Customer Perceived Value in etailing

 

Deepali Singh

 

Abstract

Customer Value Management has been used widely by market-oriented firms to differentiate themselves from competitors and is considered a major priority by executives. Perceived Customer Value (PCV) involves an analysis of the antecedent factors of perceived value (i.e., experience of customer, perceived risk, perceived quality and product price) to assess their relative importance in the perceptions of their buyers. In this study a conceptual framework approach is followed for estimating the contribution of each context towards PCV. It provides a rich understanding of the current attitudes of on-line shoppers to marketing managers to segment and target the “Internet market” more effectively. The framework is specifically studied in Indian online buyers’ context by analyzing the responses of the questionnaire. In particular, the proposed methodology allows marketers to estimate the relative effects and integration rules of perceived value drivers at the market segment level

 

Keywords: Customer Value, Perceived Value, etailing, pre-purchase behaviour

 

 

Introduction

            Benefits of the Internet are tremendous. As an alternative channel, Web shopping is convenient and time saving; with rich, free information available, consumers can easily compare prices and product features across suppliers. By empowering consumers, the Internet has also raised consumers’ expectations of retailers. Indeed, they seemingly expect from online shopping as much as, or even more than, what they expect from other alternate channels.

            Previous work on Web shopping, though, has raised e-tailers’ concerns about the low purchasing rate and moderate overall satisfaction of online shoppers. Some reasons are:

            Online context presents new challenges besides providing new avenue. In such a situation, understanding what leads to online shoppers’ purchase intentions has become important area of research for the Marketers. The factors to determine perceived value in brick-and-mortar may or may not be valid in online context.  This study examines pre-purchase consumer value perceptions in an online shopping situation. The study in view of these addresses important dimensions of perceived customer value by developing a framework elaborating the relationships among key factors of perceived customer value in an etailing context

Literature Review

            The concept of perceived value has recently gained its importance and wide popularity in the business environment because of its effect on consumer behavior and providing strategic implications for the success of companies.  It is recommended that products offering value for money not only influence customers’ choice behavior at the pre purchase phase but also affect their satisfaction, intention to recommend and return behavior at the post purchase phase

            In simple words, perceived value is the net value perceived of a product by a person. What the person gets minus what he/she expends. Since it is not the actual value and is not perceived by the customer, it can vary from person to person. One person may have higher expectations from the same product than the other person.  Thus Perceived value is the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given.” Essentially, value represents a tradeoff of salient “get- and give-components,” which are perceived as benefits and sacrifices, respectively.

            Although perceived customer value has long been recognized as an important concept in marketing research, it has often been viewed as essentially a trade-off between relative quality and relative price. This simplification has been criticized as ignoring some important constructs (e.g., shopping experience, risk) and may be misleading in measuring perceived customer value. For instance, Zeithaml (1996)found that, though consumers have different conceptions about perceived customer value, it can be captured in one overall definition: “Perceived value is the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given.” Essentially, value represents a tradeoff of salient “get- and give-components,” which are perceived as benefits and sacrifices, respectively.

            Woodruff (1997) expands the concept of perceived customer value and describes it as a source of competitive advantage. According to him, customer value is “a customer’s perceived preference for and evaluation of those product attributes, attribute performance, and consequences arising from use that facilitate (or block) achieving the customer’s goal and purposes in use situations.” Researchers assert that this broader definition of perceived customer value provides conceptual richness (Parasuraman, 1997).

            Based on a synthesis of previous definitions, perceived customer value is defined here as a consumer’s perception of the net benefits gained in exchange for the costs incurred in obtaining the desired benefits.

            This research examines pre-purchase consumer value perceptions in an online shopping situation and focuses on identifying key precursors of perceived customer value through an examination of the online pre-purchasing experience. This study explores the influencers of perceived “gains” and “costs.” Review of literature reveals four major elements involved in the pre-purchase stage that have significant influence on a consumer’s value perception and purchase intention in etailing. These factors are valence of experience, perceived product quality, perceived risk, and price. Each of these can either positively or negatively influence perceived customer value in an online setting.

Research Method

            A review of previous studies on perceived value, retail service quality, and online shopping behavior provided a basis for developing the framework. The framework takes into account the major factors which affect the perceived customer value and how they themselves are affected (their antecedents and inter correlation amongst themselves).

            To analyze the effectiveness and robustness of framework, a questionnaire was developed on a five point scale with set of questions specifically targeted to find contribution of each element towards total perceived value and overall affect of perceived value on pre-purchase intention. Questionnaire was administered amongst Indian Internet users. The sample consists of people who are students or professionals. Such sample is intentionally selected because these people are quite regular in accessing Internet and have purchased online atleast once. The products purchased most by respondents include books, CDs, computers and apparels. These, in fact, are the most common products sold online. Thus, the purchase experience here describes the typical online purchase experience.

Developing a framework

            Much of the cognitive and physical effort of the purchase occurs prior to actual buying behavior. Therefore, etailers should know how to favorably influence customers in the pre-purchase stage. Perceived customer value has been found to be a powerful predictor of purchase intention.Thus, identifying factors that are critical for converting browsers into buyers, acquiring new customers, and retaining old customers should be of the great interest to etailers.

Experience of Customer

            Valence of experience is a consumer’s emotional or attitudinal state aroused by the pre-purchase online shopping experience. Behavior is a function of both the person and the environment. External forces may affect a person’s behavior as well as internal forces. This theory has been widely applied in the traditional retail setting by manipulating store atmosphere and in-store stimuli, such as music, color, and assortment, and found to positively influence consumers’ shopping experience and decision making. External signals such as what consumers experience when they are shopping online can influence consumers’ internal perceptions of customer value. 

Relevant Information: Korgaonkar & Wolin (1999)

            The Web has become one of the most important tools for information search. E-marketing allows both buyers and sellers to exchange information about prices and product offerings. Consumers can enjoy rapid access to information about products, make price comparisons across competing offerings, and find more unusual products. Quick access to low cost, useful information has become one of the important benefits online shoppers seek.  Consumers, however, perceive only relevant information to be useful and valuable. Whereas retail store personnel can adapt the information to a consumer’s needs, such flexibility is virtually absent in online shopping.

Ease-of-Use of the Web Site: Mathwick, Malhotra, & Rigdon (2000)

            A web site design that does not facilitate information processing may cause negative affect. Analogous to a physical store with a poor layout and store environment, an unfriendly online user interface may lead consumers to feel confused, feel a loss of control in the interaction, and ultimately develop negative feelings about the online shopping experience. This could result in their abandoning the purchase process or moving to an alternate Web site. On the other hand, an ideal human-Web interaction will lead to positive consequences, such as a good mood, longer staying time, and more exploratory behavior .

Customer Service:  Mathwick, Malhotra, & Rigdon (2000)

            Customers usually expect additional support services to back up the products or services they buy and use (Clemmer, 1990). Customer service is significantly different in an e-commerce marketplace relative to its traditional store counterpart. The technology enables consumers to fulfill the purchase process generally without any direct interaction with e-commerce employees. Customer service is received mainly through the means of access afforded by the Web site.

Perceived Product Quality

            Perceived product quality may be defined as the consumer’s judgment about a product’s overall excellence or superiority. Researchers assert that perceived quality has a positive effect on perceived customer value. This is both intuitively true and demonstrated in previous work.

            According to cue utilization theory, products consist of an array of cues that serve as surrogate indicators of quality. Cues can be classified into two categories: extrinsic and intrinsic. Extrinsic cues are product-related attributes that are not part of the physical product (e.g., price, brand name, packaging). Intrinsic cues represent product-related attributes that cannot be manipulated without changing physical properties of the product (e.g., ingredients of a grocery product, clothing size, design of an automobile). Research evidence suggests that consumers use extrinsic attributes to infer product quality (Teas & Agarwal, 2000).

            A consumer’s perception of quality is different from objective quality. The latter describes the actual technical superiority or excellence of the product that is measurable or verifiable according to some predetermined standards, as judged from intrinsic cues. Conversely, perceived product quality is rather a higher-level abstraction, a global assessment, and highly subjective owing to the specific consumption setting. This is particularly true in the online shopping setting where consumers generally have no intrinsic product attributes to generate objective judgment about the product quality in the pre-purchase stage (i.e., when consumers have no previous experience with the product). E-commerce provides consumers with only a visual display of goods and services. As such, consumers perceive a lower level of tangibility because of the lack of demonstrable proof about the performance of a product. In this situation, extrinsic attributes are expected to have a strong influence on perceived quality (Teas & Agarwal, 2000).

Valence of Experience and Perceived Product Quality: Szymanski & Hise (2000)

            The retail literature has suggested that store environment has a positive influence on product quality. Previous studies prove that store-related stimuli have a significant effect on product quality perceptions. Similarly, valence of experience should influence consumers’ product quality perceptions. That is, consumers with a favorable online shopping experience will perceive a product to have better quality than those with an unfavorable experience, especially if they are unfamiliar with the product.

E-tailer Reputation and Perceived Product Quality: Teas & Agarwal (2000)

            Reputation of the e-tailer is garnered from word-of-mouth communication, level of advertising, and brand equity (Teas & Agarwal, 2000). Previous studies suggest that word-of-mouth recommendation plays an important role in reducing the amount of information consumers process and is used as a decision-making heuristic to infer product quality. Brand name (or reputation) has been found to affect quality perceptions.

            Additionally, it serves as a surrogate for quality and a dominant choice heuristic by providing consumers with a bundle of information about the product. What consumers know about a company can influence their beliefs about and attitudes toward new products manufactured by the company. This could also apply to e-tailers because of the absence of intrinsic product cues on a Web site with which to evaluate product quality. Strader and Shaw (1999) found that in e-marketing, unless a seller’s price is significantly lower than prices of a trusted seller, switching costs will inhibit the consumer from buying from the unknown e-seller. Hence, it is proposed that the reputation of the e-tailer is positively related to product quality perceptions.

Product Price and Perceived Product Quality: Sweeney, Soutar, & Johnson (1997)

            Price has long been suggested as an important extrinsic cue for product quality.Consumers use price as a quality indicator that is, a positive relationship between price and product quality exists. Some researchers suggest, however, that this general positive relationship does not hold if more cues are available (Zeithaml, 1988). Price continues to be a quality cue in the presence of other extrinsic cues (such as brand name or store name) (Teas & Agarwal, 2000). Thus, price should be a positive indicator of perceived quality owing to the general absence of intrinsic cues in online shopping.

Perceived Risk

            Perceived risk is the consumer’s perception of the uncertainty and concomitant adverse consequences of buying a product or service. According to Strader and Shaw (1999), in online shopping the key risks are financial, performance, and privacy. Several studies suggest that perceived risk is an important variable that needs to be examined vis-à-vis perceived customer value (Teas & Agrwal, 2000. Some empirical work offers evidence regarding the role that perceived risk plays in value perceptions. Perceived risk has a direct, negative effect on perceived value and mediates the relationship between product quality and perceived value.

E-tailer Reputation and Perceived Risk: Sweeney, Soutar, & Johnson (1999)

Consumers use signals or extrinsic cues (such as advertising and brand name) to infer product quality and refine their choices. Consumers are likely to perceive an e-tailer with a good reputation as being more trustworthy and credible than one with a poor reputation. Consequently, as an extrinsic cue, an e-tailers’ good reputation should foster lower financial, performance, and privacy risk for online shoppers.

Perceived Product Quality and Perceived Risk: Sweeney, Soutar, and Johnson (1999)

As perceived product quality increases, uncertainty associated with product performance will decrease. Sweeney, Soutar, and Johnson (1999) determined that in a retail environment, quality offerings can reduce perceived risk. The effect many extrinsic cues (e.g., brand name) have on perceived risk is realized to a great extent by their influence on perceived quality. In an e-commerce context, consumers who have a positive perception of product quality are less likely to expect disappointing product performance, thus reducing their level of performance risk. 

Product Price and Perceived Risk: (Sweeney et al., 1999)

Monetary price is positively related to perceived product quality but is likely to lead to greater level of financial uncertainty (Sweeney et al., 1999).Online shopping remains a relatively new experience for many individuals.  As such, a high price is likely to generate a greater degree of perceived financial and performance risk for online shoppers.

Product Price

Price has been found to have a positive impact on perceived product quality but a negative effect on a product’s value for the money. As a financial sacrifice, price contributes negatively to value. Economical shoppers usually see price as an important cost component and compare prices between different alternatives. Achieving price leadership has been proposed as an effective way to enhance customer value. Selling online can be up to 15 percent less costly than selling through regular channels (Korgaonkar & Wolin, 1999). Previous research shows that seeking the best price is a major motivation of online shoppers (Korgaonkar & Wolin, 1999). Indeed, transaction costs and sales tax typically are lower in e-commerce than in traditional business settings (Strader & Shaw, 1999). Thus, to the price-sensitive segment of the market, price is an important criterion for value judgment.

Purchase Intention: Sweeney, Soutar, & Johnson (1999)

The economic theory of utility assumes that consumers are economically rational and so will try to achieve the maximum utility, or satisfaction, possible given their resource limitations (e.g., budget, time, cognitive capabilities). When perceived customer value is defined as an overall evaluation of the relative value of a product compared to alternatives, it reflects consumers’ net gain obtained from their consumption behavior; thus it is likely to be used as an indicator of purchase intention.

Framework of Perceived Customer Value (CPV) in etailing

The framework shows the interrelation among four factors which contribute to the final perceived customer value. It also shows the antecedents of each factor i.e. how each factor itself would be affected. The factors are extracted after a comprehensive study of related literature.

The following statements evolve from the framework:

 

 

Fig 1: Framework of Perceived Customer Value in an Etailing

 

Results

            A series of multiple regression analyses is performed to test the statements developed via framework.  To check the level of multi-collinearity, Variation inflation factor is calculated. Low values of variation inflation factor indicate low level of multi collinearity among the factors.

 

Antecedents of Experience of Customer                     

S1 (correlation coeff. of ease of use)      -           0.292517765

S2 (Relevant Info)                                 -           0.181470787

S3 (Customer Service)                           -           0.258122325

Antecedents of Perceived Product Quality                  

S5 (Experience of Customer)                 -           0.162524723

S6 (etailer’s Reputation)                        -           0.558400789

S7 (Product Price)                                 -           0.181674749

Antecedents of Perceived Risk            

S9 (etailer Reputation)                           -           (-) 0.525529944

S10 (Perceived Quality)             -           (-) 0.529655013

S11 (Product Price)                               -           0.079847135     

Correlation coefficients of factors with PCV                           

S4 (Experience of customer)                  -           0.253118624

S8 (Perceived Quality)               -           0.491743015

S12 (Perceived Risk)                             -           (-) 0.027617459

S13 (Product Price)                               -           (-) 0.467966483

 

Table.1: Data analysis results

 

Factor

Mean

Std. Deviation

Std. Error

z value

Relevant Info

3.333333333

0.599873724

0.104424612

1.591243984

Ease Of Use

3

0.76843231

0.1337669

0.90042959

Customer Service

3

0.706436855

0.122974872

0.278821377

Experience of Customer

3

0.756912589

0.131761569

0.220192753

Perceived Product Quality

3.666666667

0.606849234

0.105638892

1.056957981

etailer's Reputation

3

0.702825062

0.122346139

0.420381346

Product Price

3.333333333

0.580258853

0.101010101

0.844276631

Perceived Risk

3.75

0.652337725

0.113557422

0.615501965

Perceived Customer Value

3.333333333

0.63431609

0.110420258

1.106735605

 

            The reliability coefficients of each factor is greater than 0.7 indicating that relationship between factors is not case specific, but standardized and thus can be used for any purpose. The reliability coefficients of all the factors are provided in the Table -2

Table 2: Reliability coefficients of constructs

 

Scale

Sample Statement

Reliability  Coefficient

Ease-of-Use of the Web site

The interface of XYZ’s Web site is user (Unfriendly/Friendly).

0.75

Relevant

Information

The quality of product information on XYZ’s Web site is (Not valuable/Valuable).

 

0.79

Customer Service

 

Overall, I’d say the quality of my interaction with XYZ’s customer support was (Poor/Excellent).

0.80

Valence of Experience

When shopping on XYZ, I have a/an (Unpleasant/Pleasant) experience.

 

E-tailer’s Reputation

XYZ has a (Poor/Good) reputation.

0.87

Perceived Product Quality

This product is likely to be of (Poor/Good) quality.

 

 

Product

Price

Compared to other products with similar features, the price of this product offered by XYZ is (Low/High).

 

0.88

Perceived Risk

There is a chance that there will be something wrong with this product or that it will not work properly (Disagree/Agree).

 

0.80

 

Perceived

Customer Value

Comparing what I pay for what I get, this product appears to be a good value for the money (Disagree/Agree).

0.75

Purchase Intention

I purchased or would consider buying this product from XYZ (Disagree/ Agree).

0.92

 

Antecedents of Valence of Experience

            As anticipated, ease-of-use of the Web site (b=0.29) and customer service (b=0.26) are significantly, positively related to consumers’ valence of experience. Thus, statements S1 and S3 are supported. Relevant information is also quite significant (b=0.18); the sign of the parameter estimate is positive, suggesting a positive impact of relevant information on consumers’ valence of experience when shopping online. In addition, ease-of-use of the Web site has the highest regression coefficient among the three predictors of valence of experience. As such, among these three predictors, ease-of-use seemingly has the greatest impact on consumers’ valence of experience in an online context.

Antecedents of Perceived Product Quality

            e-tailer reputation (b=0.55) is highly positively related to perceived product quality, so, statement S5 receives empirical support. The finding suggests that certain external cues like brand image influence online shoppers’ perceptions of product quality. Other antecedents Consumers’ valence of their online shopping experience (b=0.16) and product price (b=0.18) have marginal positive effect on perceived product quality.

Antecedents of Perceived Risk

etailer’s reputation (b = -0.52) and perceived quality (b = -0.53) are inversely associated with perceived risk; furthermore, purchase price (b=0.07) is positively related to perceived risk, although marginally. Consequently, statements S9, S10 and S11 are supported. Product quality and etailer’s reputation seem equally important determining consumer online risk perception.

Antecedents of Perceived Customer Value

Valence of experience (b=0.25) and perceived product quality (b=0.49) are positively related to perceived customer value; also, product price is negatively associated (b=-0.46) with perceived customer value. All three findings were expected. Therefore, statements S4, S5 and S13 are supported. The magnitude of the effects that these factors have on perceived value is similar, with valence of experience slightly lower than perceived product quality and product price. The negative effect of perceived risk on perceived customer value (b = -0.02), however, is so low that its effect can be neglected in comparison to other factors.

Conclusion

            The framework identifies key antecedents that are likely to influence perceived customer value in etailing and explores the relationships among these constructs of perceived customer value of Indian online shoppers.

            The precursors of perceived customer value presented in the model can help e-marketers improve their understanding of what their customers need or value and why they buy online Consumers may use different strategies to infer perceived value online from what they use in a bricks-and-mortar shopping environment. There are multiple ways of enhancing perceived customer value in products and services. Increasing perceived product quality and reducing monetary price (if feasible) are approaches that could be employed by e-tailers. Another important means of augmenting perceived customer value suggested by the findings of this investigation includes enhancing the valence of consumers’ online shopping experiences.

            The positive linkage between e-tailer reputation and perceived product quality implies that e-marketers can favorably affect consumers’ perceived product quality and concomitantly their value perceptions by enhancing value signals such as e-tailer reputation. E-tailers should seek to increase brand awareness of their Web sites, as well as build a positive image and reinforce their Web site in the minds of consumers. The valence of the shopping experience has almost the same impact on online consumers’ value perceptions as does perceived product quality or product price. This finding indicates the important role that online shopping experience has in determining perceived customer value

References