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Perceived risk and trust as antecedents of online purchasing behavior in the USA gemstone industry
Steven DAlessandro
Department of Marketing and Management, Macquarie University, Sydney, Australia

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Received 3 March 2011 Revised 13 February 2012 Accepted 25 February 2012

Antonia Girardi
Murdoch Business School, Murdoch University, Perth, Australia, and

Leela Tiangsoongnern
DPU International College, Dhurakij Pundit University, Bangkok, Thailand
Abstract
Purpose The purpose of this study is to seek to investigate the impact that perceived risk and trust have on online purchasing behavior, in particular the nature of purchasing associations within the expensive, complex, high risk and credence products such as gemstones. Design/methodology/approach An online survey of purchases of Thai gemstones was used to collect the data. Partial Least Squares was used to test the conceptual model of the study. Findings The results of this study suggest that the type of internet marketing strategy used by the seller (the place strategy) and the buyers privacy and security practices inuence a buyers perceived risk to purchase gemstones online. Furthermore, the study showed that perceived risk reduces trust and perceived risk reduces online purchases. Research limitations/implications The implications of these results are that privacy and security concerns of online buyers must be addressed in order to reduce perceived risk and thereby increase trust which is fundamental to the amount purchased online. Practical implications Online marketers of highly risky products need to consider that policies that promote trust and reduce risk are important means of increasing purchases. In particular, the use of multichannels will reduce perceived risk. Originality/value This is a rare study which examines purchases of expensive, complex, high risk and credence products such as gemstones. It is also a study which examines the behaviour of organisational buyers. Also actual reported online purchases are investigated rather than just intent. Keywords Internet marketing, Internet retail, Organizational buying behaviour, Perceived risk, PLS, Trust, Consumer behaviour, United States of America Paper type Research paper

The authors wish to thank the Editor of the Asia Pacic Journal of Marketing and Logistics, and the input of two anonymous reviewers. The assistance provided by Bill Chitty and Margaret Alymore in their insightful edits and comments in revising the paper is also appreciated by the authors.

Asia Pacic Journal of Marketing and Logistics Vol. 24 No. 3, 2012 pp. 433-460 q Emerald Group Publishing Limited 1355-5855 DOI 10.1108/13555851211237902

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Introduction Pierre Omidayr, the founder of eBay in 1995, identies some of the main obstacles to the development of online retailing:
The whole idea was to help people do business with one another on the Internet. People thought this was impossible, because how could people on the Internet remember this was 1995 how could they trust each other? How could they get to know each other? (Goldsmith and Wu, 2006, p. 126).

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Today these main drivers of e-commerce remain and include the notion of building trust while managing the perceived risk of purchase (Belanger et al., 2002; Biswas and ttner and Go ritz, 2008; Schlosser et al., 2006). Online Burman, 2009; Bolton et al., 2008; Bu purchases can be risky simply because people do not know each other and cannot physically inspect goods or meet the service providers. The information provided for online transactions may not be secure and concerns about privacy may reduce the likelihood of buying over the internet (Bauerly, 2009; Kim and Montalto, 2002). Lack of fraud protection may reduce the faith or trust in online purchases, a problem which eBay encountered in its early development (Goldsmith and Wu, 2006, pp. 132-4). Research by Bauerly (2009) suggests that this is still a problem since as much as 6.25 per cent of all e-transactions may be subject to fraud. To compensate for the potential risk, online consumers rely on the information that sellers provide to them, or the traders policies, which secure their personal information and protect their privacy (van der Heijden et al., 2003). While protection from fraud may be difcult, guarantees provided by online retailers are an important means of gaining the trust of consumers (Schlosser et al., 2006; Wind and Mahajan, 2001). Despite these challenges, online purchasing is increasingly becoming an accepted form of buying. A worldwide study of online purchases by Nielsen in, 2010 found that about 875 million people worldwide that year had purchased something online. The most popular items purchased online tend to be low-risk and easily branded items, including books 44 per cent, clothing/accessories/shoes 36 per cent, airline tickets/reservations 32 per cent and electronic equipment 27 per cent. The popularity of online purchases continues to grow. Research by Euromonitor International (2009), found that global online sales had increased from US$81.2 billion in 2003 to US$252.6 billion at the end of 2009. Because of the nature of these ndings, academic research focuses on more commonly purchased products and services such as books, CDs, online tickets, cosmetics and sporting goods (Bart et al., 2005; Dillon and Reif, 2004; Doolin et al., 2005; van der Heijden et al., 2003; Jarvenpaa et al., 1999; Kim and Montalto, 2002; Miyazaki and Fernandez, 2000, 2001; Schlosser et al., 2006). Research about the online purchases of more complicated, expensive and riskier products appears to be inadequate. Studies about online purchases by organizational buyers appear to be scarce (some exceptions ttner and Go ritz (2008) for pharmaceutical drugs, Biswas and Burman (2009) for are Bu digital cameras). One example of high-risk product predominately purchased by organizational buyers is gemstones. Background and context In 2001, Merrill Lynch cited in Krausz (2001) forecast that over a quarter of the worlds estimated US$8 billion annual gemstone sales would be conducted online by 2005 but that has not eventuated. Online gemstone trading volume only presently accounts for

approximately 2 per cent of the world gemstone trading value. This low gure is surprising given evidence that gemstone traders have used online and traditional selling methods since late 1999 (Beard, 2001; Prost, 2001; Zborowski, 2005), industry surveys by Colored Stone Magazine (cited in Beard (2001) and Prost (2005)) report that only a minority of gemstone dealers have successfully sold gemstones online. Given the benets of online trading, there is a need to investigate which factors inuence the online purchasing behaviour of such a high value product like gemstones. Research is required into online retailing that examines the purchasing patterns, which in turn can provide sellers with policies to encourage trust and reduce the perceived risk for buyers. Thus, this paper aims to: . identify factors inuencing the perceived risk for online gemstone buyers; . determine if the concern of fraud inuences the trust of online gemstone buyers; and . measure the relationship between the perceived risk, the trust, and the online purchasing behaviour of gemstone buyers. To address these issues, this article develops and test a conceptual model based on a number of theories of online consumer behaviour. Theory Consumer behaviour theories suggest four major issues inuencing buyer behaviour cultural, social, personal and psychological factors (Schiffman et al., 2011). In the study of online consumer behaviour in recent times, two important psychological theories have emerged as explanations of the degree of online purchases; these are perceived risk and trust (van der Heijden et al., 2003; Jarvenpaa et al., 1999; Palmer et al., 2000; Van Slyke et al., 2002). For example, perceived risk and trust have found to be antecedents of a buyers willingness (Jarvenpaa et al., 1999) and a buyers intention (Kimery and McCord, 2002) to purchase books and kitchen accessories, online. Perceived risk and consumer behaviour Bauer (1960, p. 24) originally introduced the construct of perceived risk into the marketing literature, stating that:
[. . .] consumer behaviour involves risk in the sense that any action of a consumer will produce consequences which he cannot anticipate with anything approximating certainty, and some of which at least are likely to be unpleasant.

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Since then, perceived risk has become a common construct used by researchers in consumer behaviour (Chaudhuri, 1998; Hoover et al., 1978), organizational behaviour (Doney and Cannon, 1997; Upah, 1980) and in online consumer behaviour (Archer and Yuan, 2000; Gifford and Bernard, 2006; Ha, 2002). There is one remarkable feature of these applications of perceived risk. It is evident that perceived risk has been adopted to investigate a variety of product categories. Table I presents examples of studies examining perceived risk across product categories. In considering the ofine purchasing channel, it appears from these examples that perceived risk can be applied to several product categories ranging from convenience, low involvement products such as apparel and personal hygienic products (Jacoby and Kaplan, 1972; Kim and Lennon, 2000) to high involvement products such as automobiles

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Products

Ofine channel Similar types of products had similar risk types Apparel (i.e. suit, overcoat, dress shoes); drug (i.e. Jacoby and Kaplan (1972) (e.g. performance, nancial). Overall risk could be toothpaste, vitamins, aspirins); hygienic (i.e. explained by several risk types deodorants, razor blades); recreational (i.e. sports cars, colour TV, playing cards) Convenience products (e.g. deodorant, headache Kaplan et al. (1974), Laurent and Kapferer (1985) Higher value, more complicated and more pill, coffee, car, TV) and Mitchell (1999) involving products were more risky than products less in those characteristics Grocery (e.g. soft drinks) Wu et al. (1984) Risk taking was positively associated with the number of generic products purchased, but risk takers would not routinely purchase generic items perceived as high risk Foods (i.e. Kentucky) Roseman and Kurzynske (2006) There was a relationship between food safety perceptions and behaviours. Kentucky consumers who perceived higher risks exhibited safer food handling behaviours Organic food (e.g. vegetable, fruit) Gifford and Bernard (2006) The potential benets from organic growing methods and perceived risk from conventional agricultural methods increased the purchase likelihood of organic food Apparel television shopping Kim and Lennon (2000) The amount of information perceived from a television-shopping segment selling apparel was negatively related to perceived risk and positively related to purchasing intention Automobile Srinivasan and Ratchford (1991) Perceived risk had a positive relationship with benets of information search. Benets of information search were positively related to amount of information search (e.g. time taking, number of dealer visit) Health (i.e. cigarette) Pauline et al. (2002) There was a relationship between risk in smoking and benets to quit (continued )

Table I. Examples of studies on perceived risk across product categories Studies Results

Products Miyazaki and Fernandez (2000)

Studies

Results

Online channel 17 consumer products (e.g. books, clothing, computer, cosmetic, foods, hygienic, music, sporting goods, toys, electronics) Miyazaki and Fernandez (2001)

Web sites features (privacy and security practices) Kim and Montalto (2002) Jarvenpaa et al. (1999) van der Heijden et al. (2003) Dillon and Reif (2004)

Web sites features (privacy practices)

Books

CDs

Textbooks

Doolin et al. (2005) 20 consumer products (e.g. books, computer software, travel and accommodation, movies and music, clothing, gifts, toys) Travel Lin et al. (2009)

Prevalence of privacy and security statements was not related to perceived risk. However, percentage of privacy and security statements in a category was positively related to categorypurchase intention Perceived risk of conducting online purchases was negatively related to the rate of online purchasing. Concern about system security was negatively related to the rate of online purchasing Perceived risk of privacy invasion signicantly reduced the probability of use of online technology Higher trust in online seller decreased perceived risk which reduced perceived risk increased a buyers willingness to purchase online Reduced perceived risk increased trust, and attitude towards online purchasing which increased a buyers intention to purchase online Consumer risk and shopping experience perceptions inuenced experienced online purchasing decision more than customer service Perceived risk was negatively related to the amount and frequency of online purchasing Consumers were not willing to purchase some travel products due to perceived risk

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Table I.

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(Srinivasan and Ratchford, 1991). In line with the suggestion of Mitchell (1999), food and grocery items are also another popular category investigated by researchers (Gifford and Bernard, 2006; Roseman and Kurzynske, 2006; Wu et al., 1984). Perceived risk has also been studied in products that are associated with poor health-outcomes such as tobacco (Pauline et al., 2002). In the online consumer behaviour literature, perceived risk is recognised as very important, but the research has been limited to only a few product categories, making generalisations about its impact difcult to determine (Miyazaki and Fernandez, 2000). Research on the role of perceived risk in online purchases has been limited to four product categories; these are books (Dillon and Reif, 2004; Doolin et al., 2005; Jarvenpaa et al., 1999), music, CDs and computer software (Doolin et al., 2005; van der Heijden et al., 2003; Miyazaki and Fernandez, 2000). New areas of study of perceived risk (that do not exist in traditional purchasing) such as a web sites features (i.e. privacy and security practices) have also emerged (Kim and Montalto, 2002; Miyazaki and Fernandez, 2001). These studies suggest that the higher the risk the less likely products are to be purchased online (Doolin et al., 2005; Jarvenpaa et al., 1999; Miyazaki and Fernandez, 2001). Nevertheless, it is notable from these examples that a specic product such as gemstones was rarely used when investigating the perceived risk both in ofine and online purchasing. Overall, it can be seen that perceived risk has been extensively used in studies looking at both ofine and online purchasing behaviour and in a variety of product categories. Based on the above examples, this thesis considers perceived risk as a versatile construct that is applicable to many areas. Thus, it can be considered appropriate to apply the theory of perceived risk to examine the specic area of gemstone purchasing. Perceived risk in online purchases While buyers tend to perceive some risk in ofine purchasing, they are likely to associate more risk with online purchasing (Doolin et al., 2005). It is suggested that this risk in an online transaction may result from a buyers inability to inspect and compare a products quality for themselves (Tan, 1999), and from providing and compromising personal information (Doolin et al., 2005; Liebermann and Stashevsky, 2002). Perceived risk associated with online purchasing received less attention in early online purchasing literature ( Jarvenpaa and Todd, 1997). Some scholars (Pires et al., 2004) noted that perceived risk towards online purchasing has been disregarded in buyer behaviour research. This is perhaps because the importance of perceived risk to online purchasing was not obvious at that time. To date it is evident that a buyers perceived risk is one of the major impediments to the growth of online commerce (Awad, 2004; Culnan, 1999; FTC, 2000; United Nations, 2001, 2005), there have been a number of studies addressing this issue. Similar to the interpretations of perceived risk in ofine purchasing literature perceived risk in the online purchasing has been conceptualised diversely across studies. Examples of these studies are summarised in Table II. There appears to be two common issues arising from these examples. First, it can be seen that perceived risk has been dened differently according to the focus of the study. For instance, with the focus on internet experience, concerns regarding the privacy and security issues, and online purchasing, Miyazaki and Fernandez (2001) interpreted perceived risk as risk associated with a buyers internet experience and a buyers concerns regarding the privacy and security issues related to online purchases. With the

Studies Jarvenpaa et al. (1999) Tan (1999)

Interpretations of perceived risk Perceived risk associated with a buyers willingness to purchase online seller Perceived risk associated with internet shopping behaviour

Consequences Negative outcomes based on risk, potential for loss and negative situation from the decision to purchase a product from the online seller Negative outcomes based on product performance risk (i.e. inability to inspect product), economic risk (i.e. inability to compare price or quality of similar products, making a poor purchase decision) Negative outcomes based on general risk towards the online purchasing (i.e. how risky to purchase products online) Negative outcomes based on price-oriented style (e.g. nancial costs/charges, attractive of special rewards and discounts), netoriented style (e.g. frequency and amount of time of using a WWW browsers and internet skill) and time-oriented style (e.g. duration of internet experience) Negative outcomes based on general risk towards the online purchasing (e.g. purchasing products online is safe or risky) Negative outcomes based on privacy invasion Negative outcomes based on the expectation of possible loss from performance risk (i.e. products do not meet expectations), psychological risk (i.e. negative effect on consumer image and privacy), nancial risk (e.g. costs from bad purchase) and time-loss risk (e.g. search costs) Negative outcomes based on risk, potential for loss and negative situation from the decision to purchase online Negative outcomes based on personal risk (e.g. credit card security), privacy loss, and product performance risk (e.g. a product fails to meet expectations) Negative outcomes from a potential loss from the purchase of a brand based on the overall risk (i.e. the likelihood that purchase of the item will result in general risk of the consumer) Negative outcomes based on product performance risk (i.e. inability to inspect product), economic risk (i.e. inability to compare price or quality of similar products, making a poor purchase decision), security risk (i.e. credit card abuse security) and privacy risk (i.e. compromising personal information)

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Miyazaki and Perceived risk associated with privacy and Fernandez (2000) security disclosures and purchase intentions Kim et al. (2000) Perceived risk associated with the amount and frequency of online purchasing

Miyazaki and Perceived risk associated with internet Fernandez (2001) experience, and concerns regarding the privacy and security of online purchases, and rate of online purchasing Kim and Perceived risk towards the use of online Montalto (2002) technology by consumers Ha (2002) Perceived risk associated with online prepurchase information (i.e. brand, word-ofmouth communication, customised information) and a brand purchase online by the consumer van der Heijden et al. (2003) Dillon and Reif (2004) Perceived risk associated with attitude towards online purchasing and buyers intention to purchase online Perceived risk associated with the online purchasing decision

Pires et al. (2004) Perceived risk associated with the frequency of online purchasing

Doolin et al. (2005)

Perceived risk associated with the amount and frequency of online purchase made

Biswas and Burman (2009) Featherman et al. (2010)

Perceived transaction risk is more important than performance risk for online products Privacy disclosures and policies by retailers Brand name, guarantees and privacy policies reduce perceived risk can reduce perceived risk

Table II. Examples of interpretations of online perceived risk across studies

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focus on the information that buyers required to purchase an online-brand product, Ha (2002) described perceived risk as being associated with online pre-purchase information (i.e. brand, word-of-mouth communication, customised information) and an online brand purchase by the consumer. These examples corroborate that a universally accepted denition of perceived risk remains elusive in the online purchasing literature (Mitchell, 1999). Trust and consumer behaviour Trust is frequently acknowledged as condence in another party (Sheth, 1973; Sheth and Venkatesan, 1968; Shimp and Bearden, 1980). According to trust is considered one of the key issues the buyer considers when making a decision to purchase. Trust, like perceived risk, can be seen as a versatile construct applicable in various disciplines (Morgan and Hunt, 1994). The literature describes trust as having a negative relationship with perceived risk. In some studies, for example, trust has been considered as a negative antecedent of the buyers level of uncertainty and perceived risk (Bord and OConnor, 1990). The reverse has also been suggested by Morgan and Hunt (1994) and Gao et al. (2002) have stated that when a trust-based relationship between a buyer and a seller was developed, the buyers trust was likely to be higher and therefore the buyers uncertainty or perceived risk reduced, possibly suggesting that trust may moderate perceived risk. It is therefore appropriate to investigate trust in relation to perceived risk. Trust is dened as the basic expectation an individual has on the reliability of the co-exchangers promises (Rotter, 1967). In a similar way, trust can be interpreted as the outcome of the reliability and integrity of the seller, such as quality evaluation criteria like honesty and responsibility (Dwyer and Lagace, 1986). Morgan and Hunt (1994) corroborate this perspective by conceptualising trust as the framework of belief in the reliability and integrity of the seller. In doing so, Doney and Cannon (1997) considered trust as the domain of a solid credibility between the buyer and the seller, and the reliability of the sellers promises. This view was also supported by Gao et al. (2002) who interpreted trust as the reliability and integrity perceived by the co-exchangers. Trust is considered as the essential basic element in online trading (Gao et al., 2002). Brannigan and De Jager (2003) dened trust in online transactions as the combination of trust in online trade and trust in the online seller. It can be argued that by focusing on the purchasing aspect, these two types of trust represent one common theme; the trust to purchase online (Ba, 2001). Moreover, trust in online purchasing is often interpreted as the promise and assurance of online sellers to deliver high quality products or services to online buyers (Cowcher, 2001). It can be considered from these examples that the assurances of online sellers tend to be a necessary element to a buyers trust to purchase online. Additionally, the interpretation of trust also emerges in specic industries such as the gemstone industry. Here the buyers trust is described as one of the essential keys to successful trading (Zborowski, 2005). It appears that trust in this industry is based on the buyers satisfactory evaluation of a gemstones qualities (Hughes, 1997; Weinburg, 2001). However, interpretation of trust from a theoretical perspective in this industry is limited. Denition of trust in the gemstone industry appears to draw from a practitioners viewpoint. As such, the contribution of further studies in this area is required.

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Research model and hypotheses This study applies the models of Jarvenpaa et al. (1999) and van der Heijden et al. (2003) to develop a conceptual framework for determining the relationship between perceived risk, trust, and the online purchasing behaviour of gemstone buyers. Figure 1 shows this model and indicates the relationship between these three salient constructs. The conceptual model suggests that a number of factors inuence perceived risk, type of internet marketing strategy sellers use, and privacy and security concerns. Propositions in the model include internet fraud protection as an antecedent of trust. The model also proposes that perceived risk has a negative impact on trust, on online purchasing behaviour, and that trust has a positive impact on the online purchases. Perceived risk and its antecedents Perceived risk online relates to privacy, and a security risk of personal information (Doolin et al., 2005). Whether or not concerns over privacy and security are antecedents of perceived risk in purchasing online, or are part of a wider denition of perceived risk in internet buying, is unclear. Online marketers can provide information or signals about marketing strategies that can decrease the perceived risk of purchase (Poel and Leunis, 1999; Biswas and Biswas, 2004). This information could include offering price discounts (Kim et al., 2000; Gopal et al., 2005), warranties (Biswas and Biswas, 2004), credible information about products (Pires et al., 2004), having a better web design (Bart et al., 2005), using established brand names or retailer reputation (Ha, 2002; Biswas and Biswas, 2004; ndez-Espallardo, 2008, who suggested that increasing Delgado-Ballester and Herna advertising expenses raised brand reputation and led to a reduction in perceived risk), and offering convenience through multichannel distribution, including other online and ofine marketing channels (Lee and Huddleston, 2006; Johnson, 2007; Biswas and Burman, 2009). These strategies have the possibility of increasing credibility and
Type of Internet Marketing Strategy

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H1 ()

Privacy Concern

H2 (+)

Percieved Risk
H7 ()

H3 ()

Secruity practices
H6 ()

Online Purchasing Behaviour

H5+ H8 (+)

Internet Fraud Protection

H4 (+)

Trust

Figure 1. Conceptual model of the study

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acceptance of purchasing in this manner and thus minimizing perceived risk, or as Biswas and Biswas (2004) argue increasing trust in the online retailer, therefore reducing perceived risk. Finally, promotion strategies such as advertising in ofine sources such as printed media, and in online sources such as industry e-marketplaces and commercial web sites, may reduce the buyers perceived risk to purchase online (Ko and Park, 2002). Examples of these marketing strategies are shown in Table III. As the most effective strategy to be employed when addressing specic industries is as yet unknown, studies exploring this area should consult several four Ps strategies. Hence: H1. Some internet marketing strategies that marketers adopt can reduce the level of perceived risk of online gemstone buyers. Many online buyers express great concern about threats to privacy (Culnan, 1999; Hoffman et al., 1999; Kim and Montalto, 2002; Teltzrow and Kobsa, 2004). Various studies nd that concern about online privacy is one of the major barriers to buyers acceptance of online trading (Bhatnagar, 2004; Caudill and Murphy, 2000; Culnan, 1999; Gauzente, 2004; Hoffman et al., 1999; Milne and Culnan, 2004). A number of studies explore a buyers concerns about privacy of information in relation to trust in conducting online purchasing (Belanger et al., 2002; Chellappa and Pavlou, 2002; Luo, 2002; Metzger, 2004; Palmer et al., 2000; Shim et al., 2004; Bart et al., 2005). These studies conclude that addressing privacy concerns promotes greater trust to purchasing online and therefore reduces perceived risk of the purchase. There is conicting evidence from other studies about whether concerns about privacy increase the perceived risk of purchasing online (Foxman and Kilcoyne, 1993; Miyazaki and Fernandez, 2001). This conict appears to be an area requiring further investigation, leading to the next hypothesis: H2. Concerns about a sellers privacy practices increase the perceived risk of online gemstone buyers.

Features Product

Marketing strategies Increasing product types (Businessweek, 2001; Dolbow, 2002) Extending products items in the same product categories to enhance product variety; launching differentiate/innovative products (Beirne, 2001; Brooker, 2001; Gao, 2005; Quelch and Klein, 1996) Setting online price; using several pricing strategies such as price discount (Samiee, 1998; Shor and Oliver, 2006; Sun, 2004) Offering convenience by using multichannel distributions (Lee and Huddleston, 2006) such as online channels with ofine channels (Chu and Kim, 2006; Corbitt, 2002; Palumbo and Herbig, 1998) Promotional mix strategies (Eid and Trueman, 2002; Gopal et al., 2006; Krishnamurthy, 2006; Quelch and Klein, 1996; Van Vark, 2004; Yubo, 2004) such as Using the mixture of ofine and online advertising Using public relations strategies such as charity campaigns Using sales promotion strategies All marketing activities other than the three previous mentioned such as free samples, free testimonials

Price Place (distribution) Promotion Table III. Examples of ofine and online marketing strategies based on four Ps to reduce perceived risk

Information security or the threat of breaches via viruses, worms and the hacking of online databases are signicant issues aligned with privacy (FTC, 1998; Rohm and Milne, 1998). Some researchers argue that they are different concepts that should be investigated separately (Belanger et al., 2002; Erbschloe and Vacca, 2001). Studies of the relationship between a buyers concerns regarding information security and their perceived risk are limited and again the results are conicting. Miyazaki and Fernandez (2001) report that concerns about system security is negatively related to the rate of online purchasing, while Otuteye (2002) suggests that the lack of information concerning security of transactions is one of the major reasons why consumers are reluctant to purchase online. This ambiguity in the research leads to the third hypothesis: H3. A greater belief in the competency of sellers security practices will decrease the perceived risk for online gemstone buyers. Trust and its antecedents Trust in online purchasing is the promise and assurance by online sellers to deliver high quality products or services to online buyers (Cowcher, 2001), and is the essential element in online trading (Brannigan and De Jager, 2003; Eastlick et al., 2006; Gao et al., 2002). Yoon (2002) and Wang et al. (2004) see trust as being more about online condence of transactions or a cue based signal, rather than necessarily a relationship based concept. Research by Schlosser et al. (2006) suggests that the trust in online commerce is the limited to the ability to safeguard transactions and deliver products and services. Baker (1999) and Cowcher (2001) suggest that the lack of global-standard online trading regulations agreed to by all online co-exchangers to control deception results in a buyers concerns about internet fraud. Having a robust internet fraud-protection policy is likely to help gain a buyers trust to purchase online (Jarvenpaa et al., 1999; Kimery and McCord, 2002; Wind and Mahajan, 2001; Wand et al. 200; Schlosser et al., 2006). Hence, the greater the attention sellers give to issues of internet fraud, the greater the trust buyers will have in purchasing online. This outcome gives rise to the following hypothesis: H4. Buyer perceptions about the adequacy of the sellers internet fraud-protection practices have a positive impact on trust. It is also possible that greater fraud-protection policies will be positively associated teberg et al., with greater appreciation of the security practices of an online rm (No 2003). Hence: H5. Buyer perceptions about the acceptability of the sellers internet fraud-protection practices have a positive impact on beliefs about rm security in online purchases. Other factors inuence trust between a buyer and seller, such as the reputation of the seller, the nature of the relationship and the condence of both parties (Morgan and Hunt, 1994; Schoenbachler and Gordon, 2002; Eastlick et al., 2006). This study focuses on trust based on the completion of an online transaction, rather than the impact of such long-term factors as is the case in longitudinal research. The study recognizes that the role of trust is often discussed in the online literature as part of the reverse side of perceived risk, rather than how trust is developed per se. The following section addresses these issues.

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Perceived risk and trust inuence on each other and on online purchases Perceived risk has a negative relationship with trust (Eastlick et al., 2006; Kimery and McCord, 2002; Swaminathan et al., 1999). Greater trust likely reduces perceived risk. For example, Jarvenpaa et al. (1999) suggest that higher trust in the online sellers does decrease perceived risk, and this reduced perceived risk increases the buyers willingness to purchase online. Similarly, van der Heijden et al. (2003) report that reduced perceived risk does increase trust and attitude towards online purchasing, which in turn increases a buyers willingness (intention) to purchase online. Perceived risk has a direct negative inuence on the likelihood/intention to purchase online (Vijayasarathy and Jones, 2000; Yeung and Morris, 2006). It also affects the online purchasing decision (Dillon and Reif, 2004), and the volume of online purchases (Doolin et al., 2005; Miyazaki and Fernandez, 2001). Research on trust shows a positive effect between trust and the intention to purchase online (Eastlick et al., 2006; Gefen, 2000; Koufaris and Hampton-Sosa, 2002; Shim et al., 2004; Yoon et al., 2002). A further examination of these issues using empirical evidence from the gemstone industry may conrm the direct effects of perceived risk and trust on online purchasing behaviour, giving rise to the next three hypotheses of this study: H6. Perceived risk has a negative impact on the trust of online gemstone buyers. H7. Perceived risk has a negative impact on the online purchasing behaviour of gemstone buyers. H8. Trust has a positive impact on the online purchasing behaviour of gemstone buyers. Method In order to develop the measures and increase the validity of the study preliminary research was conducted with 79 gemstone sellers in Thailand. Indepth interviews were used to develop the questionnaire items of the study (Tiangsoongnern and Vuori, 2004). These interviews consisted of semi structured and open ended questions about the factors which would encourage dealers to purchase to purchase gemstones online. Risk and trust emerged as major themes, as did issues regarding secruity and privacy considerations. For the main study, organizational gemstone buyers listed with gemstone and jewellery associations and directories in the USA were the sample frame. While gemstone trading is a global activity, most gemstone buyers are US-based (Khaoplum, 2002; Porncharern, 2006). The sample came from three sources: (1) the entire population of the American Gems Trade Association (AGTA) (i.e. 877 wholesale natural gemstone suppliers/rm members and afliate members) in 2004; (2) the 81 exhibitors of the Gem and Lapidary Wholesalers (2004) in Tucson, Arizona, during January 29-February 11, 2004; and (3) 197 gemstone and jewellery dealers found in the Yellow Pages directory of New York (Teo, 2001), and the Colored Stone Tucson Show Guide (Colored Stone, 2005; Doolin et al., 2005). In the 12 weeks from April to June 2005, a web-based self-administered survey was used to collect the data, using e-mail addresses obtained from the sample frame.

Out of 1,055 potentials, 160 were inactive, resulting in 895 live e-mail addresses. From these 895, 134 people replied, representing a 15 per cent response rate. This response rate is within the acceptable range for online surveys (Comley, 2000; Ranchhod, 2001; Tse, 1998). The majority of respondents were gemstone dealers (44.96 per cent), followed by gemstone and jewellery dealers (37.98 per cent). Respondents were mostly self-employed and operated within a micro company that had one to ten employees (75.96 per cent). These gemstone buyers had a high level of experience ranging from eight to 15 years in the industry (69 per cent), and were educated people, 36.4 per cent having graduated from college. The results reveal that gemstone buyers in this study were using both ofine (60.5 per cent) and online-buying methods (39.5 per cent). The most popular ofine-buying methods were: . visiting gemstone exhibitions (37.3 per cent); and . other companies (25.0 per cent). The most popular online-buying methods used were: . sellers web sites (48.6 per cent); and . gemstone and jewellery e-marketplaces (35.3 per cent). When using online channels, buyers were more likely to purchase semiprecious gemstones such as amethyst, topaz, quartz, moonstone and beads (69 per cent), than precious gemstones such as ruby, sapphire and emerald (31 per cent). Most of the buyers (36 per cent) tended to buy gemstones in loose lots (i.e. buying a number of gemstones of varying sizes and shapes in one lot) rather than as a single piece (29 per cent). Online buyers purchased gemstones in a variety of qualities, classied by colour, clarity, cutting style and weight, with higher grading in these features indicating a higher quality (Bridge et al., 2003; ICA, 2001; Weinburg, 2001). The medium-high quality gemstones were the most purchased by online organizational purchasers (41 per cent), followed by medium-low quality (31.1 per cent), high quality (14.8 per cent) and low quality (13.1 per cent). Measures The study includes seven variables to test the research hypotheses. Online purchasing behaviour of buyers was measured using the amount of online purchasing and the frequency of purchase as suggested by Gattiker et al. (2000) and Miyazaki and Fernandez (2001). It was recognised in this research that measurements used were a mix of formative and reective constructs. According to Diamantopoulos and Winklhofer (2001), formative measures of the study included internet marketing strategy, perceptions of internet security and fraud-protection policies. This is because these measures represent an index of rm capabilities in these areas (Coltman et al., 2008) rather than a measure which reects characteristics of the phenomena. Reective measures included perceptions of risk and trust. Because the study uses a mix of reective and formative measures, partial least squares (PLS) was used to develop both the measurement and path model for the research study (Mai et al., 2010). Measures for this study were developed by procedures as recommended by Gefen and Straub (2005). This consisted of two rules of thumb. The rst was to only include variables which loaded onto factors above 0.40. The second is that for each

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independent variable that loads onto a factor of above 0.40 on multiple factors there must be a difference of 0.10 or more between its highest loadings on one factor to the next highest loading factor. The loading on this factor is then ignored (Mai et al., 2010). Loadings with insignicant t-values onto formative or reective constructs were also not included in the analysis (Gefen and Straub, 2005). In order to examine discriminant validity the correlations of latent variables two procedures were used. The rst was to examine the item loadings to construct correlations. The second was to examine the ratio of the square root of the average variance extracted (AVE) of each construct to the correlations of this construct to all other constructs (Gefen and Straub, 2005). Trust was measured by a three-item scale adapted from the items used to measure general risk towards online purchasing as suggested by Miyazaki and Fernandez (2001) which reported coefcient a of 0.74. The three items consisted of the following I feel condent to buy gemstone(s) using the internet; I feel wary to buy gemstone(s) using the internet (reverse coded); and to date, buying gemstones online tends to be reliable. These items were measured using the same ve-point Likert scale where 1 indicated strongly disagreed and 5 indicated strongly agreed with the statement. This measure closely follows the approach of trust, being a degree of condence in purchasing online, as outlined by Ba and Pavlou (2002), Bauerly (2009) and Comegys et al. (2009). This study interpreted trust as a buyers trust to purchase online, the expectations of buyers about the reliability and integrity of the sellers promises based on the assurances of online sellers. That is, trust is considered as general trust to purchase online, rather than trust in the seller (Brannigan and De Jager, 2003) or trust in the online trade (Gao et al., 2002). Perceived risk was measured in terms of the general risk towards online purchasing via a two-item scale suggested by Miyazaki and Fernandez (2001) (a 0.82). This measure consisted of the following items; I feel that it is less risky to by gemstones using the Internet today and buying gemstones online using the internet is safe. A 13-item instrument measures the type of internet marketing strategy that sellers report using. One item relating to a price strategy, two items relating to place strategy, and ve items relating to promotion strategy were adapted from the industry survey of the Jewellery Consumer Opinion Council ( JCOC) consumer predictions for 2002 (cited in Prost (2005)). In addition, three items relating to place (distribution) strategy were adapted from the original scales used by Belanger et al. (2002), which reported a coefcient a of 0.72. Two items relating to strategy were adapted from Gao (2005) who suggests that offering a variety of choices of products is related to increased sales. PLS analysis found only two measures were above the 0.40 threshold as recommended by Gefen and Straub (2005). These were Buy from general e-marketplaces and buy from industry e-marketplaces. Therefore, the measure of internet marketing strategy in this study is indicative of rms using a multiple online channel strategy. Privacy concern was assessed by four items were adapted from Miyazaki and Fernandez (2000, 2001), privacy principles of the Federal Trade Commission (FTC, 2000) and Erbschloe and Vacca (2001). These items included concern about the collection of personal information, personal information being collected, not knowing how personal information will be used and privacy information consists of the availability of a written privacy policy.

Security practices were measured by single item, using a well-known credit card for payment. Originally the measure consisted of ten items. Four items were adapted from Miyazake and Fernandez (2000) and three items were adapted from Miyazaki and Fernandez (2001). The other nine measures though failed to meet the 0.40 criteria as suggested by Gefen and Straub (2005). Likewise, internet fraud protection was measured by a single item, using a well-known payment institutions. The original other seven items from the scales adapted from Miyazake and Fernandez (2000, 2001), Kimery and McCord (2002) and Erbschloe and Vacca (2001), failed also to meet the loading criteria of 0.40. All of the variables in this study used a Likert scale of measurement, with the exception of online purchasing behaviour. These scales were anchored with strongly agree 5, agree 4, neither agree or disagree 3, disagree 2 and strongly disagree 1. Use of this ve-point scale descriptor was consistent with previous studies that have examined online purchasing behaviour of consumers (Ha, 2002; Pires et al., 2004). Data collected includes information relating to company type, number of employees (staff number), years of experience, education level and buying characteristics (buying methods, gemstone types, gemstone lot-types, gemstone lot-sizes and gemstone quality). For the purpose of this study, buying method was used as a way to ensure that respondents had bought gemstones online. This is indicated by selecting any of given online-buying methods. These items were adapted from scales used by the industry survey of the JCOC, consumers predictions for 2002, and the Colored Stone Annual Survey 2004 (cited in Prost (2005)). As shown in Table IV, most items loaded orthogonally onto their respective constructs. The exception being using a well-known payment institutions, also loads onto perception of security practices. As this measure is a part of the single item construct of fraud protection and fraud protection is argued to be correlated with security practices, this does not present any concerns regarding the analysis. Table V, shows the cross loadings of the latent constructs, internet marketing strategy, was found to be positively correlated with online purchases (r 0.50, p , 0.01) and so therefore this path was included in the analysis. Table V, also shows that there is further evidence of discriminant validity, with the square root of the AVE for each latent construct being greater than the correlation between it and all the other constructs (Gefen and Straub, 2005). The nal measurement properties of the scales are shown in Table VI. All measures met the cut-off of 0.50 on the AVE as recommended by Fornell and Larcker (1981). Composite reliabilities measures were above 0.80 as recommended by Bollen (1989). a reliabilities were all above 0.70 and averaged 0.83. Hypothesis testing PLS using SMART-PLS2.0 (Ringle and Alexander, 2005) was used to estimate the conceptual model and test the hypotheses of interest. PLS has many advantages, including that of the outer model formulation which allows for the specication of both reective and formative mode as well as categorical variables, and can be used with smaller sample sizes, unlike conventional structural equation modelling (OCass and Pecotich, 2005).

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Using a well-known credit card for payment Using well-known payment institutions Buy from general emarketplaces Buy from industry emarketplaces I feel condent to buy gemstones using the internet Percent of gemstones bought online Collection of personal information Type of personal information collected Not knowing how personal information will be used Buying gemstones online tends to be reliable I feel that it is less risky to buy gemstone(s) using the internet today Buying gemstone(s) using the internet is safe I feel wary to buy gemstones using the interneta Privacy information consists of availability of written privacy policy Note: aReverse coded

Fraud protection 0.72 1.00 0.01 0.04 0.24 0.05 2 0.05 2 0.03 2 0.08 0.19 2 0.25 2 0.20 0.16 2 0.05

Internet marketing strategy 2 0.01 0.04 0.73 0.74 0.53 0.50 2 0.25 2 0.23 2 0.24 0.16 2 0.36 2 0.29 0.41 2 0.23

Privacy Purchases 0.03 2 0.06 2 0.11 2 0.27 2 0.24 2 0.36 0.95 0.94 0.90 0.06 0.43 0.29 2 0.01 0.80 2 0.05 0.05 0.46 0.29 0.39 1.00 2 0.33 2 0.33 2 0.31 0.36 2 0.51 2 0.36 0.19 2 0.35

Risk 2 0.22 2 0.24 2 0.26 2 0.26 2 0.74 2 0.47 0.39 0.43 0.32 2 0.51 0.93 0.91 2 0.49 0.27

Security Trust 1.00 0.72 2 0.07 0.06 0.19 2 0.05 0.06 0.02 0.02 0.12 2 0.19 2 0.21 0.25 0.03 0.23 0.25 0.31 0.38 0.88 0.40 2 0.13 2 0.12 2 0.07 0.76 2 0.67 2 0.69 0.78 2 0.02

448

Table IV. Cross loadings of the items to the constructs

Error minimization (or, the maximization of variance explained) in all dependent (or endogenous) constructs is the primary objective of PLS. An examination of the R 2 values for the endogenous constructs reects how well this primary objective is met (Hulland, 1999). Findings Figure 2 shows the PLS results. The signicance of the path bs is calculated using bootstrapping techniques, and the resultant t-test of paths supports the ndings of the study. The results show support for H1 (type of internet marketing strategy will reduce perceived risk ( b) or regression coefcient 2 0.27, t 3.29, p , 0.01),

SQRT Fraud AVE protection Fraud protection Internet marketing strategy Privacy Purchases Risk Security Trust N/A 0.73 0.90 N/A 0.92 N/A 0.81 1.00 0.04 2 0.06 0.05 2 0.24 0.72 0.25

Internet marketing strategy

Privacy Purchases

Risk

Security Trust

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1.00 2 0.26 0.50 2 0.35 2 0.01 0.47 1.00 2 0.36 0.40 0.03 2 0.10

1.00 2 0.47 2 0.05 0.40

1.00 2 0.22 2 0.74

1.00 0.23

1.00

Note: SQRT AVE square root of average variance extracted

Table V. Cross loadings between the latent constructs

H2 (privacy concerns increase the level of perceived risk, b 0.34, t 4.40, p , 0.01), H3 (security practices reduce perceived risk, b 2 0.24, t 3.47, p , 0.01), H6 (perceived risk negatively affects trust, b 2 0.72, t 11.26, p , 0.01), H5 (buyer perceptions about the acceptability of the sellers internet fraud-protection practices have a positive impact on beliefs about rm security in online purchases, b 0.72, t 14.52, p , 0.01) and H7 (perceived risk reduces online purchases, b 2 0.38, t 3.56, p , 0.01). Support was also found for a direct link between internet marketing strategy and the amount purchased online (b 0.42, t 4.65, p , 0.01). The ndings did not support H4 (internet fraud-protection policies increase trust, b 0.04, t 0.92, p . 0.10) and H8 (trust is a positive predictor of online purchases, b 0.07, t 0.63, p . 0.10). Overall the model predicts quite well the level of trust, R 2 0.55, is reasonable in predicting perceived risk, R 2 0.28 and reasonably so the level of actual online purchases, R 2 0.37. Discussion The results of this study showed at rst that perceived risk and the use of marketing strategies of multiple channels to reduce it are crucial factors in the prediction of online products. This is especially so for risky, credence types of products such as gemstones. This result is consistent with research by Biswas and Biswas (2004), Featherman et al. (2010) and Hong-Youl (2004) who all found perceived risk to be a major barrier to purchasing online. The importance of perceived risk rather than trust may reect ndings by Schlosser et al. (2006) who found that risk played a greater role than trust, when buyers were searching (as would be the case with gemstone buyers), than just browsing online where trust is more important. ttner and Go ritz (2008), on the online purchases of pharmaceuticals, Research by Bu a more risky product than gemstones, showed that trust partially mediates the effect of risk, suggesting the possibility that the path may be reversed between risk and trust. A further test of this path, suggests this may be so (bTrust-Risk 2 0.71, p , 0.01). A statistical comparison (Maruyama, 1988, p. 259) of both paths (bTrust-Risk 2 0.71 and bRisk-Trust 2 0.72) though suggests that the differences are not signicant (t 0.05, n.s) and either model can be accepted. It is also quite possible the relationship

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Scale and items and loadings of latent constructs Perceived risk (two items) AVE 0.85 Reective Measure I feel that it is less risky to buy gemstone(s) using the internet today (0.93) Buying gemstone(s) using the internet is safe (0.91) Type of internet marketing strategy used by seller. (two items) AVE 0.54 Formative Measure Buy from general e-marketplaces (0.67) Buy from industry e-marketplaces (0.68) Privacy concern (four items) AVE 0.81 Reective Measure Collection of personal information (0.96) Type of personal information collected (0.93) Not knowing how personal information will be used (0.90) Privacy information consists of availability of a written privacy policy (0.80) Security concern (one item) Using a well-known credit card for payment Internet fraud-protection (one item) Using well-known payment institutions Trust (three items) AVE 0.65 Reective Measure I feel condent to buy gemstones using the internet (0.81) I feel wary to buy gemstones using the interneta (0.69) To date, buying gemstones online tends to be reliable (0.76) Online purchasing behaviour (one item) Note: Reverse coded
a

Composite reliability 0.91

Communality 0.85

Mean (SD) 6.92 (0.95)

a reliability
0.82

450

N/A

0.54

6.18 (1.23)

N/A

0.94

0.81

4.93 (2.23)

0.92

N/A N/A 0.85

N/A N/A 0.65

4.23 (0.62) 4.37 (0.69) 8.23 (2.45)

N/A N/A 0.74

Table VI. Measurement properties of major variables in the analysis

0.88 (0.93)

NA

between risk and trust may be non-recursive and each may cause each other in the decision making process of organizations and consumer in online transactions. Past research has also examined purchase intent and attitudes to purchasing online (van der Heijden et al., 2003; Jarvenpaa et al., 1999) while this study examined actual online purchases, which may explain the differences in these results with that of studies (Casalo et al., 2007; Comegys et al., 2009; Dash and Saji, 2007; Delgado-Ballester and ndez-Espallardo, 2008; Dinev et al., 2006; Eastlick et al., 2006). Herna This study also shows that there are a number of antecedents that managers can inuence in order to reduce perceived risk, which in turn should increase trust, and, therefore, online purchases. For instance, marketers need to address privacy concerns, since this increases perceived risk (H2). They may also reduce risk by meeting security concerns (H3), as a failure to do so will increase the perceived risk associated with online purchase. A good option may be for online marketers to have policies that

Type of Internet Marketing Strategy

R2 = 0.28 H1() 0.27**

Percieved Risk
H2(+)0.34**

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H7(+) 0.38** R2 = 0.37

Privacy Concern
H3() 0.24** 0.41**

Secruity practices
H6() 0.73**

Online Purchasing Behaviour

H4 (+) 0.72** H8(+) 0.07

Internet Fraud Protection

H3(+) 0.04

Trust

R2 = 0.55

Note: *p<0.05, **p<0.01

Figure 2. PLS results

protect privacy which are accredited by third parties such as governments, and by securing information provided by their customers. Signicantly, marketers can reduce the perceived risk of purchases by a particular internet marketing strategy, in this case by distribution (H1). The results of this current research suggest that buyers associate a lower perceived risk when gemstones are available by other online channels (for example, other formalized trading sites or e-marketplaces, see also Lee and Huddleston (2006). This does not mean that other elements of the marketing strategy are unimportant. This study did not nd a measurement model that incorporated the other three parts of the marketing mix (price, product and promotion). Other parts of the predictive model may address these omitted elements of marketing strategy. The role of providing or advertising the sellers policies which address the buyers concerns of privacy, security of information and protection against fraud occurring in a highly risky transaction may capture promotion. The hypothesis that internet fraud-protection policies increase trust fails to receive support in this study. A possible explanation is that the policies of privacy and information security, through perceive risk, have a greater inuence on trust than fraud-protection policies, or these measures may well encapsulate the fraud-protection policies that an organisation can use. Limitations and future research Limitations inuence the results of this study. The rst is the sample size used in the study. The results obtained from 134 online gemstone buyers in the USA may

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lack generality, although they came from a relevant population of interest. Nevertheless, the overall smaller size of the population of online gemstone buyers in the USA compared to other studies of online consumers (e.g. purchasers of CDs and books) which are sampled from much larger populations, means that sampling error in this study may still be lower that would be expected. In order to test the validity of these ndings, researchers should repeat this study with a larger sample, such as adding gemstone buyers from other gemstone and jewellery associations or directories, or this study could be replicated in the broader context of cross-national research or in another product category. It is also possible that personality traits not previously considered may inuence the decision for organizational buyers to purchase products online, as is the case with consumers (Bosnjak et al., 2007). Research by Smith et al. (2005) also suggests that online peer and editorial recommendations are an important factor in online markets, and are more preferred type of information for consumers to reduce the effort of online searches and purchases. This research study also did not experimentally manipulate web design, which has been shown to inuence the level of trust (Bart et al., 2005). The second limitation in this study relates to the measurement of some items. The measurement instrument used to measure the type of internet marketing strategy was found to only consist of a type of distribution strategy that was employed. Further research may want to develop further a formative model of an internet marketing strategy based on a number of broader factors. Although the prediction of trust is favourable (R 2 0.55), the model does not include other factors that may also inuence trust. Shimp and Bearden (1980), Anderson et al. (1989) and Young and Wilkinson (1989) suggest that a sellers favourable reputation is likely to help increase a buyers trust to purchase, as does Delgado-Ballester and ndez-Espallardo (2008) in online transactions. Jarvenpaa et al. (1999, 2000) suggest Herna that the reputation and size of an organisation affect a buyers trust to purchase online. Despite these limitations, this study does add value to existing literature, reinforcing the assertion that trust and the perceived risk through trust (or vice versa), are still important factors that need to be considered by marketers, in relation to the online purchases of expensive products such as gemstones. As they have done for thousands of years, buyers will continue to seek precious gems, and doing so online will merely conrm the age-old importance of risk and trust.
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