Theory Of Reasoned Action

CHAPTER 2

LITERATURE REVIEW

2.0 Introduction

This chapter will deals with survey of literature review in the area of online purchase intention and perceived risk and its determinants. This section will discuss the dependent, independent and mediating variables and the relationship among the variables that might influence consumer perceptions of perceived risk towards online purchase intention. Researcher was replicates the framework from the study “Factors influencing consumer perceptions of brand trust online” by Hong-Youl Ha, 2004 and “The influence of prior experience and age on mature consumers’ perceptions and intentions of internet apparel shopping” by Wi-Suk Kwon and Mijeong Noh, 2009. The reason to choose this framework are because, this framework seem like fit with Malaysian culture and tradition. Although researcher was replicate the framework but some changes were made, which is researcher will combine both of the frameworks into one new framework and will test the framework into different setting of place.

2.1 Theory of Reasoned Action (TRA)

To make some improvement for the past studies, researcher will apply the “Theory of Reasoned Action (TRA)” by (Fishbein, 1980) and “Theory of Planned Behavior (TPB)” by Ajzen in 1991.

Theory of Reasoned Action (TRA) by Fishbein, 1980 was developed to explain how a consumer leads to a certain buying behavior, this theory asserts that attitude toward buying and subjective norm are the antecedents of performed behavior. Two antecedents which are (attitude and subjective norm) influence the purchase behavior additively (Ha, 1998). Two important propositions underlying the theory of reasoned action offered by Lutz (1991) are the first one is to predict a purchase behavior, it is necessary to measure a person’s attitude toward performing that specific behavior, not only the general attitude toward the object around which the purchasing behavior is. The second one is, in addition to the attitude toward the behavior, TRA includes a second determinant of overt behavior namely the subjective norm (SN). SN is intended to measure the social influences on a person’s behavior such as family members’ or friends and colleagues expectations. Sometimes in some situations expectation of relevant from others may be a major factor in ultimate behavioral performances and simply not under the attitudinal control of individuals. Another study Lada et al., 2009, claim that according to the TRA, a person’s intention is a function of two basic determinants, which are one personal in nature and the other one is reflecting social influence. The personal factor is the individual’s positive or negative evaluation when performing the behavior and this factor is termed attitude toward the behavior. The second determinant of intention is the person’s perception of the social pressure put on him or her whether to perform or not to perform the behavior in question and this factor is termed subjective norm since it deals with perceived prescriptions, (Ajzen and Fishbein, 1980).

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According to Ajzen and Fishbein, 1980), attitudes are a function of beliefs when someone believes that performing a given behavior will lead to mostly positive outcomes they may hold a favorable attitude toward performing the behavior, contrary a person who believes that performing the behavior will lead to mostly negative outcomes then they will hold an unfavorable attitude. The beliefs that underlie a person’s attitude toward the behavior are termed behavioral beliefs while subjective norm is a function of beliefs that specify individuals or groups to think whether they should or should not perform the behavior and these beliefs which is underlying a person’s subjective norm termed as a normative belief. A person who believes that most referents with whom they are motivated more to comply think, that they should perform the behavior will receive social pressure to do so (Lada et al., 2009).

2.2 Theory of Planned Behavior (TPB)

The second theory is Theory of Planned Behavior (TPB), which is proposed by Ajzen in 1991 as an extension of the first theory discussed above which is theory of Reasoned Action (TRA) (Fishbein, 1980). (Ajzen and Fishbein, 1980), the TPB has been used by many researchers over the past 20 years and its shown to be able to predict a variety of intentions and behaviors perform by persons. According to Ajzen (1991), a person’s action is determined by their behavioral intentions, which in turn are influenced by an attitude toward the behavior and subjective norms as discussed above.

(Azjen, 1991), behavioral intentions are factors that capture how people are willing to try to perform a behavior, behavioral intention also the most influential predictor of behavior and its shown that in TPB constructs, intention was a better predictor of behavior. In the TPB, attitude toward the behavior is defined as one’s positive or negative feelings about performing a specific behavior and determined through an assessment of one’s beliefs regarding the consequences which is arising from one’s behavior and an evaluation of the desirability of these consequences.

2.3 Conceptual Definition of Dependent Variable (Online Purchase Intention)

It is best to start this study by explaining what an online purchase intention is it in order to give some idea and to dispel some common misconceptions that might occur.

Purchase intention can be defined as a plan to purchase a particular goods or services in the future. Purchase intentions is the likelihood that a consumer will buy a particular product in which resulting from the interaction of his or her need for it, attitude towards it and perceptions of it and of course from the company itself which produces the products or services (J. Baker, 1998).

This study using definition from (Azjen, 1991), behavioral intentions are factors that capture how people are willing to try to perform a behavior, behavioral intention also the most influential predictor of behavior, intention also was a better predictor of behavior.

2.4 Conceptual definition of Mediating Variable (Perceived Risk)

Risks is a part of everyday life and always come as a routine in between us and exist when there is a less than 100 percent probability that things will turn out as someone expected will happen (Baeur, 1967). Risks are different for different persons, according to Martin and Camarero (2008), some people view risk as a their inability to value the quality of the product directly, lack of personal contact with the salesperson, the cost involve of learning on how to use the internet, cost switching different channels, security of payment and personal information. Whilst others, view risk as a (Stone and Gronhaug, 1993) degree of uncertainty about the outcome of an action which might carries the possibility of physical harm or damages.

Manzano et al., 2008 offered six dimensions of perceived risk which are security risk, privacy risk, performance risk, time loss risk and social risk. Whilst Beardon and Mason, 1978 proposed different dimensions of perceived risk namely, financial risk, social risk, performance risk, psychological risk and physical risk. Although there are different kind of names or term used but the meaning is quiet same in a context of online shopping. Financial risk or security risk share a same meaning, it can be incurred when customer’s financial circumstances are damaged because of loss of money in cash or via credit card (March, 2006; Manzano et al., 2008). Social risks come through purchasing process that is perceived to be down-market (March, 2006).

Littler and Melanthiou, 2006 found that social risk is concerned with the possibility of attracting unfavorable attention and response from purchasing a particular product. Consumer attitudes to the different methods of purchasing highly depend on their characteristics. Performance risk according to (Littler and Melanthiou, 2006) is concerned with how well the product perform relative to expectations for example, the lack of personal contact with a salesperson prevent the consumer from correctly evaluating the characteristics of the product which in turn decreasing confidence (Ba, 2001) among consumer. It is good if consumer can try out the product they will buy before they make a payment, (Gerrard and Cunningham, 2003) in their study reveal that the opportunity to conduct a trial before make payment provides the necessary confidence to consumers with high perceived performance risk. Whilst March 2006, implies that performance risk is occur when a product does not fulfill its function as expected especially services which may take risk time wasted in waiting. Time loss risk happen when consumer incur time costs from using online purchasing, the time of learning how to buy on a certain products, the time to wait for respond or the time for searching process( Littler and Melanthiou, 2006). Physical risk leading with purchases that might include products which are unsafe or will cause physical harm to the user or in services, allow customers to take risks whilst undertaking risky activity such as cycling (March, 2006). The last dimensions of perceived risk are psychological risk, which may be caused by consumers wearing unfashionable clothes, leading to the social risk of not “fitting in” and in turn will decrease confidence level among consumer.

We do not always accurately perceive the threats of risks, accurately understanding and effectively eliminating or limiting risks are part of the survival and safety especially in online industry. Risk management must be an active part of facility marketing manager duties, risk should be well manage to control the financial and personal injury loss from sudden, unforeseen, unusual accident, and intentional torts (Ammon et al., 2004). In summary, for the purpose of this study, perceived risk can be summarize as a degree of uncertainty about the outcome from an action which carries the possibility of physical harm especially in financial and information fraud. Hence, this study assumes customer perceived risks are all the six dimensions discuss above which are, security risk, privacy risk, performance risk, time loss risk and social risk.

2.5 Conceptual definition of Independent Variables

2.5.1 Security

There’s a various definition of security, Yoo and Donthu, 2001; Wolfinbarger and Gilly define security as to protecting the user from the risk of fraud and financial loss. According to (Milne et al., 2004), security often breaches of internet transmissions and databases enable the unauthorized use of consumers’ confidential information from third parties such as, name, address, password, social security and credit card numbers and, often result in identity theft. In reality, the prospect of privacy losses and information misuse in e-commerce settings may offset any convenience, time, and financial savings afforded to consumers thus by providing security for consumers will lead to customer satisfaction and in turn will decrease risk perception among consumers.

Unfortunately, security breaches are occurring at a growing rate from time to time. Indeed, Miyazaki and Fernandez (2001) found that internet users’ highly concerns with regard to online shopping were privacy, system security breaches from third parties in which due to faulty technological security and security breaches in the form of fraudulent online retailer behavior. Security plays a vital role on customer trust and customer satisfaction, thus by providing security to consumers will lead to brand trust and would expect (Mayer et al., 1995) security decrease risk perceptions among consumers. On the other hand, Krisnahmurthy (2001) also found that consumers who experience positive security leads to improvements in the levels of familiarity on the web, accordingly security should affect brand trust as well as decrease risk perceptions.

2.3.2 Privacy

Consumers patronizing an online service which requires the regular transmission and remote storage of confidential information may perceive elevated concerns regarding threats to the privacy of their personal and confidential information is very important during online transactions (Mauricio et al., 2007). Privacy refers to protection of personal details implicit or explicit agreement and not to sell or exchange the personal information gathered from consumers during transactions (Yoo and Donthu, 2001; Wolfinbarger and Gilly, 2003). Another definition of privacy from (Parasuraman et al., 2005) is “the claim of individuals…to determine on when, how, and to what extent information about them is communicated to others”. (Caudill and Murphy, 2000; Sheehan and Hoy, 2000) proposed in their studies that consumer concern for information privacy is considered one of the most important issues nowadays.

Fried (1998) was one of the earliest modern scholars to evaluate the notion of privacy; he argued that privacy is especially valuable since it allows people to conduct online transactions that result in trust, which would not be possible in the absence of privacy. Caudill and Murphy (2000) argued that both public and private information should be included in the debate regarding privacy since technologies today are making it increasingly easier to move private information into the public domain, which will cause consumers serious concerns regarding their private information. If the private information going into public meaning that, there is no privacy at all and this will cause distrust among customers and will lead to unsatisfied customers.

2.3.3 Brand Name

There’s are various definition of brand, one of the definition is proposed by Bennett, 1988 claim that a brand is a name, term, sign, symbol, design, or any combination of these concepts, used to identify the goods and services of a seller. Keller (1998) states that brand name are one of the main factors facilitating the development of brand awareness or familiarity. The more specialized and reputable a brand name is in selling or recognizing the product or service, the more highly will its brand trust be perceived by consumers. Choosing a brand name for a consumer product or service is so critical that some writers argue it is one of the most important marketing management decisions that marketing manager should take highly considerations about choosing a brand name (Landler et al., 1991). A well chosen brand name can provide a customer with a symbolic meaning which assists in both the recognition of the product and the decision-making process (Herbig and Milewicz, 1993), it is also can produce a number of specific advantages including suggesting product benefits (McCarthy and Perault, 1990), contributing to brand identity, simplifying shopping, implying quality (McNeal and Zerren, 1981), evoking feelings of trust, confidence, security, strength, durability, speed, status and exclusivity and at the end of the day can decrease risk perceptions (Shimp, 1993).

The more positively the person’s perceived the brand, the higher the consumer’s brand awareness and loyalty, allowing the firm to command larger margins, higher market share, more inelastic consumer response to price increases, less vulnerability to competitive activity, increased marketing communications effectiveness, additional brand extension opportunities and other competitive advantages such as distribution leverage, customer satisfaction and as well as decrease risk perceptions (Keller, 1998).

2.3.4 Word of Mouth

Word of mouth (WOM) plays a vital role in consumer behavior because Word of mouth (WOM) would affect purchase and intention to purchase and also experience of other consumers by conveying their consumption experience of others, namely the satisfaction or dissatisfaction after the purchasing process occur. WOM is commonly defined as informal communication about the characteristics of a business, services or a product which occurs between consumers (Westbrook, 1987). Most importantly, WOM also allows consumers to exert both informational and normative influences on the product or service evaluations and purchase intentions to fellow consumers (Bone, 1995; Ward and Reingen, 1990). According to Ha, 2004, WOM has been shown to influence awareness, expectations, perceptions, attitudes, behavioral intentions and behavior towards a product or services.

Online shopping consumers will perceive higher purchase risk than that of the traditional shopping since the purchase occurs in virtual space rather than face to face transactions. They will accordingly rely more on WOM information to reduce uncertainty and purchase risk to make decisions (Kim and Song, 2010). According to Assael (1995), since online shopping has higher purchase risk than face to face interactions, (Richins and Shaffer, 1987) consumers carry out WOM action to obtain market information while making buying decision especially consumers who rely more on WOM as they perceive higher risks.

Nowadays, there a growing body of evidence that the internet based opinion mechanism influence consumers when making a purchase such as blogs, social network (facebook, myspace, twitter) (Hong, 2006) and this is a new form of word of mouth communication and is known as electronic Word of Mouth (e-WOM). e-WOM is any positive or negative communication among the potential, current or former customers about a product, services or company that is available to public on the internet. Indeed, (Sen, 2008; Sen and Lerman, 2007) claimed that the impact of e-WOM is not as effective as the traditional face to- face word of mouth (WOM). In contrast, Steffes and Burgee (2009) found that the information gained from the e-WOM forum is more influential and beneficial in decision making process rather than speaking with friends in person (WOM).

2.3.5 Good Online Experience

Often consumers tend to remember best the last experience they encounter (the “recency effect”): thus, one positive experience may be sufficient to alter perceptions of more than preceding negative experience, and vice versa (Ha, 2004). Experiences are sometimes confused with services, but experiences are as distinct from services as services also distinct from goods because experiences exist only in the mind of the individual. They are rich with emotional, physical, intellectual, or spiritual sensations created within the consumer during transactions (Kotler et al., 2005). According to Pine and Gilmore (1999), “An experience occurs when a company intentionally uses services as the stage, and then goods as props to engage individual customers in a way to create a memorable event that consumer will remember best.

The more satisfied the customer with the experience that the web sites offer, the more durable is the relationship among consumer and that particular brand (Buchanan and Gillies, 1990), and the relationship is highly depends on the customer’s experience, whether positive or negative experience. Experience plays a vital role in trust by making it possible to compare the realities of the firm with customer preconceived expectations. Ganesan (1994) goes further, and views experience as an antecedent to build brand trust among customers which in turn will lead to making purchasing. Usually customers expect Web sites to offer them not just a message, but a positive experience such as, security and privacy, ease of use, web site design and aesthetic elements and interactivity. The ease of use of the web sites is important factor which refers to the layout and design of the web site and the ease of making one’s way around it, how the users perceives and interacts with the site, and how easy to use it (Nielsen, 1999). While (Steur, 1992) covers the web sites design and aesthetic elements as a representation of the web site environments, associated with its formal characteristic such as graphics, colors, images, icons, animated sequences, videos and pop -ups which will influence customer to trust the web site as well as to proceed at the end action which is making purchasing. (Yoo and Donthu, 2001) claim that these elements has contribute to the atmosphere of the web site and are important in evaluating the web site experience. Thus, if the web sites offer all of this experience to customer will lead to customer satisfaction and build brand trust among customer thus will decrease customer risk perception.

General speak in detailed, the fact that it easy to access and use the site, including the access speed and the overall guide design and layout, as well as the information provided; requirement fulfillment refers to whether the site’s handling and goods delivery in a systematic way; system accessibility refers to whether the site has been technology based or still using a traditional based, or is vulnerable to attacks; and privacy, also known as security, refers to whether the site can keep the customers’ information secret and payments safe (Sheng and Liu, 2010) are experience that customer want in which we can called it positive experience will lead to customer satisfaction and purchase as well as to build brand trust.

2.3.6 Quality of Information

There is various definition of information. Some writers make no distinction between data and information (Wang et al., 1998) while some writers see the differences as most crucial (Tozer, 1999). Information is logically derived from theories or principles, it is an artifact. The producer of information has an intention to produce a symbolic meaning of certain entities or events, put it into a context, assign it into a pre defined meaning and then transmit the information into receiver. The producer of information expected that the receiver will capture the meaning as intended (Lillrank, 2002).

Consumers search for information in their pre-purchase search process for a product or service they intend to buy thus, by providing effective information does lead to improved awareness and brand perception among consumers (Aaker and Joachimsthaler, 2000; Ha, 2002; Keller, 1998), particularly for individuals with high brand trust and high perceived risk (Duncan and Moriarty, 1998). Many online buyers indicate that their buying decisions mostly depend on the information offered online (Long & Ching, 2009). Bickart and Schindler (2001) found that consumers who gathered information from online discussions namely electronic word of mouth (e-WOM) reported greater interest and intention to buy in the product than did those consumers who gathered information from the marketer-generated sources. The main reason for this is highly likely to be the trust issue as raised in a study by Sen (2008). Customized information has become more important in internet nowadays based applications due to the multitude of choices that are available on the internet (Simonson, 2005; Ha, 2002). (Ha (2002), has shown that internet users are very interested in customized information offer by the web sites be this is because mostly firms today have added value by providing appropriate information to simplify the customer’s decision making process (Murthi and Sarkar, 2003).

In addition, the source of the information is very crucial for a message to be effective and reliable and it often depends on the receiver’s perception of the sender’s trustworthiness and expertise (Kiecker and Cowles, 2001) they also suggest that the information also must be perceived believable, competent, valuable and trustworthy for information recipients. (Robinson and Kaye, 2000), found that consumers, who relied on online sources for more information, rated the online sources as more credible than other sources, so it is important tasks for managers to provide quality information online to gain trust from customers. Meyvis and Janiszewski (2002) reveal that irrelevant and lack in quality information will weakens consumers’ belief in the products or services ability to deliver the benefit. Hence, whether perceived quality of information is provided and, if it is provided, the quality of customized information for customers, also highly influence the level of brand trust and customer satisfaction on the web (Ha, 2004).

2.4 Relationship among the Variables

Individuals who perceive a low risk in online buying likely make decisions more quickly and less likely to take into account aspects outside of the web site. In contrast, individuals who are more fearful will behave in a more cautious way, searching for external information that warrantees a successful buying decision to decrease uncertainty in internet purchase (Martin and Camarero, 2008).

Bhatnagar et al., 2000, reported that consumers were less likely to shop online in which perceived product performance risk was high than those with low product performance risk, consumers’ perceived risk negatively influences their intention to purchase products online.

Customer who satisfied with the security, privacy and online good experience offered by the web sites will experience lower perceived risk and will have effect on the purchase intention. (Chen and Hsin, 2008) results show that consumers’ perceived risk towards specific online retailer with regards to purchase intention was influence by trust. As consumer trust increases because of decreasing perceived risk will influence consumer to make purchase (Chen and Hsin, 2008).

2.5 Summary

This chapter reviewed literatures on consumer perception of perceived risk towards online purchase intention in detailed. Based on the findings from literature reviews, definition conception of online purchase intention, perceived risk, security, privacy, word of mouth, brand name, good online experience and quality of information are developed. In the last part of this chapter, the relationship between independent variables, mediating variable and dependent variable are constructed. Conceptualizing definitions of variables is important in order to construct a research framework in which would be discussed in chapter 3.