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Online Risks Of Internet Shopping

4794 words (19 pages) Essay in Information Technology

25/04/17 Information Technology Reference this

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Globalization of the economies in the world has created opportunities for business. As the result of these opportunities, competition or rivalry has increased which means businesses have moved and looked to provide unconventional ways for marketing. One of the unconventional ways in which marketing can be done is through the Internet, this has become such a must have tool for people who wants to do business without limits.

Although many businesses are quickly adopting the Internet as the means through which they can efficiently and economically conduct their marketing activities, there are many risks associated with using it. For example, the Internet has very little security and any company using the Internet risks disclosure of proprietary information. However, these are risks affecting companies selling through Internet. But what risks do consumers face or perceive when shopping online?

Shopping on internet is poses risks and threat but what do we know about risk perception of consumers or buyers who purchase through this medium? Consumers perceive risks in most store purchase decisions, and the general conclusion from direct-marketing related studies is that consumers associate a higher level of risk with non-store purchase than store purchase decisions (Samadi and Yaghoob-Nejadi, 2009). These questions have not been addressed in the research on Internet marketing. In fact, most of the recent studies have been concentrated in on the pros and cons marketing on the World Wide Web, but none addresses the issues raised here about the consumers’ concerns in virtual shopping.

This study aims to provide not only in-depth review of the types of perceived online risks and its application to internet shopping but also the similarities between businesses and consumers’ risk perception of online shopping risk, and their influence to purchase intention.

BACKGROUND STUDY _

The introduction of Information and Communication Technology (ICT) has changed the way business is done in a so many ways. The use of the web-enabled technologies is still on the rise and this has made it possible to identify new ways and new avenues of doing business. The diffusion of information, the development of new technologies, the promotion and sales of products and services, and the collaboration between those in a supply chain can all be regarded as the benefits of e-Commerce (EC) (defined as “The process of buying, selling, or exchanging products and services or information via computer” (Turban, Lee, Kung and Chung, 2010, p. 46).

The ability to use e-commerce technologies was made possible in late 1970s. During this time, e-commerce meant the execution of commercial transactions electronically with the help of Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). In 1991, the Internet was opened for commercial use and started becoming popular in 1994 (E-Commerce Land, 2004). Subsequently, it took almost four years to develop security protocols like Hypertext Transfer Protocol (https). Amazon was one of the first E-Commerce businesses to establish a secure market.

E-commerce may be defined as “The process of buying, selling, or exchanging products and services or information via computer” (Turban et al, 2010, p. 46). Alternately it may also be defined as “All electronically mediated information exchanges between an organisation and its external stake-holders.” (Chaffey, Mayer, Johnston, and Ellis-Chadwick, 2000) According to Turban et al (2010) e-commerce applications are a particular kind of web applications with similar requirements like good navigational structures, usable interfaces, a clear domain model, and others.

Electronic Commerce is classified roughly into two categories: Business-to-Business Electronic Commerce (B2B) and Business-to-Consumer Electronic Commerce (B2C). B2B is commerce where purchase and sale transactions occur not between individuals but between companies by using the Web and extranets. B2C is commerce where these transactions take place between the consumers and the sellers via the Internet [Lee et al, 2002a]. Individuals can purchase goods and services from retailers electronically through B2C commerce, who in turn can use B2B commerce to link directly to their suppliers. For the purpose of this research I will use B2C category.

Online consumer behaviour is a research area with an increasing number of publications per year. Although researchers have made noticeable progress with respect to the scope, quality and quantity of research, there are still significant disagreements about the findings in this area (Samadi and Yaghoob-Nejadi, 2009).

One of the most widely accepted consumer behavior theory is how consumers perceived the various risk aspects in various buying conditions. Since Bauer (1967) stimulated marketing researchers to incorporate the concept of perceived risk into the marketing literature, perceived risk has been of great interest to marketing researchers (Cox, 1967; Roselious, 1971; Mitchell and Greatorex, 1999; and Cases, 2003). In fact, shopping online brings together conflict between risk perception and purchase decisions. A variety of previous studies have listed “security,” “privacy,” and “difficult to judge quality of product” as the main concerns of online shoppers (Ainscough and Luckett, 1996; Herbig and Hale, 1997; Liberman and Stashevsky, 2002; Park and Jun, 2003, Cunningham, et al., 2005).

There has also been attempts to investigate the perceived risk in Internet usage context (Bhavnagar, Misra and Rao, 2000; Liebermann and Stashevsky, 2002; Lim, 2003). However, the empirical research for online consumers’ perceived online risk has not been conclusive. It is possible that part of the reason for the limited findings of the previous studies is that consumers risk perceptions from the previous store purchasing environments have not been fully reflected into the current Internet purchasing situation.

Festervand, Snyder, and Tsalikis (1986) emphasized on the influence of risk perception from the previous purchase in the different shopping environments. There is no record of studies that has investigated or developed a comprehensive set of consumers’ perceived online risks both from consumer and business point of view, and examine how they are related to each other or whether the influence of some of these areas may be mediated by others to consumers’ purchase intention. Thus, if some types of risks are mediated by others, not all risk aspects would relate to consumers’ purchase intention. Only risk aspects directly associated with shopping behaviors and/or attitudes may relate to consumers purchase decision.

In regards to security issues, Black (2005) said, the biggest barrier to e-commerce growth is not technology, but people’s attitude towards it. Consumers are still finding it difficult to trust the online world as an entity. For e-commerce to become a viable market place, the public must trust the internet. The future success of e-commerce will be dependant not only on forging initial trust, but also on developing long-term relationships to facilitate confidence and credibility.

This dissertation aims to add to the existing literature (Baseline, 2006, Zuccato, 2007, Damini, Eloff and Eloff, 2009 and Kim, Tao, Shin and Kim, 2009) by looking at how consumer perception of risk in online shopping has impacted on their customer’s expectations.

RESEARCH STRUCTURE _

This looks is a ‘bare bones’ plan which was drafted at the beginning of the research, it was reviewed at the end of the research. This is a time scale of my dissertation; this has been produced using Microsoft project management and spreadsheet excel applications, a Gantt chart and excel spreadsheet.

On the timeline there are following highlighted main activities:

Literature Review – this will include using previous academic writing to apply to the subject and see how far these source agree/disagree with what has been already done. This section is also broken down into two major sections;

Consumers perceived online risk – a look into how consumers perceive risks and how this affect their online engagement

Business perceptions of consumers perceived online risks – this section carries and in-depth analysis of how businesses perceive consumers’ online threats.

Data collections: using the methods mentioned under research methodology, this will entail the techniques and methods used to collect data, there will be secondary data used on business side of research and a mix of both primary and secondary data on consumer point of view.

Findings: this simply means, gathering all the data collected and reporting them as they are without doing any analysis.

Analysis and Conclusion – lastly the thorough analysis of my findings, the quantitative data, conclusion, and recommendations

(For more details, please see appendix a excel spreadsheet 1)

AIMS AND OBJECTIVES _

Although, e-Commerce has grown and become an important tool for some, there is still reluctance in people in embracing this because of the perceived risk of fear over online shop. The main aim of the study will be to find out how real are the fears in terms of system security, reliability, standards, and security of private financial information, such as disclosing credit cards and personal information for the consumers while shopping online.

Below is a list of objectives in bullet points:-

Identify the types of perceived online risks and threats from academic point of view (e.g. functional, physical, financial, social and psychological)

Identify the concepts of perceived risks and trust in relation to internet shopping

Identify the types of security threats in the online shopping environment from consumers point of view

Identify [online] businesses’ perception of consumers’ perceived online risks and threats

Examine whether the identified threats and perceived risks from the businesses are similar to those of the consumers

For further clear outline of the objectives in diagram (see appendix 2)

ETHICS ISSUES _

So far, there are no threats in regards to ethics problems during my research; I will be using primary data which is will be collected by myself and plenty of secondary data available. The data collected will be treated as confidential; I will deal with data collection and analyzing findings myself. If research findings contradict my developing argument, it will be my responsibility to include undermining facts as opposed to the data collected and change the research objectives. Ethics review form attached. (ethics agreement form is attached at the back on this report, see appendix 3)

RESEARCH LIMITATIONS _

The first and foremost limitation of this study will be the honesty and accuracy of information given by research respondents/participants. This can sway or affect the findings and therefore the analysis of the research. There is medium probability of this limitation to exist in this study because of the secondary data which will be used, and that most marketing firm will give money for the participants to take part in surveys.

A potential limitation of this study may be time, due to the time constraints especially in the third semester of 2010 Master course. Although the probability of this limitation to exist is minimal because the programme director is looking into find mitigation plans in place.

Lastly, a time limitation is also due to the time, the sample population projected involved in this project will be carried out on a small scale around Oxford town centre area. There is enough literature around this subject area and any needed information can be obtained during my research.

PERCEIVED ONLINE RISK _

The term perceived online risk means the individual has subjective belief about potentially negative consequence from his/her decision (Kim and Lee, 2008). In other words, “perceived” is used as opposed to objective outcome distributions of an alternative or a product class with which a consumer is associated with.

Davis and Olson (1985) defined risk as a situation where a decision-maker has priority knowledge of the adverse consequence and the occurrence probability. In addition, uncertainty is defined as a situation where a decision-maker knows that possible outcomes for each alternative can be identified; however there is no knowledge of the probability attached to each. In consumer research, risk means a situation where a consumer knows neither the consequences of the alternatives nor the probability of occurrence for the outcome (Dowling, 1986).

According to Turban et al (2010) an online shopper will gain benefits in terms of vast selection, screening, reliability, and product comparisons. Additionally, consumers can judge the products relying on either the ratings or reputations of e- retailers or from those who have made a purchase in the online interactive communication environment. Finally, consumers are allowed to compare numerous items under various categories and their prices in order to make the choices among the alternatives or substitutes (Rowley, 2000).

On the other hand, the uncertainty regarding system security, reliability, standards, and security of private financial information, such as disclosing credit cards and personal information etc are all reasons which probably increase a certain degree of perceived risk when shopping on the Internet. Ha (2002) points that, the traditional shopping channel, at the cyber shopping environment, perceived risk is defined as the potential for loss in pursuing a desired outcome while engaged in online shopping.

Besides, the Internet, just like any type of non-store shopping, makes it difficult to examine physical goods; consumers must rely upon somewhat limited information and pictures shown on the computer screen (Jarvenpaa, Tractinsky and Vitale, 2000). Hence, the performance risk in online shopping tends to increase due to the lack of accurate judge of the product quality compared to the traditional shopping environment (Vijayasarathy and Jones, 2000).

As in the real store, this risk is also deemed by Kim and Lennon (2000) to be greatest when the product is technologically complex or the price is high. Additionally, the issue of financial security, invasion of privacy and hacker attacks has become the primary concern of online shopper in the worldwide (Strader and Shaw, 1999). Time risk associated with the operation of online purchases in this study focuses on the perceived lost or cost of time for customers’ information search activities without excluding the traditional meaning.

Overall, the Internet is still considered a risky shopping channel which means a considerable portion of consumers perceives that risks outweigh the advantages of online shopping in their purchase decisions.

TYPES OF PERCEIVED ONLINE RISK _

Although compared to traditional shopping channels, it is evident that online shopping is a rather innovative and convenient way, more and more recent researches have pointed out the existing problems to be settled in this constantly changing marketing channel, which make it too risky to purchase through Internet and rely on it. In this channel, individuals have to make decisions of buying products based on limited and static information displayed on the screen such as the picture and price, but cannot inspect and touch the physical goods, they see on the computer screen (Kim, Tao, Shin, Kim, 2009).

Moreover, the uncertainty regarding system security, reliability, standards, and security of private financial information, such as disclosing credit cards and personal information etc are all reasons probably increase a certain degree of perceived risk when shopping on the Internet.

Several types of risk that consumers perceive can be listed as functional risk, physical risk, financial risk, social risk, and psychological risk (Jacoby and Kaplan, 1972). Roselius (1971) also proposed a slightly different conceptualization of the perceived risk types by identifying the possible losses that a consumer may experience due to a purchasing decision, these are, time loss, hazard loss, ego loss, and money loss.

Financial risk is the most common online concern; this type of risk is inter-connected with general security perception of consumers towards the online shop.

Tian and Ren (n.d.) point out that, “Many online consumers are worry about the security of online payment, and often stop payment somehow during the procedure.” It should be understood that most consumers who would terminate their payment procedure are the first time.

For experience online consumer, they will have devised an alternative way of making payments such as third party payment or other safe online payment services or cash payment on delivery.

Privacy risk is described by Jarvenpaa and Todd (1997) to be the degree to which consumers suffer a loss of privacy owing to personal information collected when shopping online. On the other hand, it can be considered as one type of psychological risk. Previous research by Dholaka (2001) has theorized that psychological risk is the experience of anxiety or discomfort arising from anticipated post- behavioural affective reactions, or worry and regret of purchasing and using the product. Consequently, lack of privacy protecting and private information exposure constantly remaining in the Internet shopping site arouse consumers’ fear of the purchase. It is notable that the psychological aspect is first proposed as a major perceived risk type. Consumers form perceptions regarding intangible “psychic costs” in the form of anxiety, frustration, and down time along with tangible financial and performance losses. Thus, the perceived risk can be in psychological/social terms, or in economic/functional terms, or in some combination of both forms (Taylor, 1974).

According to Strader and Shaw (1999), the key risks in the online context are identified to be financial, performance, and privacy risks. Performance risk related to the online seller’s post-sale service, good return guarantee for faulty items and product warranty, etc

Performance risk can related to the online seller’s post-sale service, good return guarantee for faulty items and product warranty, etc.

Unlikely on physical shop, consumer buying online product or services have to rely on limited information on their computer screens, There is no physical examination of the product so buyers have rely on the measurements from the seller and pictures. Hence, the performance risk in online shopping tends to increase due to the lack of accurate judge of the product quality compared to the traditional shopping environment (Vijayasarathy and Jones, 2000). As in the real store, this risk is also deemed by Kim and Lennon (2000) to be greatest when the product is technologically complex or the price is high.

Kwon (1998) argued another risk factor at cyber-shopping malls is the delivery time gap, or named delivery interval, which is about the gap between the purchase and the delivery. Likewise, consumer easily feels anxious about the time gap between cost and consumption. Another point is, time risk associated with the operation of online purchases in this study focuses on the perceived lost or cost of time for customers’ information search activities without excluding the traditional meaning.

Brooker (1984) has suggested “personal risks” and “non-personal risks.” Personal risks are defined as the risks that are related to self-image, self-concept or social evaluation. In addition, Kotler (1984) argued that personal risks are caused by purchasing of personal items that are expensive, purchased infrequently, or socially significant products, such as clothes, accessories, sports equipment, and automobiles.

Additionally, the issue of financial security, invasion of privacy and hacker attacks has become the primary concern of online shopper in the worldwide (Strader and Shaw, 1999).

Similar to the traditional shopping channel, at the cyber shopping environment, perceived risk is defined as the potential for loss in pursuing a desired outcome while engaged in online shopping. However, the social and physical risks in online commerce have less to do with consumer perceived risk (Ha, 2002).

PECEIVED RISK AND TRUST ON INTERNET _

Internet shopping appeared as a new type of shopping method approximately 20years ago, has been getting more attention along with the spread of Internet due to the unbeatable convenience it brought about to the consumers.

In addition to convenience, previous researches indicate other attractive factors. The transaction can be held in anyplace accessed to Internet. Furthermore, consumers can buy a wide choice of products across the geographic boundaries while saving time and absence of sales pressure without worrying about the transportation and parking (McQuitty and Peterson, 2000). More importantly, concerning the study of online consumer behaviour, the Internet environment positively affects the consumers’ decision to shop.

Hardin (1992) highlights that trust depends on three different elements: 1) Properties of the individual who want to trust another individual, 2) Attributes of the trustee and 3) The context in which trust is established. All definitions are based on the individual’s perception of risk. Both definitions are based on the individual’s perception of risk towards a relationship where the outcomes of the relationship are more or less uncertain.

Similarly, Bromley and Cummings (1995) viewed trust as an expectation of the trusted individual to be honest and fulfil its promises. The nature and development of trust, has draw the attention from different academic areas, mainly from psychology, sociology, marketing and business theory. From a psychological perspective, similarly, Robinson (1996:576) defined trust as: “A person’s expectations, assumptions, or beliefs about the likelihood that another’s future actions will be beneficial, favourable, or at least not detrimental to one’s interests.”

Smith and Shao (2007) characterized trust as the undertaking of a risky course of action on the confident expectation that all persons involved in the action will act competently and responsibly.

Furthermore, Pearce (1974), on developing a model of interpersonal trust, notes that trust is based on assumptions of other’s knowledge, competence and motivation. However, those three perspectives perceive trust as one individual’s action, rather as an element of a relationship. Moving to the business literature, the concept of trust is again largely based on a “relationship” approach, and evolves overtime. Swan et al (1989), examining how industrial salespeople gain customer’s trust, mention that trust has a dynamic nature as it builds over the history of interactions between the trade partners. While Doney and Cannon (1997), suggest that trust is developed under certain processes. According to their research, those are:

“Calculative process, when one party calculates the costs of failure during the exchange.

Prediction process, when one party acquires information to predict about the credibility of the other party.

Capability process, based on the perception that one party has that the other has the capabilities to perform as promised.

Intentionally process, based on the perception that one party has about the intention of the other.

Transference process, based on gaining trust from third parties when little or no prior experience exists between the exchange parties.”

As previously mentioned, it is logical for consumers to engage in trust relationships, when they feel a level of uncertainty with the outcomes of an exchange, or with the circumstances under which the exchange takes place.

During online purchases process that insecurity refers to the use of the Internet, as a commercial medium, or to online seller’s reliability. Considering the fact that the increase of trust reduces the perceived risks during an online purchase, and that those risks has proven to be negative towards a purchase decision, we can conclude that trust is a crucial factor for the success of e-commerce or internet shopping. (Jarvenpaa & Tractinsky, 1999).

Table 2: authors who agree/disagree on what consumers’ perceptions

References

Study Focus

Agree/Disagrees

McQuitty and Peterson, (2000)

Conducted a study of risk

perceptions associated with home entertainment systems online sales

technical complex of product increases perceived risks

product risks increases the perceived online risk

age does is not a factor in perceiving risk

expensive items increases perceived risk

Smith and Shao (2007)

Conducted a study of risk

perceptions associated with

financial risks contribute to the perceived

perceived risk is higher for ‘feel and touch’ products

Swan et al (1989)

Conducted a study of risk

perceptions associated with consumer trust /sales

increasing experience of online shop reduced perceived online risk

Jarvenpaa & Tractinsky, (1999)

Conducted a study of risk

perceptions associated with consumer trust

product risks increases the perceived online risk

age does is not a factor in perceiving risk

expensive items increases perceived risk

Internet as a commercial medium poses security concerns such as credit-card fraud by ‘hackers’ and also concerns about the lack of a predictable legal framework on which online purchases take place (.e. which government laws apply in every situation(Ratnasigham,1998).

In addition, lack of social interactions between consumers and e-sellers and the fact that, as with other distance purchases, consumers have to pay in first in order to receive goods or services, increase the risks, therefore increase consumers concerns. According to Culnan and Armstrong (1999), another difficulty faced on e-commerce purchases is that trust has to be communicated solely through interaction with a web site.

Lack of trust towards e-commerce sellers has its grounds to security concerns such as fraud by illegal merchants, privacy concerns i.e. using the personal information for commercial purposes, or performance concerns such as receiving low quality products or services. Hoffman et al. (1999) emphasize that the reason many consumers do not proceed to online purchases is that they simply do not trust most of the Web merchants to give their credit card information or personal information. Lack of environmental control exists while consumers have less control of online sellers’ actions over their bank card information. Lack of control over personal information is very important specifically the concern that online sellers use their personal information for marketing promotional purposes, without their knowledge or permission.

The significance of trust can be justified by Keen (2000), who interviewed consumers on the advantages and disadvantages of the e-commerce, trying to identify what factors can add more value to the customers. Examining the results, we can identify that most of the factors are related to the concept of online trust, which sellers ought to convince consumer of security measure to minimise fraud or minimise misuse of personal information, guarantee reliable delivery and make clear information relating to easy return process. To conclude, the e-commerce will offer more value to the consumer, by the time it will improve in terms of security, privacy, and performance, or in other words, by the time it becomes more trustworthy.

Table 3: authors who agree/disagree on what consumers’ perceived risks

References

Study Focus

Agree/Disagrees

Ratnasingham (1998)

Conducted a study of risk

perceptions associated with importance of trust in e-commerce

financial risks contribute to the perceived

Culnan and Armstrong (1999)

Conducted a study of risk

perceptions associated with privacy concerns, impersonal trust

increasing experience of online shop reduced perceived online risk

Hoffman et al. (1999)

Conducted a study of risk

perceptions associated with information privacy in market place

positive online shopping experience reduces consumers’ perceived risk

Keen (2000)

Conducted a study of risk

perceptions associated with ensuring trust online

financial risks contribute to the perceived

increasing experience of online shop reduced perceived online risk

BUSINESS AND CUSTOMER PERCEPTIONS OF RISK

CONSUMERS PERCEPTION OF ONLINE RISK _

Previous researches (Cox and Rich, 1967; Spence et al., 1970; Gillet, 1976 and Korgaonakar, 1982;) related to mode of shopping suggested that perceived risk is affected by what is purchased and how it is purchased. Their studies concluded that consumers perceive more purchasing risk when buying an item by telephone or mail catalog than when buying in a store or from a salesman. Furthermore, the level of perceived risk is related to store selection (Dash et al., 1976; Hirsch, et al., 1976; Korgaonakar, 1982). This is to say, consumers who perceive less purchasing online risk would choose the specialty store, and low social, high economic risk products to the mall and other types of products.

Overall, the Internet is still considered a risky shopping place which means a considerable portion of consumers perceive risks outweigh the advantages of online shopping in their purchase decisions. As what Darian (1987) stated, people tend to feel uneasy with “faceless” retailer, because they are much more familiar with offline shopping rather than the online shopping and fear about the potential deception.

Because earlier consumers bought all their services straight from the service provider, research focused mostly on the consumer-provider or business-to-customer (B2C) interaction. So far little research has been dedicated to consumer perceived online risks in electronic services, from late 1990s most studies maintain that consumers perceive largely the same risks in electronic compare to other services. Although internet is new to many ordinary shoppers, it has a great potential for marketing and online sales. Much has been researched before but because higher risks are associated with unknown situations, it is arguable if the online risks studied in earlier research are still similar with present issues being raised regarding online shopping experiences.

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