(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).
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):
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.
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