerce company is successful in getting consumers to enter their sites, they still face another big challenge because why should the consumer purchase products from these unknown companies when there are well-known big companies with proved reputations already in the market. Small e-commerce stores must therefore use different free strategies to build initial trust with potential consumers. These strategies can be in the form of signals cues or making the website easy to use and thus making it more useful Research Objectives The aim with this thesis is to answer the following research questions and to report the findings with high hopes that the results and implications will allow for future strategies and implementations that small e-commerce websites can use to increase their sales. Research Question 1: Does the consumer s perception of normality and signal cues in an online environment have a significantly impact on the consumers purchase intention towards an e-commerce vendor or are they simply mediating the effect through other factors? 7

9 Research Question 2: What factors influence consumers perceived trust and risk towards an e- commerce website? Research Question 3: Which factors can be attributed to having a direct effect on the consumer s online purchasing behavior? Do users experience and expectancy and their disposition to trust and risk have an effect on the consumers purchase intention? Do ease of use and perceived usefulness of a website have an impact on purchase intention? 1.4. Methodology In order to answer the above research questions a theoretical post-positivist approach has been applied. This philosophical view believes that the cause of an individual s behavior can be expressed and statistically observed to determine outcomes and/or effects of that behavior (Wildemuth, 1993). The positivist approach is often connected with a quantitative confirmatory analysis in which researchers must stay objective when they look at the data and results to ensure validity and reliability (Creswell, 2009; Wildemuth, 1993). This approach allows the researcher to look at relationships between variables through the use of surveys in order to test the research questions, theories and hypotheses (Creswell, 2009) Research Design To answer the research questions a survey was conducted online using the survey tool Qualtrix. A survey link was distributed using social media, targeting and relevant online forums. The survey relied on methods of convenience and snowballing effect. A total of 314 samples of the questionnaire were collected. The questionnaire consisted of 9 batteries with 37 questions divided into 5 parts. Part 1 consisted of demographical questions also measuring previous experience and average time online each week. Part 2 measured how normal, easy and useful the respondents perceived the medium to be regarding online shopping. Part 3 measured what psychological effects signal cues had on the respondents. Part 4 measured how the respondents perceived trust and risk with part 5 measuring their willingness to make future online purchases. 8

10 1.6. Structure Chapter 2 of the thesis will involve an extensive literature review and the theoretical background of relevant theories including: signaling theory, normality, theories of consumer behavior and online consumer behavior and consumer perceived trust/risk theories. Afterwards a conceptual framework will be proposed based on the literature review. Based on the conceptual framework several hypotheses will be developed to help answer the previous research questions. The methods and research design used for the survey will be explained in details in chapter 5 following the statistical data analysis in chapter 6. After the data analysis I will be discussing the impacts and implications of the study, followed by proposed strategies for small e-commerce companies. The last chapter 7 will be a conclusion of the thesis followed by suggestions for future research Delimitations In order to narrow down the scope, it was decided that this thesis would only focus on small fairly unknown e-commerce companies. Online trust building strategies was chosen as a research subject due to the amount of entrepreneurial small online companies that exists. The data gathered for this thesis was primarily gathered from Danish consumers as the author has lived in Denmark throughout the writing of the thesis. For the purpose of finding and developing ways that the e-commerce company can increase trust and affect purchasing intentions, only free and easy obtainable signals and strategies has been used. The author acknowledges that there are a lot of signals one can use to effect trust in an online environment, but this thesis has only used Structural assurances, Third-party seals and signals of perceived personal presence. Furthermore the concept of Trust covers a wide range of theoretical aspects and genres. This thesis has therefore focused on the concept of initial trust. 9

11 Chapter 2 Theoretical Background and previous studies 2.1. Signaling theory Signals are all around us today, from the way we dress and talk, to the way companies try to distinguish themselves using brands and advertisement. Signals are manipulable and costly at times but can be used in such a way that a message or intended meaning can be transferred and perceived by a receiver (Spence, 1973). In a normal buyer-seller relationship, especially online, there are some perceived uncertainty as the outcome of a transaction cannot precisely be predicted due to imperfect information (Brengman & Karimov, 2011a; Pavlou, Liang, & Xue, 2007). Transactions often involves the buyer to face some amount risk, as there will be uncertainty about sellers characteristics and the quality of the product, and as such asymmetry in information is to the seller s advantage (Mishra, Heide, & Cort, 1998). This is especially true in online transactions because of its impersonal nature which makes it difficult for the buyer to assess the quality of service, product or the genuineness of the seller before the transaction. Signals can be used to send out a series of cues signaling trust and product quality in order to negatively affect some of the perceived risk the consumer might have when deciding to make a transaction with an unknown seller (D. Gefen & Straub, 2004). A lot of research has been dedicated to signaling theory in the past 40 years both in management, psychology and science. Spence (1973) wrote an essay on how job candidates invested in signals to have a bigger chance in the hiring process. He said that everyone had some observable attributes where some were fixed (indices) such as gender and race, while others were alterable (signals). According to Spence (1973) signals came with a high cost as signals should distinguish job candidates from one and another. He used the investment in a college degree as an example of a signal as one job candidate with a college degree could distinguish himself from candidates without. He stated that if the signal became too productive, meaning that the benefits would largely outweigh the costs, then everyone would invest in the signal and the signal would lose its function and thus signaling involved a high cost (Spence, 1973). 10

12 Kirmani and Wright (1989) analyzed the effects advertisement costs had on the product quality perception. They demonstrated that consumer perception of the money spend on advertisement could be used as a cue on the quality of a new product. The individual consumer would be exposed to and observe an ad campaign through different media channels and then they would infer relative campaign costs themselves (Kirmani & Wright, 1989; Kirmani, 1990). They made suggestions to why consumers would perceive product quality based on the ad costs: 1. advertisement costs may have acted as a signal that the manufacturer had a lot of confidence in their product; or 2. consumers might see a correlation between costs and product quality (Kirmani, 1990). They went on to propose that costs could to some extend be used as a signal of quality as the consumers default attribution was to perceive that high costs imply high quality. Boulding (1993) tested signaling theory at the consumer level. The purpose of their research was to test how consumers responded to signals such as price, warranties and advertisement costs. According to Boulding (1993) consumers must believe that high-quality companies can use different signaling mechanisms which are too costly for low-quality companies to use. The idea was that for high-quality companies to differentiate themselves, they had to provide some sort of bonding component, so that if the signal provided, was false, the company would have a financial cost. The bond could be loss in wealth or reputation. They proposed that high-quality warranties could be used as signals and that they would yield higher purchase intentions because the cost for low-quality companies to do the same would be too high (Boulding & Kirmani, 1993). Hu et al. (2010) conducted an experiment to test the effects that third party seals had on initial trust. Using a lab experiment they exposed the respondents to different assurance seals, to test the effects privacy-, security- and transaction-integrity assurance had on initial trust. They found that although the seals had a positive impact on initial trust, combining seals or having seals with multiple functions were not more effective and in some cases weakened the perceived levels of trust (Hu, Wu, Wu, & Zhang, 2010). 11

13 2.2. Theories of Trust The concept of trust has been part of countless research papers throughout the years, both in economics, psychology and management, but it still does not seem that a universal definition has been accepted (Beldad, de Jong, & Steehouder, 2010). In this section I will be reviewing some of the previous studies connected to theories of trust and describing some of the different streams the concept of trust has taken. One of the streams within theories of trust regards trust as the expectation of behavior from an interaction partner (Beldad et al., 2010; Koller, 1988; Rotter, 1967). Koller (1988) made an experiment measuring the degrees of trust one forms in an interaction with a partner. The subjects in the experiment had to decide whether to lend an expensive or inexpensive book to a fictitious male student. The subjects had to indicate the degree of trust they had formed with the fictitious partner. The experiment showed that the degree of trust was higher with those who decided to lend the expensive book, as the risk involved also increased. Another stream of theory is that one party must be willing to accept exposure to vulnerability (Beldad et al., 2010; Doney, Cannon, & Mullen, 1998; Mayer, Davis, & Schoorman, 1995; Rousseau, Sitkin, Burt, & Camerer, 1998). Mayer s (1995) definition of trust is that one party must be willing to be vulnerable to the actions of another party based on the expectations that the other party will fulfill the actions expected by the trustor. As trust is the basis for almost any transaction or relationship, the trustor must take a leap of faith and trust that the other part will keep their promise and live up to the agreed expectations. Table 1 below shows some previous empirical studies made on online trust. Table 1 Empirical studies on the determinants of online trust Study Methodology Analytic techniques Hypothesized determinants of online trust Statistically significant determinants of online trust Experiential surveys/online surveys Gefen Experiential survey with 217 Confirmatory Familiarity with an e-commerce vendor; Familiarity with an e-commerce (2000) students (USA) tasked to Factor Analysis disposition to trust vendor; disposition to trust inquire and purchase books with LISREL 8 from Amazon.com 12

14 McKnight Experiential survey with 1403 Confirmatory Perceived size of the e-vendor; perceived Effects of perceived size and et al. students asked to search for Factor Analysis reputation of the e-vendor perceived reputation on trust (2002) their legal rights by visiting a with AMOS 3.6 depend on the type of store legal advice website Yoon Experiential survey with 122 Regression Security of the transaction, website Security of the transaction, (2002) students (South Korea) analysis properties, navigation functionality, personal variables instructed to simulate an personal variables (familiarity and online product purchase for satisfaction with e-commerce) two items: a notebook computer and a music/game CD Corbitt et Online survey with 80 valid Linear Perceived market orientation; perceived Perceived technology al. responses coming from regression technology trustworthiness; user s web trustworthiness; perceived site (2003) students (New Zealand) analysis experience; perceived site quality quality; risk perception (_) Gefen and Study 1: 250 MBA students Partial least Social presence Social presence influences Straub were instructed to go through square integrity, benevolence, and (2004) the procedure of buying a predictability, but not ability textbook online, but not to actually purchase it Study 2: 171 MBA students Online trust in this study in measured were instructed to check for through integrity, flights online and then book predictability, ability, and benevolence but not purchase them Koufaris Experiential online survey with Linear Perceived company size; company Company reputation, perceived and 212 students (USA) asked to regression reputation; perceived willingness to security control, willingness to Hampton- browse a website they have not analysis customize; perceived usefulness of customize (sig. at 0.01); Sosa encountered before for website; perceived website ease of use of perceived usefulness and ease of (2004) information on a laptop website; perceived security control; use of website propensity to trust (sig. at 0.05) Source 1 Adapted from Beldad et al Gefen (2000) made an experiment with 217 students asking them to inquire about and purchase books of the internet. The purpose was to test whether familiarity with the website had any implications on trust. The results showed that while familiarity did build trust it was primarily the student s disposition to trust that affected their trust towards the website. Corbit (2003) analyzed factors in building relationships with customers on the internet. They found a number of factors related to trust building online, indicating that experience and the degree of which the consumer trust e-commerce as a whole will likely have a positive effect on purchase intention. 13

15 Consumers were more likely to trust websites if they conveyed a certain amount of quality and had signals of perceived trustworthiness (Corbitt, Thanasankit, & Yi, 2003). Mcknight (2002) proposed a strategic model to test and build consumer trust in a website. They used a multi-dimensional view on trust, incorporating the two streams discussed previously. Trust towards a website was defined in two constructs: Trusting beliefs and trusting intentions. The model resulted in three factors important for building trust: Structural assurances, perceived reputation and perceived website quality. They were all significant in building trust and in overcoming negative perceptions with online safety. Furthermore the study demonstrated that perceived risk had a negative effect on purchase intentions (Harrison McKnight et al., 2002). Lastly Koufaris (2004) found that lack of trust in online companies was one of the primary reasons that consumers did not shop online. They made a model explaining how consumers developed initial trust towards a new and unfamiliar website. Results showed that perceived usefulness and ease of use combined with company reputation had significant effects on initial trust (Koufaris & Hampton-Sosa, 2004) Consumer behavior theory In order for a company to be successful, they must first understand consumer s purchasing behavior. Understanding your customer s behavior is important for any company, offline and online. E- commerce companies must understand which factors and aspects of their websites that have an influence on the consumers purchase intention. Information, visual stimuli and communication through signals can have a positive or negative affect on the consumers willingness and desire to purchase (Fishbein, Bleakley, & Hennessy, 2012). The theory of reasoned action (TRA) was proven by Ajzen & Fishbein in 1975 and has successfully been used to explain human behavior (Armitage & Conner, 2001). The model suggested that attitude and subjective norms were strong indications of intent, and in turn intent was the primary determinant of behavior (Sheppard, Hartwick, & Warshaw, 1988). Attitudes reflect the individuals feelings towards performing a specific behavior whereas subjective norms are the perception of influence from others. The TRA model proposed by Ajzen (1975) was tested and found useful in predicting behavioral intent and behavior, but only as long as the behavior was under full volitional control (Ajzen, 1991b). In 1985 Ajzen expanded the theory with the variable 14

16 Perceived behavioral control and made the theory of planned behavior (TPB). This included beliefs that possession of resources and opportunities should impact the perceived control that the consumer has over the situation. Ajzen (1992) argued that the more resources and opportunities the consumer thinks he has, the greater the consumer perceives a sense of control over the situation (Ajzen, 1991a). If the consumer believes that he has little control over a situation because the lack of resources, he will be less incline to perform the behavior. This means, in regards to e-commerce that if it is considered to be a subjective norm or the consumer has a positive attitude towards shopping online and a sense of perceived behavioral control (i.e. the resources and opportunity to transact) then it is likely that he will make a purchase. When people have complete control and sufficient resources, intentions alone should be able to sufficiently predict behavior (Ajzen, 1991b). In a study with 602 online bookstore customers, Park (2003) investigated the relationship between various characteristics of online shopping and consumer purchasing behavior (Park & Kim, 2003). He found that the quality of information and the website design, along with signals of perceived security had a significant impact on the consumer s commitment to the website, and in turn on their purchasing behavior. George (2004) investigated consumer s beliefs and perception about; internet privacy, trustworthiness, perceived control, expectations and its impact on purchase intentions. He found that customers with a general belief in the trustworthiness of websites and in their own abilities to shop on the internet, were more likely to make future online purchases than those without such beliefs (George, 2004). Chen (2009) conducted a study on antecedents of purchase intentions. He expanded the original model, theory of planned behavior (TBH) to include 10 more external antecedents as factors to explain online consumer behavior. The study was conducted with 288 college students who had previous online shopping experience. The results showed that perceived ease of use (PEOU) and trust were important antecedents in explaining online consumer behavior. Furthermore he found that cost-reduction could have a positive influence on perceived risk and thus create positive attitudes towards online shopping. 15

17 Chapter 3 Empirical Literature Review 3.1. Technology acceptance model (TAM) The Technology acceptance model was proposed by Davis (1989). He stated that the use of information technology could offer a lot of potential and substantial improvements to once performance, but that these improvements were often obstructed by the user/consumers willingness to accept the system (Davis, 1989; Young, 1984). Davis argued that there was a practical need for a scale which could better measure consumer s use of systems, so that vendors could assess user demands for new design ideas and organizations could evaluate those offerings (Davis, Bagozzi, & Warshaw, 1989). According to Davis, people tend to use an application if they think that the system will have a positive impact on their performance (Davis et al., 1989). He called this variable for Perceived Usefulness (PU). At the same time he found that even though users might find the application useful, they would not use it if the application was too hard to use, and the benefits would outweigh the efforts. He proposed that usefulness was affected by the variable Perceived Ease of Use (PEOU) (Davis, 1989; D. Gefen, Karahanna, & Straub, 2003). Perceived Usefulness was defined as the degree to which a person believes that using a particular system would enhance his or her job performance and Perceived Ease of Use was defined as the extent to which a person believes that using the system will be free of effort (Davis, 1989; Venkatesh & Davis, 2000) TAM and E-commerce The original use for TAM was to estimate information technology in order to increase job performance. Even though considerable research had tested acceptance towards information technology in the work place, research also found the theory applicable in e-commerce (D. Gefen, 2000). Gefen (2000) found that the TAM model was robust enough to measure and analyze behavioral intent on the internet. Websites and E-commerce stores were basically the essence of an information technology and thus they found that the TAM model in part, could help explain online purchasing intentions (Davis et al., 1989; D. Gefen et al., 2003). When adapting TAM in order to measure acceptance towards internet 16

18 shopping and purchase intent, Perceived Ease of Use is an indication of the consumer s perceived effort needed to utilize this type shopping method. In the context of online shopping, PEOU measures how easy the consumer finds browsing, comparing products and shopping online in general. Perceived Usefulness is to measure to what extent the consumers perceive online shopping as more useful than other shopping methods e.g. bricks and mortar. The scales used to measure both Perceived Ease of Use and Perceived Usefulness in this thesis was adopted and modified from Gefen (2003). Previous research has found PEOU and PU to often have a strong significant correlation; however the majority of studies conducted have mostly only found PU to have a direct effect on perceived intent (see, Gefen (2000)). Davis argued that although PEOU did not affect intentions directly the variable was instrumental because it indirectly made the application useful (Davis, 1992). In regards to e- commerce, PU is more often than not found to be the only variable of the two to have a direct effect on consumer purchase intention. Nonetheless PEOU should still have a mediating effect on consumer purchase intention. In some cases, depending on the design of the e-commerce store, PEOU should have a direct effect on behavioral intent. As most websites and e-commerce stores are different to some extent, both in quality, structure and design; navigational problems and lack of interface clarity can have a negative impact on PEOU and thus have a direct effect on purchase intention (D. Gefen, 2000) Initial online consumer Trust According to Gefen (2003), there are 2 kinds of antecedents that have an impact on behavior, leading the consumer to make a purchase online. The first is the technological attributes of the website and the second is the consumers ability to trust the vendor (D. Gefen et al., 2003). Technological attributes was partly described previously, where the website is considered to be a form of information technology. As such the antecedents that impact behavior is perceived usefulness and perceived ease of use, as found by (Davis, 1989), but also other streams of research has focused on the quality of the website as a possible effect on behavioral intentions (Aladwani & Palvia, 2002; Zeithaml, Parasuraman, & Malhotra, 2005). The second part focuses on online purchasing as an interaction where trust should be the main attribute that defines the relationship (D. Gefen et al., 2003). The idea is that trust increases the behavioral intent to purchase from a website, and it reduces perceived risk that inexperienced online consumers might feel (D. Gefen, 2000). In the previous section about the TAM model, the website was 17

19 described as an information technology interface. But the website is also an entity where consumers engage in transactional relationships. Trust is an important part of such transactional relationships especially online where the seller can be unknown and the transaction requires some risk. According to Gefen (2003), trust is the expectation that the other party will not behave opportunistic and take advantage of the situation and where the trusted party will fulfill its commitments. Trust is very important in uncertain situations where the consumer is interacting with an unknown e-commerce store, as it can mitigate information asymmetry (Brengman & Karimov, 2011a; Pavlou et al., 2007) and reduce any perceived risk the uncertain situation creates (Mayer et al., 1995). Trust can therefore be said to have a huge difference on the success or failures of online companies. The purpose of this thesis is to investigate transactions where the two parties are unknown to each other, i.e. the first time a consumer visits an unfamiliar web-merchant. In such situations it is often the ability to create initial trust with the consumer that determines whether or not a transaction is to occur. Small e-commerce companies that still haven t created a reputation for themselves face a big challenge in creating initial trust (Hu et al., 2010). This thesis will concentrate on the concept of initial trust as one of the important factors when building online relationships and effecting purchase intention. When focusing on initial trust, theories make a distinction between three dimensions of online trust: affect-based, cognitive-based and institution-based trust (Brengman & Karimov, 2011a; D. Gefen et al., 2003; D. H. McKnight, Cummings, & Chervany, 1998). Affect-based trust or emotional trust, can be defined as the degree that one feels safe and comfortable relying on the trustee (Komiak & Benbasat, 2006). It develops from how the consumer feels about the interactive partner s trustworthiness. On websites it is often the visual appeal and signal cues that can impact how the consumer perceives the companies trustworthiness (Brengman & Karimov, 2011a). Cognitive-based trust on the other hand examines how trust is built through first impressions rather than through experience with the other party and is often categorized by the illusion of control. When information about the company s trustworthiness is absent, the consumer will observe and assess signal cues that might give a representation of the company s trustworthiness (D. Gefen et al., 2003; D. H. McKnight et al., 1998). Quality information about the company and signals can help the consumer make rational purchasing decisions. 18

20 Institution-based trust is trust based on guarantees and third-party recommendations, which helps mitigate transaction risks and build initial trustworthiness between unfamiliar parties (Pavlou & Gefen, 2004). These third-party structures can take the form of guarantees provided by the website themselves, ratings from external sites or from web-assurance seals. Institution-based trust is of importance to the thesis as it is particularly used when the consumers transact with a new or unknown company (Pavlou & Gefen, 2004). Pavlou (2004) found that guarantees such as the ones mentioned before have a direct effect on building initial trust, but only an indirect effect on risk through the mediating effect of trust. Another way of explaining the three forms of trust could be to look at them as cue based trust. Cue-based trust can be seen as the trust generated on an initial encounter with the presence of an external stimuli (Wang, Beatty, & Foxx, 2004). Wang (2004) defines cue-based trust as the trust consumers form based on cues received from an initial encounter with a stimulus. It involves the consumer s beliefs that his or her vulnerabilities will not be taken advantages of. This thesis will use a mix of the before mentioned factors to assess trust and its effect on purchase intentions Online Signaling cues In this part we will look at some of the signal cues companies can implement on their websites to build initial trust with new consumers. We will look at three different types of signals that can possibly have a positive effect on initial trust building with unfamiliar e-commerce stores. In the last section it was described how institution-based trust was composed of guarantees which were supposed to impact the consumer s initial trust. These guarantees are also commonly referred to as structural assurances, which promote a sense of security when performing a transaction (D. Gefen et al., 2003; D. H. McKnight et al., 1998). Structural assurances or safeguards can be signals on the website which provides the consumer with a guarantee that if something goes wrong with the purchase then the company will undo that mistake. One of those signals of safety is a detailed privacy disclosure. A privacy disclosure refers to a description of what data will be collected, why and where it will be stored. A lot of previous research has been done on this subject regarding privacy risks and issues suggesting that a lot of companies do not disclose what information they collect or why they collect it (Wang et al., 2004). Providing a 19

21 detailed privacy disclosure on the website could help promote initial trust. Another structural assurance guarantee is an extended return policy. Accordingly, implementing and signaling that products can be returned are affecting the perceived transactional risks and perceived product quality (Wang et al., 2004). Wood (2001) argued that a return policy would minimize perceived risk in remote purchase environments such as online shopping. As there exists asymmetry in information about the product quality and service, return policies and money back guaranties should serve as risk relievers, which in turn should build initial trust towards the website (Wang et al., 2004; Wood, 2001). Third-party seals are another form of structural assurance. Third-party seals are often seals of approval showing that the companies comply with external regulations from non-profit third party companies to ensure consumer safety. Third-party seals can have different meanings and requirements to obtain (D. Gefen, Karahanna, & Straub, 2003). A Third-party seal can help to ensure that the consumer s personal information s and transactional payments are secured. These external seals can also be seen in the form of ratings where consumers rate their shopping experience with a particular company. Trust-pilot.dk provides such rating opportunities and companies with good ratings can display those seals on their website to promote a sense of initial trustworthiness. Third-party seals should remove some of the perceived risk involved in a transaction and promote initial consumer trust towards the company (Wang et al., 2004). (D. Gefen et al., 2003)(D. Gefen et al., 2003) Another important signal is a form of social presence on the website, especially in e-commerce where one of the key characteristics is the lack of interpersonal interaction. Gefen (2004) suggests that another way of building initial trust online is through implementing and communicating a high social presence. This is to give the consumer the perception that there is real people and personnel behind the website in order to create a human and social connection through the medium (D. Gefen & Straub, 2004). Trust is generally built through constructive personal interaction with other people and even though e- commerce websites does not usually involve personal interaction with others, the website can still display a perceived social contact. Photos, history and information about employees and the owner can convey a sense of personal, sociable and human contact (D. Gefen & Straub, 2004). By displaying a sense of social presence online, the consumer can see and perceive that real people are behind the website and that they have the consumer s best intention in mind. 20

22 3.4. Situational Normality Situational normality belief, as the name suggests is when things appear normal and everything seems to be in order. Mcknight (1998) defined situational normality as the belief that success in an interaction is more likely because the situation is normal (Lotz & Eastlick, 2011). According to Mcknight (1998), situational normality involves a setting, in this case a website, where everything appears likely to facilitate a successful transaction. When the consumer believes that a situation is normal, they are more likely to achieve faster forms of trusting relationships towards the interactive partner (D. H. McKnight et al., 1998). Normal bricks-and-mortar stores convey a sense of normality. They look like stores, they have salespeople and physical products and they build trust. Stores that do not look that way and are different from normality can have a negative impact on trust (D. Gefen et al., 2003). This is largely because a person s trust towards something disappears when the situation strays from normality (D. H. McKnight et al., 1998). Moreover Mcknight explained that within the online environment, normality helps comfort the consumer, thereby making it easier for them to trust an unknown website. The perception of normality and familiarity within the online setting also helps how the consumer perceives usefulness and ease of use (Lotz & Eastlick, 2011). Situational normality in an online environment often portraits attributes such as competence, benevolence and integrity. Websites that represent what customers expect from websites based on previous experience and knowledge of similar websites, convey trust. Websites that have unusual interfaces and setups, and requires the consumer to go through unusual procedures will make the consumer less inclined to trust them (D. Gefen et al., 2003) Perceived Risk When dealing with uncertain situations as the ones proposed in this thesis, where consumers are facing whether or not to make a transaction with an unknown vendor, some perceived risk is involved. Perceived risk plays a big role in human behavior and interaction, when one has to make decisions in uncertain environments (Cho & Lee, 2006)(Cho & Lee, 2006){{34 Cho,Jinsook 2006}}. According to Taylor (1974) there are two distinct dimensions of perceived risk: uncertainty and significance of consequences. These two dimensions can be seen as behavioral responses in an attempt to lower risk. Uncertainty about the outcome of a transactional action can be reduced by searching and acquiring information about the company s past interaction with consumers. Such information may be obtained 21

23 from external review sites or from word-of-mouth. Uncertainty about the consequences can be reduced by limiting the stakes in which the consumer stands to lose (Cho & Lee, 2006; Taylor & Dunnette, 1974). Limitation of the stakes involved in a transaction can be in the way that a consumer choses lesser expensive products or in limiting the amount of money they are willing to spend on the transaction in the initial encounter. Risk propensity can be seen as the consumer s general tendencies to take or avoid risk in behavioral situations where risk is involved (Cho & Lee, 2006). Engel (1968) argued that risk taking accompanies most purchasing decisions and thus if higher risk is involved in a transaction, the need for information will have a higher impact on the decision (Engel, 1968). Decisions where the consumer is uncertain about the consequences of a choice, will be evaluated and assessed differently by the individual, i.e. Perceived Risk (Taylor & Dunnette, 1974). Perceived risk is subjective and a biased evaluation based on the information at hand and as such perceived risk can be seen as a factor that motivates the consumer to either do or don t engage in a behavioral pattern (Cho & Lee, 2006). Because perceived risk is subjective and biased depending on the individuals psychological and situational characteristics two variables has been found to influence how the individual assess a risky situation: Self-efficacy and wealth position. Self-efficacy is the persons own assessment of how competent they are at performing a given task in a risky situation (Krueger & Dickson, 1994). People with high self-efficacy perceive themselves as having more accurate abilities to analyze, process and make decision in a situation where limited information is available (Cho & Lee, 2006; Krueger & Dickson, 1994). This means that people with a high perception of self-efficacy are more likely to perceive less risk and thus taking bigger chances. Wealth position on the other hand affects the individual consequence dimension of perceived risk. The wealth position dictates the monetary consequences a decision can have on an individual. Because the income situation and the individuals obtained wealth is inherently different between people, the amount of monetary loss they can afford and recover from depends on their wealth position (Barsky, Juster, Kimball, & Shapiro, 1997; Cho & Lee, 2006). 22

24 3.6. Conceptual Framework Based on the theoretical background and the literature review, a proposed framework has been made. The framework presents the different constructs used to measure the hypotheses proposed in this thesis. Figure 1 Conceptual Framework 23

25 Chapter 4 Research Hypotheses Based on the theoretical background and empirical literature review, several hypotheses were created. These hypotheses will be described in the following section Hypothesis 1 According to Mcknight (2002), situational normality occurs when the consumer believes that a situation is normal and will produce a favorable successful outcome. Normality on the internet is when the website represents what the customers expect from previous experience. When a customer perceives that the online setting is appropriate and normal, then there is a basis for trusting the online vendor (McKnight, D. H., & Chervany, N. L., 2002). Thus H1: Situational normality will positively affect trust in an e-vendor 4.2. Hypothesis 2 and 3: Normality occurs if an e-commerce website behaves as the majority of other e-commerce sites in terms of layout, interface and usability. In contrast if the website is unique and deviates from what is expected then the consumer will have to exert more effort in learning how to use it. Normality should increase Perceived Ease of Use (PEOU), as the consumer already has previous experience and knowledge on how to use the website and therefore little effort will be expended (D. Gefen et al., 2003). Thus H2: Situational normality will positively affect PEOU Furthermore the perception of situational normality in an online context, as with offline stores, should have a direct effect on purchasing intentions. Thus H3: Situational normality will positively affect consumer purchase intention 24

26 4.3. Hypothesis 4, 5 and 6. According to theories of initial trust online, signaling cues such as structural assurances, third party seals or the perception of a personal presence on the website should display some sense of security which in turn should negatively affect perceived risk and help promote initial trust (D. Gefen & Straub, 2003). Thus H4: Signal cues will negatively affect perceived risk in an e-vendor, and H5: Signal cues will positively affect trust in an e-vendor Even though signal cues are to mediate the effect of initial trust and reduce perceived risk, some studies have also found them to have a direct effect on the consumers purchase intention (D. Gefen et al., 2003). Thus H6: Signal cues will have a positive effect on the consumers purchasing intention Hypothesis 7 Perceived ease of use should increase trust if the e-vendor is signaling that they have invested in forming an initial relationship. When consumers are browsing online, the only real interaction they have with the e-vendor is through the website. Investing in a website, so it is easy to use should signal that the company has put an effort into the initial relationship with the consumer. Conversely a website that is hard to use and requires a lot of effort does not signal that the company cares about the consumer (D. Gefen et al., 2003). Consequently, Perceived ease of use (PEOU) should have an effect on forming initial trust. Thus H7: PEOU will positively affect trust in an e-vendor 4.5. Hypothesis 8 and 9 Davis (1989) argued that people tend to use an application if they perceived it to be useful and if it could increase their performance. Even though the consumers perceived an application to be useful, there was an increased likelihood that they would not use it if the effort required was high. If the consumer finds a website easy to use and navigate through, then they will likely also find the website 25