Interaction Effects among Signals of Quality and their Use in E-Commerce Tourism Services.

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1 Interaction Effects among Signals of Quality and their Use in E-Commerce Tourism Services. Purpose Pre-Purchase evaluations for services are accompanied by a higher degree of uncertainty than purchase decisions for products (cf. Zeithaml, 1984, p. 186). Numerous studies have focused on how signals and cues affect perception of quality and purchasing risk when information is obscure. The impact of several quality signals was analysed in isolation as well as in combination with other signals of quality. The empirical results of these studies are contradictory. However, there are at least two key issues, which have received little or no attention in prior research. First, little is known about the relative importance of quality signals in multi-cue buying situations. Second, most of the previous studies tested only the direct relationship between perceived quality, risk and potential signals of quality by ignoring the possible interaction effects among the signals of quality. The paper has two aims: first, to investigate the impact of multiple quality cues on the perception of quality and risk by incorporating possible interaction effects. The second aim of this paper is to provide a conceptual framework for managing signalling mechanisms. Conceptual Background Signals of quality are often proposed for a quality communication within behavioural and economic science. The information economic approach is based on the assumption that different parties of a transaction often have various degrees of information (cf. Nelson, 1970). Imbalance of information causes uncertainty and the possibility of opportunistic behaviour (cf. Arrow, 1963; Akerlof, 1970). The reduction of uncertainty and perceived risk can be reached by two different information methods. First, buyers may reduce their uncertainty by searching for information about the quality of the potential products or services. This method is known as screening in marketing literature (cf. Stiglitz, 1975). Second, companies promote the reliability of their services by providing consumers with various observable quality signals such as guarantees, price, reputation or third-party endorsements (ie. word of mouth, seal of approval and classifications) this other method is known as the signalling- mechanisms (cf. Spence, 1973; Spence 1976). The behavioural utilization theory describes a product or service as an array of cues that may serve as signals of quality and suggests that the extent to which a specific cue is utilized in assessing quality varies with its predictive value (e.g. Cox, 1962). Furthermore the relationship between the use of a signal and its predictive value is mediated by the confidence value, which describes the credibility of the signal editor. The confidence value or credibility of the signal results from the reputation of the provider (cf. Herbig/Milewicz, 1993, p. 18). Conceptual Model The conceptual model, which should be examined in the study, is shown in figure 1. It is conceptualized as an SOR-Model. The perception of quality and risk are internal and therefore, unobservable processes, which can be described as theoretical constructs. This theoretical constructs should be measured within the study. The model suggests that a choice decision is influenced by the perception of quality and risk and that this perception arises from signals of service quality. The signals of quality shown in figure 1 are assumed to be relevant for services. The reputations of the provider and of the retailer are specified as a signal of quality and as a moderator variable.

2 Figure 1: Proposed Model of Perception of Quality and Risk The extent to which a cue is used in product quality judgments varies with the other cues that are also available (cf. Purohit/Srivastava, 2001, p. 124). Purohit/Srivastava differentiate between two types of cues: high scope and low scope cues. An example of a high scope cue is the reputation of a producer or a retailer. The reputation has evolved over time and cannot be changed instantaneously (cf. Purohit/Srivastava, 2001, p. 124). Low scope cues like guarantee and price are temporary; their values can change rapidly (cf. Purohit/Srivastava, 2001, p. 124.). Although the diagnosticity of high-scope cues, and thus the use, is relatively stable, the diagnosticity of low scope cues depends on the valence of high scope cues (cf. Purohit/Srivastava, 2001, p. 132). That means, that the low scope cue e.g. product warranty is used in product quality judgments only when the valence of at least one high scope cue is positive (cf. Purohit/Srivastava, 2001, p. 132). This result indicates the importance of the incorporation of interactive effects and the moderating nature between the reputation and other cues types. Prior study results indicate that interactions between reputation and other signals influence the perception of quality and risk. The reputation seems to moderate the effect of other signals on perception of quality and risk (cf. Tolle, 1994; Mark, 2010). Some studies indicate that guarantee and price signals (cf. Bouling/Kirmani, 1993; Brucks et al, 2000; Dawar/Parker, 1994) are only useful in the presence of a high confidence value and accordingly a high scope cue: the reputation. Other studies came to the conclusion that guarantees (cf. Wirtz et al., 2000; Innis/Unnava, 1991, p. 321; Bearden/Shimp, 1982; Tolle, 1994) and price information (cf. Dodds et al., 1991, p. 317) are more suitable for new brands or providers when reputation is low or completely missing. Third-party-endorsement signals like seals of approval, word of mouth or classifications seem to be independent of the provider s reputation (cf. Mark 2010, p. 182). Their credibility depends on the credibility of the third-party, the editor. As a result, third-party signals are more credible than signals generated from the provider due to this association. In addition some authors believe that the positive effect of third-party endorsement on the perception of quality and risk decreases in the presence of a strong brand with a high reputation (cf. Dean/Biswas, 2001, p. 41). To investigate the effects of multiple quality signals on the perception of quality and risk as well as the moderating effect of the reputation, the following hypothesis are formulated:

3 H1: The signals shown in Figure 1 influence the perception of quality and risk. H2: The signals differ in their effectiveness of signalling quality and reducing the perceived risk. H3: The reputation moderates the relationship between other signals and the perception of quality and risk (hypothesized in Hypothesis 1). Methodology The model and hypothesis just presented will be tested by the use of a survey with an experimental design. The variables and constructs will be measured for a hotel service that was booked online. Therefore the reputation of the provider (hotel) and of the retailer (booking website) will be measured. This service category is selected for two main reasons: First, touristic services have an extensive degree of experience and credence qualities, are observed after purchase, so the uncertainty about the service quality is extremely high (cf. Keane, 1997, p. 118). Second, booking and purchasing online is perceived as more risky and uncertain than purchasing over traditional trade (cf. Biswas/Biswas, 2004; Biswas/Dutta/ Biswas, 2009). A lack of experience with online travel bookings or with internet transactions increases this uncertainty (cf. Klein, 2000, p. 19). The next step in this investigation is to analyse the most relevant signals in this context (e.g. guarantees, price, reputation and third-party endorsements) to reduce the amount of potential signals to a measurable size. Therefore, expert interviews will be held and a pre-test must be implemented. Afterwards, a questionnaire will be created. Practical implications It has been proved that only 10% of the online bookers have an explicit preference relating to a specific travel website, while 90% visit on average three different travel websites before booking (cf. Wohland, 2008, p. 89). The reason for the absence preference related to one website may be a perceived exchangeability of the different travel websites. Therefore, the providers have to differentiate themselves from their competitors by generating a competitive advantage. The competitive advantage of an online travel provider may lie among other things in a consumer related fulfilment of information requirements and an optimal reduction of the customer s uncertainty. It is therefore essential for online tourism providers to analyse and fulfil the information requirements of the potential customers. Value The failure to account for potential interaction effects among quality signals may cause faulty interpretations about the relative importance of quality signals under investigation. Moderating or interaction terms may play an important role in determining perceived quality. The need for research of interdependence among quality signals and their effect on product and service quality perception is remarkable (cf. Stafford/Enis, 1969, p. 457; Rao/Monroe, 1989, p. 356; Innis/Unnava, 1991, p. 322; Tolle, 1994, p. 936; Kirmani/Rao, 2000, p. 76; Dean/Biswas, 2001, p. 56; Miyazaki et al., 2005, p. 146; Mishra, 2006, p. 94; Mark, 2010, p. 269). An investigation of the effects of conflicting informational cues should be particularly interesting (cf. Stafford/Enis, 1969, p. 458), because negative cues seem to be over weighted within the evaluation of the overall quality of inconsistent signal combinations (cf. Miyazaki et al., 2005, p. 152).

4 References Akerlof, G. A. (1970): The Market for Lemons : Quality Uncertainty and the Market Mechanism, in: The Quartely Journal of Economics, Vol. 84 (1970), p Arrow, K. J. (1986): Agency and the Market, in: Handbook of Mathematical Economics Vol. III, publisched by Arrow, Kenneth J. / Intriligator, Michael D., Amsterdam 1986, p Bearden, W. O./Shimp, T. A. (1982), The Use of Extrinsic Cues to Facilitate Product Adoption, in: Journal of Marketing Research, 19, Nr. 2, p Biswas, D./Biswas, A. (2004): The Diagnostic Role of Signals in the Context of Perceived Risks in Online Shopping: Do Signals Matter More on the Web?, in: Journal of Interactive Marketing, 18 (3), p Biswas, D./Dutta, S./Biswas, A. (2009): Individual effects of product quality signals in the presence versus absence of other signals: differential effects of brick-and-mortar and online settings; in: Journal of Product & Brand Management, Vol. 18., No. 7 (2009), p Bouling, W./Kirmani, A. (1993): A Consumer-Sider Experimental Examination of Signaling Theory: Do Consumers Perceive Warranties as Signals of Quality?, in: Journal of Consumer Research, 20 (June), p Brucks, M./Zeithaml, V. A./ Naylor, G. (2000): Price and Brand Name as Indicators of Quality Dimensions for Consumer Durables, in: Journal of the Academy of Marketing Science, 28 (3), p Cox, D. F. (1962): The Measurement of Information Value: A Study in Consumer Decision Making, in: Decker, W. S. (1962), Emerging Concepts in Marketing, Chicago 1962, p Dawar, N./Parker, P. (1994): Marketing Universals: Consumers' Use of Brand Name, Price, Physical Appearances, and Retailer Reputation as Signals of Product Quality, in: Journal of Marketing, 58 (April), p Dean, D./Biswas, A. (2001): Third-Party Organization Endorsement of Products: An Advertising Cue Affecting Consumer Prepurchase Evaluation of Goods and Services, in: Journal of Advertising, 30 (4), p Dodds, W. B./Monroe, K. B./Dhruv, G. (1991): Effects of Price, Brand, and Store Information on Buyers' Product Evaluations, in: Journal of Marketing Research, 28 (August), p Herbig, P./Milewicz, J. (1993): The Relationship of Reputation and Credibility to Brand Success, in: Journal of Consumer Marketing 10, 3, p Innis, D. E./Unnava, H. R. (1991): The Usefulness of Product Warranties for Reputable and New Brands, in: Advances in Consumer Research, 18 (1), p Keane, M.J. (1997): Quality and Pricing in Tourism Destinations, in: Annals of Tourism Research, 24 (1), p Kirmani, A./Rao, A. (2000): No Pain, No Gain: A Critical Review of the Literature on Signaling Unobservable Product Quality, in: Journal of Marketing, 64 (2), p

5 Klein, S. (2000): Kanalwettbewerb im Tourismusvertrieb, in: Tourismus Journal, 4 (1), p Mark, A. (2010): Nutzung und Wirkung von Qualitätssignalen bei Such-, Erfahrungs- und Vertrauenskäufen. Eine empirische Analyse auf Basis der Cue Utilization Theorie, Hamburg. Mishra, D. P. (2006): The role of certification in service relationships: Theory and empirical evidence, in: Journal of Retailing and Consumer Services, 13, p Miyazaki, A. D./Grewal, D./Goodstein, R. C. (2005), The Effect of Multiple Extrinsic Cues on Quality Perceptions: A Matter of Consistency, in: Journal of Consumer Research, 32 (1), p Nelson, P. (1970): Information and Consumer Behavior, in: Journal of Political Economy, Vol. 78, p Purohit, D./Srivastava, J. (2001), Effect of Manufacturer Reputation, Retailer Reputation, and Product Warranty on Consumer Judgments of Product Quality: A Cue Diagnosticity Framework, in: Journal of Consumer Psychology, 10, Nr. 3, p Rao, A. R./Monroe, K. B. (1989): The Effect of Price, Brand Name, and Store Name on Buyers Perceptions of Product Quality: An Integrative Review, in: Journal of Marketing Research, 26 (August), p Spence, M. (1973): Job Market Signaling, in: Quarterly Journal of Economics, Vol. 87 (1973), No. 3, p Spence, M. (1976): Informational Aspects of Market Structure: An Introduction, in: Quarterly Journal of Economics, Vol. 90 (1976), No. 4, p Stafford, J. E./Enis, B. M. (1969): The Price-Quality-Relationship, An Extantion, in: Journal of Marketing Research, 6, (1969), p Stiglitz, J. E. (1975): Information and Economic Analysis, in: Current Economic Problems, published by Parkin, Michael / Nobay, A. R., London 1975, p Tolle, E. (1994): Informationsökonomische Erkenntnisse für das Marketing Qualitätsunsicherheit der Konsumenten, in: ZfbF, 46. Jg. (1994), p bei Wirtz, J./Kum, D./Lee, K. S. (2000), Should a firm with a reputation for outstanding service quality offer a service guarantee? in: Journal of Services Marketing, 14 (6), p Wohland, P. (2008): E-Commerce-Geschäftsmodelle im deutschen Tourismusmarkt, Wiesbaden, Gabler. Zeithaml, V. A. (1984): How Consumer Evaluation Processes Differ Between Goods and Services; in: Locelock, Christopfer (Hrsg.): Services Marketing, p

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