Abstract
With the development of technology, Internet shopping has entered people's life nowadays. However, some consumers are still reluctant to purchase online due to some perceived risks. The purpose of this paper is to introduce Internet shopping, trying to use the theory of online risk and trust to analyze problems facing it and find corresponding solutions to ensure e-commerce growth. In order to give a concrete picture, the paper will illustrate measures which have been undertaken by eBay to operate effectively.
Introduction
Due to the popularization of internet usage, people begin to get familiar with this multifunctional tool, which lead to the boom of Internet shopping. According to Hsiao (2009), people's daily lives have dramatically changed in the past ten years, which stems from the application of online shopping, saving the visit to physical shops compared to offline shopping. Such a new kind of shopping style can be called in various ways as e-shopping, network shopping, web-based shopping, online shopping or Internet shopping (Hsiao, 2009).
Identified by Hsiao(2009), Internet shopping has lowered transaction and search costs (both in terms of time and money) compared to other forms of shopping, from which consumers usually can shop faster, choose from a wider selection, and order from the merchant with the lowest price. First of all, with the aspect of shopping speed, there is no need to travel to stocks and malls by using online shopping, which obviously saves cost and time that are defined as two common consumer resources, leading to the accumulation of buyers' utility. Nevertheless, it's the opposite case to the offline shopping. Second, as for the variety of selection, consumers can access to various information through the Internet by easily clicking the hyperlinks, most of which interlink to other information around the world and some even send out visual signals. Thus, the information quantity of internet shopping is thought of as being better than that of store shopping. There exists an opinion that affected by the increase of internet usage, the economic value on the information will appreciate gradually (Lee et al., 2003, cited in Hsiao, 2009). Third, in general, consumers can save money by purchasing online, even though they have to afford the shipping fees sometimes. By saving of overhead and maintenance of store fronts, online stores are able to sell products at lower prices than physical stores (Hsiao, 2009).
However, despite internet shopping is helpful, some consumers are still reluctant to purchase online due to apparent barriers, such as financial risk, psychological risk, product performance risk and time/convenience risk identified by Jacoby and Kaplan. The goal of this study is to analyze the risks, suggest corresponding solutions by applying the theory of online trust throughout the case of eBay, which finally improve the development of e-commerce. The next section will describe the theory of online risk and trust, which lays a solid foundation to understand the solutions. The third section will go through the case of eBay, discussing the definitions of the four risks mentioned above, general solutions, specific measures undertaken by eBay, as well as my comments on these alternatives. The last section will draw conclusions about the problem.
Theory of online risk and trust
In this section, I will introduce the theory of online risk and trust which can be helpful to understand the corresponding solutions in the following text.
Theory of online risk
As mentioned above, Internet shopping is growing rapidly because of its strengths in faster shopping, wider selection and lower price. Nonetheless, some risks which represent a fear of loss in a particular transaction are still perceived by consumers, which cools down people's desire to purchase online so as to impede the development of e-commerce. Several authors (Brooker, 1984; Jacoby and Kaplan, 1972; Peter and Tarpey, 1975; Garner, 1986; Mitchell, 1992; Schiffman and Kanuk, 1994) have identified six types of perceived risk: financial, psychological, product performance, social, physical and time/convenience loss. This paper will investigate four out of these six types of risk-financial, psychological, product performance and time/convenience loss, which were ranked as the most prevalent risks among Internet shoppers (Forsythe and Shi, 2003).
Theory of online trust
In general, if there is a risk, there exists a trust. In another words, trust is the key to solve the influence of perceived risks. Mayer et al. (1995: 726) stated that “If the level of trust surpasses the threshold of perceived risk, then the trustor will engage in the risk-taking in relationship” .If trust is not in place, risk will expand, thus transactions will fail (Jarvenpaa and Tractinsky, 1999; Luhmann, 1988).
As for the online trust, it has some distinct characteristics compared to offline trust, which are of great use to us to understand corresponding solutions in the following text. Wang and Emurian (2005) have summarized four characteristics as below. The first aspect is trustor and trustee, which play an important role in building trust via the internet. Although different units can act as trustor and trustee in the offline world, these refer to certain entities in the online situation. Specifically, trustor means the online shoppers while trustee represents the web sites visited by the shoppers. The second dimension is vulnerability. Consumers are exposed to a lot of unknown risks and results when trading online, as sellers on the internet use virtual names, which are hard to tell the individual identities so as to blame them. This factor contributes to make the task of maintaining trust online challenging. Gefen (2002: 40) has described the tough situation, “Even when online consumers only examine a web site without purchasing from it, data may be automatically collected about their activities and later misused or distributed without their consent or knowledge”. The third characteristic is produced actions. If consumers believe that their benefits are more than losses, they will take two kinds of actions, one is purchasing from the internet sellers, which leads a direct profit to merchants, the other is “window-shopping” at the web site, which brings potential inflows. The fourth factor is subjective matter. People have different tolerances towards risks, thus require different levels of trust to enable the transactions to take place.
Above all, Ring and Ven (1992) declared that trust is weakest at the very beginning, it accumulates with repeated interactions. The more successful interactions happen, the higher trust will exist (Ring and Ven, 1992). Then the focus turns out to be what actions can be taken corresponding to different risks in order to strengthen trust, which will be illustrated below.
Case study AND ONLINE TRUST AND RISK
eBay, as a major global online marketplace, where anyone can trade almost anything through the internet, was reported to have deals totalling $1900 every second in 2007. By June 30, 2009, eBay raised to 88.4 million active users worldwide, which created a wonder in e-commerce that has many perceived risks by consumers (www.ebay.com). This section investigates operations in eBay used to strengthen trust so as to gain some inspiration to cope with the four risks mentioned above.- HERE YOU SAY 'THIS SECTION' BUT THEN YOU MOVE ON THE THE FINANCIAL RISK- CONFUSING- IT SEEMS HERE THAT YOU ARE INTRODUCING THE FACT THAT YOU WILL BE USING A CASE STUDY TO ANALYZE THESE DIFFERENT RISKS- THIS DOES NOT SEEM NECESSARY SINCE YOU'VE ALREADY MENTIONED THIS IN YOUR INTRO- IT WOULD FLOW BETTER IF YOU JUST START DISCUSSING EBAY OR MAKE A SUB-SECTIONS LIKE 'CASE STUDY, FINANCIAL RISK AND THE CORRESPONDING SOLUTIONS'
Financial risk and the corresponding solutions
Financial risk refers to the net loss of money to customers, for instance, the risk of misapplication of credit card, which is a typical one. People feel anxious when they shop online, because they believe credit card information is subject to be divulged via internet. The reluctance of providing credit card information becomes one obstacle of internet shopping (Forsythe and Shi, 2003). Moreover, during online transactions, people are always required to pay in advance before receiving the goods. Thus, there rises a worry about no receipt of goods at the expense of money.
Recommended by Jamal et al.(2002), to protect shoppers' interest, online trading platforms can make use of escrow program and insurance. The former makes payments through a third party that keeps money until getting buyers' authorization after they receive goods and are satisfied with the quality. Otherwise, the party will return the money to shoppers. The latter refers to a programme designed to compensate buyers who are with good reputation for the loss of not receiving merchandise or service (Jamal et al., 2002).
Considering consumers' worry of misuse of credit card information, eBay Inc. acquired Paypal, a global leader in online payment solutions, in October 2002, which uses the most exceptional exclusive fraud prevention systems, enabling any individual or business with an email address to securely, easily and quickly send and receive payments online. When using Paypal, the credit card information is kept in its server, thus preventing sellers from knowing that information. On the other hand, the payment process completes immediately as the money transfers directly to the seller's account. Then, customer can track the progress of the payment by My eBay or Paypal account. Additionally, Paypal also provides Buyer Protection in case of non-receipt of item or dramatical difference from seller's description. This programme covers eligible transactions for up to the full purchase price plus original shipping charges. In order to use Paypal, consumers are required to bind the eBay and Paypal account together and confirm the address with it (www.eBay.com).- GOOD USE OF CASE STUDY TO SHOW THE RISK AND SOLUTION- FLOWS MUCH BETTER
The use of Paypal helps shoppers to skip the process of supplying financial information directly to the virtual merchants, thus minimize the possibility of misuse of credit card information. In addition, the Buyer Protection programme transfers the possible losses of non receipt of goods to Paypal. These two measures are likely to decrease the level of perceived risk to the tolerance extent of consumers, thus prompt the purchase.
Psychological risk and corresponding solutions
Psychological risk is defined as the sense of discouragement, dissatisfaction and disrepute stem from the disclosure of one's personal information. Consumers think others can easily get their information through internet, which threaten their privacy (Sandra M. Forsythe, Bo Shi, 2003).
This risk is likely to be fixed out from the source of the bad emotion, which is the revealment of private information. Online trading platforms may improve the security of information storage, protect the safety of information usage and scan the illegal access to prompt the online shopping environment so as to attract more website visitors.
As the bad emotion of this risk arises from the disclosure of personal information, keeping this information private plays an essential role in the process to solve the problem. Stated by eBay, they treasure the data as valuable assets, so store them on their servers located in America by using a variety of methods (password, encryption, physical security, etc.) to prevent unlawful entrance and exposure, and unauthorized disclosure to third party for marketing purpose as well. They also make use of Cookies, most of which are session cookies that can disappear by themselves immediately after logging out from eBay or exiting from the web pages, to lessen the times of inputting passwords, thus enforcing trust and safety. Another guarantee of eBay is that they forbid spreading spam or spy ware through their communication tools by automatic scan and manual filter (www.eBay.com).
The alternatives adopted in eBay cover the whole flow process of personal information, from the storage, usage, to daily maintenance, which probably can provide a comprehensive protection of the information security so as to strengthen buyers' confidence in eBay.- GOOD, FLOWS MUCH BETTER BUT THIS SECTION NEEDS MORE
Product performance risk and corresponding solutions
Product performance risk indicates the loss of poor quality of products, resulting from misjudgment as consumers are unable to collect sensuous information online (Sandra M. Forsythe, Bo Shi, 2003).
According to Dr. Wolf (2007), the online trading platforms can firstly allocate sufficient resources into the inspection of product quality, including human resources and system investments, fight bad listings and sellers. Then it can educate users and create awareness on fake and poor quality products. Finally, keep a close cooperation with law enforcement.
Josh Boyd suggested that individual identities combined with feedback ratings and icons comprise a trust-building function at eBay which can reduce product performance risk perceived by consumers. Community members choose their own usernames to maintain individual identities used to distinguish each other. Feedback ratings are the numbers which appear next to one's username, calculated by the sum of positive comments minus that of negative ones describing the behavior of the user during past trades. A higher number means a good reputation, resulting in more traders to involve in the trade with that person. By clicking the rating, there will arise more details about the comments, including negative, positive, as well as neutral ones. To maintain a minimum performance level from all sellers, eBay sets out specific amount of detailed seller ratings (DSRs) from the aspects of communication, delivery time, shipping fees and items. Sellers who do not meet the requirement will be forbidden to register new accounts or use the old ones to bypass any restrictions as a punishment. Icons also appear after usernames, reflecting the status of the user and reminding potential bidders or sellers of the recent change in status or new comers. For example, a pair of sunglasses indicates the recent change of status while stars of various colors represent certain levels of experience.
To sum up, the username distinguishes individuals, the feedback rating reflects the amount of positive experience attained by different individuals, and the icon generates the status according to the feedback rating. The higher status, the more traders will be attracted. The desire to gain or maintain privileged status motivates people to follow eBay's rules (Josh Boyd, 2002).
This construction of online community deals with the vulnerability characteristic of online trust. Because of the feedback system, the performance of online sellers become viewable, as well as the self-interest motive, which forces the merchants to take responsibilities of their products and services. Finally, the foreseen risk declines while the trust increases.
Time/convenience risk and corresponding solutions
Time/convenience risk describes a risk of loss in time and convenience because of problems with locating a right web page, searching correct information, making a bid, and receiving merchandise (Sandra M. Forsythe, Bo Shi, 2003).
To improve the efficiency in searching stage, online trading platforms might need to establish distinct web pages, supply some useful tools, and provide web guides to help shoppers to locate certain information. Bernd W. Wirtz and Nikolai Lihotzky presented that setting up a specific web page into consumer's Internet Explorer as the homepage is a common alternative to integrate technical. In addition, installing plug-ins into the browser with the form of tool bar or menu item can make it more powerful.
As for the delivery period, Chaug-Ing Hsu, Hui-Chieh Li demonstrated that discriminating service strategy produces more objective value than uniform service strategy for both Internet store operators and consumers, which takes time demand into consideration.
To cope with time/convenience risk, eBay Toolbar is a wise choice, with which shoppers can log into My eBay and your alerts quickly, seek merchandise efficiently in eBay.com, eBay Motors, Half.com and more, as well as manage items properly. For example, when searching items online, consumers can access both the Web and the eBay, customize the appearance of result list according to different aspects of individual references, such as location, buying format, distance. Then during the management period after the selection of goods, desktop alerts of the eBay Toolbar provides buyers with timely notifications to prevent neglecting any items that may be overdue. Traders can also browse their buying and selling status right through the desktop instead of logging in, which saves a lot of time.
Considering the shipping stage, eBay adopts a discriminating service strategy which provides various delivery types in order to meet different needs towards time demand. For instance, in United States, there are options like Next Day Air, 2nd Day Air, 3 Day Select among others, which takes corresponding time to deliver goods.
As time and convenience are two main considerations for consumers when choosing the type of shopping, the improvements in these two areas are likely to attract more buyers. The more successful experiences they gain through internet shopping, the more trust will place on eBay. It seems like a virtuous cycle, the situation will become better and better.
Comparison of solutions
Although financial risk, psychological risk, product performance risk and time/convenience risk reflect concerns on money, psychology, product, time respectively, which are different dimensions of consumer utility, They have a close link with each other, which means that once one aspect of solution take place, it will prompt other solutions to carry out.
What's more? The principle behind all the solutions is to build customer's trust. If a business succeeds in increasing its customers' trust, the customers' perceived risk within the business relationship is reduced.
Conclusion
Although internet shopping is much more convenient than off-line shopping to some extent, such as faster speed, wider selection and lower price, there are still many problems with internet shopping, such as financial risk, psychological risk, product performance risk and time/convenience risk, which are prevalent risks perceived by online consumers nowadays.
According to the description of eBay's practice, we can find that almost all of the solutions encircle a vital question that is how to build customers' trust in e-commerce. Ye Diana Wang , Henry H. Emurian has concluded that If online trust can be understood and enhanced by reputable online merchants, then the number of people who engage in e-commerce should increase substantially. More importantly, a general climate of trust online will be created in which buyers will feel more at ease in disclosing sensitive information, sellers will feel confident to conduct business online, and there will be intensive interactions, transactions, and associations to benefit consumers and merchants alike. So we can draw a conclusion that if the online trust question can be solved appropriately, the business is likely to grow rapidly.
