Internet shopping has become more and more popular 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 analyze problems facing it and find corresponding solutions to ensure e-commerce growth. In order to give a concrete picture, the paper will also illustrate measures which have been undertaken by eBay to operate effectively.
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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 (2008), 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, 2008).
Identified by Hsiao, 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 shop speed, there is no need to travel to stocks and malls by using online shopping, which obviously saves cost and time that 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, because 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 virtual signals. Thus, the information quantity of internet shopping is considered superior to store shopping. Lee et al. (2003) suggested that affected by the increase of internet usage, the economic value on the information will appreciate gradually. Third, in general, consumers can save money by purchasing online, even though they have to afford the shipping fee sometimes. By saving of overhead and maintenance of store fronts, online stores are able to sell products at lower prices than physical stores (Hsiao, 2008).
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 using the case of eBay, which finally improve the development of e-commerce. The next section will describe the four risks mentioned above, including definitions and solutions. The third section will go through the case of eBay, discussing the measures undertaken by it, comparing them to get the most vital one. The last section will draw conclusions about the problem.
Risks facing internet shoppers and corresponding solutions
As mentioned above, internet shopping is growing rapidly because of its strength 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. Brooker et al. have identified six types of perceived risk: financial, psychological, product performance, social, physical and time/convenience loss (Brooker, 1984; Jacoby and Kaplan, 1972; Peter and Tarpey, 1975; Garner, 1986; Mitchell, 1992; Schiffman and Kanuk, 1994). This paper will investigate four out of these six types of risk-financial, psychological, product performance and time/convenience loss that were ranked as most prevalent among Internet shoppers (GVU’s 10th WWW User Surveys, 1998).
In general, 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 & Tractinsky, 1999; Luhmann, 1988). Josh Boyd (2002) declared that trust is weakest at the very beginning, it accumulates with repeated interactions. The more successful interactions happen, the higher trust will exist (Josh Boyd, 2002). 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.
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 (Sandra M. Forsythe, Bo 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 Karim Jamal, Shyam Sunder and Rong-Ruey Duh, 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 with good reputation for the loss of not receiving merchandise or service (Karim Jamal, Shyam Sunder and Rong-Ruey Duh, 2002).
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.
Product performance risk
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.
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.
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eBay, as a major global online marketplace, where anyone can trade almost anything through internet, is reported to have $1900 worth of deal every second in 2007. By June 30, 2009, it raised to 88.4 million active users worldwide, which makes a wonder in e-commerce that has many perceived risks by consumers (www.ebay.com). This section investigates operations in eBay so as to gain some inspiration to cope with the four risks mentioned above.
solutions to financial risk
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 provide 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.
solutions to psychological risk
solutions to product performance risk
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 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 out 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 distinguish 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).
Solution to time/convenience risk
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.
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 go hand in hand, 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.
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.
According 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. From the analysis, we can draw a conclusion that if this question can be solved appropriately, the business is likely to grow rapidly.