Classification of Consumers' Perceived Risk: Sources versus
Consequences
Nena Lim
UQ Business School
The University of Queensland
Brisbane, QLD 4072, Australia
[email protected]
Abstract
The objective of this paper is to clarify the definition of perceived risk in the context of
business-to-consumer electronic commerce (B2C e-commerce). It highlights the importance
of identifying the sources of consumer's risk perceptions in addition to the consequences
dimensions. Two focus group discussions were conducted to verify the proposed
classification. Results indicate that Internet consumers perceive three sources of risk in B2C
e-commerce: technology, vendor, and product.
Keywords:
B2C electronic commerce, online shopping, perceived risk, trust, Internet security
Introduction
According to Roman and Fjermestad (2001), there are five categories of customer relationship
management research: technology, knowledge management, business models, markets, and
human factors. This study examines the human factors issue and focuses on consumers'
perspective. In this study, business-to-consumer electronic commerce (B2C e-commerce)
refers to consumers ordering goods or services and paying for them through the Internet1.
Business-to-consumer e-commerce is important because it profoundly affects individuals'
purchasing behaviour and their socialisation pattern (Bhattacherjee, 2000). Fast growth of
B2C e-commerce has been expected (Boston Consulting Group, 2000, 2001) as it is
convenient, without sales pressure, and saves time (GVU, 1999). Researchers reported that
retailers in Asia-Pacific generated US$6.8 billion revenues from B2C e-commerce in 2000.
They predicted the revenues to double and reach US$14 billion in 2001 (Boston Consulting
Group, 2001). Nevertheless, despite optimistic predictions, adoption rates of B2C ecommerce are relatively slow. For example, although fifty percent of Australians use the
Internet, only twenty percent of these Internet users have purchased goods or services through
the Internet (Australian Bureau of Statistics, 2000). In two different studies, more than 50
percent of customers abandon purchases before purchases are completed (Boston Consulting
Group, 2000; Vu et al., 1999).
In view of these contradictory evidence, we attempt to help businesses understand the effect
of an important perception held by consumers (Mitchell, 1999; Salam et al., 1998). The
objective of this study is to clarify the definition of perceived risk in B2C e-commerce. First
we explain the relation between perceived risk and trust. We then review the existing
1
In this paper, B2C e-commerce and online shopping are used interchangeably.
540
literature on consumers' risk perceptions. We argue that researchers should provide clear
definition of perceived risk. Moreover, to make the results useful to businesses, it is important
for researchers to identify the sources in addition to the consequences dimensions of
perceived risk.
Perceived Risk and Trust
There has been much confusion about the relation between perceived risk and trust in
literature. Mayer et al. (1995) argue that risk taking activities in an organizational context is
affected by both trust and perceived risk. They define trust as a willingness to take risk and
perceived risk as the likelihood of both positive and negative outcomes. A number of recent
studies of B2C e-commerce have then adapted the Mayer et al. model (e.g., Ambrose and
Johnson, 1998; Cheung and Lee, 2000; Kim and Prabhakar, 2000; Stewart, 1999).
Stewart (1999) examines the effects of trust in target and perceived risk in transaction channel
on consumers' willingness to purchase online. She considers perceived risk to be a moderating
factor on the relation between consumers' trust and their willingness to purchase products
from Internet vendors (Stewart, 1999). Kim and Prabhakar (2000) suggest that consumers'
adoption of Internet banking is determined by a balance between trust and perceived risk. If
the level of trust exceeds the level of perceived risk, consumers will perform the trusting
behaviour (i.e., adopting Internet banking). Similar to Mayer et al. (1995), they define
perceived risk as a combination of relative advantages and negative consequences.
Other researchers hold a slightly different view and consider trust to be an antecedent of
perceived risk. According to Cheung and Lee (2000), trustworthiness of Internet vendors is
affected by four factors: perceived security control, perceived privacy control, perceived
integrity, and perceived competence. Moreover, trust is an antecedent of perceived risk in
their model. An empirical test of Cheung and Lee's trust model suggests that consumers' trust
is negatively associated with their perceived risk in Internet shopping (Borchers, 2001). On
the contrary, Mitchell (1999) considers perceived risk to be an antecedent of trust and the
relation between the two factors to be non-recursive.
With the interwoven relation between perceived risk and trust, should we discretely separate
the two perceptions? Which one should researchers concentrate on in their future studies? We
agree that the meanings of trust and perceived risk are closely related. Nevertheless, by
definition, trust is a more restrictive concept than perceived risk because trust needs to
involve two parties: trustor and trustee (Mayer et al., 1995). For B2C e-commerce, consumers
can trust or distrust Internet vendors. Nevertheless, what if consumers are worried about the
Internet and related technologies in general? Consumers can perceive risk in vendors or
Internet technologies, but they cannot trust or distrust Internet technologies. As we believe
that both technology and human factors are salient for the growth of B2C e-commerce, in this
study we focus on consumers' perceived risk.
Importance of Perceived Risk
If consumers perceive risk, they expect some kinds of loss (Stone and Winter, 1987).
Perceived risk is a function of the probability of loss and importance of loss (Cunningham,
1967). Since 1960, extensive consumer research has shown that perceived risk affects
consumers' behaviour not only in North-America (Bauer, 1960; Cox, 1967; Cox and Rich,
1964; Dowling and Staelin, 1994) but also across different cultures (Verhage et al., 1990).
Consumers perceive risk because they face uncertainty and potentially undesirable
541
consequences as a result of purchases (Dowling and Staelin, 1994). Perceived risk is powerful
at explaining consumers behaviour because "consumers are more often motivated to avoid
mistakes than to maximise utility in purchasing" (Mitchell, 1999, p. 163). Marketing studies
suggest that perceived risk is important for consumers' acceptance of telephone shopping
(Cox and Rich, 1964) and mail-order shopping (Simpson and Lakner, 1993; Spence et al.,
1970; Van den Poel and Leunis, 1996). Consumers who use telephone shopping perceive risk
because they cannot personally inspect the products or compare the quality, size, or style of
products. Consumers also perceive risk because time may be lost or frustration may result
where the purchases are unsuccessful (Cox and Rich, 1964).
As telephone shopping and online shopping are similar, it is likely that similar types of
perceived risk also apply to online shopping. Moreover, with the complex nature of the
Internet and related technologies (such as firewalls, cookies, encryption) as well as the
existence of countless Internet vendors, perceived risk is likely to become a decisive factor in
affecting consumers' behaviour. The existing literature shows that security and perceived risk
issues have always been described as critical factors associated with the success of ecommerce (Arnum, 1995; Ratnasingham, 1999). For example, Ratnasingham (1999)
emphasises the importance of perceived risk on the acceptance of EDI (electronic data
interchange). Kovacich (1999) provides a glimpse of crimes over the Internet. With the
growth of e-commerce, more crimes are expected. Fram and Grady (1997) report that online
customers are concerned with credit card fraud and are willing to purchase only products with
a low level purchasing risk. After a large-scale denial of Internet service attack in February
2000, thirty percent of respondents of a telephone survey indicated that they would be less
likely to adopt B2C e-commerce because of the incident (Schwartz, 2000). In another study,
perceived risk was found to have a significant negative and direct effect on consumers'
adoption of Internet banking (Tan and Teo, 2000).
Classification of Perceived Risk
Prior Research
A general definition of perceived risk in marketing is "the nature and amount of risk
perceived by a consumer in contemplating a particular purchase action" (Cox and Rich, 1964,
p. 33). Nevertheless, if businesses want to target their resources on the right spots to reduce
consumers' perceived risk, they need to identify the effects of different types of risk
(Korgaonkar, 1982). A review of the past consumer studies shows that researchers have
identified nine dimensions of perceived risk.
1. Perceived financial risk is sometimes called economic risk or security risk. It represents
the possibility of monetary loss arising from online shopping. For example, unreliable
vendors deliver unsatisfactory goods or even fail to deliver goods to consumers. In some
cases, individuals spend money to repair problematic products. The credit card details of
individuals might be stolen when transactions occur over the Internet.
2. Perceived performance risk is the possibility that the purchased goods or services do not
meet individuals' expectations. This dimension of perceived risk is similar to the
usefulness or functionality of products.
3. Perceived social risk is concerned with individuals’ perception of other people regarding
their online shopping behaviour. It is the possibility that consumers' shopping behaviour is
not accepted by other society members.
4. Perceived physical risk is the possibility that products are harmful to individuals' health
542
(Jacoby and Kaplan, 1972) or products do not look as good as the individuals expect
(Simpson and Lakner, 1993).
5. Perceived psychological risk is the possibility that individuals suffer mental stress because
of their purchasing behaviour. For example, consumers are likely to feel frustrated if their
purchases are unsuccessful.
6. Perceived time-loss risk is the possibility that individuals lose time because of their
shopping behaviour (Roselius, 1971). In addition to shopping time, this dimension
includes waiting time for receipt of goods as well as time spent on returning unsatisfactory
goods (McCorkle, 1990).
7. Perceived personal risk is the possibility that individuals may be harmed because of their
purchase behaviour. For example, they are likely to suffer if their credit cards information
is stolen (Jarvenpaa and Todd, 1996).
8. Perceived privacy risk is the possibility that online businesses collect data about
individuals and use the information inappropriately (Nyshadham, 2000). This dimension
of risk includes undisclosed capture of information like consumers' shopping habits.
9. Perceived source risk is the possibility that individuals suffer because the businesses from
which they buy products are not trustworthy (McCorkle, 1990). It is a general perception
regarding the reliability of online businesses such as whether a company exists.
Table 1 summarises the studies together with the dimensions. For example, Jacoby and
Kaplan (1972) identify five types of perceived product risk, namely, performance risk,
physical risk, psychological risk, social risk, and financial risk. Based on Jacoby and Kaplan,
Darley and Smith (1995) add the time-loss dimension. In their study of mail-order shopping,
Simpson and Lakner (1993) identify four types of perceived risk, namely, economic,
performance-related, physical, and social/psychological.
Prior Studies
Year Author(s)
1971 Roselius
1972 Jacoby and Kaplan
1974 Lutz and Reilly
1982 Korgaonkar
1985 Gemünden
1986 Festervand et al.
1990 McCorkle
1993 Simpson and Lakner
1995 Darley and Smith
1996 Jarvenpaa and Todd
1996 Van den Poel and Leunis
1997 Fram and Grady
1998 Salam et al.
1999 GVU
1999 Korgaonkar and Wolin
1999 Vellido et al.
2000 Andrade
2000 Cheung and Lee
2000 Nyshadham
2000 Tan and Toe
1
x
x
s
x
s
x
s
x
x
x
s
x
s
s
s
x
x
2
x
s
x
s
x
x
x
s
x
Perceived Risk Dimensionsa
3
4
5
6
7
8
x
x
x
x
x
x
x
x
x
s
x
x
x
x
x
x
x
x
x
x
s
x
x
s
s
s
s
s
543
9
x
Notes: a: 1=Financial; 2=Performance; 3=Social; 4=Physical; 5=Psychological; 6=Time-loss;
7=Personal; 8=Privacy; 9=Source.
x: Dimensions were examined in studies.
s: Dimensions were examined in studies and were found to be significant.
Table 1 Perceived Risk Dimensions
In addition to showing all the dimensions that were examined in prior studies, Table 1 shows
that not all dimensions of perceived risk were found to have significant effects on consumer's
behaviour. This confirms our argument that researchers and businesses need to distinguish
between different types of perceived risk. For example, Lutz and Reilly (1974) find that
performance risk has a significant effect on consumers' information acquisition behaviour, but
social risk has no effect. Korgaonkar (1982) reports that economic risk is significantly related
to consumers’ intention to purchase, but social risk has no effect. Based on Simpson and
Lakner, Jarvenpaa and Todd (1996) identify five types of risk in online shopping: economic,
social, performance, personal, and privacy; their results suggest that personal risk and
performance risk are more important than other types of risk.
Problems of Prior B2C Research
The number of studies that examine the influence of consumers' perceived risk on their
adoption of the B2C e-commerce has been increasing since Jarvenpaa and Todd's study in
1996 (e.g., Fram and Grady; Tan and Toe, 2000). Yet despite all these studies, there is no
clear guidance to businesses as to what they can do to reduce consumers' perceived risk. We
believe this situation is attributed to four reasons.
First, some studies provide unclear definition of perceived risk (Borchers, 2001; Featherman,
2001; Kim and Prabhakar, 2000; Liang and Huang, 1998; Limayem et al., 2000; Loh and Ong,
1998; Van den Poel and Leunis, 1999). Without a clear definition, it is difficult for businesses
to act on the results.
Second, some definitions provided by researchers are misleading (Andrade, 2000; Bhatnagar
et al., 2000). Andrade (2000) used nine variables to represent three dimensions of perceived
risk: performance risk, financial risk, and convenience. Nevertheless, two of the dimensions
in fact represent antecedents of perceived risk, and only the definition of financial risk is in
line with prior studies. For example, the convenience dimension refers to consumers'
perceived usefulness of B2C e-commerce (Andrade, 2000)
Third, even with proper definition, researchers simply define perceived risk differently. For
example, some researchers define perceived risk for B2C e-commerce as the lack of security
and privacy on the Internet (Korgaonkar and Wolin, 1999; Tan and Teo, 2000). Based on
Peter and Ryan (1976), Salam et al. (1998) define perceived risk as a subjective expectation
of financial loss. Others refer it as the trustworthiness or reliability of Internet vendors
(Vellido et al., 1999). To avoid confusion, researchers should be more specific about the type
of perceived risk they investigate instead of using 'perceived risk' generally to represent
different things.
Fourth, the nine dimensions identified in Table 1 show that some researchers have examined
specific types of perceived risk in their studies. Yet these dimensions represent the
consequences of consumers' perceived risk. They show the type of loss consumers perceive to
suffer as a result of their actions. Prior studies show that perceived financial risk is a major
dimension that determines consumers’ behaviour (e.g., GVU, 1999; Korgaonkar, 1982;
Simpson and Lakner, 1993; Tan and Teo, 2000). What these results fail to show is the sources
of such perceived risk. It is possible that consumers perceive financial loss because of
544
different reasons: hackers' attack, bogus or dishonest vendors, inappropriate products etc.
Similarly, past studies suggest that perceived privacy risk is another major deterrent to
consumers' acceptance of online shopping (e.g., Hoffman et al., 1999; Nyshadham, 2000; Tan
and Teo, 2000) The question is what businesses can do in response to these results. Do
consumers worry about privacy invasion because of hackers' attacks or because of deceitful
vendors? To solve the problem, we believe researchers need to examine perceived risk from a
different perspective. Identifying the sources of perceived risk is useful to businesses because
it allows them to target their resources in the right places.
Sources of Perceived Risk
Our first proposed source of consumers' perceived risk is technology-related. The major
difference between online shopping and telephone shopping lies in the fast changing and
ubiquitous Internet. Because of the use of the Internet, the safety of credit card details and
other personal information becomes a major concern for consumers. In response to this
consumer concern, researchers and businesses develop new technologies and protocols, such
as digital signatures, encryption (Arnum, 1995), and wireless application protocol
(Zampetakis, 2000) to improve Internet security. Nevertheless, despite these efforts, several
studies show that consumers' perceived risk of the Internet and its other related technologies
continues to be a salient factor for their behaviour (Borchers, 2001; Kim et al., 2000; Lee et
al., 2001).
Yet security of the Internet is only a part of the solution. The second proposed source is
Internet vendor. Researchers identify two types of risk in business-to-business electronic
commerce: technology-related and people-related (Ratnasingham and Kumar, 2000). Peoplerelated risk is associated with vendors and consumers2. Many studies examine the effects of
Internet vendors' characteristics on consumers' perceived risk. These include the studies that
examine trust as mentioned earlier. Because of the ubiquitous nature of Internet, consumers
can purchase products from vendors worldwide. Unless Internet vendors obtain digital
certificates from certification authorities such as Verisign, consumers will be unable to
identify the real owners of businesses (Froomkin, 1997). This leads to potential risks such as
businesses do not deliver products as promised (Stewart, 1999).
McKnight and Chervancy (2000) examine the effect of vendor reputation on establishing
consumers' trust in web businesses. Bhatnagar et al. (2000) also examine reliability of vendors
and Internet security of credit card payment. Cheung and Lee (2000) examine the
trustworthiness of Internet vendor. They include perceived security and privacy controls in
addition to perceived integrity and perceived competence as a part of Internet vendors'
trustworthiness. A test of Cheung and Lee's model indicates that perceived security control of
Internet vendors is positively related to consumers' trust in Internet shopping. Moreover,
perceived competence of Internet vendors is positively related to the trust (Borchers, 2001).
The third source of perceived risk is related to consumers themselves. The theory of reasoned
actions (Ajzen and Fishbein, 1980; Fishbein and Ajzen, 1975) posits that social influence has
a direct effect on behavioural intention. Past studies also suggest that social influence affects
individuals' usage of new technologies (Jasperson et al., 1999; Venkatesh and Davis, 2000).
Therefore, we propose social pressure suffered by consumers to be a source of perceive risk.
In addition to technology and human factors, consumers may perceive risk because they
cannot select products personally, and the products can be defective (Stewart, 1999).
Therefore, the fourth proposed source of perceived risk is product-related. Lee et al. (2001)
2
In this study, we focus on direct relationship between Internet vendors and consumers, and do not examine the
role of intermediaries such as guarantors.
545
distinguish between perceived risk with product/service and perceived risk in the context of
transaction. The major risk consumers perceive in Raijas (2002) is related to products: little
product information and dubious product quality.
In short, we identify four sources of perceived risk in relation to online shopping: technology,
vendor, consumer, and product. In this study, overall perceived risk is defined as the degree to
which individuals believe that if they purchase products or services through the Internet, they
will suffer a loss. The four dimensions of perceived risk are defined with reference to the
sources as follows:
•
Perceived technology risk refers to the degree to which individuals believe that if they
purchase products or services through the Internet, they will suffer a loss caused by the
Internet and related technologies.
•
Perceived vendor risk refers to the degree to which individuals believe that if they
purchase products or services through the Internet, they will suffer a loss caused by
Internet vendors.
•
Perceived consumer risk refers to the degree to which individuals believe that if they
purchase products or services through the Internet, they will suffer a loss caused by social
pressure. This refers to pressure individuals receive from their families, friends, or
colleagues.
•
Perceived product risk refers to the degree to which individuals believe that if they
purchase products or services through the Internet, they will suffer a loss caused by
products.
Perceived Risk Dimensions: Sources versus Consequences
In this section, we match the sources of perceived risk to the various consequences
dimensions of perceived risk. Table 2 summarises the matching results. We match perceived
financial risk, perceived psychological risk, and perceived time-loss risk to three sources.
Hackers can cause financial loss to consumers by stealing their credit card details. Similarly,
consumers may perceive financial loss because of poor product quality. In other cases, a fear
that deceitful vendors disappear overnight and do not deliver goods or services can also lead
to consumers' perceived financial risk.
Perceived Risk
Consequences
Financial
Performance
Social
Physical
Psychological
Time-loss
Personal
Privacy
Source
Sources
Vendor
Consumer
✓
Technology
✓
Product
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Table 2. Matching of Sources and Consequences of Perceived Risk
Perceived psychological risk refers to mental stress suffered by consumers because of their
online shopping behaviour. Consumers are likely to suffer mental stress if their computers
crash and they cannot finish their transactions. They will feel stressful if the goods they
546
ordered do not arrive on time, or do not arrive at all. In a similar vein, if consumers perceive a
loss of time in online shopping, the risk perception can be caused by slow loading time (i.e.,
technology-related) or slow response time of vendors. Moreover, consumers may have to
spend extra time in returning faulty products.
Perceived personal risk is a general perception. It covers all kinds of loss individuals suffer
because of their adoptions of B2C e-commerce. Because of its general nature, we match it to
all the four sources of perceived risk. Perceived privacy risk is matched to technology and
vendor dimensions. Consumers will lose their privacy if hackers steal their personal
information. Yet their personal information can fall into the hands of third parties simply
because Internet vendors sell or exchange the data.
According to prior definition of different dimensions of risk, the only source of perceived
performance risk and perceived physical risk is product. Similarly, the source of social risk is
related to consumers, and the cause for source risk is related to Internet vendors.
In summary, Table 2 shows that technology factor is a source for five types of loss to
consumers: financial, psychological, time-loss, personal, and privacy. Product and vendor
factors are related to six different types of consequences of perceived risk. Nevertheless,
consumer factor is responsible for only two types of perceived risk. The matching results
coincide partially with a recent study which identifies perceived risk with product/service
with three types of consequences dimensions. Their three dimensions comprise functional loss,
which equals to our performance loss, time loss and financial loss (Lee et al., 2001).
Research Methodology
Two focus group discussion sessions were conducted to gather qualitative data from Internet
consumers and to verify the importance of the proposed sources of perceived risk. Participants
of the discussions are consumers in Queensland, Australia. The focus group discussion was
advertised in four local newspapers. Eighty-four people enquired about the discussion by
phone or by email. We selected eighteen participants with different backgrounds, but two
failed to turn up for the sessions. All participants are eighteen or above and have access to the
Internet. Both sessions were held on a Saturday in September, 2001. Each session lasted for
ninety minutes. In return for their participation, participants received A$50. In addition, each
participant will receive a copy of the results at the end of this research.
Demographics of Participants
The demographic of all the participants are shown in Table 3. A total of sixteen Internet users
participated in the two focus group discussion sessions. There were 9 females and 7 males.
The participants aged between 18 to over 55, but the majority (62.5 percent) were aged
between 26-35. Seventy-five percent of the participants have some university education. Their
annual incomes range between below $20,000 to $79,999, although nearly half of the
participants earn $40,000 to $59,999 per annum. Most participants are experienced computer
and Internet users. Only two participants described themselves as inexperienced computer and
Internet users. Sixty-two percent of participants have purchased online before. Among the
experienced online shoppers, seventy percent spent below $500 in the last six months,
whereas twelve percent have spent more than $1000. Participants have different backgrounds
and their occupations include: engineer, high school teacher, university student,
administrative officer, environmental consultant, project coordinator, disability support
worker, housewife, marketing officer, public servant, actor, system tester, and accountant.
547
Demographic variables
A.
Gender
Female
Male
B.
Age
18-25
26-35
36-45
45-55
>55
C.
Education
Some high school
Grad. high school
Some university
Grad. university
Post-grad.
D.
Income
<20,000
20,000 - 39,999
40,000 - 59,999
60,000 - 79,999
E.
Computer skills
Inexperienced users
Average user
Advanced user
F.
Internet skills
Inexperienced users
Average user
Advanced user
G.
Online shopping experience
Never
<5 times
5-9 times
10-20 times
H.
Amount spent in last 6 months
$0
$1 - $99
$100 - $499
$500 - $999
>$1000
Frequency
Percent
9
7
56.30
43.80
4
10
0
1
1
6.30
62.50
0.00
6.30
6.30
1
3
3
3
6
6.30
18.80
18.80
18.80
37.50
4
4
7
1
25.00
25.00
43.80
6.30
2
6
8
12.50
37.50
50.00
2
7
7
12.50
43.75
43.75
6
6
2
2
37.50
37.50
12.50
12.50
6
2
5
1
2
37.50
12.50
31.25
6.25
12.50
Table 3 Demographic Summary of Focus Group Participants
Dimensions of Perceived Risk
The discussion results suggest that consumers are worried about handing personal details to "a
spaceless individual." The results support the existence of three proposed dimensions:
technology, vendor, and product. Although all participants consider Internet security to be
important, some are concerned more with dealing with unknown vendors. Others worry about
548
the quality of products they will get. Yet participants suggest that perceived consumer risk is
unimportant.
Perceived Technology Risk
•
Consumers are concerned because they do not know who they are dealing with and what
is happening behind. They are unsure whether the payment process is safe. The fear that
good hackers will be able to steal their credit card details is common ("I don't know if they
can give money back if someone misuse my information"; "Accountability is not clear in
case money get lost in the process"). Some participants worry that if their computers crash
during transaction process, their information will be lost in the "electronic never never
land" ("Who has got the information? Has the transaction gone through?").
•
Even though many banks nowadays cover consumers' financial loss upon hackers' attack,
consumers are concerned with the privacy of their personal information.
•
Though ninety percent of participants are experienced Internet users, most participants do
not know what cookies are. They are paranoid about getting viruses as a result of their
involvements in online transactions. A misconception of cookies is that consumers'
computers will be infected with viruses if businesses use cookies during transactions.
•
All participants consider Internet security to be important. Nevertheless, only one
participant checks the encryption protocol adopted by businesses before he makes any
purchasing decision. Some participants perceive less risk in sites which have a lock
symbol, even though they do not understand what kind of security is in place. Several
other participants indicate that they will still perceive a high level of risk even if they see a
lock symbol.
•
To minimise potential losses, two participants got a separate credit card with a low credit
limit just for purchasing products or services through the Internet.
•
Most participants have not heard of electronic purses.
Perceived Vendor Risk
•
Participants are afraid of not getting what they pay for. They dislike dealing with
unknown vendors who may not send them the products as promised ("Is the company
going to disappear overnight?"). One participant perceives a high level of vendor risk
because of an experience of his friend. That friend once booked and paid for a motel
accommodation in the United Kingdom through the Internet. When he arrived at the
address, he found himself in an industrial area with no sight of any motel.
•
Many participants perceive less risk in reputable businesses ("I wouldn't buy from a
company that I wouldn't know somehow."). They rely on references from other people
instead of doing it trial and error. For example, they perceive a low level of risk in
Amazon.com because of its good reputation. A participant got a second set of CDs by
express post after complaining to the Amazon for not receiving his CDs; he described
Amazon's response as "nice and warm."
•
Participants are reluctant to give their credit card numbers to unknown Internet vendors
because they are afraid that their cards will be misused. Nonetheless, as the most common
payment method for B2C e-commerce is credit card, this deters some participants from
attempting to purchase anything on the Internet.
•
Participants perceive risk in businesses which do not provide contact phone numbers or
physical addresses (such as office or warehouse address).
549
•
Although one of the advantages of B2C e-commerce is the ability to purchase products
from overseas, participants are reluctant to do so because they know little about those
foreign companies and they do not who they can complain to if foreign businesses fail to
deliver products. Most participants will purchase from overseas businesses only if
someone can refer them.
•
Participants worry that businesses may sell customer information to third parties. They are
particularly cautious about those businesses that ask for unnecessary questions during
transaction processes. As most privacy policies are long and windy, some participants
read the first one or two policies. Others glance at every policy. On average, they read the
privacy policies about ten-percent of the time. Yet though consumers may not read the
privacy policies carefully, they perceive a high level of privacy risk if businesses do not
provide privacy policy or the policies are difficult to be found.
•
Although cookies allow businesses to provide personalised services, participants do not
consider it to be important. Most participants feel their privacy is being invaded if
businesses putting cookies onto their computers without their knowledge or permission.
Perceived Product Risk
•
In contrast to the acceptance of buying boots over the Internet (Scheepers, 2001),
participants of the focus group discussion are skeptical about buying products that they
cannot touch or feel. Most participants hesitate about purchasing clothes because sizes
vary and clothes might not fit them. One participant perceives no risk in purchasing
clothing through the Internet because she has got good experience from purchasing
children's clothing.
•
Participants have doubts about the quality of products that they will receive. Because of
different standards, some overseas products may be unsuitable for local use. Warranty of
products is seldom specified on the web-sites. Therefore, consumers are worried that
businesses are likely to refuse to take responsibility for damaged goods.
•
Some participants are worried about incurring "hidden charges" such as freight and taxes
for the products they purchase.
•
Most participants indicate they will not buy expensive items through the Internet.
Perceived Consumer Risk
•
The discussion results suggest that perceived consumer risk does not exist. As one
participant described -"you are alone....no peer pressure...You are not affected by what
your friends or family think..." Aother participant indicates that although her husband use
B2C e-commerce frequently, she is not tempted or swayed to do so.
•
All participants consider going shopping with a few friends to be a valuable experience
("It doesn't compare to the real shopping experience. Physically being there and touching
things..."; "It's not the same feeling when you get three fellows sit by the computer...as
compared to go out, take the girls out...").
Conclusions
The results of focus group discussions suggest that consumers perceive different sources of
risk. It is important for businesses to upgrade their security measures; more importantly, they
need to emphasise it up front on their web-sites. As most consumers do not understand
550
security methods or standards, it seems just a promise of good security by businesses is good
enough to reduce consumers' perceived risk ("If they say that it's secure, you take the word for
it."). Most participants are unaware of electronic purse provided by financial institutions.
Moreover, half of the participants do not know that if they suffer financial loss because of
hacker attack, many banks will underwrite their losses. Businesses and banks should consider
spending more effort on advertisement in this area.
If businesses offer incentives such as warranty or money back guarantee, consumers probably
will perceive a lower level of product risk. To tackle the fear that consumers do not receive
what they pay for, businesses may consider adopting cash on delivery (COD) payment. Some
consumers check out company information. To reduce vendor-related perceived risk,
businesses should consider providing more company information, such as names of owners,
staff, company history, physical address etc. on their web-sites. Consumers are likely to feel
more at ease in this way as they know who they are dealing with. Moreover, businesses
should concentrate on customer service to alleviate perceived vendor risk. Perhaps they
should learn from Amazon.com for its prompt reactions to customers' complaints. Businesses
need to clearly state their privacy policies and put them in prominent positions. In a similar
vein, if businesses decide to use cookies, they should explain the purposes of the cookies up
front on their web-sites. Moreover, businesses should avoid asking for unnecessary data as it
will turn consumers away.
In summary, it is unnecessary for businesses to advertise in details about their security
technology. They should communicate with consumers, deliver technology guarantee and
product quality guarantee, to inspire confidence. Moreover, it is important to provide good
services, such as accepting returned goods. Consumers will more likely to revisit Internet
vendors if they have good experience. In the end, it all depends on how businesses present
themselves in the market place.
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