Back in 2005, only 9 percent of online shoppers were willing to click “add to cart” when it came to buying clothes, according to a survey performed that year by Gallup researchers. As of 2014, a Nielson study found nearly half of online shoppers are willing to buy their wearables via the Internet.
What changed? Technology and shopper behavior, according to Kevin Hong, an assistant professor of Information Systems at the W. P. Carey School of Business.
Hong began examining consumer reluctance to purchase select items online nearly a decade ago, and he found that multiple types of uncertainty can keep buyers from buying. But, he also found that there are ways to quiet the qualms, and many are now commonly used by online retail sites.
Among these shopper aids are visualization tools, such as photos and videos and collaborative shopping technologies such as online forums that let consumers share experiences and learn from each other. Hong’s research proves that there is great value for retailers in employing such features. These Internet-enabled shopping helpers are particularly profitable when selling experiential products, or items that must be experienced to be fully vetted and approved.
Evolution of uncertainty
When Hong began exploring consumer uncertainty, most scholars thought it was limited to seller uncertainty, which he explains as a belief that maybe those online vendors would take your money and not ship the goods. Even in 2005, Hong found that such worries had gone largely by the wayside. Still, another set of concerns remained: what if the product itself was unworthy, a low-quality item or even outright junk? Hong wondered what impact such worries would have on sales and price premiums.
In a 2012 MIS Quarterly article, “On Product Uncertainty in Online Markets: Theory and Evidence,” Hong and his colleagues examined this question by looking at sales of used cars and trucks, a highly experiential product because most of us want to drive a vehicle before we buy it. “Traditional economics would say that online markets for used cars would be lemon markets,” Hong notes. That’s because it’s tough to describe how a car drives online, and buyers can’t kick the tires in person. Sellers have ample opportunities to fudge the truth and cash in on a clunker.
And yet, “the transaction volume of eBay Motors is huge,” Hong adds. The auction site boasts approximately 1 million cars sold annually and exists as a self-proclaimed “improbable success story” with its modest share of the $300 billion used car market.
Are all those cars sold at bargain prices? Not really, especially when you consider that 77 percent of those cars are shipped from one state to the next, according to eBay. That adds to the cost. And yet, many of those vehicles still enjoy a price premium, which means they’re bringing in an above average sale price (compared with benchmark prices from Kelley Blue Book or Edmunds).
Hong used archival data from eBay as well as surveys of auction winners and second-place bidders to find out if consumer uncertainty about the quality of a vehicle had a greater impact on price premiums than uncertainty about the sellers themselves. His data show that it does, although both forms of uncertainty can bring the sale price down.
Multiple strains of angst
What’s more, there are two dimensions of both product and seller uncertainty that affect consumer views. On the seller side, sellers may be intentionally deceitful, or they could also be simply inept. As Hong points out, “it is possible that a seller can’t describe a car clearly and won’t even know it.” After all, how many of us have the diagnostic computers mechanics use in our own garages?
Seller uncertainty influences two dimensions of product uncertainty, namely description and performance concerns. If sellers can’t (or won’t) accurately describe an item, it leaves buyers with difficulty sussing out the true characteristics of the article for sale. That’s description uncertainty. Performance uncertainty stems from a seller’s potential inability to discern and therefore disclose product defects.
Still, different approaches combine to mitigate both dimensions of uncertainty. Hong’s studies demonstrated that third party assurances — such as those provided by vehicle inspections, car history reports and warranties — allay part of the uneasiness, as do detailed descriptions and use of visualization tools like photos and videos. Hong used a seven-point scale of online product descriptions to calculate the impact of various product-description options. He found that a single-point increase in description quality translated into about a $500 boost in sale price for the average car.
Hong broke that $500 down, too. Better visuals raised price around $250, better verbiage upped the price some $180 and multimedia use gave prices around a $65 gain. Third party assurances had an average $175 impact, which Hong notes was and probably still is a worthy investment. At the time he did his research, an inspection cost around $100 and a history report set you back $20.
Once Hong had established that product uncertainty was a more powerful deterrent to online buying than seller uncertainty, he took an even more nuanced look at the components of product uncertainty itself. “Within product uncertainty, I wondered if there is a certain dimension that is more important than others,” he says. So, Hong looked at the issues of quality and fit, with fit being defined as how well a product meets the consumer’s preferences.
“If you’re buying a shoe, you could have uncertainty about the quality of the shoe, and you might wonder if the shoe is genuine leather or not,” he explains. But, even if you know the quality is top tier, you still might wonder if the shoe would fit your lifestyle … or even your foot, he continues. “These are different issues, so product fit uncertainty and product quality uncertainty are two different dimensions” of consumer concern.
Of these two dimensions, fit uncertainty is more likely to make consumers think twice and not buy than quality uncertainty, especially with those experiential goods that must be evaluated first-hand, Hong found. Fit uncertainty is more likely to be associated with purchase returns, which Hong says cost U.S. retailers more than $100 billion annually. And, as he notes in a recent paper, a 2008 study by Accenture found that only about 5 percent of product returns are due to defects.
While Hong acknowledges that practitioners have intuitively grasped these circumstances, he proved it by analyzing data and conducting surveys with consumers who shopped the world’s two biggest online markets: eBay and Taobao. In a recently published article in Information Systems Research, “Product Fit Uncertainty in Online Markets: Nature, Effects and Antecedents,” Hong and his colleague Paul Pavlou estimated that a single-unit increase of product fit uncertainty on Hong’s measurement scale could increase returns by 20 percent. In contrast, a similar increase in product quality uncertainty only increased returns by 8 percent.
Hong’s study also showed that online forums in which consumers can help each other determine fit also decrease product fit uncertainty. “Based on other people’s information, a consumer can infer if the product will fit her and her lifestyle,” he explains. Website visualization media, on the other hand, are more likely to abate uncertainty about product quality.
Given his findings, Hong urges online retailers to use visualization systems and collaborative shopping systems. He also advises Internet sellers to cultivate online forums by ensuring fairness in content display and perhaps even incentivizing those who contribute to forums with some kind of reward.
And, he thinks retailers should continuously keep looking at ways to offer consumers more information, as the lack of it is the antecedent for all the types of uncertainty consumers would feel. To that end, Hong is working with companies that offer virtual try-on of clothing and eyeglasses (e.g., fits.me) to quantify the impact of such technologies on conversion rates, order value and product return rates.
After all, the move from browse to buy is what it’s all about, isn’t it? With the right tools in place, a retailer is more likely to turn shoppers into satisfied customers.
- Consumers feel multiple types of uncertainty when buying products online.
- Seller uncertainty is concern over sellers themselves. Are they honest or are they cheats?
- Product uncertainty reflects questions about the item. Was it accurately described? Will it fit?
- Product uncertainty trumps seller uncertainty as a deterrent to sales and price premiums.
- Technology-enabled tools, such as visualization and collaboration features, mitigate product uncertainty, boost profits and reduce product returns.