To the extent that a consumer cannot always be certain that all of his or her buying

goals will be achieved, risk is perceived to be a factor in most purchase decisions. In

fact, much of the work on risk taking indicates the perceived risk is little more than
unresolved tension due to opposing vectors or forces. Risk emerges from any of the
following factors (Cox, 1967a, 1967b):

(1) Uncertainty as to buying goals

(2) Which of several purchases (product, brand, model, etc.) best matches the buying
goals

(3) Possible adverse consequences if the purchase is made (or not made)

The concept of perceived risk often used by consumer researchers defines risk in terms
of the consumer's perceptions of the uncertainty and adverse consequences of buying a
product (or service) (Dowling & Staelin, 1994). In this study, perceived risk is defined as
comprising the following components: financial, psychological, performance, time,
social, and time-related risk (Stone & Gronhaug, 1993). Consumers are credited with
the capacity to receive and handle considerable quantities of information and undertake
extensive pre-purchase searches and evaluations. In particular, the present project
investigates the perceived risks associated directly with pre-purchase information:
performance risk, financial risk, psychological risk, and time risk. These may be present
in any combination and in different degrees for any given purchase (Gemunden, 1985).

(1) Performance risk is defined as the loss incurred when a brand or product does not
perform as expected (Horton, 1976). Performance risk occurs when the product chosen
might not perform as desired and thus not deliver the benefits promised. This integrates
the future quality of the product to the point of purchase.

(2) Financial risk is defined as a net financial loss to a customer, including the possibility
that the product may need to be repaired, replaced or the purchase price refunded
(Horton, 1976). This is an extension into the future (future dollar costs) of the perceived
price paid at the point of purchase (current dollar cost). Where the loss of money is an
important consideration, financial risk is said to be high.

(3) Psychological risk broadly describes instances where product consumption may
harm the consumer's self-esteem or perceptions of self. In this study, psychological risk
perception is defined as the experience of anxiety or psychological discomfort arising
from anticipated postbehavioral affective reactions such as worry and regret from
purchasing and using the product (Perugini & Bagozzi, 1999; Dholakia, 2001): for
example, protecting privacy according to individual information exposure.

(4) Time risk results when the passage of time reduces the ability of the product to
satisfy wants, such as when a product rapidly becomes obsolete (Ross, 1975). In this
study, the perceived cost with respect to customers' information search activities was
used as a type of operational definition.

The amount of risk consumers perceive is a function of many variables, and consumer
have many remedies when it comes to reducing the amount of risk they perceive
associated with product purchase on the web. Search activity is entered into with the
intent of lowering the person's overall perceived risk level. The nature of the search
activities undertaken (and thus the amount of search) is a function of the person's
acceptable risk level, the levels of the two components of perceived risk, the costs and
benefits of the specific available risk-reduction activities, and the ability of the person to
suffer a loss (Dowling & Staelin, 1994).

Definition of Pre-Purchase Information

Pre-purchase information will be defined as a series of data processed according to

consumer-specific purposes. Consumers have special characteristics that recognize
optimal information from resources and consumers act depending on their own given
situation (Hoffman, 1998). In particular, the ability to collect product information and
make comparisons between the different product offerings from different providers—
possibly across national and currency boundaries—is often viewed as one of the main
competitive challenges of e-shopping. To enhance consumer pre-purchase information
processing, companies offer other information sources to consumers (Dholakia, Zhao,
Dholakia & Fortin, 2000; H 䵢 l & Trifts, 2000). Alba et al. (1997) have shown that the
retailer or manufacturer on the web should provide consumer-customized information so
that the consumer evaluates alternatives in the consideration sets. Accordingly, the web
retailer or manufacturer must provide more appropriate information to attract, meet, and
exceed consumer expectations than must in-store retailers.

The first stage in the consumer buying process is the information search. Consumers
collect and evaluate information through consumer reports, magazine advertising, brand
name, word-of-mouth communication, and customized information. The advertising in
magazines is intended to improve brand awareness. Although consumers find much
information through magazines, the main reason that they use the web is to collect
optimal information. Accordingly, in this study information obtained from advertising in
magazines can include components of brand and customized information. Furthermore,
pre-purchase information within consumer consideration sets has an important effect on
consumer buying decisions (Hoyer & Brown, 1990; Nedungadi, 1990).

Information search activity is entered into with the intent of lowering the consumer's
overall perceived risk level. The important resources that influence consumer perceived
risk are the following (Berthon, Hulbert & Pitt, 1999; Foxall, Goldsmith & Stephen, 1998;
Harris et al., 1999; Jarvenpaa & Todd, 1997):

(1) Their own experience with a product or brand

(2) Recommendation (word-of-mouth) from family, friends, and colleagues

(3) Previous imprinting as a result of promotion, usually in association with a specific

brand

In addition to quantity of information, the quality levels of information can work as a

critical factor that controls appropriateness of decision-making (Keller & Staelin, 1987).
Consumers are likely to employ a phased decision process, first filtering available
alternatives and then undertaking detailed comparison of the reduced consideration
sets. This typical decision strategy requires quantity and quality of information. Quantity
of information is important because it helps consumers form their consideration sets of
alternative brands. Quality of information about brands refers to accurate and current
information and is essential when consumers need to make their final choices.
Particularly, quality of information refers to the usefulness of the available attribute
information in aiding a decision maker to evaluate his/her true utility associated with an
alternative. On the other hand, Malhotra (1984) and Jacoby (1984) disagree on the
importance of the information overload paradigm, with Jacoby criticizing use of the
paradigm due to his belief that the key issue is not if consumers can be overloaded, but
rather will consumers be overloaded. In adopting this position, Jacoby maintains that
consumers are selective in the amount and nature of the information that they obtain,
suggesting that factors that impact this selectivity should be examined.

In particular, consumer information processing in the pre-purchase context plays an

important role in reducing consumer perceived risk or uncertainty (Mitchell & Boustani,
1994). In terms of purchasing a particular product, a consumer is aware of some risks
such as finance, psychology, performance, and time. Social and physical risk in online
commerce have less to do with consumer perceived risk. Offering optimal information,
recalling brand information, and utilizing vivid word-of-mouth communication must
reduce perceived risk and uncertainty and, ultimately, exert a positive effect on product
purchase intentions. Accordingly, a large number of consumers participate in positive
pre-purchase information collection processing in order to reduce the risk. Furthermore,
pre-purchase information acquisition may alert consumers to risks and pitfalls within the
product choice of which previously they had been unaware (Mitchell & Boustani, 1994).
Recent research has indicated the presence of two general types of uncertainty:
knowledge uncertainty (uncertainty regarding information about alternatives)and choice
uncertainty (uncertainty about which alternative to choose). Choice uncertainty appears
to increase the search, while knowledge uncertainty has a weaker, negative effect
(Urbany, Dickinson & Willkie, 1989). Pre-purchase risk reduction essentially focuses on
increasing the amount of certainty that a satisfactory product will be purchased as well
as reducing the negative consequences

Brand as Information Source

Brand information processing is defined as the extent to which consumers allocate

attention and processing resources to comprehend and elaborate on brand information
in an ad. "Brand information" is defined as any executional cue designed to
communicate the advertised message (Maclnnis, Deborah, Moorman, Christine &
Jaworski, 1991). In the context of product information collection, brand names are
particularly useful keys because the brand name becomes so closely tied to the product
in the minds of consumers (Keller, 1998). They are unique and international terms.
Indeed, the use and evolution of brand in the context of an international but virtual e-
commerce marketplaces is a topic in itself (Berthon, Hulbert & Pitt, 1999). Consumers
who purposely purchase through e-commerce usually obtain information about a
specific brand through various sources (Rowley, 2000). In particular, an understanding
of dimensions of perceived risk enables marketers to present their brands to instill
consumer confidence (Assael, 1995). Foe example, acting as a guarantee of consistent
quality, a brand reduces performance risk. However, uncertainty of information and
inherent consumer risk in e-shopping produce far greater feelings of uneasiness than
does in-store shopping (Tan, 1999). Potential forces regarding building a familiar brand
in the online and offline marketplaces influence the amount of risk perceived in a given
purchase. As more information is made easily available to consumers, and they are
given opportunities to reduce the consequences of choice, the lower the perceived risk
such as performance, financial, psychological, and time risk (Jarvenpaa & Todd, 1997,
Mitchell, 1999). Consequently, a high possibility exists that positive information for a
specific brand decreases perceived risk for that brand, whereas negative information for
considered brands solidifies consumer risk perceptions more and more, and it may
increase the possibility that consumers will switch from the considered brand to other
competitive brands (Nedungadi, 1990; Nedungadi, Chattopadhyay & Muthukrisnan,
2000). Nevertheless, these researchers have only investigated by separating brand
from risk; as yet, few researchers have studied the causal relation between brand and
perceived risk. Thus, in terms of brand information, we present the following
hypotheses:

H1a: Positive inclination towards a specific brand can lower the performance risk
perception for a brand purchase by the consumer.

H1b: Positive inclination towards a specific brand can lower the psychological risk
perception for a brand purchase by the consumer.

H1c: Positive inclination towards a specific brand can lower the financial risk perception
for a brand purchase by the consumer.

H1d: Positive inclination towards a specific brand can lower the time-loss risk perception
for a brand purchase by the consumer.

Word-of-Mouth as Information Source

Word-of-mouth is commonly defined as informal communication about the

characteristics of a business or a product which occurs between consumers
(Westbrook, 1987). Most importantly, word-of-mouth allows consumers to exert both
informational and normative influences on the product evelautions and purchase
intentions of fellow consumers ( Bone, 1995; Ward & Reingen, 1990). Consumers can
acquire information for buying specific products through word-of-mouth communication
called 'cyberbuzz' on the Internet (Herr, 1991). Consumers tend to trust word-of-mouth
communication with a reference group more than they do commercial information
resources in estimation of brand alternatives (Hartline & Jones, 1996; Herr, Kardes &
Kim, 1991; Iglesias, Belen & Vazquez, 2001; Parasuraman, Zeithaml & Berry, 1988),
frequently respecting word-of-mouth as a means to reduce risk in making purchase
decisions. According to Lazarsfeld (1955), word-of-mouth has a more important effect
than other information resources on perceptions with respect to food and household
appliance purchases. Also, a study by Parasuraman, Zeithaml & Berry (1988) showed
that when consumer perceptions of service quality are high, consumers are willing to
recommend the company to others. Why does information by word-of-mouth have an
effect upon consumers? One of several possible explanations is the vividness of such
information (Herr, Kardes & Kim, 1991; Arndt, 1967). Word-of-mouth information is
fresher because first-hand experience is passed directly to other people. Accordingly,
word-of-mouth communication is retrieved more easily from memory and its impact on
consumers is relatively greater (Givon, Mahajan & Muller, 1995; Herr, Kardes & Kim,
1991).

Consumers are generally influenced by other people's opinions when in a purchase

state of high involvement. Therefore, consumers are apt to depend more on information
from word-of-mouth communication in the following situations:

(1) When transparency of the product is high

(2) When the product is complicated

(3) When verification by objective evaluation criteria is difficult

(4) When perceived risk is high

In spite of complaints about information overload, the primary reason people go online
is to find information, because the Internet has become popular as a resource for
gathering information about risk reductions and purchases.

There are many cases of negativity bias rather than positive effects resulting from word-
of-mouth. The negative information of word-of-mouth communication exerts a stronger
influence on the decision-making process than does positive information. For example,
Ford Motor Company found that satisfied customers told 8 people about their cars, but
dissatisfied customers told 22 people about their complaints (Dorlin, 1985). Other
investigations have shown that more than half of dissatisfied consumers participate in
negative word-of-mouth communication and consumers usually pay more attention to
negative information than to positive information (Harrison-Walker, 2001; Mizerski,
1982; Richins, 1983). Therefore, even though the tendency of word-of-mouth
communication to cause negative effects is high, this study investigates whether
positive word-of-mouth communication might work as a factor in influencing consumer
perceived risks (e.g., performance, finance, time, and psychology), because recent
research has shown that for e-customers there is a strong correlation between word-of-
mouth and consumer risk perception (Jarvenpaa & Todd, 1997; Liang & Huang, 1998;
Tan, 1999).

Even though much prior research associated with word-of-mouth communication exists,
no studies have explained the causal relationship between word-of-mouth
communication and perceived risk. Thus, in terms of word-of-mouth information, we
present the following hypotheses.

H2a: Positive word-of-mouth can lower the performance risk perception for a brand
purchase by the consumer.

H2b: Positive word-of-mouth can lower the psychological risk perception for a brand
purchase by the consumer.

H2c: Positive word-of-mouth can lower the financial risk perception for a brand purchase
by the consumer.

H2d: Positive word-of-mouth can lower the time-loss risk perception for a brand
purchase by the consumer