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ABSTRACT
The rise of online shopping has gradually changed consumer behavior. Not only does it
offer convenient shopping with a variety of products, but also allows quick price
comparisons and fast access to product information. Though it has developed rapidly in
recent years, it is still perceived immature due to risks. This study is to explore the
differences between the perceived risks and risk reduction strategies by different product
types, as well as the effects of online shopping experiences and consumer innovation on
perceived risks. And it also examines insecure factors formed by perceived risks in online
shopping and consumers’ risk mitigation plans, and eventually determines if risk reduction
strategies encourage consumers’ purchase intention. The study finds that experience goods
possess a higher perceived risk than search goods does, and therefore requires a more
effective risk reduction strategy. Abundant online shopping experiences are more helpful in
handling perceived risks of shopping. Innovative characters are capable in taking more
risks. Perceived risks are positively associated with risk reduction strategies. Finally, risk
reduction strategies increase consumers’ purchase intention.
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Corresponding author: jackie0814@so-net.net.tw
214 International Journal of Electronic Business Management, Vol. 6, No. 4 (2008)
only contributes 1.2% to the total retailing sales, adverse outcomes of risks until they are below the
whereas in the U.S. online retail accounts for 6% of level of acceptable risk. The development of
the total retail market. With the online population of perceived risks to purchase intentions in this study is
925 million people, it is safe to say the B2C based on the “process for risk-taking in consumer
e-commerce in Taiwan will grow strongly in the behavior” by Taylor [61] to derive the relevant
future. Therefore, how to reduce the online shopping variables and topics.
risk and enhance the consumers’ purchase intention is By adding the proposed dimension of time risk
a recent important topic. by Roselius [52], Peter and Tarpey [48] examine
Online shopping is still risky due to the perceived risks in six dimensions, and they are:
immature online shopping environment in Taiwan. financial risk is defined as a net financial loss to a
Some people are still less willing to use the Internet consumer through reasons like lack of warranty and
to shop. To make online retailers realize the types of high maintenance fees; performance risk is defined as
perceived risks concerned by consumers and the the loss incurred when the product chosen might not
importance of risk reducing strategies, the main perform as desired; psychological risk is defined as
objectives of this research focus on antecedent of the loss incurred when the product chosen does not
perceived risks (product type, purchase experience fulfill the consumer’s self-image or perceptions of
and customers’ innovation) and assess the influence self; physical risk is defined as the loss incurred when
of risk reduction strategies on purchase intention. the product chosen may physically harm the
To conclude, this study hopes to achieve the consumer; social risk is defined as the loss incurred
following goals through online and field surveys: when the product chosen is not appreciated by the
First, we want to understand the differences between consumer’s family and friends and therefore the
the perceived risks and risk reduction strategies by value is minimized; and time risk is defined as the
different product types. Second, we want to examine loss incurred when it requires more time and energy
the effects of online shopping experiences and to acquire the product and becomes inconvenient.
consumer innovation on perceived risks. Third, we Since then, related researches on perceived risks have
want to study if online risk reduction strategies employed these six dimensions [24][59][60].
influence purchase intentions. Finally, we want to Since the rise of the Internet in 1990s, many
thoroughly understand consumers’ thoughts on online scholars have applied perceived risks to the research
shopping risks and the factors that influence their of consumers in virtual channels. However,
purchase intentions, and therefore to provide employing the traditional dimensions of perceived
theoretical and practical contents in the research of risks is inadequate to interpret the new risks of online
online shopping. shopping. Jarvenpaa and Todd [29] are the first to
conceptualize a multi-dimensional construct
2. LITERATURE REVIEW encompassing economic, social, performance,
personal (including security), and privacy risks. Their
2.1 Perceived Risks definitions are: economic risk is defined as the loss
Perceived risks usually play an important role incurred when a consumer has made a simple
in the purchase decision-making process, regardless decision to purchase a product that can not be
of the nature of the purchase occasions (planned vs. replaced or refunded, or a consumer has paid for the
impulse). Every purchase contains some degree of product but fail to receive it; performance risk is
risk. Bauer [5] is the first to bring up the idea of defined as the experience of anxiety arising from
perceived risk: “consumers perceive uncertainty in anticipated reactions such as worry of unsatisfactory
contemplating a particular purchase intention. The performance from the purchased product or service
outcome may make consumers unhappy and when some consumers can not touch or test the
regretful.” He considers that consumers’ behavior is desired product in personal; personal risk is defined
risk-taking. Consumers may not be able to clearly as a possible harm to the consumer in purchase
state their purchase intentions or have never thought behavior; social risk describes instances where a
about the word “risk” in their subconsciousness. consumer’s online shopping behavior or decisions are
Instead, the risk perceived subconsciously may have not accepted by the society (e.g., families and
affected consumers’ behavior. colleagues) or is considered to make impulsive
Taylor [61] integrate the previous research decisions; and finally, privacy risk is defined as the
findings to outline a structure for risk-taking in risk of revealing personal information as consumers
consumer behavior, stating the uncertainty of the shop, and most of the revelations are about consumer
environment generates perceived risks during purchase information.
decision-making process, and the risks perceived In the research field of online shopping,
vary by different levels of self-esteem. Before privacy and security risks are the most influential in
making purchase decisions, consumers look for risk consumers' perceptions of present and future online
reduction strategies to mitigate uncertainties and shopping [65]. Many of the views from Internet users
K. K. Chu and C. H. Li: A Study of the Effect of Risk-reduction Strategies 215
as well as businesses are found to be similar, with on actual check and therefore possess a higher
concerns about government policy, security and perceived risk online.
privacy [31]. While studying the relationship between Product types are categorized into search goods
perceived risks and purchase intentions, it is found and experience goods in this study. The chosen
that privacy and security risks are two well-perceived subjects of search goods are apparels, furniture,
risks under the situation of online shopping [40]. sports goods, souvenirs and flight tickets. The chosen
Salisbury [53] applies the technology acceptance subjects of experience goods are computers/computer
model (TAM) to study decision-making factors in the peripherals, beauty care, books and magazines and
online shopping environment, and the study finds the communication products. This study is then to further
security of the web site is influential in consumers’ examine how influential product types are to
perception of online shopping. Liebermann and perceived risks and to understand how relevant
Stashevsky [35] also find in their research that both product types are with risk reduction strategies.
piracy and security are two main risk factors in the
online shopping environment. The contents of the 2.2.2 Internet Shopping Experience
two risks are as followed: privacy risk describes When consumers acquire experiences in
instances where personal information is revealed purchasing a specific product, they get an easier
without the person’s consent (e.g., one’s email, age access to familiar product information [10]. To online
and sex); and security risk is defined as the fear from users, previous shopping experiences also seem to
consumers that their credit card and other financial influence their future purchase intentions. Consumers
information will be revealed. provide meaningful psychological reviews in the post
Based on the definitions and dimensions of the purchase evaluations. These experiences will
perceived risks explained above, the following continue to affect their future decision-making
dimensions of the perceived risks in online shopping processes [54]. Decision-making is a cycle of
are chosen: personal performance, security, financial, feedback activities. Besides, another research points
psychological, time and social risks. Amongst them, out that experiences of online purchasing also affects
security risk is chosen as it offers a broader coverage the purchase decisions [36]. In the online shopping
than privacy risk does. Consumers normally have to environment, consumers use their own experiences to
enter their login information in the front page of the evaluate product information, purchase payments,
online shopping web site. Therefore, the online services, risks, privacy and warranty [37][47]. Many
shopping site not only protects consumers’ private people think the previous shopping experiences
information but also needs to block itself from attacks encourage consumers to shop online [34][23].
from hackers. Customers that never shop online adopt a higher level
of risk aversion strategy than repeat customers do
2.2 Antecedent of Perceived Risks: Product Type, [60]. Comparing with inexperienced consumers,
Shopping Experience, and Customers’ Innovation experienced online shopping consumers make more
purchases [25]. As consumers acquire more online
2.2.1 Product Type of Internet Shopping shopping experiences, they develop confidence that
There are various products with different facilitates more ambitious buying [55]. Most of the
categories online. The most common product previous shopping experiences have to satisfactory
categorization is the classification of search goods and positive to encourage future online shopping. If
and experience goods. Search goods are products or consumers have negative experiences in the past, they
services with features and characteristics easily will probably reduce the use of the Internet shopping
evaluated before purchase, such as furniture, apparels in the future [41].
and shoes. Whereas experience goods are products or
services used or experienced before purchase or 2.2.3 Innovative Customers
where the product characteristics can be ascertained Consumers who frequently shop online are
upon consumption, such as cosmetics and called innovators. This kind of consumers is more
communication products [42][43]. Rao and Ruekert willing to accept new ideas and try new products.
[50] think “information asymmetry” is a common Most of the consumers are young, highly educated
phenomenon occurring in experience goods, because and willing to take risk at their own. The salient value
product characteristics, such as quality, are difficult to of the innovator is adventure [51]. The research by
be observed before consumers make purchases. Darian [19] says in-home shoppers are more
These characteristics can be discovered upon innovative.
consumption. To conclude, search goods tend to have The research finds consumers that accept
lower intangible characteristics and have more online shopping are the Internet users and innovative
advantage in online shopping, as they can be consumers in certain fields [12]. These online users
evaluated with external information without actual often spend a lot of time on the Internet activities,
check [49]. Experience goods, on the other hand, rely such as information search. The innovative
216 International Journal of Electronic Business Management, Vol. 6, No. 4 (2008)
consumers in certain fields often purchase certain clearly classified the degree of perceived risks
products on the Internet. Donthu and Gilliland [20] [21][2].
use the innovation of certain fields and common Consumers rely on reference group appeal for
personal characters to measure the degree of certain behavior guidelines [6]. As celebrities and
consumer innovation. Innovative consumers not only experts possess professional characteristics, they
have more positive attitudes towards online shopping, influence consumers’ feelings, purchase behavior and
but also are more creative and intellectual than those attitude. For online shopping, the most popular risk
who do not purchase products or services online [25]. reduction strategy is the reference group appeal,
Potential online shoppers show highly adventurous followed by manufacturer’s reputation and brand
spirit, have a positive attitude to environmental image [60]. Money-back guarantee and free trial
changes and frequently use the Internet [56]. periods are also successful risk-reduction strategies,
in terms of absolute risk reduction [2][62].
2.3 Risk Reduction Strategies The points of views in each risk reduction
In a purchase decision-making process, risk strategy do not agree with each other, because there
handling process is often employed on the desired are different types of virtual shops and products. This
object, with which consumers try to reduce the research focuses on the Internet shopping
perceived risks and increase certainty in the environment, and the chosen dimensions are
pre-purchase stage. Consumers develop risk handling standardized with the previous findings and concerns
processes to reduce the perceived risk until it is of the recent Internet users [3][52][60]. The following
below his or her level of acceptable risk, so that they 10 dimensions are chosen to examine risk reduction
will have the intention to purchase the product and strategies cared by the Internet shoppers in Taiwan:
the service [15][58]. reference group, brand loyalty, online retailer’s
Before consumers make purchases, they reputation, brand image, money-back guarantee,
measure the outcome of the particular purchase government testing, word of mouth, shopping, free
behavior. More positive preferences yield higher samples and expensive products.
possibility of purchase [22]. The factors that affect
purchase intentions are attribute levels, price, and 2.4 Purchase Intention
cues such as manufacturer brand and online retail The theory of planned behavior thinks
brand and reviews from the online third-party. behavioral intention influences behavior and
Consumers usually reduce uncertainties through the stimulates actions [22][1]. Purchase intention is part
well-known manufacturer brand and retail brand [64]. of behavioral intentions, and behavioral intentions are
Purchase factors are different in online shopping and cognitive plan to perform a definite action or possible
non-Internet environments. Online shopping behavior on an object [8]. Under many
environment is full of many uncertainties, so circumstances, one’s behavior can not be accurately
consumers tend to search many informational cues predicted from his or her attitude. People’s attitudes
related to the product to lower its perceived risks. toward objects and things have very little to do with
Informational cues are categorized into intrinsic cues their actual behavior. Besides that, attitudes can
and extrinsic cues [45][46]. Intrinsic cues involve the hardly predict behavior due to possible lack of
physical composition of the product; whereas behavioral intentions. Therefore, attitudes influence
extrinsic cues are external to the product itself actual behavior through behavioral intentions
[28][66]. Price, brand, retailer, advertisements and [22][1][8].
warranty are classified as extrinsic cues [11]. Darden and Dorsch [18] think consumers have
Consumers use the following strategies to many choices in their shopping, and perceived risks
reduce risks: advertisements, word of mouth, brand, play a role in influencing the shopping mode. The
store loyalty, the relation between price and quality, research finds perceived risks hinder the use of the
and 100% Money Back Satisfaction Guarantee Internet and commercial transactions. Through
[3][17][4][52]. Roselius [52] proposes 11 risk understanding those factors, online retailers or
relievers and finds that buyers are more concerned service providers can develop appropriate methods to
with brand loyalty and major brand image, and the help consumers reduce their perceived risks [30]. A
followings are the 11 risk reduction strategies: (1) low level of perceived risk is also expected to
endorsement; (2) brand loyalty; (3) major brand promote purchase intentions and reactions to actual
image; (4) private testing; (5) store image; (6) free sales [39]. In-home shopping scholars among
sample; (7) money-back guarantee; (8) government researchers find that the lack of pre-purchase
testing; (9) shopping; (10) expensive model; (11) inspection of the product quality influences
word of mouth. The research of risk reduction consumers’ purchase intentions with a high level of
strategies used for in-home shopping finds that, perceived risk [16][21][57]. When consumers shop
previously satisfactory shopping experiences, online and the perceived risks are too high for them
money-back guarantee and manufacturer’s reputation to take or bear, they will take one step further to find
K. K. Chu and C. H. Li: A Study of the Effect of Risk-reduction Strategies 217
H4: Relying on effective risk reduction strategies Further, we combine the important antecedent factors
will promote high purchase intention. that influence perceived risks: product type, purchase
experience and customers’ innovation; and the
Previous studies focus on parts of online importance of risk reduction strategies. The effect of
shopping for examination, and so this study outlines a risk reduction strategies on online shopping is also
complete research structure of online shopping examined. The research structure is displayed in
factors based on the past reviews and the hypotheses. Figure 1:
6.6% of the samples are teaching and administrative classify the items into each factor and maximize the
staffs. Spending less than one hour daily on online total variation. KMO and Bartlett’s test of sphericity
shops takes up to 69.2%. The online samples consist are used examine if the perceived risk variables are
of 63.3% women and 36.7% men, and 97.6% of the suitable for exploratory factor analysis. The result
samples range from 15-30 years of age. In shows the value of KMO is 0.864, and the number of
occupations, 59.8% of the samples are students, Bartlett’s test of sphericity is significant
21.9% of the samples are service industry, 6.8% of ( χ =4389.292,p<0.05). It is concluded the analysis
2
books and magazines and communication products, level of risk in both search goods and experience
sum up a sample size of 190. Table 2 describes the goods when they shop online. Everyone is worried
result of product types on perceived risks. It is about these risks. In the further analysis, consumers
concluded that search goods and experience goods perceive a slightly higher level of risk on experience
are not significantly different on different dimensions goods than on search goods (except time-consuming
of perceived risks. Therefore, the statement in H1a is factor).
not supported. It means consumers perceive the same
Product types are categorized into search goods regression analysis has reached a significant level
(n=288) and experience goods (n=190) by (F=18.690). The dependent variable of perceived
independent-sample t-test to examine if these two risks, and the independent variables, such as
product types are significantly different in risk frequency of shopping online, amount of money
reduction strategies. Table 3 tells that the means in spent, positive comments from the previous online
experience goods are larger than those means in shopping experience and characteristics of innovative
search goods, which means experience goods possess consumers, are used to predict the effect of perceived
a higher level of risk than search goods do. It is then risks (R2=0.136). To further check collinarity in the
safe to say experience goods require more effective multiple regression model, VIF value and tolerance
risk reduction strategies. The result of the are analyzed. The indices of tolerance and VIF are
investigation says the six effective risk reduction reciprocal. If VIF<10, it means there is no collinarity.
strategies including reference group, brand loyalty, This multiple regression model is within the standard.
brand image, retailer’s reputation, money-back From the result, previously positive shopping
guarantee, word of mouth significantly different are experiment affects the most (β=-1.796), and other
needed the most when buying experience goods affecting variables are frequency of shopping online
online. Other risk reduction strategies such as (β=-1.086) and consumers’ innovation (β=-0.824).
government testing, free sample, shopping and It is also safe to say the more positive the previous
expensive products are not significant. To conclude, online shopping experience, the less risky consumers
the statement in H1b is partially support. perceive. In other words, the consumer has had a
H2a to H2d are examined with multiple friendly interaction with the buyer, and the product
regression analysis to verify if these hypotheses are and the service provided are satisfying. The sense of
supported. The result of the multiple regression trust has increased to lower the level of perceived
analysis is shown in Table 4. The value of multiple
K. K. Chu and C. H. Li: A Study of the Effect of Risk-reduction Strategies 221
risks. The second most affecting factor is frequency =0.197). It shows that consumers perceive risks in
of shopping online. Consumers who shop online online shopping, and they look for the related risk
frequently perceive a lower level of risk, as their reduction strategies and hope to make it below his or
knowledge on transactions and products grows after her level of acceptable risk. Therefore, it is concluded
several transactions. They become more capable to that the statement in H3 is supported.
handle the related perceived risks. When consumers This research further takes the six extracted
are highly innovative, they also perceive a lower factors from the exploratory factor analysis to
level of risk as they are adventure, highly acceptable examine risk reduction strategies through multiple
of new things and confident to take risks. The regression analysis. The research analysis is shown in
variable that is non-significant is the amount of Table 6. The value of multiple regression analysis has
money spent. Though the amount of money spent has reached a significant level (F=12.675). Risk
a negative relationship with the perceived risks, it reduction strategies are influenced by six perceived
does not really significant affect the perceived risks. risk factors (R2=0.139). The influencing factors that
It is suspected that consumers are not impressed range from the most to the least are as follows:
about the amount of money spent when they evaluate product performance (β=1.175), transaction security
risks, because they are more concerned with the ( β =0.908), time-consuming ( β =0.732), internal
interaction with the seller and the level of satisfaction psychological ( β =0.514) and financial loss ( β
of the product and the service provided. In the =0.186). The results show that consumers are most
conclusion, the hypotheses in H2a, H2c and H2d are concerned if the product chosen does not perform as
supported; whereas H2b is not. expected or it is not worth the value at all. The
The relationship between consumers’ perceived second most concerned factor is transaction security,
risks and risk reduction strategies are analyzed with because consumers are concerned about protection of
simple regression analysis. The statistical result is privacy of name, credit card number, password and
shown in Table 5. The regression analysis of the etc., when they shop online. They look for strategies
relationship between perceived risks and risk to reduce risks and uncertainties of risks. A
reduction strategies has reached a significant level non-significant factor is external psychological factor.
(F=49.351). We see that the riskier the consumer However, it is suspected that consumers do not look
perceive, the more they will look for effective risk for risk reduction strategies because of other people’s
reduction strategies (R2=0.094). This analysis is perceptions and opinions. Most of the strategies are
undertaken with the intent to predict the level of risk caused by internal psychological factor, and external
that consumer perceive in the online shopping psychological factor has little influence on
situation, and to further invent effective methods to stimulating consumers to look for risk reduction
help reduce risk. The effect of perceived risks on risk strategies.
reduction has also reached a significant level (β
Table 4: Multiple regression of previous shopping experience and consumers’ innovation on perceived risks
β Coefficients
Independent Variables t Tolerance VIF
Unstandardized Standardized
(Constant) 67.538 20.464**
Frequency of Shopping Online -1.086 -0.182 -3.498** 0.674 1.485
Amount of Money Spent -0.277 -0.057 -1.103 0.690 1.449
Positive Comments from the
-1.796 -0.144 -3.214** 0.907 1.103
Previous Experience
Consumers’ Innovation -0.824 -0.373 -8.155** 0.864 1.158
R R2 Adjusted R2 F
Model Fit
0.369 0.136 0.129 18.690**
Note: *p<0.05, **p<0.01
Table 6: Multiple regression of six perceived risk factors on risk reduction strategies
β Coefficients
Independent Variables t Tolerance VIF
Unstandardized Standardized
(Constant) 38.427 192.176**
Transaction Security 0.908 0.194 4.536** 1.000 1.000
External Psychological 0.090 0.019 0.451 1.000 1.000
Product Performance 1.175 0.251 5.870** 1.000 1.000
Financial Loss 0.186 0.172 2.436* 1.000 1.000
Time-consuming 0.732 0.156 3.655** 1.000 1.000
Internal Psychological 0.514 0.110 2.567* 1.000 1.000
R R2 Adjusted R2 F
Model Fit
0.373 0.139 0.128 12.675**
Note: *p<0.05,**p<0.01
Finally, risk reduction strategies have a perceive similar risks regardless of the product type
positive impact on purchase intentions, based on the while shopping online. The reason why H2b is not
hypothesis in H4. The statistical result is shown in supported is further analyzed. According to the
Table 7. This research adopts simple linear regression previous hypothesis, numerous shopping experiences
analysis, with the independent variable of risk are implied if consumers spend more money online.
reduction strategies and the dependent variables of A negative relation with the perceived risks is
purchase intention. The regression model of risk expected. In the design of the questionnaire, the item
reduction strategies on purchase intentions has said “the total amount of money spent online in the
reached a significant level (F=33.822). The intent is past year,” and it is non-significant in the result. It is
to predict if purchase intention will be stimulated then said the amount of money that consumer spent
after consumers try to look for risk reduction methods does not influence the perceived risks much. Instead,
(R2=0.066). The influence of risk reduction strategies it is the quality of the product purchased or the
on purchase intention has also reached a significant satisfaction gained while interacting with the seller. It
level (β=0.103). It shows consumers have purchase is conjectured that consumers are less sensitive the
intentions after finding necessary risk reduction risk of accumulated expenses. It is suggested to focus
strategies. Therefore, the statement in H4 is on the single purchase for further analysis in the
supported. future.
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