Consumer Behavior - Online Shopping

DEPARTMENT OF BUSINESS STUDIES Consumer Behaviour in Online Shopping 2007-11-29 Authors: Tutors: Anders Hasslinger Selma Hodzic Claudio Opazo Lisa Kallstrom Christer Ekelund Abstract The Internet has developed into a new distribution channel and online transactions are rapidly increasing. This has created a need to understand how the consumer perceives online purchases. The purpose of this dissertation was to examine if there are any particular factors that influence the online consumer. Primary data was collected through a survey that was conducted on students at the University of Kristianstad.

Price, Trust and Convenience were identified as important factors. Price was considered to be the most important factor for a majority of the students. Furthermore, three segments were identified, High Spenders, Price Easers and Bargain Seekers. Through these segments we found a variation of the different factors importance and established implications for online book stores. 2 Table of Contents Abstract…………………………………………………………………………………….. 2 1 Introduction…………………………………………………………………………….. 1. 1 Background………………………………………………………………………………. .. 5 1. 2 Problem……………………………………………………………… …………………….. 6 1. 3 Research purpose ……………………………………………………………. …………. 7 1. 4 Research questions …………………………………………………………………… .. 8 1. 5 Limitations …………………………………………………………………………….. … 8 1. 6 Chapter overview …………………………………………………………………. ……. 9 1. 7 Summary………………………………………………………………………………….. 10 2 Method………………………………………………………………………………….. 11 2. 1 2. 2 2. 3 2. 4 Choice of methodology…………………………………………………….. ………. 11 Research Approach…………………………………………………… ……………… 2 Research Philosophy…………………………………………………………… ……. 12 Research Strategy ………………………………………………. …………………… 13 2. 4. 1 Secondary Data………………………………………………………………………………. 13 2. 4. 2 Primary data…………………………………………………………………………………… 14 2. 5 Summary………………………………………………………………………………….. 15 Theory…………………………………………………………………………………… 16 3. 1 Introduction………………………………………………………… …………………… 16 3. 2 Consumer behaviour………………………………………………………. …………. 18 3. 2. 1 Consumer characteristics…………………………………………………………………. 19 Cultural Characteristics…………………………………………………………………………………. 9 Social characteristics…………………………………………………………………………….. ……… 20 Personal characteristics ……………………………………………………………………………….. .21 Psychological Characteristics ……………………………………………………………………… … 22 3. 2. 2 Online Consumer Characteristics……………………………………………………… 24 Cultural Online Characteristics…………………………………………………………….. ………. 24 Social Online haracteristics…………………………………………………………… …………….. 24 Personal Online characteristics…………………………………………………………….. ………. 25 Psychological Online Characteristics…………………………………………………….. ……….. 25 3. 3 Specific Consumer Traits and Online Behaviour …………………………… 26 3. 4 Important Influencing Factors ……………………………………………….. ….. 29 3. 3. 1 Identified Factors affecting Online Consumer Behaviour ……………………. 2 The Factor Price………………………………………………………………………………….. ………. 32 The Factor Trust…………………………………………………………………………. ……………….. 33 The Factor Convenience ……………………………………………………………….. …………….. 36 3. 4 Summary………………………………………………………………………………….. 38 4 Empirical Research Method…………………………………………………… 40 4. Segments ……………………………………………………………………………….. .40 4. 2 Sample ………………………………………………………………………. …………… 41 4. 3 Non Probability, Convenience Sampling…………………. ………………….. 41 3 4. 4 The Questionnaire……………………………………………………………….. ……. 41 4. 5 The Fishbein Model ……………………………………………………. …………… 46 4. 6 Reliability ……………………………………………………………… ………………. 48 4. 7 Validity…………………………………………………………….. …………………….. 49 4. 8 Generalisability…………………………………………………………………… …… 50 5 Results…………………………………………………………………………………… 51 5. 1 Introduction………………………………………………………. ……………………. 51 5. 2 Questionnaire – Collected data…………………………………. ………………… 52 5. 2. Online Consumer Traits ………………………………………………………………….. 52 Demographics……………………………………………………………………………………….. …….. 52 Attitudes and Beliefs……………………………………………………………………………………. .. 55 Impact of Reference Groups…………………………………………………………………. ……….. 57 5. 2. 2 Online Consumer Behaviour …………………………………………………………… 9 Webographics…………………………………………………………………………………………….. … 59 Shopping patterns ……………………………………………………………………….. ………………. 60 Internet Usage…………………………………………………………………………………………….. .61 5. 2. 3 Identified factors Price, Trust, and Convenience…………………………………. 61 Price………………………………………………………………………………………… ………………… 2 Trust…………………………………………………………………………………………………….. …….. 63 Convenience……………………………………………………………………………………………. ….. 64 5. 3 Identified Attributes…………………………………………………….. …………… 65 Price ……………………………………………………………………………………….. ………………… 65 Trust ……………………………………………………………………………………………………. ……. 68 Convenience ……………………………………………………………………………………………. ….. 71 5. 3. 1 Primary Factor ……………………………………………………………………………….. 75 6 Analysis…………………………………………………………………………………. 76 6. 1 The Factors…………………………………………………………….. ……………….. 76 6. 2 Two Step Cluster……………………………………………………………………. …. 77 6. 2. Significance of the factors within the Segments………………………………….. 79 6. 3 Segments…………………………………………………………… …………………….. 80 6. 3. 1 Description of Segment One: High Spenders……………………………………… 81 Primary Factor of Concern for High Spenders………………………………………. …………. 82 6. 3. 2 Description of Segment Two: Price Easers ………………………………………… 84 Primary Factor of Concern for Price Easers………………………………………… ………….. 5 6. 3. 3 Description of Segment Three: Bargain Seekers…………………………………. 87 Primary Factor of Concern for Bargain Seekers……………………………………………… … 88 6. 4 Summary ………………………………………………………………………………… .90 7 Conclusions …………………………………………………………………………… 91 7. 1 Implications for Online Book Retailers………………… ……………………… 92 7. 2 Self Criticism…………………………………………………………………… ……… 94 7. 3 Future research…………………………………………………. ……………………… 95 References………………………………………………………………………… 95 Appendix…………………………………………………………………………… 98 4 1 Introduction The introduction chapter will be explaining the purpose of our research. The research questions, limitations and a background will be presented. 1. 1 Background The invention of the Internet has created a paradigm shift of the traditional way people shop.

A consumer is no longer bound to opening times or specific locations; he can become active at virtually any time and place and purchase products or services. The Internet is a relatively new medium for communication and information exchange that has become present in our everyday life. The number of Internet users is constantly increasing which also signifies that online purchasing is increasing (Joines, Scherer & Scheufele, 2003). The rapid increase is explained by the growth in the use of broadband technology combined with a change in consumer behaviour (Oppenheim & Ward, 2006).

The Internet is considered a mass medium that provides the consumer with purchase characteristics as no other medium. Certain characteristics are making it more convenient for the consumer, compared to the traditional way of shopping, such as the ability to at any time view and purchase products, visualise their needs with products, and discuss products with other consumers (Joines et al. 2003). Oppenheim and Ward (2006) explain that the current primary reason people shop over the Internet is the convenience. They also recognize that the previous primary reason for shopping online was price, which has now changed to convenience. Online shopping is the process consumers go through when they decide to shop on the Internet. The Internet has developed into a “new” distribution channel (Hollensen, 2004) and the evolution of this channel, e-commerce, has been identified by Smith and Rupp (2003) to be the most significant contribution of the information revolution. Using the Internet to shop online has become one of the primary reasons to use the Internet, combined with searching for products and finding information about them (Joines et al. , 2003).

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Smith and Rupp (2003) also state that the consumers have never had access to so many suppliers and product/service opinions. Therefore, the Internet has developed to a highly competitive market, where the competition over the consumer is fierce. In order to have an impact on and retain consumers, in a competitive market, Constantinides (2004) stated that the first step is to identify certain influencing aspects when purchasing online, these can be regarded as factors. 1. 2 Problem At any given time there are millions of people online and each of them is a potential customer for a company providing online sales.

Due to the rapid development of the technologies surrounding the Internet, a company that is interested in selling products from its web site will constantly have to search for an edge in the fierce competition. Since there are so many potential consumers, it is of the out most importance to be able to understand what the consumer wants and needs. The importance of analysing and identifying factors that influence the consumer when he or she decides to purchase on the Internet is vital. Since the Internet is a new medium for there have been new demands set by the consumer.

That is why it is crucial for the online retailers to know what influences the online consumer. 6 Analysing consumer behaviour is not a new phenomenon. The renowned marketing expert Philip Kotler has published several works on the topic of consumer behaviour theories. These theories have been used for many years not only to understand the consumer, but also create a marketing strategy that will attract the consumer efficiently. Hence, understanding and identifying the consumer is closely related to the directions a company will take with their marketing strategy.

These theories can also be applied to identify the online consumer and to create certain consumer segments. However, some distinctions must still be made when considering traditional consumer behaviour and online consumer behaviour. Since online retailing is a new retailing medium and online consumer behaviour is diverse from traditional consumer behaviour, one must identify what influences the online consumer. Analysing the process that the online consumer goes through when deciding and making a purchase over the Internet, shows some factors that consumers consider.

These factors need to be identified and taken into account by online retailers in order to satisfy consumer demands and compete in the online market. To further understand how these factors influence different types of consumers, we must identify segments which will enable us to make comparisons. 1. 3 Research purpose The purpose of this research is primarily to identify and get insight into what main factors the online consumer takes into consideration when purchasing books online, as books are the most commonly bought product on the Internet (Arbeitsgemeinschaft Online-Forschung e. V. [AGOF e. V. ], 2007).

Further, we will investigate if any segments can be established by identifying the consumers and how these segments relate 7 to the identified factors. The findings of this research will be outlined as implications for online book retailers in order to enhance their consumer knowledge and increase their online marketing strategy effectiveness. 1. 4 Research questions • What main factors affect the online consumer when considering and making a purchase over the Internet? • How do these factors influence the consumer when purchasing books online? • What kind of segments can be found within the identified consumers when purchasing books online? What is the connection with the identified factors and consumer segment groups? 1. 5 Limitations There are a number of factors influencing the online consumer. However, this research will try to identify the main factors influencing the online consumer and will, therefore, try to limit these to a few in order to be able to investigate the effect on the online consumer. Within the field of consumer behaviour there are many theories and models that identify the consumer. This research will limit itself to identifying the consumer through his/her consumer characteristics and the consumer buying process. 8

Consumer behaviour differs depending on what product or service is bought. Hence, different factors are of different importance to consumers depending on the product or service. Therefore this research will limit itself to books since this is the product that is most widely bought on the Internet. We will also limit our research to students at Kristianstad University. Students are a population that frequently have buy course literature. This seemed to be the most appropriate choice considering the limitations in both time and resources. 1. 6 Chapter overview The dissertation will be structures according to the following: Chapter 2 – Method

This chapter will illustrate the way the research has been conducted by presenting the methodologies and theories used. Chapter 3 – Theory This chapter presents the theories behind consumer behaviour. It will discuss online consumer behaviour in order to continue with the identification of the factors that influence consumers. The theories of consumer behaviour will also be used in order to identify consumer segments that will show whom the identified factors affect. Chapter 4 – Empirical Research Method This chapter will present how we have conducted our research in order to collect primary data and reach the objective of the dissertation.

We will also be discussing which different types of methodologies that were used. Chapter 5 – Results 9 This chapter will present and discuss the results from the questionnaire and how the collected data was distributed among the respondents. Chapter 6 – Analysis This chapter will present the analysis and conclusions of the conducted research. We will identify certain segments and analyse how the factors Price, Trust, and Convenience affect these segments. Chapter 7 – Conclusions This chapter will present the conclusions that were drawn from the analysis of the research.

It will also give implications for online book retailers and discuss further research possibilities. 1. 7 Summary Since the rapid development of the Internet online shopping has become a new and widely used medium for retailing. Books are recognized to be the most traded merchandise and the fierce competition of attracting consumers requires online retailers to have comprehensive up-to-date information about the consumers. In order to understand the consumer the retailers need to know what influences the consumer. That is what we want to accomplish with our research. 10 2 Method

This chapter will illustrate the way the research has been conducted by presenting the methodologies and theories used. 2. 1 Choice of methodology We will attempt to find the main factors that influence the online consumer when making an online purchase. In order to broaden our own understanding of the subject we conducted our initial research in literature on consumer behaviour and e-commerce. We reviewed studies that had similar aims and paid particular attention to their results. For our own research we decided that the most appropriate approach would be a questionnaire that would be filled out by students at Kristianstad University.

To encourage the students not to reject the questionnaire outright, and to increase the response rate, the questionnaire should be limited to maximum of one sheet of A4 paper. This study started out as an exploratory study but developed into an explanatory study since we start out with first gaining knowledge about consumer behaviour to further being able to gain knowledge about online consumer behaviour. Having this knowledge we continue to identify specific factors that are of importance when the online consumer is making online purchases. This information is then used in order to find relationships and correlations between these variables. 1 2. 2 Research Approach There are two most commonly used research approaches, the inductive and the deductive method. The inductive research method attempts to set up a theory by using collected data, while the deductive research approach attempts to find the theory first and then test it to the observed data. We chose a deductive research approach for our study as we would move from the more general to the specific. We will present the theoretical findings on consumer behaviour in the next chapter, after which we will present our questionnaire in chapter four where we present our collected primary data. 2. Research Philosophy When starting a study there must be an understanding of in which way the study will be approached. The established research philosophy explains this approach when collecting and analyzing data. The research process has three main focuses: positivism, realism, and interpretivism (Saunders, Lewis & Thornhill, 2007). Positivism is the approach where the researcher does not want to be affected by nor affect the subject of the research. The researcher believes that the collected and analyzed data can be simplified to a lawlike generalization using existing theories to develop hypotheses from these.

In the realistic approach, there is a reality existing independent of the mind. Like the positivistic approach it assumes a scientific approach to the development of knowledge. The interpretive way of approaching the subject of the research does not agree with the fact that law-like generalizations can be made. Instead it stress that the human mind and the social world are too complex in order to be generalized (Saunders et al. , 2007). 12 Our research will be conducted with a positivistic approach, since we will try to affect and interfere with the collected data as little as possible. 2. 4 Research Strategy

When collecting data to approach the purpose of a research there are two ways in which the data can be collected. In order to acquire a general knowledge about the topic, secondary data is primarily used and is one of the ways by which data can be collected. The second way to collect data is the primary data collection. Usually when a study is conducted, secondary data is not sufficient enough and needs to be completed with primary data which is collected by the researcher (Christensen, 2001). 2. 4. 1 Secondary Data Secondary data can be classified into three different subgroups: documentary, multiple source, and survey.

Documentary second hand data comes in both written and non written form. It is the data that can be collected from sources such as journals, databases, transcripts etc. This form of data is dependent on the access the researcher has to it. Survey based secondary data is the data that is collected through the survey and is available as data table forms. Multiple source secondary data is data that has been compiled into documentary or survey form; the main characteristics of this type of data is that it has been changed into a different form before the researcher is assessing the data (Saunders et al. 2007). 13 We have mainly used documentary secondary data combined with multiple source data. Documentary secondary data has been the data collected through different types of research conducted within the topic, articles, and books that are written on consumer behaviour and ecommerce. This type of data has been the fundamental source for gaining knowledge within the topic in order for us to be able approach the research problem. The secondary data that we used for our research is data that has also lead to the conclusion of which factors that will be examined.

The multiple source data that we have used has been in order to choose which product we would use for our research in order to be able to find the product that is most widely bought over the Internet. 2. 4. 2 Primary data Primary data for our research was collected through questionnaires. When collecting primary data one can choose to do interviews, observations, experiments, and questionnaires. Due to the purpose of our research, only the questionnaire method would be able to approach the topic and be able to collect the answers in a satisfactory manner.

In our research the primary data is mainly concerned with analyzing the respondent in order to later on classify the respondent. Further on, the primary data will be used to analyze the factors and how these are related to the respondent. The primary data is conducted in a manner to be able to approach our research and solve our research questions. The questionnaire will be explained in more detail in chapter 5, the Empirical methodology. 14 2. 5 Summary In order to find the factors that influence the online consumer, as we have set out to do, this study will go from an exploratory to explanatory study.

This also explains the deductive approach that we chose, as we first turn to the literature in order to gain knowledge. We do not want to affect the respondents’ answers and we, therefore, perform a positivistic approach to the study. By using secondary data we attempt to find the influencing consumer factors and then continue with primary data in order investigate the influence of the factors. 15 3 Theory This chapter presents the theories behind consumer behaviour. It will also discuss online consumer behaviour in order to continue with the identification of the influencing factors.

The theories of consumer behaviour will be used in order to be able to find consumer segments that will show whom the identified factors affect. 3. 1 Introduction This dissertation aims at finding factors that affect the online consumer’s buying behaviour. By reading literature concerning consumer characteristics and online consumer characteristics we believe to find implications for certain factors that are of importance for the online consumer. The Internet is a worldwide accessible series of computer networks that transmit data by packet switching using the standard Internet Protocol.

It is a “network of networks” that consists of millions of smaller domestic, academic, business, and government networks, which together carry various information and services, such as electronic mail, file transfer, the interlinked Web pages and other documents of the World Wide Web. Originally the Internet was mainly used by academics, research scientists and students; however that scenario has changed as commercial organizations have moved to incorporate the World Wide Web into their promotional campaigns, and by offering the facility of online purchasing (Jobber & Fahy, 2003).

The Internet has evolved into a worldwide accessible marketplace for information exchange and e-commerce. The strategic importance to be available for 16 consumers on the World Wide Web, with information and services has become particularly relevant to firms. According to Vesterby and Chabert (2001) the Internet can make it easier for companies to have information about their products or services available to their customers or potential customers. A company can satisfy the consumers’ individual need of information at a low cost in comparison to sending out product brochures for example.

As the user can choose information from websites, which implies that the information provider can achieve better understanding of the user’s needs and wants by collecting data. On the other hand, the Internet is a place with hardly any structure or rules: therefore, large efforts are needed in order to show the consumer where a specific site is located, and what services are available on that site. Vesterby and Chabert (2001) claim that companies with no physical presence must market themselves considerably, both online and offline, for the consumer to remember their name.

Whether it is the traditional market or the online market, the marketer must understand the consumer and how he makes his decisions and purchasing choices (Hollensen, 2004), because the consumer is under a constant flow of stimuli from the marketers advertisements. The marketer has the possibility to decide and to control the output that will be forwarded to the consumers, but when the advertisement reaches the consumer that control ends. The consumer then interprets the information that has been sent out in his own way based on specific factors for every consumer.

Therefore marketers have developed different theories that can explain why consumers interpret information in a certain way, and thereby understand certain behaviours (Kotler & Armstrong, 2007). Several articles have set out to identify the characteristics of the online consumer. 17 Allred, Smith and Swinyard (2006) identify the online consumer to have the following characteristics: younger, wealthier, better educated, having a higher “computer literacy” and are bigger retail spenders.

Donuthou and Garicia (1999) identify the online consumer as: older, make more money, convenience seeker, innovative, impulsive, variety seeker, less risk aware, less brand and price conscious, and with a more positive attitude towards advertising and direct marketing. Some of these characteristics are similar, while others are the opposite. Trying to identify the online consumer is difficult since the rapid development of e-commerce has also led to an increase of both technologies and different types of consumers.

It is also known that the type of product has a significant influence on the online consumer behaviour which makes it more difficult to identify consumer characteristics (Christopher & Huarng, 2003). There are still some characteristics that can be identified to specify the online consumer and the following text will try to do so. 3. 2 Consumer behaviour Donal Rogan (2007) explains the relationship between consumer behaviour and marketing strategy. He states that “strategy is about increasing the probability and frequency of buyer behaviour.

Requirements for succeeding in doing this are to know the customer and understand the consumer’s needs and wants. ” Chisnall (1995) points out that human needs and motives are inextricably linked and that the relationship between them is so very close that it becomes difficult to identify the precise difference which may characterize them. People may buy new coats because it protects 18 them against the weather, but their real underlying dominant need may be to follow the latest fashion trend.

Buyers’ characteristics are important theories from Kotler and Armstrong (2007) and it explains the way that the consumer interprets and receives stimuli from advertisements. The decisions of consumers are influenced by a number of individual characteristics that are linked to the consumer’s specific needs (Kotler & Armstrong, 2007). 3. 2. 1 Consumer characteristics Consumer characteristics are explained by: Cultural characteristics, Social characteristics, Personal characteristics, and Psychological Characteristics.

These characteristics are identified, by the marketer, in order to identify the consumer and to be able to decide on the strategy to what kind of consumer to target. Hence, these characteristics are used in order to segment the market and target specific consumer groups. Cultural Characteristics The Cultural Characteristics are recognized as the main influencer of consumer behaviour. These characteristics are developed by three features underpinning consumer behaviour: Culture, Subculture, and Social Class. Culture is mentioned as the most basic cause of a person’s wants and needs.

Kotler and Armstrong (2007) argues that human behaviour is mostly learned and that we are exposed to different sets of values and beliefs from a young age, and that these values influence our behaviour and decision making. Hence, these characteristics are interesting for marketers and important indicators of certain consumer behaviour and taste. 19 Subcultures are small group formations with a certain number of people that share values and beliefs such as nationalities, religions or geographic regions. An identified subculture can serve as an important and effective market segment which can be targeted.

Social class is recognized by Kotler and Armstrong (2007) as a class structure, consisting of a combination of factors which gather different types of members. Some identified factors are income, age, education, and wealth. Social characteristics The Social Characteristics are divided into three different categories, namely Reference Groups, Family and Social Role and Status. Reference Groups – According to Kotler and Armstrong (2007) the effects of the Reference Groups is mainly based on the belief that a person’s behaviour is influenced by many small groups.

When a group has a direct influence it is called a Membership Group, for example: family, neighbours and co-workers. Reference Groups are the groups to which the person often wants to belong to and to be a part of but is not. These groups indirectly and directly form a person’s behaviour and attitudes. There are three different ways by which these groups influence a person’s behaviour; they may expose a person to new behaviours and lifestyles, influence a person’s attitudes and selfconcepts and also create a pressure of confirmation by Reference Groups.

Another influence of importance is the opinion leader. An opinion leader is a person that influences others to follow his believes and attitudes towards certain issues, products or areas (Kotler & Armstrong, 2007). Family – Family members have a great influence on the buying behaviour. The involvement and influence by different family members 20 varies, both to which degree but also in what way. Therefore, it is important for marketers to understand which role is played by whom in the family and direct the advertisement towards the main influencing part of the family.

Roles and Status – Each person belongs to different types of groups and also plays different roles whilst having different positions in the various groups. Roles are identified by Kotler and Armstrong (2007) as what activities people are expected to perform from other members of the group. Personal characteristics These personal characteristics are categorized into: Age and Life-Cycle Stage, Occupation, Economic Situation, Lifestyle, Personality and SelfConcept. The Age and Life-Cycle Stage – These stages explain different periods in life that the consumer experiences as he goes through life.

These different stages also represent different changes that the consumer may experience when reaching a new stage. According to Kotler and Armstrong (2007) marketers, therefore, define their target markets in terms of the different stages in order to develop appropriate marketing plans. Occupation – The occupation tends to have an effect on the products and services bought by the consumers. This leads to the possibility of developing different types of products or services that suits interests identified to be above average within an occupation. The Economic Situation – Wealth will affect a consumer’s product choice.

A consumer may be price-sensitive or not depending on the level of income, level of savings, level of interest rates, and also the product or service itself. 21 Lifestyle – This is identified to be a person’s way of living which is recognized by the activities, interest, or opinions he or she has and it also explains the way a consumer interacts in the world. Personality – This is mainly explained by the terms self-confidence, dominance, sociability, autonomy, defensiveness, adaptability and aggressiveness. These psychological factors are a result of one’s environment.

Personality can be defined as a dynamic and organized set of characteristics possessed by a person that uniquely influences his or her cognitions, motivations, and behaviours in various situations (Ryckman, 2004). Self-concept or Self Image – Is the conceptual understanding that people’s possessions reflect their personalities. This concept does bring some conflict since people may have an image that satisfies who they are but does not agree with who they want to be (the ideal self concept), the question then arises which one we would want to satisfy. Psychological Characteristics

The psychological characteristics are divided into the following concepts: Motivation, Perception, Learning, and Beliefs and Attitudes. Motivation – Motivation refers to a person needs that must be satisfied. These needs are of different kind; some are biological, such as hunger, thirst and discomfort, and some are psychological such as the need for recognition, esteem and belonging. Needs are not satisfied until they reach a certain point of intensity and become a motive for the consumer to satisfy them. Kotler and Armstrong (2007) discusses several motivation theories, among them are Freud’s and Maslow’s theories of motivation.

Freud argued that a person does not really and fully understand his or her motivations. Maslow on the other hand wanted to understand why some people set out to satisfy some needs before others. 22 He then came to the conclusion that human needs are arranged in a hierarchy from the most pressing to the least pressing, as Kotler and Armstrong (2007) explains it. These needs are listed as psychological needs, safety needs, social needs, esteem needs, and self-actualization needs. When one need has been satisfied, a person moves on to satisfy the next.

Perception – This characteristic is based on the understanding of how differently we perceive the same situation or the same stimuli. Kotler and Armstrong (2007) explains perception as the process by which people select, organize, and interpret information. There are three different processes that decide how we interpret certain information. These are Selective Attention, Selective Distortion, and Selective Retention. Learning – Learning is, according to Kotler and Armstrong (2007), an act that changes people’s behaviour because of their experience.

It occurs through drives: strong internal wants that call for action, stimuli: object that drives for certain action, cues: small stimuli that determinate when, where and how the person will respond and reinforcement: when the response and stimuli towards an object is experienced more than once. Beliefs and Attitudes – These are acquired by people through learning and experiencing. They influence the buying behaviour by making up brands and product images in the consumer’s heads. A belief is explained by Kotler and Armstrong (2007) as a descriptive thought about something and is based on real knowledge, opinions or faith.

Beliefs can also be emotionally charged. Attitudes are described as a person’s evaluations, feelings, and tendencies towards something, but also determinations of people such as like and dislikes. 23 3. 2. 2 Online Consumer Characteristics More specific identifications of the online consumer need to be made in order to understand the online purchase behaviour. The identified characteristics are some key characteristics in regard to the online consumer. These key characteristics were made in order to identify online consumers and to be able to segment them. Cultural Online Characteristics

Smith and Rupp (2003) identify that the difference in social class creates a difference in purchasing Online Behaviour. Consumers from a higher social class generally purchase more and have a higher intention to purchase online because there is a higher probability that they possess a computer and also have greater access to the Internet. Consumers from lower social classes would not have the same properties. The authors also point out that consumers with lower social class, and thereby not having the same properties, would not have the needed computer literacy to be able to leverage a computer. Social Online characteristics

The social influence on the online consumer comes from new Reference Groups compared to the traditional way. For the online consumer new Reference Groups were identified as virtual communities, consisting of discussion groups on a web site. The consumer can read about other people’s experiences and opinions which have shown to have the effect of Reference Groups (Christopher & Huarng, 2003). Other Reference Groups, which are identified by Christopher and Huarng (2003), are links to product related web sites, which encourages product selection and contact information. 24 Personal Online characteristics

Monsuwe, Dellaert and Ruyter (2004) explored the personal online consumer characteristics and concluded that income has a vital role for online purchasing behaviour. The authors discussed Lohse et al. (2000) who pointed out that consumers with higher household income would have a more positive attitude towards online shopping. This conclusion was explained by the fact that households with higher income would have a positive correlation with the possession of a computer, Internet access, and higher education. Smith and Rupp (2003) also identified the age factor as a determinant for online purchase intentions.

They argued that older people who had no frequent interactions with the Internet and the computer would not use the Internet as a medium for purchases, while young adults would. This was concluded by that the young adults used the Internet and computers more frequently. Younger people were also identified to have more technical knowledge. Monsuwe et al. (2004) also supported this judgement by concluding that younger adults usually have greater interest in using new technologies to browse for information and evaluate alternatives. Psychological Online Characteristics

Smith and Rupp (2003) identified the psychological characteristics of consumer behaviour as questions the online consumer would ask himself before making a purchase online. Motivation – The consumers is reasoning for incentives to engage in a particular behaviour. He may ask himself questions like: should I look around for better price? If online shopping saves me time, should I shop online more often? How much do I really need this product? 25 Perception – The consumer is interpreting acquired information by classing it. Questions such as the following may come about: I feel that this site seems pretty secure.

It seems that this site has a good product but how can I be sure? Personality – The consumer is adapting to influences of his cognitions. He may ask himself, what types of Web sites are best suited for his personal buying preferences. Attitude – The consumer is working out what his likes and dislikes are in respect to a particular situation. He may ask himself: I am pretty unsure about extra costs, should I really be buying items from the Internet? If I do not buy the item online, how else can I get it? Emotions – The consumer is without conscious effort detecting how he is being affected by his cognitive choice.

He may ask himself: The last time I ordered from the Internet I had a really bad experience. Should I try buying online again? What is the future of buying online? If Web sites get better should I invest more time in buying online? 3. 3 Specific Consumer Traits and Online Behaviour The online consumer’s characteristics that we have identified to be the most important ones to have an effect on the online consumer, will be referred to as specific Consumer Traits and how the consumer uses the Internet will be referred to as Online Behaviour.

The online consumer characteristics such as personal, social, and psychological characteristics, need to be identified in order to understand what is important for the online consumer. These characteristics reveal the consumers’ lifestyle and identify who the consumer is and what attitudes he has towards online shopping. 26 Therefore, we will be using the following characteristics to segment the online consumer, by analysing: • The consumer’s demographics, as Bergman et al. (2005). • Life patterns concerning Online Behaviour, such as how much the consumer uses the Internet, Webographics, as Bergman et al. (2005). •

For what purposes, Internet Usage, also as Bergman et al. (2005). • How much the online consumer shops online, Online Shopping Patterns, can be used in order to find out what impact certain factors have on different type of consumers (Bergman et al. 2004). • Prior experiences have also been identified to be relevant for what Beliefs and Attitudes the consumer has towards online shopping and are therefore also important for the research (Monsuwe et al. 2004). • Social influences have an effect on the consumer in the early decision making stage and these were referred to as Reference Groups (Christopher & Huarng 2003).

These are the consumer characteristics that are relevant for this research and need to be identified in order to find out who the online consumer is and what affects him when shopping online. These we will be referred to as Consumer Traits and Online Behaviour. To summarise the prior text and to answer the question what identifies an Online Consumer, one can draw the conclusion that for this research the important consumer characteristics that need to be identified are: 27 • Consumer Traits • • Attitude and Beliefs • • Demographics Impact of Reference Groups Online Behaviour •

Webographics • Online Shopping Patterns • Internet Usage Figure 3-1 below, shows how online consumer segments are subdivided. Figure 3. 1 – The Online Consumer Segment Subdivisions 28 The outline below is an attempt to more closely identify the different influencing factors and their connection to the online purchase behaviour. 3. 4 Important Influencing Factors When processing the previous literature in order to find what Specific Consumer Traits and Online Behaviour that need to be identified, we gained knowledge of which factors that were highly important for the online consumer.

Brengman, Geuenes, Weijters, Smith and Swinyard (2005) segment online consumers through first identifying the Internet usage lifestyle of every consumer; they believe that the Internet experience is highly relevant for the identification of the online consumer. Lifestyle is, as presented above, a describing group of consumers’ personal characteristics and is expressed as a person’s demographics. These living patterns show what opinions and interests a consumer has for certain products, for what reasons and which interest they have in the Internet, the Internet usage.

The study came to the conclusion that four segment groups could be conceptualized and these would categorise the online consumers according to their shopping behaviour. The different attributes, that explain these segments, show that the factors Price, Trust and Convenience are highly relevant influencers on the online consumer shopping behaviour (Brengman et al. , 2005). Monsuwe et al. (2004) created a framework through their study that would help the understanding of consumer’s attitudes towards online shopping.

Attitudes and beliefs are separated from consumer’s psychological characteristics and mainly determined by learning and prior experiences. Further, Bellenger points out that the ability to 29 conduct price comparisons has been cited as a major reason why consumers use the Internet (Wallace, 1995). Price sensitive shoppers are essentially concerned with buying products at the lowest price or getting the best value for the money they spend (Bellenger, 1980). Monsuwe et al. 2004) made a comparison of the traditional way of shopping and online shopping and that the comparison indicated that online shopping is a more convenient way of shopping compared to the traditional ones. This was mainly concluded on the fact that the Internet allows for more information to be gathered with a minimal amount of effort, inconvenience, and invested time by the consumer. With this conclusion, the authors show that the convenient factor is indeed relevant for the identification of the online consumer (Monsuwe et al. 004). The factors that affected the identified segments and that were relevant for the framework were: consumer traits, product characteristics, previous online shopping experience, situational factors, and trust in online shopping. Consumer trust in online shopping and prior experience with online shopping were identified to have a significant impact on a consumer’s intention to shop online. Prior experience with positive outcome is also identified to decrease a consumer’s risk perception with online shopping.

As presented above, Smith and Rupp (2003) identified the psychological characteristics of an online consumer through questions a consumer would ask himself. The factors trust, security, and prior experiences are present and they are highly relevant for the online consumer. Here the factor trust is recognised as important, which is highly connected with prior experience and expectations of online shopping. Smith and Rupp (2003) discusses and identifies factors in their work that influences the online consumer behaviour.

These were identified as marketing efforts, socio-cultural influences, psychological factors, 30 experience, purchase and post-purchase decisions. The authors plot a model which would explain the different stages that consumers go through when making a purchase decision online. They start out with identifying the first stage as the input stage where the consumer is influenced by the marketing efforts made by the media and the sociocultural influences. The second stage is identified as the process stage, which attempts to identify and explain how the consumer makes the buying decision online.

In this stage they identify that the convenience factor is one of the main determinants for the consumer’s intention to shop online. They also show that the consumer is affected by psychological factors, such as perception, motivation, personality, attitude, and emotion. The identification indicated that trust and security factors are a major influence for the consumers when considering a potential purchase. Due to the importance of making the consumer feel safe and comfortable, the authors argue that information regarding security must be mediated to the consumer in such a way that the perceived security is increased.

The last stage is identified as the output stage, which is a post-purchase decision process. The article clearly states that that Trust and Convenience are major influencers to consumer online shopping behaviour, even though they are influencing the decision making process (Smith & Rupp, 2003). There have been many attempts to identify and segment the online consumer through various studies. By reading different studies we have identified certain factors that were constantly present in the literature.

There are many factors that have an impact on the online purchase behaviour, but we have identified Price, Trust and Convenience to be very important and will put our attention to these three factors. 31 3. 3. 1 Identified Factors affecting Online Consumer Behaviour Price which is a part of the marketing mix is a factor used in order to stimulate the consumer and is also a communicator, bargain tool, and a competitive weapon. The consumer can use price as a mean of comparing products, judge relative value for money, and judge product quality (Brassington & Pettitt, 2000).

The factor Trust is considered to be a concern on the emotional basis in the minds of the consumers. The consumers have a focus on their safety needs and want to satisfy them before making a purchase (Brassington & Pettitt, 2000). The factor Convenience is considered to be a benefit in the eyes of the consumer and a quality derived from purchasing over the Internet. It is therefore considered to be a motivator and a benefit to consumers. (Constantinides, 2004) We believe that these factors have a significant influence on the consumer when purchasing online.

To further analyse the factors, we study underlying attributes that represent what way the factors affect the consumers. The Factor Price The Internet has become a global marketplace on which consumers can gather and compare information such as product information and prices. The technologies and innovative business ideas of the Internet allow sellers to discriminate between buyers and buyers to discriminate between vendors. Historically, however, prices have been set by negotiations after having examined the product (Kotler & Keller, 2006).

The Internet facilitates the scenario that comparisons can be achieved with ease, overlooking several digital attributes (which can be 32 communicated through the web) and possibilities with several different vendors simultaneously. On the Internet it is after all the price comparison prospect that interests price sensitive consumers, whilst another category of consumers focuses on finding unique products with specialized features that might be difficult to find offline and who, therefore, perhaps even consider the price as secondary.

However, when online, only digital attributes can be evaluated by the consumer, while offline non-digital attributes (for which physical inspection of the product is necessary) can be tested (Lal & Sarvary, 1999). This could even influence impulsive shoppers to become more cautious about the product as it can only be inspected digitally. Furthermore, when buying online, additional costs such as freight charges, customs or prolonged delivery times can influence the online consumer’s decision to reconsider the transaction even though the price is low. Table 3. 1 clarifies the fact that the factor price has two ttributes, saving money and price comparison. Table 3. 1 – The Factor Price and its Attributes. Factor Attributes Price Saving Money Comparing Price The Factor Trust Monsuwe et al. (2004) conclude that because the Internet is a relatively new way of shopping, it is challenging for the consumers and therefore perceived by the consumer as risky. They further identify the salesperson to be a silent source of trust for the consumer, and that the consumer is dependent on the salespersons’ expertise. But since the salesperson has been removed in online shopping, the authors argue that the basis of consumer trust has isappeared. They further explain that 33 the consumer is not able to check the quality of an item, nor is he able to monitor the safety of the security when revealing personal data. The authors, therefore, conclude that if a high level of security and privacy is communicated to the consumer the result would have a positive effect on consumer trust and the intention to buy online. According to Luhmann (1979) who has a sociological point of view on the theory of trust, there are three modes of maintaining expectations about the future, familiarity, confidence and trust.

To experience trust, familiarity and confidence must have been established. However, trust is only necessary when there is a high perceived risk, such as during a purchase transaction or a similar action. The consumer’s previous experience and trust in the computerized medium is likely to affect his amount of trust in online shopping (Lee & Turban, 2001). According to Lee and Moray (as cited in Lee & Turban, 2001) human trust in computerised systems depends on three factors: 1. The perceived technical competence of the system – The systems apparent ability to perform assigned tasks. . The perceived performance level of the system – How fast and reliable it appears to be able to finish the tasks. 3. The human operators understand of the underlying characteristics and processes governing the system’s behaviour. Previous knowledge also affects trust. Luhmann (1993) states that, “Practical experience tends to teach us the opposite: the more we know, the better we know what we do not know, and the more elaborate our risk awareness becomes” (p. 28). Turban et al. (2001) constructed a model that highlights what trust is constituted from when purchasing on the Internet.

According to figure 3. 2 which is a scaled version based on “A Trust Model for Consumer 34 Internet Shopping” by Lee, Matthew K. O, and Efraim Turban (2001), trust is dependent on the six variables Figure 3. 2 – Trust in Electronic Commerce Based on Lee, Matthew K. O, and Efraim Turban. “A Trust Model for Consumer Internet Shopping. ” International Journal of Electronic Commerce, vol. 6, no. 1 (Fall 2001) A company must show the consumer that it is competent in managing information and supporting the consumer after a purchase is done.

If that can be achieved, the consumer is more likely to “engage in trustrelated Internet behaviours like purchasing, cooperating, and sharing information” (McKnight & Chervany, 2001-2002). Table 3. 2 shows the factor Trust and its attributes. Table 3. 2 – The Factor Trust and its Attributes Factor Attributes Trust Perception of safety Trust in the Internet Retailer Trust in the Internet as retail shopping 35 The Factor Convenience Convenience is anything that is intended to save time and frustration according to the Swedish National Encyclopaedia.

Further definitions of the concept of convenience are: • The quality of being suitable to ones comfort, purpose or needs • Personal comfort or advantage • Something that increases comfort or saves work at a suitable or agreeable time (Lexico Publishing Group [LLC], 2007) Online shopping as a new medium for retailing creates a number of different advantages. One of these is that it is considered to be more convenient to shop online compared to the traditional way of shopping. The convenience attributes that online shopping provides are: •

Less effort: • Being able to shop at home • Time saving • Being able to shop at any time of the day Azjen (as cited in Kim & Park, 1991) claims that online shopping provides convenience for consumers such as time savings and search convenience if compared to the traditional way of shopping. Kim and Park (1991) also argue that if online shopping is to be perceived as convenient for the consumer, the consumer must perceive a certain amount of easiness with accessing the Internet and also with carrying out the behaviour with shopping online.

The less complexity the consumer perceives with accessing the Internet the more attention the consumer has to enter the Internet and search for information. 36 Further, the authors found that there is a positive relationship between the time spent, the intention to shop online and the attitude towards the Internet. Therefore, Kim and Park (1991) came to the conclusion that the consumers that found the Internet to be easily accessible and used, would spend more time online and search for information and also shop more online.

Hence, the consumers that perceives Internet information search as easy, would perceive it more convenient. They also conclude that the information online should be easy to find and, therefore, the consumer should develop effective search tools which would enhance the perceived behavioural control for the consumer online. Kim and Park (1991) argue that the perceived easiness of the Internet is one of the determinants consumers regard when deciding on convenience. Saving time is also mentioned by Kim and Park (1991), and it is closely related to information search.

The consumer is not required to leave his home in order to shop online and at the same time the information search and price comparison process is much more available and easy to access. Swaminathan et al. (1999) states that consumer characteristics play an important role in the consumer’s decision to shop online. The authors then identify the so called convenient oriented consumer as the most potential online buyer since they value the convenience of shopping at home as a large motive for purchase. The characteristics of convenience with online shopping can be summarized as follows:

Consumers can shop from their homes meaning they do not have to take certain aspects, needed when shopping in the traditional way, into consideration. Online shopping is, therefore, considered to require less effort. It is also considered to be time saving, the consumer can search for products and prices easy through the developed search engines. Through tracking devices a consumer can at any time check where their 37 package is. Another time aspect of online shopping is that it allows the consumer to shop at any time of the day, the consumer does not need to consider if the stores are open or not.

Table 3. 3 shows the factor Convenience and its attributes. Table 3. 3 – The Factor Convenience with Attributes. Factor Attributes Convenienc e Saving Time Less Effort Shopping at any time 3. 4 Summary By first examining consumer behaviour theories we have investigated what identifies the consumer and the processes that the consumer goes through before making a purchase. This has been applied to gain understanding of the online consumer buying behaviour and has then been used in order to find which characteristics that are relevant to identify and segment the online consumer.

These have been identified as Consumer Traits and Online Behaviour and are listed below along with the respective sub segments: Consumer Traits: • Demographics • Attitude and Beliefs • Impact of Reference Groups Online Behaviour: • • Online Shopping Patterns • 38 Webographics Internet Usage Furthermore, we have pointed out certain factors that we believe are important for the online consumer when shopping online through the literature overview. These factors have been identified as Price, Trust and Convenience through the literature.

In order to comprehend how the identified factors influence the online consumer we must first identify the online consumer. This identification needs to be done mainly through the relevant Consumer Traits and online consumer behaviour that have been identified earlier. Price Convenience Trust Demographics Attitude and Belief Webographics Online Consumer Segments Con

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