A trust-based consumer decision-making model in electronic commerce: The role of trust, perceived risk, and their antecedents
Introduction
Despite the recent difficulties experienced by dot-com companies, according to the Forrester report1, Business to Consumer (B-to-C) Internet commerce enjoys a steady growth rate (about 19% per year), and it is a familiar mode of shopping for many consumers [1]. Many scholars have argued that trust is a prerequisite for successful commerce because consumers are hesitant to make purchases unless they trust the seller [62], [77], [82], [135]. Consumer trust may be even more important in electronic, “cyber” transactions than it is in traditional, “real world” transactions. This is because of some of the characteristics of Internet cyber transactions — they are blind, borderless, can occur 24 h a day and 7 days a week, and are non-instantaneous (payment may occur days or weeks before delivery is completed) — can cause consumers to be concerned that the seller won't adhere to its transactional obligations. Consequently, trust in an Internet business is focused much more on transaction processes [82], in contrast to that of traditional transactions involving brick-and-mortar stores where trust tends to be focused on face-to-face personal relationships. Quite possibly, the key to success in Internet business is the establishment of trusted transaction processes where e-sellers create an environment in which a prospective consumer can be relaxed and confident about any prospective transactions [66]. Since trust is likely to play an essential role in online transactions, it is important to identify the antecedents of a consumer's trust in the context of an Internet transaction.
In prior research, trust has been viewed through diverse disciplinary lenses and filters: economic [43], [65], [132], social/institutional [26], [39], [58], behavioral/psychological [47], [70], managerial/organizational [9], [79], [112], [125], [135], and technological [23], [27], [96]. Trust is considered essential in exchange relations because it is a key element of social capital [98] and is related to firm performance, satisfaction, competitive advantage, and other economic outcomes such as transaction cost [9], [41], [68] and search cost reductions [67].
Because trust has been studied through these different disciplinary lenses, previous research related to trust in the e-commerce context tends to be disjointed, case-specific, and/or loosely integrated. For example, most studies on technological trust have focused narrowly on issues of privacy, security, public key infrastructure, and other technical aspects of trust [13], [16], [72], [94]. Some recent studies [64], [82], [115], [117] have focused on the social and behavioral elements of trust in an e-commerce context, however these were again narrowly focused (e.g., they focused on a limited number of trust antecedents, or focused on trust in the community of sellers as a group), and therefore researchers have not yet developed a comprehensive understanding of the factors that predict consumer trust in the e-commerce context. Given the increasing prevalence of B-to-C Internet commerce, there is an urgent need to analyze an online consumer's decision-making process from a holistic standpoint which can provide an understanding of the complex and dynamic phenomena of trust in online exchanges. Accordingly, the specific research questions for the present study are as follows: What are the roles of trust and risk in a consumer's B-to-C online purchasing decision? Are they critical in B-to-C online transactions? And what antecedents can be identified that affect a consumer's trust and risk toward a B-to-C online transaction?
Since research on trust has been conducted from a variety of disciplinary perspectives, many definitions of trust have evolved. Prior research on traditional commerce focused primarily on interpersonal trust such as a customer's trust in a salesperson. Plank et al. [120] recognized that consumer trust could have multiple referents — salesperson, product, and company — and accordingly defined trust as a global belief on the part of the buyer that the salesperson, product, and company will fulfill their obligations as understood by the buyer. Similarly, in the e-commerce context [7], [11], [15], [24], [42], [62], [69], [76], [101], [103], [115], [122], [135], researchers have tended to define describe trust as a subjective belief, a subjective probability, the willingness of an individual to be vulnerable, reliance on parties other than oneself, or a person's expectation. In our study, we will focus on the trust that a consumer has in an Internet vendor. Logically, this should include trust in the Website (e.g., www.amazon.com), the Website brand, and the firm as a whole. Accordingly, in this paper an online consumer's trust is defined as a consumer's subjective belief that the selling party or entity will fulfill its transactional obligations as the consumer understands them.
This paper provides several contributions. First, in order to uncover the role of trust, risk and their antecedents in B-to-C Internet commerce, this study develops a holistic trust-based consumer decision model to describe the decision-making process that a consumer uses when making a purchase from a given site. Second, to the best of our knowledge, most studies in the e-commerce environment have collected data concerning a consumer's successful purchasing experiences. Yet, because successful cases represent only a fraction of all consumer transaction behaviors, these past studies may have painted an incomplete picture (i.e., a biased view) of B-to-C electronic commerce transactions. Accordingly, in the present study we present a research design that enables us to examine transaction experiences that resulted in non-purchases in addition to completed purchases. In other words, we collected data from both “successful” cases and “unsuccessful” cases, and therefore can provide a more complete picture of a consumer's B-to-C decision-making process. Third, our testing of the proposed model with the Partial Least Squares (PLS) Structural Equation Modeling technique [48] provides empirical evidence that trust, perceived risk, and perceived benefit are strong determinants of a consumer's e-commerce transaction decision. Finally, the findings of this study provide several insights which should help practitioners better understand the role of trust and its antecedents in e-commerce, and ultimately add trust-building mechanisms into e-retailers' Websites.
This paper is organized as follows. The next section presents the theoretical framework for the study along with background theories that provide the foundation for the framework. The section also proposes the extended research model, referred to as a trust-based consumer decision-making model in e-commerce, with research hypotheses. The third section describes the research methodology and data collection. An analysis of results follows in the fourth section. The final section provides a discussion of the findings, and concludes with limitations and implications of this study.
Section snippets
Basic theoretical model
Consumers often act on information that is less than complete and far from perfect. As a result, they are often faced with at least some degree of risk or uncertainty in their purchasing decisions. However, risk is not the only factor consumers are sensitive to in the context of an Internet purchase; the perceived benefit provides consumers with an incentive for purchase behavior [137]. Combining perceived risk and perceived benefit, Tarpey and Peter [119] provided a valence framework which
Research methodology and data collection
To test the theoretical framework, we examined the perceptions and decisions of online consumers as they shopped for, and eventually decided whether or not to purchase, a product online. The research participants were undergraduate students who participated in the study voluntarily for extra credit. While students represent only a portion of the online shopper population, several studies [71], [87], [103] have utilized them as subjects, recognizing that students are a useful surrogate for
Data analyses and results
To test the proposed research model, data analyses for both the measurement model and structural model were performed using Partial Least Squares (PLS). We used PLS-Graph 3.0.1016 with bootstrapping [124], [139]. PLS analyzes structural equation models, including measurement and structural models with multi-item variables that contain direct, indirect, and interaction effects [35].
Choosing between a reflective and a formative indicator is sometimes difficult because the directionality of the
Discussion and conclusion
Past research has recognized that electronic purchase decisions are inherently risky, and therefore trust may be an important factor in giving consumers the confidence they need to engage in such transactions [7], [38], [62], [78], [135]. Yet many researchers have not systematically explored how trust and perceived risk may operate in combination to influence such decisions and what kinds of trust and risk antecedents play a significant role in the consumer trust-building process. In this
Dan J. Kim is an Associate Professor of Computer Information Systems at the University of Houston Clear Lake. He earned his Ph.D. in MIS from SUNY at Buffalo. Recently he has focused on trust in electronic commerce, wireless and mobile commerce, and information security and assurance. His research work has been published or in forthcoming more than 55 papers in refereed journals and conference proceedings including Information Systems Research, Journal of Management Information Systems,
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Dan J. Kim is an Associate Professor of Computer Information Systems at the University of Houston Clear Lake. He earned his Ph.D. in MIS from SUNY at Buffalo. Recently he has focused on trust in electronic commerce, wireless and mobile commerce, and information security and assurance. His research work has been published or in forthcoming more than 55 papers in refereed journals and conference proceedings including Information Systems Research, Journal of Management Information Systems, Communications of ACM, Decision Support Systems, Journal of Organizational and End User Computing, IEEE Transactions on Professional Communication, Electronic Market, IEEE IT Professional, Journal of Global Information Management, and International Journal of Mobile Communications, ICIS, HICSS, AMCIS, INFORMS, ICEC, ICA, and so on. He received the best-paper runner-up award at the International Conference on Information Systems (ICIS) 2003 and the best research paper award at Americas Conference on Information Systems (AMCIS) 2005.
Don Ferrin (Ph.D., University of Minnesota) is an Associate Professor and Area Coordinator of the Organisational Behaviour and Human Resources Group at Singapore Management University. His research focuses almost entirely on trust, including studies examining the role of trust in organizational settings, determinants and consequences of trust in leadership, networks of trust within organizations, and the repair of trust after a violation. His publications have appeared in Group and Organization Management, Journal of Applied Psychology, Organization Science, Organizational Behavior and Human Decision Processes, and Best Papers Proceedings of the Academy of Management, among others. Recent awards include the Lee Kuan Yee Fellowship for Research Excellence at Singapore Management University (2005), the Best Empirical Paper Award from the Conflict Management Division of the Academy of Management (2005), and The International Association for Conflict Management's Outstanding Article Award for Best Article Published in 2004.
H. Raghav Rao graduated from Krannert Graduate School of Management at Purdue University. His interests are in the areas of management information systems, decision support systems, e-business, emergency response management systems and information assurance. He has chaired sessions at international conferences and presented numerous papers. He also has co-edited four books of which one is on Information Assurance in Financial Services. He has authored or co-authored more than 150 technical papers, of which more than 75 are published in archival journals. His work has received best paper and best paper runner-up awards at AMCIS and ICIS. Dr. Rao has received funding for his research from the National Science Foundation, the Department of Defense and the Canadian Embassy and he has received the University's prestigious Teaching Fellowship. He has also received the Fulbright fellowship in 2004. He is a co-editor of a special issue of The Annals of Operations Research, the Communications of ACM, associate editor of Decision Support Systems, Information Systems Research and IEEE Transactions in Systems, Man and Cybernetics, and coEditor-in-Chief of Information Systems Frontiers. Dr. Rao also has a courtesy appointment with Computer Science and Engineering as adjunct Professor. Professor Rao's Ph.D. students have placed at Sogang U, UNCG, ASU, USF, FAU, MSU, OKState, FSU, PennState and others. Professor Rao teaches Information assurance, Networks and e-commerce. Prof. Rao is also the recipient of the 2007 State University of New York Chancellor's award for excellence in scholarship and creative activities.