Risk-reducing signals for new online retailers: a study of single and multiple signalling effects

Despite the prevalence of electronic business in recent years, consumers continue to experience a high level of risk in shopping online. Building upon signalling theory, this study examines the effects of three signals (namely third-party endorsement, presence of physical store and clarity of warranty) on reducing perceived risk and enhancing purchase intention towards new e-tailers, using 280 subjects. This study also explores whether projecting multiple signals would produce stronger risk-reducing and purchase-intention effects than projecting fewer signals. A 2 × 2 × 2 experimental design is used to test hypothesised effects of the three signals. The analyses support the effects postulated for the three signals. Subjects receiving two or three signals have lower perceived risk and higher purchase intention than subjects receiving one or no signal. No significant difference is found between two- and three-signal experimental conditions. Finally, several implications for new e-tailers and future research directions are discussed.

[1]  H. Unnava,et al.  The Usefulness of Product Warranties For Reputable and New Brands , 1991 .

[2]  Thomas W. Ross,et al.  Product Warranties and Double Moral Hazard , 1985 .

[3]  George A. Akerlof.  The Market for “Lemons”: Quality Uncertainty and the Market Mechanism , 1970 .

[4]  Abhijit Biswas,et al.  The diagnostic role of signals in the context of perceived risks in online shopping: Do signals matter more on the Web? , 2004 .

[5]  Josh L Wiener,et al.  Are Warranties Accurate Signals of Product Reliability , 1985 .

[6]  P. Nelson.  Information and Consumer Behavior , 1970, Journal of Political Economy.

[7]  J. F. Engel,et al.  Perceived Risk in Mail-Order and Retail Store Buying , 1970 .

[8]  J. Swait,et al.  Brand Equity as a Signaling Phenomenon , 1998 .

[9]  Mary Jo Bitner,et al.  Evaluating service encounters: The effects of physical surroundings and employee responses. , 1990 .

[10]  Gerald L. Lohse,et al.  Electronic shopping , 1998, CACM.

[11]  D. F. Blankertz,et al.  Risk taking and information handling in consumer behavior , 1969 .

[12]  E. Poulton.  Unwanted range effects from using within-subject experimental designs. , 1973 .

[13]  Miklos Sarvary,et al.  The Signaling Impact of Low Introductory Price on Perceived Quality and Trial , 1997 .

[14]  O. C. Ferrell,et al.  The impact of perceived risk and moral philosophy type on ethical decision making in business organizations , 1992 .

[15]  M. Darby,et al.  Free Competition and the Optimal Amount of Fraud , 1973, The Journal of Law and Economics.

[16]  V. Mitchell,et al.  Understanding Consumers’ Behaviour: Can Perceived Risk Theory Help? , 1992 .

[17]  William Boulding,et al.  A consumer-side experimental examination of signaling theory: Do , 1993 .

[18]  A. Rao,et al.  No Pain, No Gain: A Critical Review of the Literature on Signaling Unobservable Product Quality , 2000 .

[19]  B. Tan.  Understanding consumer ethical decision making with respect to purchase of pirated software , 2002 .

[20]  Abhijit Biswas,et al.  Third-Party Organization Endorsement of Products: An Advertising Cue Affecting Consumer Prepurchase Evaluation of Goods and Services , 2001 .

[21]  J. P. Peter,et al.  A Comparative Analysis of Three Consumer Decision Strategies , 1975 .

[22]  H. Raghav Rao,et al.  On risk, convenience, and Internet shopping behavior , 2000, CACM.

[23]  Donna L. Hoffman,et al.  Building consumer trust online , 1999, CACM.

[24]  H. Scheffé.  A METHOD FOR JUDGING ALL CONTRASTS IN THE ANALYSIS OF VARIANCE , 1953 .

[25]  Sijun Wang,et al.  Signaling the trustworthiness of small online retailers , 2004 .

[26]  Marcel Creemers,et al.  Understanding online purchase intentions: contributions from technology and trust perspectives , 2003, Eur. J. Inf. Syst..

[27]  Lisa R. Klein,et al.  The Internet and International Marketing , 1996 .

[28]  Donald F. Cox,et al.  Perceived Risk and Consumer Decision-Making—The Case of Telephone Shopping , 1964 .

[29]  P. Parker,et al.  Marketing universals: Consumers' use of brand name, price, physical appearance, and retailer , 1994 .

[30]  Craig A. Kelley,et al.  An investigation of consumer product warranties as market signals of product reliability , 1988 .

[31]  Sirkka L. Jarvenpaa,et al.  Consumer Trust in an Internet Store: A Cross-Cultural Validation , 2006, J. Comput. Mediat. Commun..

[32]  A. Greenwald.  Within-subjects designs: To use or not to use? , 1976 .

[33]  P. Ippolito,et al.  Bonding and Nonbonding Signals of Product Quality , 1990 .

[34]  Wujin Chu,et al.  The Role of On-line Retailer Brand and Infomediary Reputation in Increasing Consumer Purchase Intention , 2005, Int. J. Electron. Commer..