PERCEIVED RISK AND THEIR INFLUENCES ON ONLINE

SHOPPING

Major Project Report

Submitted for the partial fulfillment of the requirement for the award

Of

Master in Business Administration







Submitted by: Under the Guidence
Kamal Kumar Dr. Vibhuti Tripathi
2012MB35






School of Management Studies
Motilal Nehru National Institute of Technology
Allahabad 211004

May, 2014
Introduction
Online Shopping
There are many factors that point toward the potential for rapid growth of online shopping in India. In
terms of education, India annually produces 2 million college graduates including approximately 200,000
engineers and 300,000 technically qualified graduates. The government of India has been heavily
promoting investment in the telecom sector in recent years with the number of telephones increasing from
55 million in 2003 to 621 million in 2010. During the same period, broadband subscribers grew from .2
million to 8.8 million. Penetration of the internet, however, is comparatively lower at 6.9 percent of the
population in 2009 compared to the world average of 26.8 percent (Internet World Stats, 2010), pointing
to growth potential in the Indian market. Electronic payment in India is also steadily increasing thanks to
a large young population with growing disposable incomes.
There is evidence that the current economic crisis encourages online shopping as more and more Indian
shoppers are motivated to compare prices among retailers (Ravichandran, 2009). Another factor leading
to growth in online shopping is the joint initiative between a number of state owned banks and the Indian
Railways to passengers to transact ticket purchases online. Online shopping growth also overcomes
weaknesses in the country's retail supply chain (Nair, 2006). There is also evidence that online
transactions are increasing in the smaller cities as a result of their less developed marketing and
distribution infrastructure.
In order to tap the growing online market, sellers need to more fully understand Indian consumers.
Shopping orientation research played a crucial role in helping to understand consumers and the
emergence of US catalog retailing a generation ago (Gehrt and Carter, 1990) and online shopping more
recently (Rohm and Swaminathan, 2004). It has also enhanced our understanding of the nature of online
shopping orientations in different countries (Gehrt et al., 2007).
Online shopping Behaviour
Retailing today involves selling not only in stores, but also through the web and other non-store electronic
channels, termed e-services or e-retailing (Mathwick et al., 2002). According to (Forrester 2004), more
than 60 million Europeans shopped online in mid-2004, an increase of 50 per cent from early 2003. The
Internet Media Research Group (IMRG, 2005) more recently reported that in the UK alone, consumers
purchased 1.5 billion worth of goods on the internet in May 2005, 36 per cent more than they did in
2004. Although these statistics present a positive picture of B2C online retailing in Europe, industry
analysts warn that dissatisfaction with delivery services is costing the online retailing industry a
significant loss of orders (IMRG, 2005).
Over 300 students and staff from a US university completed a survey regarding their online shopping and
buying experiences for 17 products. Findings - The results show that, while older online shoppers search
for significantly fewer products than their younger counterparts, they actually purchase as much as
younger consumers. Attitudinal factors explained more variance in online searching behavior. Age
explained more variance in purchasing behavior if the consumer had first searched for the product online.
Research limitations/implications - The limitations of the present research are threefold. First, the sample
was restricted to university faculty, staff and students. Second, a better measure of the hedonic motivation
construct is needed. Third, additional independent measures such as income should be included to
understand the additional demographic factors related to online purchase. Practical implications -
Retailing managers can make use of the results as describing multifaceted nature of online shopping and
buying behavior. Age differences in both directions were seen for many product categories. In addition,
results indicate that how one measures online shopping impacts on one understands of age effects on
internet shopping. Age was negatively correlated with online pre-purchase search was positively
correlated with online purchasing when pre-purchase search behavior was taken into account.
Originality/value - The present study advances knowledge of the nature of the relationships among age,
attitudes, and online shopping and buying behavior. (Patricia

Perotti, Victor

Widrick, Stanley, 2005)
Consumers worldwide can shop online 24 hours a day, 7 days a week and 365 days a year. Some market
sectors, including insurance, financial services, computer hardware and software, travel, books, music,
flowers, and automobiles are experiencing rapid growth in online sales. Amazon.com has become the
third largest bookseller in the U.S., despite being in business only since 1995. The prototypical Web
consumer leads a wired lifestyle and is time starved. It appears that Web consumers shop online to save
time. The most important information for predicting shopping habits-online and offline are measures of
past behavior, not demographics. This result suggests several implications for the design
of online shopping environments like make it more convenient to buy standard or repeat-purchase items;
customization to make a purchase decision and easy checkout process. (Bellman, Steven Lohse, Gerald L,
Johnson, Eric J., 1999)
Factors that influence the growth of online shopping in India
There is very limited empirical research focusing on Indian online shopping. One recent study showed
that accurate information about product features, product warranties, avenues for customers' feedback
complaints, and certification of the web sites are factors that affect online shopping confidence among
Indian consumers (Kiran et al.2008). Another study showed that a variety of demographic indicators were
related to grocery store choice (Prasad and Aryasri, 2011). Indian consumers were found to be more
willing to disclose personal information on the internet compared to US consumers (Gupta et al., 2010).
Web sites that adapt to Indian culture were shown to be more favorably perceived in a study conducted
by Singh et al. (2006). Web sites that were more culturally congruent were rated more favorably on
navigation, presentation, purchase intention, and attitude toward the site. From a larger perspective,
researchers have asserted that it is possible that cognitive abilities differ in cultures like India where
choice is constrained because the economies and marketplaces are still developing (Mahi and Eckhardt,
2007). Cognitive abilities are likely to expand and perceptions are likely to become more elaborated as
the marketplace and concomitant choices expand.





Risks associated with online shopping
Perceived risk
According to the report by the Organization for Economic Cooperation and Development, the financial
tsunami of 2008-2009 and the global economic recession have prompted customers and businesses to find
low-priced goods through the internet (Liao et al., 2012). Thus, the global online shopping platform is
flourishing. However, the growth of online shopping will depend in part on potential obstacles and risks,
including the security of personal information, dissatisfaction with products, goods delivery that does not
meet customer expectations and so on (Liao et al., 2012). To date there is no universally recognized
conclusion about perceived risks of OGB, so this study refers primarily to perceived risks of online
shopping. In online shopping, when consumers' perceived risk is low, their purchase intention is high
(Jrvenp and Tractinsky, 1999). Bhatnagar et al. (2000) consider that the risks associated with internet
shopping were financial risk and product risk. Miyazaki and Fernandez (2001) indicate that privacy risk
and credit card security risk were also associated with online buying behaviour. Chang et
al. (2005) summarize four significant perceived risk types, as follows:
1. Product risk 3. Uncertainty
2. Credit card fault risk 4. Concern of system security
Forsythe and Shi (2003) and Forsythe et al. (2006) merge credit card security risk with financial risk; and
merge privacy risk with psychological risk; they further summarize that there are four perceived risks
when customers buy offerings through the internet:
1. Financial 3. Product
2. Psychological 4. Time/convenience.
Forsythe and Shi include two variables (credit fault risk and concern about system security) into their
financial risk and psychological risk; they also divide uncertainty risk into psychological risk and time
risk. Although Zhou et al. (2011) scan ten different types of risks[2] and finally integrate five specific
ones (financial risk, performance risk, information services risk, risk to choose partners, and web site core
services risk) that they believe are applied to OGB in their preliminary study, research from Forsythe and
Shi (2003) and Forsythe et al. (2006) provides a more convincing and useful framework for explaining
perceived risks in OGB.
Financial risk is the potential for monetary loss in almost all transactions, including online buying
(Forsythe et al., 2006). Forsythe and Shi (2003) find there is a negative relationship between perceived
risk and online shopping behaviour, and specifically that perceived financial risk is the most consistent
predictor of internet patronage behaviour. When consumers are involved in OGB, they might worry
about, for example, not receiving the product (e.g. due to an act-of-God/force majeure[3]) or being
overcharged. Psychological risk in online buying is also high because internet security is not stable.
Consumers' personal and credit card information can be stolen, creating a combination of both financial
and psychological risk (Forsythe et al., 2006; Forsythe and Shi, 2003; Jrvenp and Tractinsky, 1999).
In OGB, many credible corporate initiators, for example Alibaba (www.alibaba.com) have begun using a
secure online payment system to lower financial risk. For example, Alipay, similar to PayPal, allows the
trusted entity/bank to hold the buyers' payments and forward them to the seller after all buyers have
received the products. In any event, group buying participants provide their personal information to the
initiator to keep in touch, and even provide their account number or a deposit to make the deal, so that
some degree of financial and psychological risk is unavoidably related to group buying behaviour.
Regarding the nature of OGB, financial risk is always accompanied by privacy risk when someone gives
personal information for a transaction (especially personal financial information, e.g. credit card and/or
bank account numbers). Since Forsythe and Shi (2003) and Forsythe et al. (2006) merge credit card
security risk with financial risk, and merge privacy risk with psychological risk. Our study also gave clear
definitions about financial risk (including financial related privacy risk, mainly about credit card and bank
account numbers) and psychological risk (including non-financial related privacy risk, e.g. name, postal
address, etc.).
Product risk is the loss incurred when the product does not perform as expected. Spence et
al. (1970) indicate that consumers perceive more risks when they shop by mail-order than retail store
buying. When consumers buy online similar to mail-order in this respect they cannot personally
inspect products beforehand, thus increasing product performance risk. Currently, most group buying
initiated by credible companies/web sites offers detailed product information (e.g. series number of
specific model, photos, bar code), reasonable refund policy, warranty, and after sale service to
compensate for any perceived product risk. Internet enables information equalization and reduces
information asymmetries that characterized earlier production-based economies. The growing equality in
access to information about production, quality and price is often thought to generate a more transparent
market with more product information and lower product risk (Draper, 2012). Furthermore,Kauffman et
al. (2010b) does not list product risk a critical factor in online group auction behaviour.
However, Forsythe and Shi (2003) conclude that product performance risk was most frequently cited as
the reason for not purchasing online, and it is also a significant predictor to those heavy/frequent online
shoppers. In this sense, this study still acknowledges product risk.
Time risk is the opportunity cost of time in searching for, delivering, fitting or customization of a product
(Stone and Grnhaug, 1993). Group buying transaction time coordination is a critical issue for consumers'
willingness to join the collective buying (Jing and Xie, 2011). Unlike individual online buying, a
characteristic of group buying is that early participants need to wait for others to join before reaching a
specific discount threshold, when the total order is placed. Obviously, if the total order never reaches
closure those early participants will need to find an alternative purchase arrangement. Similarly, despite
the availability of information to help consumers know the current status of their order and decide on the
value of the deal, the limited timeframe provided to make a decision about whether or not to purchase
might restrict the research a late comer (individual) is able to do. The technique of applying time pressure
is widely used in traditional advertising where sales are described as limited time offers and
infomercials urge consumers to order now to receive some added value on their purchase (Draper,
2012). To shorten the wait time for each deal, group buying initiators are introducing more efficient
systems (to generate a proper deal offer with decent order sizes and discounts) to create a faster turnover
rate of group buying activity. No matter what, based on the very nature that group buying requires some
patience in exchange for favorable discount pricing, perceived time risk still influences group buying
behaviour even though many participants already understand that.

Definition of risk proposed in this study
Variable

Definition
Social risk Potential loss of status in ones social group as a result of adopting a product or
service, looking foolish or unpopular.
Economic risk The potential monetary outlay associated with the initial purchase price as well as
the subsequent maintenance cost of the product, and the potential financial loss due
to fraud.
Privacy risk Potential loss of control over personal information, when the information is used
without permission.
Time risk Potential loss of time associated with making a bad purchasing decision by wasting
time researching, shopping, or have to replace the unexpected goods.
Quality risk The possibility of the product malfunctioning and not performing as it was
designed and advertised and therefore failing to deliver the desired benefits.
Health risk Potential loss of health because of prolonged use of computer will cause fatigue or
visually impaired, pressure on ones heart, or buying counterfeit products which is
harmful to ones health.
Delivery risk Potential loss of delivery associated with goods lost, goods damaged and sent to the
wrong place after shopping.
After-sale risk Potential loss of after-sales associated with products problems, commercial
disputes, and service guarantee.
Purchasing
Behavior
The possibility of consumer behavior to doubt, give up, cut down spending, cut
down frequency, and to put off ones purchasing because of perceived risks.













Dimensions of Perceived Risk






































Fig. 1 The Research Model
Perceived Social Risk
Perceived Economy Risk
Perceived Privacy Risk
Perceived Time Risk
Perceived Quality Risk
Perceived Health Risk
Perceived Delivery Risk
Perceived After-sale Risk
Perceived Purchasing Behavior
Online activities and e-payment behavior
Internet applications and services enrich peoples lives. Howard et al. (2001) indicate that internet usage
patterns in the US encompass communication, fun, information utility, major life activities, and
transactions. Colley and Maltby (2008) reveal that the most common internet applications are job
enhancement, communicating with friends, browsing news, acquiring general information, trading,
banking, and shopping. Stepanikova et al. (2010) stated that internet usage is motivated by
communication (i.e. e-mail) and information acquisition (i.e. browsing news). People usually use the
internet for e-mail, online newspapers, searching for job information, ravel booking, e-shopping, and
electronic banking (Bonfadelli, 2002; Zhu and Chen, 2012).
The internet industry currently faces the challenge of determining how to offer the right product variety
to the target market. The most important aspect for a web store is information with respect to product
functions and payment methods (Luo et al., 2011; Sabiote et al., 2012). Internet banking services are
gaining popularity, but some people worry about security issues and lack trust toward the internet banking
services (San Martn et al., 2011). In the online environment, e-payment is a process to complete the
transaction. E-payment services are web-based user-interfaces that allow customers to remotely access
and manage their bank accounts or transactions (Lim, 2008; Zhou, 2011). Hence, e-payment has become
one of the most important factors for successful business and financial services (Kim et al., 2010; Zhou,
2011). E-payment has several important characteristics, including security, scalability, reliability,
anonymity, acceptability, privacy, convenience, and efficiency (Kim et al., 2010;Benlian et al., 2012).
Hargittai and Hinnant (2008) suggest that user attributes such as online skill an important mediating
factor in the types of people's online activities. User interactions (such as functional performance,
perceived control skill, and perceived trust) with a retail web site can affect the purchase behavior
(Rose et al., 2011; Bordonaba-Juste et al., 2012). Doubts about information security and privacy for
online shopping can strongly influence the consumer's purchase intention (Ho and Oh, 2009; Hsiao,
2011). In the virtualization service environment, payment methods, security, and copyright are new issues
that have not yet been discussed.
Based on previous studies, this study categorized several online behaviors that frequently occurred and
chose 11 of them to analyze. These 11 behaviors encompassed: using the internet for work,
sending/receiving mail, browsing news, searching for public notices, four types of online shopping use
payment methods (such as credit card, e-banking, cash, and others), online security sense, online security
ability, and intellectual property rights (IPR) sense.






Types of products purchase online
S.No. Products S.No. Products
1 Womens Apparel 10 Jewelry
2 Books 11 Office Supplies
3 Computer Hardware 12 Home Decor
4 Computer Software 13 Flowers
5 Apparel 14 Sporting Goods
6 Toys / Video Games 15 Footwear
7 Music/Videos DVDs 16 Small Appliances
8 Health and Beauty 17 Tools and Garden
9 Consumer Electronics 18 Gifts















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