ELECTRONIC RETAILING:

AN ANALYSIS OF WEB IMPACTS AND

RELATIONSHIP MARKETING OPPORTUNITIES

By

FANG WANG, B.E., M.B.A.

A Thesis

Submitted to the School of Graduate Studies

In Partial Fulfillment of the Requirements

F or the Degree

Ph.D. in Business

McMaster University

© Copyright by Fang Wang, February 2004

ELECTRONIC RETAILING
PH.D. (2004) McMaster University
(Business) Hamilton, Ontario

TITLE: Electronic Retailing: An Analysis of Web Impacts and

Relationship Marketing Opportunities

AUTHOR: Fang Wang, B.E., M.B.A. (McMaster University)

SUPERVISOR: Professor M.M. Head

NUMBER OF PAGES: viii, 100

11
 Abstract

The Web brings enormous opportunities for retailers, where customer retention is

important for e-tailing success. While relationship marketing (RM) and e-tailing are both

active research areas, there is inadequate research on relationship marketing in e-tailing.

This thesis was an effort to integrate the two areas of research, RM and e-tailing, and

investigate online consumer RM issues.

The focus of the thesis was to examine the Web factors that represent a significant

impact on the retail market and contribute to online consumer RM. After addressing the

research motivation and objectives in Chapter 1, Chapters 2 and 3 review RM and

electronic marketing literature respectively. A hypothesized model is constructed in

Chapter 4 to examine the effects of four online market characteristics (perceived

shopping risks, perceived consumer power, perceived interaction, and perceived

relationship investment) on consumer relational intention, through three important

mediators (perceived switching costs, satisfaction, and trust). An empirical study, aimed

to validate the hypothesized model, was reported and discussed in Chapter 5. The

hypothesized model was supported. It was found that the online market characteristics

and mediators incorporated in the model were critical for online consumer relationship

building, and the relations among these constructs reveal important implications for e-

tailers reviewing their RM strategy. Contributions and limitations of the research are

presented in Chapter 6.

111
 Acknowledgements

I would like to thank Dr. Milena Head, my Ph.D. supervisor, for her guidance,

encouragement, and support. I would also like to extend my heartfelt thanks to Dr. Norm

Archer for his guidance and valuable inputs in my Ph.D. studies. I thank Dr. Yufei Yuan

and Dr. Maureen Hupfer, for their generous help and valuable comments in developing

this thesis. I am very grateful for the help of my dissertation committee. I could not make

it without them.

To Xiaoping and William Zhang, my husband and son, I truly dedicate this work.

I thank Xiaoping for his partnership in both of my life and academic pursuits. His

continuous encouragement, inspiration, and supports are invaluable to me. I could not

make it without him. I thank William, the dearest son born during my Ph.D. studies, for

making me laugh and giving me the sweetest moments. Through his daily growth, I am

truly amazed by the great human learning capabilities.

To my parents, I am indebted. I am very grateful for their love, encouragement,

and support.

There are many other people who supported and helped me in my Ph.D. studies. I

would like to extend my great appreciation to them.

iv
 Table of Contents

, Chapter 1. Introduction 1

Chapter 2. Relationship Marketing in the Retail Market 6

2.1. Relationship Marketing 6
2.2. RM Application in the Retail Market 9
2.3. Consumer Relationship Stages 10
2.4. Factors Influencing Successful Consumer RM 15
2.4.1. Conditions for Successful Consumer RM 15
[Link]. Market Conditions 15
[Link]. Retailer Tactics 16
[Link]. Consumer Conditions 17
[Link]. Communication Channel Conditions 18
2.4.2. Other Consumer Relationship Related Concepts 18
[Link]. Satisfaction 18
[Link]. Trust 19
[Link]. Switching Costs 19
2.5. Discussion 20

Chapter 3. Online Retailing and Relationship Marketing 21

3.1. The Web's Role in Retailing 21
3.1.1. Online Market 23
3.1.2. Communication Channel 25
3.1.3. E-tailer Opportunities 26
3.1.4. Online Consumers 27
3.2. Online Consumer Relationship Marketing 31
3.2.1. Research Focusing on the Market, Channel, Marketers, and 32
Consumers
3.2.2. Mediators 33
3.2.3. An Evaluation of Previous Studies 34
3.3. Discussion 39

Chapter 4. A Model for Consumer Relational Intention 40

4.1. The Hypothesized Model 40
4.2. Consumer Relationship Intention 41
4.3. Relationship Mediator Constructs 43
4.3.1. Perceived Switching Costs 43
4.3. 1. Satisfaction 44
4.3.3. Trust 44
4.4. Consumer Market Perception Constructs 45
4.4.1. Perceived Relationship Investment 45
4.4.2. Perceived Shopping Risks 47
4.4.3. Perceived Interaction 47
v
 4.4.4. Perceived Consumer Power 48
4.5. Discussion 49

Chapter 5. An Empirical Study of Consumer Relational Intentions 50

5.1. Methodology 50
5.1.1. Setting, Samples, and Procedure 50
5.1.2. Measurement Models 52
5.2. Results and Findings 58
5.3. Discussion 63

Chapter 6. Conclusions and Future Research 69

6.1. Contributions 71
6.2. Limitations and Future Research 72

Appendix I. A Survey on Online Shopping Experiences 76

Bibliography 82

Vl
 List of Tables

Table 2.1: Consumer Relationship Building Process 11

Table 2.2: Consumer Marketing Strategies 14
Table 3.1: The Web's Impacts on Consumer Marketing 22
Table 3.2(a): Research Focusing on Customer Acquisition 36
Table 3.2(b): Research Addressing Customer Retention. 37
Table 4.1: A Summary of the Constructs in the Model 42
Table 5.1(a): Content Validity for Exogenous Measure Development 53
Table 5.1(b): Content Validity for Endogenous Measure Development 54
Table 5.2(a): Measures and Estimates for Exogenous Constructs 55
Table 5.2(b): Measures and Estimates for Endogenous Constructs 56
Table 5.3: Construct Validation 57
Table 5.4: A Summary of Fit Indices for the Measurement Models 57
Table 5.5: The Correlation Matrix of Constructs 58
Table 5.6: Standardized Parameter Estimates for the Hypothesized Model 60
Table 5.7: A Summary of Fit Indices for the Structural Model 60
Table 5.8: A Summary of Fit Indices for the Alternative Model 61
Table 5.9: Estimation of the Direct Paths 62
Table 5.10: A Summary of Fit Indices for Alternative Models Removing 63
Relationship Mediators
Table 5.11: Test Results on the Difference between Male and Female Groups 67

vii
 List of Figures
Figure 4.1: The Hypothesized Model 41
Figure 5.1: The Model with Confirmatory Analysis Results 59
Figure 5.2: An Alternative Model 61
Figure 5.3: Another Alternative Model 62

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PhD Thesis - F. Wang McMaster - Business

Chapter 1. Introduction

The World Wide Web has opened the door for electronic commerce (e-
commerce) in the business-to-consumer (B2C) environment and created a new business
avenue, electronic retailing. Electronic retailing, which involves the selling of goods and
service to the consumer market via the Internet, is also called e-tailing, e-retailing and e-
commerce in the B2C market. The emergence of this electronic retail market has been
rapid. According to the 2001 E-commerce Multi-sector Report released in March 2003
([Link] U.S. retail e-commerce sales in 2001 accounted for 1.1 % ($34
billion) of total retail sales. E-tailing growth of 22% between 2000 and 2001 strongly
outpaced total retail sales growth of3%. With a high degree of technological
sophistication, characterized by the highest levels of Internet access (62%), Canadian
consumers increasingly are using the Internet as a method to interact with retailers
([Link]

With such a large potential, e-tailing has attracted tremendous attention and
investment in the past few years. Numerous e-tailing startups appeared, seeking new
market opportunities in the late 1990s. However, market development has not been as
successful and rapid as expected. Troubled by a lack of profitability, many e-tailers, such
as [Link], pets. com, living. com and furniture. com, were forced to close their
businesses despite successfully increasing customer awareness and generating large sales
volumes ([Link] Unfortunately,
these business closures were not isolated cases, and many other e-tailers soon faced a
similar fate. It is clear that additional research on e-tailing is needed to understand and
interpret related phenomena, and to provide guidance concerning its implementation.

Early research on e-tailing focused on the effects of the Web on product pricing.
When the Web became a marketing medium, many assumed that it was a cheap medium
to reach consumers and conduct e-marketingle-tailing (Nunes et al., 2000; Sinha, 2000).
Among many others, Clay et al. (2001) examined pricing in the online book industry;
Brynjolfsson and Smith (2000) examined online book and CD retailing; Morton et al.
(2000) examined Internet car retailing; and Brown and Goolsbee (2002) examined the
life insurance industry.

On the other hand, the large amount of information about pricing, competitors,
and features available on the Internet also helps to create a cost transparent environment.
This severely impairs a seller's ability to obtain high margins, because it turns products
and services into commodities, and may damage company reputations by creating
perceptions of price unfairness (Sinha, 2000). Early work suggested that the Internet
could present a threat to branding and erode loyalty (Kalakota & Whinston, 1996;
Mitchell, 1999). As a result of this cost-benefit focus, many e-tailers offered low prices
and focused on customer acquisition.
PhD Thesis - F. Wang McMaster - Business

The dot com crash triggered a shift in research focus. Early assumptions and
strategies were challenged (Gallaugher, 1999). Schlauch and Laposa (2001), for example,
found that e-tailers were not realizing real estate-related cost savings over their retailing
competitors. Lee (1998) found that the efficiency of electronic means for commerce is
sometimes countered by increased product costs. More importantly, price is not the first
consideration when people buy products online (Kwak, 2001). Depending on the
shopping context, consumers may place more emphasis on convenience, control, or other
aspects of online shopping.

Many researchers reflected on the reasons for e-tailer failures. Senn (2000)
concluded that e-tailer failures stemmed from neglect of sound business strategies,
intellectual capital, brand, market size, and business processes. It was discovered that
marketing costs for online businesses could actually be much higher than for traditional
firms (Gallaugher, 1999). Customer retention was also seen as a large problem for e-
tailers. Steve Johnson, a partner at Andersen consulting (Sterlicchi & Gengler, 2000)
commented that "e-tailers can't continue to lose one of every three consumers and expect
to survive."

Contrary to the early image that the Web was a place for bargain hunting, the
Web is more and more viewed as a place to provide better service and enhanced
consumer relationships (Rust & Kannan, 2002). It is now realized that companies must
strive for a complete view of their customers, as the relationship shifts from commerce to
collaboration. Due to its potential for interactive communication, the Internet is
considered a promising tool for relationship marketing (Thorbjornsen et aI., 2002). This
thesis defines relationship marketing (RM) as "identifying and establishing, maintaining,
and enhancing, and when necessary terminating, relationships with customers and other
stakeholders at a profit, so that the objectives of all parties are met; this is done by a
mutual exchange and fulfillment of promise" (Gronroos, 1994). Evidence suggests that
RM can benefit firms in an online context in that it may help reduce marketing costs,
develop loyal consumers, and thus generate profitable sales. For example, competing
with the core offering may not satisfy customers. Competing with the total offering,
where the core product becomes only one element or one service of the total service
offering, is what counts (Gronroos, 1996).

RM may also benefit the online consumer. Certain evidence indicates that Web
customers tend to consolidate their purchases with one primary retailer, to the extent that
purchasing from the retailer site becomes part of their daily routine (Reichheld &
Schefter, 2000). Relationships, in terms of trust in quality and brand, may serve as an
important element in consumer decision making on purchasing products online, as the
Internet lacks support for evaluative criteria such as tactile input (Citrin et aI., 2003).
Relationships, in terms of retailer reputation and brand image, can serve as risk reducers
for consumers that shop online (Lee & Tan, 2003).

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PhD Thesis - F. Wang McMaster - Business

Knowing that RM can work online, the focus of research can be more productive
if it shifts to determining what factors contribute to a consumer's intention to build a
relationship with an online retailer. Much research has been conducted in order to
develop an understanding of online consumers. Some investigators (Montoya-Weiss et
al., 2000; Yoo & Donthu, 2001) have focused on Web site characteristics such as
navigation structure, information content, graphic style, ease of use, design, speed and
security. Others (Dabholdar, 1996; Eroglu et at, 2001; Schlosser & Kander, 2001) have
addressed consumer acquisition, the first stage of relationship building. The benefits of
e-tailing to consumer retention, such as convenience, product cost, and availability, also
have received attention (Szymanski, 2000; Yang et at, 2000). More recent research
(Odekerken-Schroder et al. 2003; Srinivasan et aI., 2002; Wolfinbarger & Gilly, 2003)
has begun to analyze marketing tactics such as customer service, community,
interactivity, and care.

All this work contributes to our understanding of the online consumer relationship
building process. However, more research is needed to understand consumer relational
behavior. After reviewing 351 articles published since 1994 on online consumer
behavior, Cheung et aL (2003) concluded that most research addressed consumer online
purchasing intention and online purchasing stages, and research on consumer online
repurchasing was still in its infancy. While it is important to attract online consumers, it
is equally important for online retailers to retain their customers; failing to do so doomed
many dot com companies. Additionally, the factors that first attract consumers to
generate first-time online purchases may differ from those that are important in building
long-term customer relationships.

Research in e-tailing and consumer RM is not well integrated. Most previous

research fails to address the fundamental changes the Web brings to retailing, or to
examine the impact of these fundamental changes on consumer relationship building in a
systematic manner. For example, much research has examined Website design
perspectives and various benefits of e-tailing, such as convenience. However, these e-
tailing characteristics are widely available or easily copied and can hardly provide
sustainable competitive advantage. Moffett et al. (2002) state "a major problem ... ,
however, is that most have not updated their approach to knowledge management to take
into account the learning from new channels of communication. This is crucial in
understanding consumer behavior and response to these new channels." It is important to
identify the major potential impacts the Web brings to the retail market, which may
provide opportunities for e-tailers to develop sustainable competitive advantages.

From the consumer RM aspect, most previous research does not consider the
complete relationship mechanism, that is, how market characteristics affect consumer
relationship intentions. Many (e.g., Muylle et aI., 1999; Zeithaml et al. 2002) have
employed relationship mediators such as trust and satisfaction as the destination

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 PhD Thesis - F. Wang McMaster - Business

construct, or have neglected the mediators (e.g., Wolfinbarger & Gilly, 2003) between
market or consumer characteristics and relational intention or behavior. This only
- provides us with a partial understanding of the market characteristics that affect
consumer relationship intentions.

There also is a need to establish and validate constructs for online consumer RM
research. Wolfinbarger and Gilly (2003) note that previous research has not sufficiently
conceptualized or carefully selected constructs for online consumer research. Many
researchers use a list of attributes rather than well-defined, higher level constructs. When
constructs were employed, they often were not carefully generated to reflect the
important issues (Wolfinbarger and Gilly, 2003).

Although academics recognize the Web's importance for facilitating RM

implementation, empirical evidence on the nature and extent of its impact on consumer
shopping and RM success is still needed. In particular, collecting information from the
consumer side of the B2C dyad is important to future research on Web retailing. While
consumers should be central in retailing, there is often an inadequate focus on the
consumer in both Web retailing and RM literature. Most researchers examine RM or
Web retailing techniques from the retailer perspective without properly analyzing
consumer characteristics (Geiger & Martin, 1999; Griffith & Krampf, 1998; Werbach,
2000). However, the success of any marketing technique depends on its fit with a
consumer group.

Based on previous literature, this thesis systematically brings together two fields
of research, e-tailing and RM, and attempts to determine what factors contribute to a
consumer's intention to build a relationship with an online retailer through supporting
mechanisms. From an e-tailer's perspective, how can those who are already practicing
RM online do a better job by understanding what leads consumers to form relationships
with online retailers? Three specific questions are addressed:
• What Internet characteristics facilitatelhinder relationship marketing in online
retailing?
• Do online customers seek relationships with e-tailers?
• What factors are important to online customers in determining their relationship
intentions with e-tailers?

To respond to these three questions, this thesis will analyze online consumer
relationships from the consumer perspective. The thesis is organized as follows. Chapter
2 provides a review of RM literature, focusing on understanding the consumer
relationship building process. Based on this fundamental understanding of consumer RM,
particular attention is devoted to summarizing what is known about online RM. Chapter 3
discusses the impacts of the Web on the retail market and retail marketing strategies.
Recent research on the online consumer relationship building process is reviewed and
evaluated.

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PhD Thesis - F. Wang McMaster - Business

Based on this review, a model of consumer intention to engage in online

relationships is proposed and discussed in Chapter 4. Four constructs, including
perceived shopping risks, perceived relationship investment, perceived consumer power,
and perceived interaction, are selected to represent the fundamental changes of the Web
on the retail market, retailers, consumers, and the channel, respectively. Three
relationship mediators (perceived switching costs, trust, and satisfaction) are identified
from consumer RM literature, and incorporated in this model to examine the mechanics
of consumer response to market perception constructs.

Chapter 5 describes the survey design, data collection, and structural equation
modeling (SEM) methods that were used to test the hypothesized modeL Results confirm
that the four market perception constructs are positively related to relationship intentions,
which implies that firms should focus on enhancing marketing tactics to improve
consumer perceptions on these four aspects. Chapter 6 discusses the contributions and
limitations of this thesis and proposes areas for future research.

This research makes several contributions. First, two fields of research, consumer
relationship marketing and e-tailing, are brought together in a systematic manner. Gaps in
the online consumer relationship literature are identified. In addition, the Web's
fundamental impact on the retail market is closely examined for its effects on consumer
relationship building. This lays the theoretical groundwork for understanding the
differences between online vs. offline consumer relationship marketing. Practically, this
research will assist in the design of future RM strategies by pointing out focal constructs.

Finally, this research was conducted in a Canadian context. With the Web
diminishing the importance of physical location, Canadian retailers are facing giant U.S.
competitors who may entice the customers of their smaller Canadian counterparts. This
research helps us to understand the online Canadian consumer, which in tum can help
Canadian e-tailers to retain or build competitive advantage.

5
PhD Thesis - F. Wang McMaster - Business

Chapter 2. Relationship Marketing in the Retail Market

The focus ofthis thesis is online consumer Relationship Marketing (RM). To

achieve the objectives of this thesis, this chapter provides a research foundation by:
.. Developing an understanding of RM,
III Developing an understanding of the consumer relationship building process and
consumer RM strategies, and
III Analyzing the basic conditions of RM success in the retail context.

This chapter is organized as follows. Section 2.1 reviews RM concepts, and

Section 2.2 examines consumer RM concepts and problems of RM in the retail market.
Section 2.3 categorizes three stages of the consumer relationship building process, and
Section 2.4 discusses consumer RM strategies and techniques. Section 2.5 outlines the
basic conditions for RM success in the retail market, while Section 2.6 provides a brief
discussion of the role of communication technology, such as the Internet, in consumer
RM.

2.1. Relationship Marketing

The relationship concept is not new to marketing. However, researchers have only
begun to systematically study marketing relationships in the last few decades. In the mid-
1960s and early 1970s, a transactional focus (Kotler, 1972), and the 4P marketing mix
model (product, place, price, and promotion) dominated (Kotler, 1967). However, by
viewing exchanges discretely, transaction marketing does not evaluate customer life time
value. In the late 1970s and early 1980s, a new exchange paradigm was suggested, where
attention was placed on understanding the relationship dimensions of the exchange (Pels,
1999). The IMP group (Hakansson, 1982; Turnbull & Valla, 1986), the Nordic School of
Services (Berry et al., 1983; Gronroos & Gummesson, 1985) and the Social Exchange
School (Bagozzi, 1974, 1975, 1978; Houston & Gassheimer, 1987; Hunt, 1976, 1983)
were pioneers in this analysis.

RM focuses on relationship building with customers (Arnett, 2003; Buttle, 1996;

Coviello et aI., 1997; Dwyer et aI., 1987; Jackson, 1985; McKenna, 1991). Customer
retention is the primary focus, as opposed to the market-share focus found in
transactional marketing. With RM, interacting with customers and satisfYing customer
needs are more important to marketers than ever before.

RM can help increase marketing effectiveness and efficiency by building

customer relationships and creating a "win-win" situation for marketers and customers.
The focus of RM is to increase customer retention and develop loyal customers. From the
marketing point of view, RM helps to generate profitable customers. It has been
demonstrated that it is far less expensive to retain a customer than to acquire a new one
(Reichheld & Sasser 1990; Stone et aI., 1996). Also, the longer the customer stays in the
relationship, the more profitable this becomes to the marketer. Marketing cost is also

6
PhD Thesis - F. Wang McMaster - Business

reduced by asking consumers to do the marketer's work (Sheth & Parvatiyar, 1995), such
as communicating the marketer's message to friends and members of virtual
communities. RM can help to reduce price sensitivity, enable price premiums, and create
opportunities for up-selling and cross-selling (Copulsky & Michael, 1990). RM erects
barriers for customers to exit and for competitors to enter (Aaker, 1991) and facilitates
database development (O'Malley & Tynan, 2000). Loyal customers are important
determinants in predicting market share (Baldinger & Rubinson, 1996; Jacoby &
Chestnut, 1978) and profit levels (Reichheld, 1996). Relationships developed through
RM can become an important source of competitive advantage where loyal customers
become competitive assets. Due to these benefits, RM may generate more profitable sales
than transactional marketing methods. Realizing this, marketers have been shifting from
transactional to relationship marketing (Buttle, 1996).

From the customer point of view, market costs, including searching and switching
costs, are also reduced while in a relationship (Odekerken-Schroder et aI., 2003;
O'Malley & Tynan, 2000). Trust and confidence are increased (Ford, 1980; Griedman et
aI., 2000). They may learn more about the products and obtain better service. Individual
consumers, in general, are more satisfied when in control (Halinen, 1997).

However, there are limitations and drawbacks to RM. Relationship building may
require significant time, technology, and personnel investment. Risks for the marketer
increase when needed time and investment increases. In the retail market, relationships
between retailers and consumers may be difficult to build and maintain, since providing
special treatment to individual consumers or consumer groups may be very challenging
for a large consumer base. There may also be a dark side to long-term relationships. It has
been suggested that, as a relationship becomes more long-term, it becomes prone to
negative influences that dampen the positive impact of relational factors (Grayson &
Ambler, 1999; Moorman et aI., 1992). For example, long-term relationships may dampen
the influence of trust as an antecedent to positive relationship outcomes. As relationships
progress, customers may perceive that marketers lose their ability to be objective or
creative, and the business value of the relationship is decreased. From the consumer
perspective, certain RM techniques may trouble consumers and destroy consumer
relationships ifused inappropriately (Fournier et aI., 1998). For example, companies may
flood consumers with too many requests, messages, and options (Fournier et aI., 1998).

Overall, the RM concept is loosely defined and the concept has been incorporated
under various names. Many versions of the RM concept exist. Harker (1999) listed 26
such definitions in his examination of the RM concept. The most cited and "best"
(Harker, 1999) definition is from Gronroos (1994): "RM is to identify and establish,
maintain, and enhance, and when necessary also to terminate relationships with
customers and other stakeholders, at a profit, so that the objectives of all parties are met,
and this is done by a mutual exchange and fulfillment of promise." This definition covers
the seven elements of RM, including birth, develop, maintain, temporal, interaction,
output and emotional content, which Harker (1999) identifies as being commonly agreed

7
PhD Thesis - F. Wang McMaster - Business

upon by researchers through their appearance in the literature. However, this definition
still does not clearly state the meaning of "relationship" in RM. It is criticized as it sets
out the goal ofRM, rather than what RM actually entails (Too et aI., 2000).

Researchers agree that RM is primarily customer-centric marketing (Sheth et aI.,

2000). Customer-centric marketing emphasizes understanding and satisfying the needs,
wants, and resources of individual consumers rather than those of mass markets or market
segments. The customer is the starting point of the planning process in customer-centric
marketing. In contrast, the product and the market are the starting points in product-
centric and market-centric approaches, such as transactional marketing. The customer-
centric marketing concept covers more than RM since transactional customer-centric
marketing occurs where the level of customer involvement and interest in an interactive
relationship is low, such as in direct marketing (Sheth et aL, 2000).

Many contrast RM with transactional marketing, in that transactional marketing

examines transactions discretely and RM takes a more continuous view (Gronroos,
1991). The suitability of the two approaches or their combination may differ according to
product/service categories, market types, or customer orientation (Jackson, 1985). For
example, Anderson and Narus (1991) argue that partnering is a focused marketing
strategy, suitable only for customers with a collaborative orientation. RM was proposed
as a paradigm shift in marketing strategy (Gronroos, 1996). However, a recent survey
(Coviello et aL, 2002) suggested that marketing practices are pluralistic across various
industries in that firms of all types (consumer goods or services, business-to-business
goods or services) employ different levels of transactional/relational hybrid marketing
strategies. Managerial practice, therefore, has not shifted from transactional to relational
approaches per se (Coviello et aI., 2002).

A useful way to examine RM is through its classification. Coviello et aL (1997)

developed a RM classification scheme by classifying RM as database marketing,
interaction marketing and network marketing. Database marketing is defined as a
technology-based tool, interaction marketing focuses on a dyad (two-party) relationship,
while network marketing considers the entire relationship network. The classification can
be modified by reclassifying database marketing from the RM domain to the transactional
marketing domain (Pels et al., 2000) or by incorporating an e-marketing element
(Coviello et aI., 2001). E-marketing, "the new approach [that] involves using the Internet
and other interactive technologies to create and mediate dialogue between the firm and
identified customer" (Coviello et al., 2001), was viewed as a tool/technique in marketing.

This classification of marketing practices into transaction marketing, database

marketing, interaction marketing, and network marketing (Coviello et aL, 1997) was used
to examine marketing practice by different firm sizes (Coviello et aI., 2000) and different
industrial types (Coviello et aI., 2002). No fundamental differences were identified
between large and small firms (Coviello et aL, 2000).

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PhD Thesis - F. Wang McMaster - Business

2.2. RM Application in the Retail Market

The concept of a "consumer relationship" has a long history. However, retail is a
rather new frontier for relationship marketing applications (i.e., Buttle, 1996; McKenna,
1991). Certain characteristics of retail markets, such as a large number of consumers,
communication and data collection constraints, make it difficult for retailers to build and
maintain relationships with consumers.

While relationships do exist in the retail market (Webster, 1994, provides several
examples), theoretical research in its adaptation to the retail market has a history that
grew from obscurity to popularity (O'Malley & Tynan, 2000). Until the mid-1980s, RM
in the retail market was relatively unknown to researchers due to the differences between
the retail market and B2B (business-to-business) market, where B2B markets are
heterogeneous, buyers and sellers are both active, and interaction and relationships are
important. From the late 1980s to the mid-1990s, RM went through a discovery period in
consumer marketing when the benefits of building relationships with consumers became
recognized and database and Internet technology emerged. RM was generally accepted in
the consumer market by the mid-l 990s. Sheth and Parvatiyar (1995) proposed a link
between consumer behavior, RM, and direct and database marketing, thus laying the
conceptual groundwork for business-to-consumer relationships. RM, and thus the
exchange relationship paradigm, has become an alternative approach to the retail market
(Cumby & Barnes, 1996; Liljander & Strandvik, 1995; McKenna, 1991; Pels, 1997;
Peterson, 1995; Sheth & Parvatiyar, 1995; Webster, 1994). Since the late 1990s, RM has
gained popularity in consumer-oriented literature. The consumer relationship building
process and appropriate marketing tactics have been identified in research (Dwyer et aI.,
1987; Kalakota & Whinston, 1996; Wang et aI., 2000).

While the concept is popular, the practice of RM in the retail market and the real
benefits for retailers have been questioned (Cahill, 1998; Hibbard & Iacobucci, 1998).
From the practitioner's perspective, RM can bring invaluable benefits. Slow growth and
intense competition in the retail market accentuate the need to retain existing customers
(Sirohi et aI., 1998). However, RM practice itself can be costly and difficult. Concerns
expressed include the anonymity of consumers, limited interactions, the low value of
individual interactions compared to the high costs of RM programs, etc. Consequently,
while RM has received attention from both researchers and practitioners in the retail
market, transaction marketing still prevails (Coviello et aI., 2002).

There are three general views on RM feasibility in the retail market. Most
literature does not limit the application ofRM (Berry, 1995; Rowe & Barnes, 1998).
After a survey and analysis in three categories of industry (manufacturing,
retail/wholesale, other) on RM orientation and business perfonnance, Yau et aI. (2000)
concluded that RM orientation is appropriate for every industry, and is particularly
important in the manufacturing industry. In fact, some researchers and practitioners have
tended to apply this concept universally. For example, Vavra (1992) recommended a
thorough after-marketing program for all businesses. In contrast, some have suggested

9
PhD Thesis - F. Wang McMaster - Business

that RM is merely a scholarly concept with little interest for real-life practice. Hibbard
and Iacobucci (1998) conducted a meta-theoretical analysis of more than ten years of
literature and concluded that there is no empirical evidence to suggest that B2C
relationships exist. An alternate view suggests that RM in the retail market is suitable for
certain relationship-friendly products (Cahill, 1998) and is dependent on the willingness
of consumers to participate (Christy et ai., 1996; Sheth & Parvatiyar, 1995).

To better understand consumer RM and to design RM strategy and tactics, it is

important to understand the consumer relationship building stages and factors that play
vital roles in consumer relationship building. Thus, section 2.3 discusses consumer
relationship stages, and Section 2.4 discusses factors related to consumer relationship
building.

2.3. Consumer Relationship Stages

To understand consumer RM and interpret different research results, an
understanding of consumer characteristics and the relationship building process is a must.
Researchers recognize that there is a continuum of customer relationships, (Dwyer et aI.,
1987) ranging from transactional to highly relational bonds. Different levels or lengths of
relationships are discussed in customer relationship research (Wyner, 1999). Consumers
in three stages of the relationship building process (transactional consumers, repeat or
loyal consumers, and relational consumers), are categorized in Table 2.1.

Consumer relationships fall along a spectrum, ranging from no relationship to

high commitment and emotional bonds, and can be described according to a three-level
transactional, loyal or repeat, and relational consumer typology. Transactional consumers
shop around and follow a full decision making process. They gather product/service
information, generate their alternatives and study them before making their final purchase
decision. Applying Simon's (1960) decision making model, transactional consumers
perform all stages (intelligence, design, choice) before purchasing. They welcome and
actively search competitor information. Repeat consumers, who are called loyal
consumers by many practitioners, repeat their purchases from a particular retailer but are
open to other offers. For convenience and cost savings, they undergo a reduced decision
making process by trusting the retailer to fulfill their purchasing goal. There is limited
design (generation of alternatives) before a purchasing choice. For example, a customer
loyal to Wal-Mart because of his/her trust in Wal-Mart's ability to provide low prices
may easily switch to other retailers when seasonal sales or discounts are offered.

Repeat customers are different from relational consumers in that repeat

transactions are only a precursor of relationships (Pels, 1999; Webster, 1992; 1994).
"Repeat patronage may be one of the conditions that one looks for as evidence of a
relationship, but it is certainly not the only one" (Barnes, 1995). Relational consumers
have established a non-contractual commitment with a brand/retailer and they usually
show emotional or social bonds. Sheth and Parvatiyar (1995) have shown that some
consumers might wish to establish a direct relationship with a supplier. The decision

10
PhD Thesis - F. Wang McMaster - Business

making process is minimized as most relational consumers simply make their purchasing
choice without passing through intelligence and choice stages. They ignore competitor
. information and do not even look at their advertisements (Cahill, 1998).

Transactional Loyal (Repeat) Relational

Consumers Consumers Consumers
Exclusive, repeat
Market Repeat purchases,
Shop around purchases,
appearance open to other offers
emotional bond
A full decision
Reduced decision
Decision making process
making process Minimum (choice)
making process (intelligence;
(design; choice)
design; choice)
Attitude to
Welcome and A certain level of Ignore competitor
competitor
actively search interest offerings
information
Orientation to High and
Low Medium
relationship collaborative
Basis for future Trust or favorable
Satisfaction Commitment
purchase evaluation
Psychological Unattached, Emotional
Favorable
attachment unbiased attachment
Knowledge
Low Medium High
about Marketers
Involvement Low; passive Low to medium; High; active
and initiatives targets passive targets partners
Relationship Transactional Non-contractual
Not applicable
type relationship commitment

Table 2.1: Consumer Relationship Building Process

Consumers differ in how they value long-term relationships. Transactional

consumers have a low relationship orientation and put more emphasis on short-term
benefits. Repeat or loyal consumers recognize the benefits, such as reduced transaction
costs and loyalty program incentives, of being familiar with a particular marketer. They
show a medium level of relationship orientation. Relational consumers value long-term
relationships and collaborations. They are motivated to engage in B2C relationships in
order to reduce both choice and risk (Sheth & Parvatiyar, 1995).

Relationship orientation is usually a result oftwo important factors: the

consumer's willingness to be involved, and ability to manage a relationship (Sheth &
Parvatiyar, 1995). Consumer relationship orientation may vary according to marketers
and product/service categories. A consumer may be interested in developing relationships

11
PhD Thesis - F. Wang McMaster - Business

with some actors and not with others (Pels, 1999). Consumers share the relationship
management responsibility with retailers, though traditionally marketers take a major
role.

Consumers, depending on their relational orientation, will differ in the relative

importance of their overall satisfaction or their trust and commitment towards marketers
(Garbarino & Johnson, 1999). For the low relational customer, overall satisfaction is the
primary mediating construct between the component attitudes and future intentions. For
the high relational customer, trust and commitment, rather than satisfaction, are the
mediators between component attitudes and future intention (Garbarino & Johnson,
1999). Transactional consumers may return to a retailer when they are satisfied with
previous experiences. Repeat consumers return for favorable evaluation and tangible
rewards. A favorable evaluation may be based on their belief or trust that the retailer
provides satisfactory offerings. Relational consumers return because of their
commitment. Their relationships can make them overlook the little things that go wrong
(Cahill, 1998). In addition, continued business is built less on financial benefits than on
psychological ones (Gwinner et at, 1998).

Knowledge about partners is an important prerequisite for relationship

development (Sheth & Parvatiyar, 2000). Transactional consumers have a low level of
knowledge about marketers whereas repeat consumers know more and have distinct
preferences. Relational consumers have a high level of marketer knowledge that may
develop into an emotional attachment.

Involvement includes not only activity involvement but also emotional

involvement (Shani & Chalasami, 1992). Initiative refers to how actively consumers
participate in the market. Both are important in relationship building. Transactional
consumers do not tend to get involved and are passive targets of marketing programs.
Repeat consumers may be more involved in marketer activities, but still remain rather
passive targets. Relational consumers are not passive targets but active partners and are
highly involved. They may interact often with marketers and have emotional
involvement.

The nature of relationships is determined by the commitment of both actors and

by the bonds that exist between them (Liljander & Strandvik, 1995). Overall, repeat
consumers are characterized by transactional relationships (Iacobucci & Ostrom, 1996),
while relational consumers are typified by non-contractual commitment. Relational
consumers are also repeat purchasers, but the repeat purchasing is further characterized
by high and stable "share of wallet" (Sheth et aI., 2000). In contrast, the repeat consumers
"share of wallet" may be low or very vulnerable to short-term offerings of competitors.
While relational consumers focus on long-term advantages, repeat consumers are
attracted to short-term benefits.

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PhD Thesis - F. Wang McMaster - Business

This relationship difference may be examined either from a process point of view
or from a segmentation stand-point. From the process point of view, the different levels
of relationships can be viewed as component stages of the consumer relationship building
process. Thus, marketers need to attract transactional consumers, convert them to repeat
or loyal consumers, and then develop them into relational consumers.

While the relationship continuum may represent various stages of the relationship
building process, marketers must further realize that different consumers are suited for
different levels of relationships. That is, the stages of the relationship continuum also
may characterize distinct consumer segments. It is critical for marketers to analyze the
product/market position and consumer characteristics, and acknowledge that a "higher-
level" relationship is not always feasible or even desirable. From the marketer's point of
view, a RM endeavor can be very costly. It is only when this cost generates profit that
RM is meaningful. From a consumer perspective, relationships may not always be
desirable. Relationship building requires data collection, and as such, may be viewed as
an invasion of privacy. Marketers must realize that there may be a limited relationship
level and adopt a strategic point of view. Different levels of relationships exist and the
particular relationship building approach must consider the market and target.

Many marketing techniques relating to consumer relationships and loyalty, such

as micromarketing (Winokur, 1994), database marketing (Davis, 1997), direct marketing
(Gronroos, 1996), one-to-one marketing (Greco, 1995), wrap-around marketing (Kotler,
1992), customerpartnering (Magrath & Hardy, 1994), and interactive marketing
(Gronroos, 1995), have been suggested for enhancing consumer relationships. For
consumers in different stages of relationship building, there are different marketing
strategies. A three-step approach is summarized in Table 2.2, incorporating consumer
acquisition, retention, and relationship.

Marketing strategy in the stage of consumer acquisition may employ either mass
marketing or transactional techniques. Marketers usually do not collect individual data
other than that essential for transactions. The analysis is conducted at an aggregate level.
Pricing, or other transactional incentives, often are used to promote sales.

Suitable marketing strategies for consumer retention include segmentation,

loyalty programs that are viewed as sophisticated sales promotions (Dowling & Uncles,
1997), and a mix of transactional and relationship marketing techniques (Pels et al.,
2000). Strategies are usually market-centric, which begin with market segmentation.
Marketers are interested in identifying consumers and their characteristics and thus
coHect more than essential data. However, data collection is still at the transaction level.
From the consumer point of view, data collection may be viewed as an invasion of
privacy. Because the relationship level between marketer and consumer is limited, neither
party is interested in exchanging more detailed information. Both tangible and social
rewards are used to stimulate purchases.

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PhD Thesis - F. Wang McMaster - Business

Consumer Consumer Consumer

Acquisition Retention Relationship
Pennission
when sending No Sometimes Asked
message
Strategic Increase market Increase retention Increase share of
focuses share rate wallet
Segmentation; loyalty
Mass marketing; program; mix of Relationship
Marketing
transactional transactional and marketing; co-
strategy
marketing relationship creation marketing
marketing techniques
Orientation and
Product Market Customer
organization
Infonnation
Transactional Transactional level; Relational level;
collected and
level; basic detailed detailed
used
Price or other Intangible rewards
transactional Social aspects and (risk reduction,
Tactical focus
incentives; tangible rewards emotional!social
tangible rewards bonds)
Time frame Short-tenn Medium-tenn Long-tenn

Table 2.2: Consumer Marketing Strategies

Different strategies and tactics may be exercised for relational consumers, since
long-tenn relationships are desired. Marketing orientation and organization are both
customer-centric. Product design and marketing plans begin with consumer analysis and
emphasize the individual customer. Consumers are willing to provide more personal
infonnation to maintain and benefit from the relationship. Marketers are likely to focus
more on intangible consumer rewards such as risk reduction and the establishment of
emotional or social bonds.

Much literature (e.g., Berry, 1995; Coviello et aI., 1997,2002; Rowe & Barnes,
1998) incorporates a similar approach like the one described above to designing RM
strategies. For example, Rowe and Barnes (1998) identify four tangible manifestations of
RM in consumer markets: locking in customers, customer retention, database marketing,
and close personal relationships. Berry (1995) proposed three levels ofRM. The first
level relies on pricing incentives to secure customer loyalty. This level is more
transactional than relational. The second level focuses on the social aspects of a
relationship, which are exemplified by regularly communicating with consumers or
referring to their names during encounters. The third level offers structural solutions to
customer problems. A similar progressive RM classification also can be found in

14
PhD Thesis - F. Wang McMaster - Business

Coviello et aI. (1997, 2002), where RM is classified as database marketing, interaction

marketing, network marketing, and e-marketing.

2.4. Factors Influencing Successful Consumer RM

Various factors relating to successful consumer RM can be found in the literature.
For example, Sheth and Parvatiyar (1995) analyzed consumer motivations to build
relationships with marketers and suggested that consumer engagement in relational
market behavior is influenced by personal, social, and institutional factors. For personal
reasons and psychological confort, consumers want to simplify information processing,
purchase and consumption, reduce perceived risks, and maintain cognitive consistency,
all at a state of psychological comfort (Sheth & Parvatiyar, 1995). For social and
institutional reasons, consumers engage in relational market behavior because of family
and social norms, peer group pressures, government mandates, religious tenets, employer
influences, and marketer policies (Sheth & Parvatiyar, 1995).

Factors that influence consumer relational behavior are discussed further below.
Previous research results are categorized and interpreted from two aspects: conditions for
successful consumer RM, and mediation constructs.

2.4.1. Conditions for Successful Consumer RM

While RM is powerful in theory, it is troubled in retailing practice (Fournier et aI.,
1998; Pressey, 2000). Retailers may have practical difficulties implementing RM. The
retail market, in many cases, is not a natural or suitable climate for profitable long-term
relationships. Some research has addressed the conditions of retailing which facilitate
RM success. For example, Zeithaml et aI. (1983) propose that RM exists where markets
are heterogeneous, buyers and sellers are both active, and interaction and relationships
are important. Pressey and Mathews (2000) concluded that balanced power, high level of
purchase involvement, professionalism of the service provider, and a high level of
personal contact are pivotal in RM success. High consumer involvement exists in product
categories characterized by inelastic demand and regular consumer interaction (O'Malley
& Tynan, 2000). It is very important to understand these conditions since their creation
and facilitation may be key to successful RM. Therefore, those conditions that suit
consumer RM are discussed below according to: market, retailer, consumer, and
communication channel aspects.

[Link]. Market Conditions

Certain market environments are critical for consumer RM. In addition to the
operational strategies employed by marketers, the propensity to develop B2C
relationships is also dependent on the "relationship friendliness" of the product-market
(Christy et aI., 1996; Sheth & Parvatiyar, 1995). Industry structure and the nature of the
offerings are also important since they help to create different levels of relationship
friendliness in individual product-markets (Christy et aI., 1996). It has been argued
(Christy et aI., 1996; Sheth & Parvatiyar, 1995) that B2C relationships only exist in
certain relationship-friendly product markets. For example, apparel stores seem to offer

15
PhD Thesis - F. Wang McMaster - Business

better RM conditions than supennarkets (Odekerken-Schroder et al., 2000). Thus,

defining the product or the offering becomes important from a RM perspective for
retailers (Ravald & Gronroos, 1996).

Service is a further detennining factor for the nature of offerings in relationship

building (Gronroos, 1996). Along with a process management perspective, as well as
partnerships and a network (Gronroos, 1996), the service aspect is one ofthe three
important strategic issues of RM. The service aspect of the offering is what offers
relational consumers a direct benefit. Several conditions that facilitate relationship
building can be applied to both service and product aspects. The offerings should not be
generic. Price or accessibility are not major issues (Palmer, 1995). Professionalism
(Pressey & Mathews, 2000) and complexity (Sheth & Parvatiyar, 1995) in decision-
making and the purchase process also contribute to relationship success.

Liljander and Strandvik (1995) further propose that exchange paradigms are not
strictly related to the type of product or service being sold. Market transparency and
perceived risks also affect the relationship-friendliness of a market. Transparency refers
to how well parties in transactions are informed. It may consist of vendor transparency,
customer transparency and process transparency (Egger & Helm, 2000). Market
transparency is highly related to consumer knowledge, which is an essential part of
consumer market power, thus contributing to relationship success (Egger & Helm, 2000;
Webster, 1994).

According to the Merriam-Webster dictionary, risk is the possibility of loss or

injury ([Link]. Accordingly, perceived risk is a subjective judgment of this
possibility. Perceived risk is an important topic in consumer research (e.g., Bhatnagar et
aL, 2000; Mitchell, 1999). It is powerful in explaining consumer behavior; the theory has
intuitive appeal and broad application, since consumers tend to seek risk reducing
strategies (Mitchell, 1999; Miyazaki & Fernandez, 2001; Park & Jun, 2002; Taylor,
1974). Higher risk perceptions increase decision making complexity and switching costs,
and thus are often central for relationship involvement (Webster, 1994).

[Link]. Retailer Tactics

Operational strategies employed by marketers are important to RM success
(Christy et aI., 1996; Sheth & Parvatiyar, 1995). Marketers may implement various
consumer RM strategies and tactics. Research has revealed that different RM techniques
achieve different market responses. For example, De Wulf et al. (2001) tested the effects
of direct mail, preferential treatment, interpersonal communication, and tangible rewards,
on consumer perceptions of retailer relationship investment in food and apparel industries
in three countries (U.S., Netherlands, and Belgium). They found that the four techniques
had different effects in different industries and countries. The conclusion that different
RM tactics may have a different impact on overall perceived retailer loyalty efforts has
been confinned in other studies. For example, Odekerken-Schroder et al. (2003)
examined the effects of communication, preferential treatment, personalization, and

16
PhD Thesis - F. Wang McMaster - Business

rewards on the perceived retention orientation of the retailer. They found that rewards
and personalization were better tactics than communication and preferential treatment.

Marketing techniques leading to the perception that marketers care about

consumers also are important to consumer relationships (De Wulf et aI., 200 I;
Odekerken-Schroder et aI., 2003), and thus are important in customer relationship
building. A dyadic exploratory study of clothing store managers and their customers
revealed that customer perceptions of clothing store relationship marketing efforts are
crucial to enhanced commitment and loyalty (Too et aI., 2000).

[Link]. Consumer Conditions

Consumer relationship proneness is important (De Wulf et aI., 2001), reflecting
the value of relationships to consumers and predicting the strength and length of
relationships. Odekerke-Schroder et ai. (2000) investigated the impact of four categories
of potential contingency factors on RM effectiveness in a retail context: demographic
characteristics of the consumer (age and gender), personal values of the consumer (social
recognition and social affiliation), shopping-related characteristics (product category
involvement, store relationship proneness, and shopping enjoyment), and contextual
characteristics (industry and country). Their results indicated that RM is more effective if
directed at consumers who are young and female, have a high need for social recognition
and social affiliation, and show high levels of product category involvement, store
relationship proneness, and shopping enjoyment.

The propensity to develop B2C relationships is also dependent on the willingness

of customers to participate (Christy et aI., 1996; Sheth & Parvatiyar, 1995), which in turn
depends on consumer relationship evaluation, their natural relationship orientation, and
their ability to join a relationship. Personal characteristics are largely determined by
demographic attributes and psycho-socio-cultural context. Under certain psycho-socio-
cultural contexts, consumers remain in the relationship to resolve a life theme such as
concerns or tensions in daily life (Fournier, 1998), or to maintain cognitive consistency
(Sheth & Parvatiyar, 1995). For example, loyalty to a brand may help a consumer to
simplify a long shopping process, or build a social or personal image. Attitudinal
conditions include consumer perceptions and knowledge. The purpose of consumer
market behavior is to satisfy needs under time and economic constraints. The tighter the
time constraint, the more consumers value relationships. Relationships help consumers to
avoid complexity and achieve efficiency. Consumers also remain in the relationships for
convenience. Balanced powers of exchange between parties are necessary due to the
cooperative nature of relationships (Pressey & Mathews, 2000). Traditional consumers
have had an imbalance of power in their exchange with retailers. Contrary to the
consumer's traditional assumption of a passive role, an active role, including voluntary
participation (Christy et al., 1996), high level of involvement, and high degree of
interactivity (Geiger & Martin, 1999; Pels, 1999) is required for relationship building. In
a brick-and-mortar retail environment, even when consumers desire relationships, they
may have few opportunities to interact with retailers and manage relationships.

17
PhD Thesis - F. Wang McMaster - Business

204.104. Communication Channel Conditions

An interactive communication channel is important to consumer relationships
since a true relationship can not be built without interaction between two parties.
According to Deighton (1996), "the term 'interactive' ... points to two features of
communication: the ability to address an individual and the ability to gather and
remember the response of that individual. These two features make possible a third: the
ability to address the individual once more in a way that takes into account hislher unique
response." The shorter the communication distance between marketers and buyers, the
easier it is to build consumer relationships (Pels, 1999). Continuous interaction is a key to
relationship building (Coviello et aI., 2000; 2001; 2002).

Interactivity incorporates address ability (Blattberg & Deighton, 1991).

Companies with an interactive channel can track customer preferences and tailor their
advertising and promotions. An interactive channel helps to build and manage dialogues
with customers, integrate marketing campaigns, and improve marketing productivity
(Blattberg & Deighton, 1991). An interactive communication channel helps marketers to
win power back from distribution channels (Blattberg & Deighton, 1991), and establish a
direct market feedback loop. However, such an interactive channel often is lacking in
traditional retail markets with brick-and-mortar stores (Pels, 1999).

2.4.2. Other Consumer Relationship Related Concepts

Several concepts are closely related to consumer relationships. For example,
commitment (Garbarino & Johnson, 1999) and relationship quality (De Wulf et aI., 2001)
have been used as relationship mediators. This section addresses consumer satisfaction,
trust, and switching costs, which are among the most important factors influencing
successful consumer RM (Chen & Hitt, 2002; Garbarino & Johnson, 1999).

204.2.1. Satisfaction
Szymanski and Henard (2001) conducted a meta-analysis of empirical evidence of
customer satisfaction. They analyzed satisfaction from antecedents (which include
expectation, disconfirmation, performance, affect and equity) and consequences of
customer satisfaction (which include complaining behavior, word-of-mouth behavior, and
repeated purchasing) (Szymanski & Henard, 2001). It is found that equity and
disconfirmation are most strongly related to customer satisfaction on average. Other
factors may lead to overall satisfaction, such as customization, reliability, customer
expectations, and perceived value, as discussed by Fomell et al. (1996).

Customer satisfaction is driven more by quality and customization than by value

(price) and reliability. Satisfaction can be transaction-specific or cumulative, and these
have varying effects on consumer perceptions (Olsen & Johnson, 2003). While equity, or
"a fairness, rightness, or deservingness comparison to other entities, whether real or
imaginary, individual or collective, person or non-person" (Oliver, 1997), is a driver of

18
PhD Thesis - F. Wang McMaster - Business

transaction-specific satisfaction, it is more of a post-satisfaction evaluation when

modeling cumulative satisfaction.

Satisfaction is highly correlated with long term relationships (Fomell et aI., 1996;
Ganesan, 1994; Garbarino & Johnson, 1999; Mittal & Kamakura, 2001; Olsen, 2002).
Satisfaction is widely used as a mediator to customer relationships (Garbarino &
Johnson, 1999; Jiang, 2002; Lee, Lee, & Feick, 2001; Lee, Pi, Kwok, & Huynh, 2003;
Lemon, White, & Winer, 2002; Magi, 2003; Meuter et aI., 2003; Mittal & Kamakura,
2001; Olsen, 2002; Olsen & Johnson, 2003). The role of satisfaction in the customer
relationship building process also may vary according to the business context and
consumer level variables. Garbarino and Johnson (1999), for example, found that for low
relational customers (individual ticket buyers and occasional subscribers), overall
satisfaction was the primary mediating construct between the component attitudes and
future intentions. However, overall satisfaction was not the primary mediating construct
among high relational customers. Satisfaction has a positive, albeit modest, effect on
share of wallet (Magi, 2003). Recent studies also indicate that the relationship between
satisfaction and behavior is moderated by consumer level variables (Hombur & Giering,
2001; Mittal & Kamakura, 2001). However, not all consumers respond equally to
increases in satisfaction (Hombur & Giering, 2001; Mittal & Kamakura, 2001).

[Link]. Trust
Trust has been conceptualized as a link between buyer-seller relationships and
customer retention and loyalty (Baggozzi, 1975, Reichheld, 1994; Schurr & Ozanne,
1985). Trust refers to consumer willingness to rely on an exchange partner in whom one
has confidence, and it can be a multifaceted construct (Wirdeshmukh et aI., 2002). For
example, consumers may have different trust in a product, a company, or a sales person.
Trust can be transformed to value and customer loyalty (Wirdeshmukh et aI., 2002).

In a recent meta-analysis of the trust-commitment link, Harhay (2003) found that

the relationship between trust and commitment was stronger in a retail setting than in a
B2B setting. Furthermore, it appears that for high relational customers, it is trust, rather
than satisfaction, that mediates the relationship between component attitudes and future
intention (Garbarino & Johnson, 1999).

[Link]. Switching Costs

Another important construct relating to customer relationship is switching costs.
Switching costs refer to those incurred when customers switch to another marketer, and
include transaction, learning, and artificial or contractual costs (Klemperer, 1987).
Transaction costs are costs to terminate an existing relationship and start a new
relationship. Learning costs occur when a customer to learn new facilities and new
products. Artificial switching costs can be created by marketer relationship investments
such as frequent flyer programs. There are other types of switching costs, such as
consumer risk aversion (Chen & Hitt, 2002), which is consumer intention towards
lowering risks in exchange for higher switching costs.

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PhD Thesis - F. Wang McMaster - Business

Switching cost is positively associated with loyalty (Ping, 1993, 1994), and it is
an important mediator between consumer loyalty and its antecedents (Sharma &
Patterson, 2000). The impact of trust and satisfaction on consumer commitment appears
to vary according to contingency conditions of switching cost antecedents (Sharma &
Patterson, 2000). In a low satisfaction relationship, switching costs may act as an exit
barrier.

2.5. Discussion
This chapter has provided a basic understanding of RM and focuses on addressing
issues in consumer RM. Due to the characteristics of the retail market, the
implementation of consumer RM has experienced certain difficulties. To better
understand consumer RM, this chapter examined consumer relationships through various
stages and influencing factors.

From four aspects: market, channel, retailers, and consumers, we examined the
necessary conditions for market success. From a market perspective, in a product/service
market where offerings are not generic, and decision-making is complex, building
consumer relationships is valuable. High market transparency and market risk also help
to develop successful consumer relationships. From a retailer perspective, retailers need
to invest in relationship building programs and show their customers they "care". An
interactive channel is important to address and communicate with consumers. Consumers
need to value the relationships and have the capacity and power to be involved in and
manage long-term relationships.

Since many of these conditions are rare in a traditional retailing context with
brick-and-mortar stores, the discussion of a "good" RM environment is mostly theoretical
in nature. Very few empirical studies have been carried out to validate these conditions.
Pressey (2000) attempted to analyze RM barriers from aspects of: power balance, level of
purchase involvement, professionalism of the service provider, and level of personal
contact. However, this study was limited to the service industry (hairdressers, opticians,
and recreation centres). Thus, it is still necessary to determine if these conditions are
important for consumer relationship building in a product retailing context.

Finally Chapter 2 also identified three important constructs that are related to
consumer relationships, including satisfaction, trust, and switching costs. It is important
to address these constructs when analyzing consumer relational attitudes and behavior.
Chapter 3 discusses online consumer RM. With the theoretical foundation provided by
this chapter in mind, Chapter 3 has a specific focus on the impact of changes in online
retailing on consumer RM.

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PhD Thesis - F. Wang McMaster - Business

Chapter 3. Online Retailing and Relationship Marketing

Following the examination of consumer relationship marketing in Chapter 2, this

chapter addresses the topic from the online perspective. The purpose of this chapter is to:
• Understand the impact of the Web on the retail market, and
• Review previous research on online consumer relationship marketing;

This chapter is organized as follows. Section 3.1 discusses the Web's role in
retailing and marketing, and then analyzes its impact on the retail market; from market,
channel, retailer and consumer perspectives. Section 3.2 summarizes current research
addressing the online consumer relationship-building process and identifies gaps in this
work. Section 3.3 provides a discussion that links this work to the following chapters.

3.1 The Web's Role in Retailing

Internet technology is one of the most significant technologies of the twentieth
century (Teo & Pian, 2003). The Web is an Internet application that plays an important
role in modem marketing and retailing. With the Internet, "the separation between IT and
'the business' is disappearing" (Earl & Khan, 2001).

The marketing opportunities fueled by the Web can be viewed from three aspects
(F eeny, 2001): enhanced selling process, enhanced customer buying experience, and
enhanced customer usage experience. The selling process can be improved by customer
input, customer targeting, customer aggregation, benefit selling, and achievement selling.
The customer buying experience can be enhanced by providing solutions and tailored
products while the customer usage experience can be enhanced with value-added services
and customized support.

E-tailing growth is affected by various factors. Sindhave and Balazs (1999)

analyzed factors from five aspects: product-related, medium-related, consumer-related,
firm-related, and environment-related. Many have researched the barriers or motivations
of retailer adoption of the Internet (e.g., Doherty et aI., 2003; O'Keefe et aI., 1998; Teo et
aI., 1997; Vadapalli & Ramanurthy, 1997). It has been demonstrated that the market
sector, view of the viability of the Internet, Internet strategy, senior management
commitment, and presence of an appropriate infrastructure and development capability
are important factors influencing the adoption decision (Doherty et aI., 2003).

There are many documented studies of business techniques: Web-based strategies

(Graham, 2000; Griffith & Krampf, 1998; Oliva, 2002); marketing techniques such as
interactive marketing and database marketing (Coviello et aI., 1997; Gupta & Lehmann,
2003; Jackson & Wang, 1995); new business models (Gulati & Garino, 2000; Hoffman,
2003; Werbach, 2000); and Web-based information systems (WIS), a new category of
information systems that facilitates online business (Isakowitz et aI., 1998; Wang &
Head, 2001).

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PhD Thesis - F. Wang McMaster - Business

At the strategic level, the role of the Web in retailing is discussed in terms of the
role of the Web in marketing and the relationship between e-tailing and brick-and-mortar
retailing. The use of interactive media in itself may not comprise a specific marketing
technique since many marketing approaches can be implemented with or without
IT/Internet infrastructure. For example, the idea of database marketing was widely used
in direct marketing long before the existence of database technology (Petrison et al.,
1997). Thus, instead of viewing e-marketing as a category of marketing techniques, e-
marketing can be simply viewed as electronic media-enabled marketing. Following Wang
et al. (2002), the Web's impact on consumer marketing can be viewed from a marketing
tool or marketplace perspective. The first perspective considers the Web as one of many
tools available for marketers to communicate and sell their products to customers (Burke,
1997; Deighton, 1997; Peterson et at, 1997). The second view recognizes the potential
power of the Web to create a new marketplace (Mahajan & Wind, 1989). Table 3.1
summarizes three works which express a similar classification.

Reference Role of IT or the Web in Marketin2

Christensen (1997) Sustaining Disruptive
Wang et al. (2002) A marketing tool A new marketplace
Coviello et al. (2001): A tool New models Anew
For literature channel
classification
Coviello et aL (2001): A An enhancing A transfonning philosophy
Approach to IT reinforcing tool
tool

Table 3.1: The Web's Impacts on Consumer Marketing

Differentiating between the role of the Web as a tool or as a marketplace is

similar to the concept of separating sustaining and disruptive technologies (Christensen,
1997). Using the Web as a marketing tool, businesses are actually adopting a sustaining
approach to employ new technology. By viewing the Web as a new marketplace,
business strategies are more disruptive, and may thus lead to dramatic changes in the
organization. Different views will generate different strategies, which will have different
implementation implications. Coviello et aL (2001) proposed a similar classification.
They found three schools of thought in the literature on the impact of the Internet to
marketing: offering a tool, requiring new models, or providing a new channel. The latter
two, requiring new models and providing a new channel, are captured here under viewing
the Web as a new marketplace. In the same paper, Coviello et al. (2001) addressed the
role and approach of IT to marketing practice: as a reinforcing tool, an enhancing tool, or
a transforming philosophy. The roles of reinforcing and enhancing tools are incorporated
here as viewing the Web as a marketing tool, while the transforming philosophy
corresponds to viewing the Web as a new marketplace.

22
PhD Thesis - F. Wang McMaster - Business

While it is important to understand the Web's role in retailing and retail

marketing from a higher level (strategic point of view), it is also important to understand
the impact of the Web on various retailing aspects. Studying the characteristics of new
media technology provides a structured context to understand social effects and compare
different media (Williams et ai., 1994). By understanding the Web's impact and potential
on major aspects of retailing, we can make better use of these impacts through marketing
programs and build sustainable marketing strategies. For the purpose of this research,
these impacts are examined for their roles in consumer RM.

The Web can have major impacts on a variety of retailing dimensions, and
researchers have used various frameworks to discuss these impacts. For example,
Peterson and Balasubramamian (2002) discuss the Web's impact on retailing from
globalization, human resources, consumer behavior, and retail formats. Wang et al.
(2002) provide a framework to systematically view the Web's impact on the retail
market. The unique characteristics of the Web for retail applications are categorized from
three dimensions: technology infrastructure, channel integration, and market information,
and its market effects are analyzed through product offerings, a new consumer
participation model, and changes in industrial structure (Wang et aI., 2002). Others have
focused on specific issues such as interactivity (Teo, Oh, Liu, & Wei, 2003), price
searching (Suri, Long, & Moroe, 2003), and multi-channel distribution (Balabanis &
Reynolds, 2001; Tang & Xing, 2001).

Following the discussion in Chapter 2, which suggested that successful consumer

RM requires certain conditions (from the retail market, retailer, consumer, and
communication channel), the Web's impact on the retailing market will be analyzed from
four aspects: online market, communication channel, retailer, and consumers. The insight
provided here is important for understanding online consumer RM, and essential for
building the hypothesized model developed and analyzed in Chapters 4 and 5.

3.1.1. Online Market

The Web is a truly information-intensive environment. Vast amounts of
information can be collected, integrated, processed, presented, and accessed through the
Web by both marketers and consumers. Marketers can now track detailed information
for all e-tailing consumer interactions, and not just selected samples. However, data that
pertain to soft market features, such as reputation and reliability, may be more difficult to
gather and evaluate. Consumers can gain more market knowledge for criteria
comparison, but the potential for information overload may increase perceived searching
costs (Head et at, 2000). Marketers may provide tools to facilitate consumer information
collection, but may have to redesign their marketing strategies because competitors also
can accumulate market knowledge and match price differences.

Many researchers believed that the mass of information online would enhance
comparison shopping (Evans & Wurster, 1999; Hoffman et al., 1995). However, the
processing capacity of human memory is limited. Miller (1956) suggested that the

23
PhD Thesis - F. Wang McMaster - Business

processing capacity of short-term memory is approximately seven pieces of information.

Malhotra (1982) showed the dysfunctional effects of information overload when
consumers are provided with 10 or more alternatives in a choice set. This simply means
that the mass of information online may have a complicated impact on consumer
searching and evaluating information. It was found (Suri et aI., 2003) that consumer
motivation level and information load mediate consumer price searching behavior and
interpretation of different price levels. For motivated consumers, a high price level was
evaluated as higher in value when the information load was excessive. On the other hand,
when the motivated subjects did not have an excessive information load, they evaluated a
low price level as better value. For less motivated subjects, the high price level was
perceived higher in value and quality than the low price level. This implies that non-price
information online may reduce consumer price sensitivity, thus contributing to consumer
relationship orientation.

Although better information availability is not necessarily related to better use of

information by consumers, it does help to create a transparent environment. The wide
availability of price and non-price information may alter the consumer decision making
focus. The traditional information asymmetry between the buyer and seller has been
improved, which reduces the ability of marketers to differentiate solely on the basis of
price (Grewal, Iyer, Krishnan, & Sharma, 2003).

Online information presentation is still limited. Consumers cannot touch or feel

products. This may result in transformed search attributes and decision making processes
online compared to traditional shopping. It has been demonstrated that the consumer's
need for tactile input negatively impacts the purchase of products on the Internet,
particularly those requiring more tactile cues for evaluation (Citrin et aI., 2003). This
limitation on the presentation of information may enhance the value of customer
relationships, in that customers in these relationships are familiar with a retailer/product
and may therefore demand less tactile information content for decision making.

While a positive facet of the digital market is the availability of information, a

drawback is higher shopping risk, compared to traditional marketing through brick-and-
mortar stores. Consumers may not physically examine the retailer's products before
ordering, and must enter a contract before anything is delivered. Forsythe and Shi (2003)
identified six components of perceived risk, including financial, product performance,
social, psychological, physical, and time/convenience loss from the literature. They
found four types of risk that were of concern to Internet shoppers and browsers, including
fmancial, product performance, psychological, and time/convenience loss risks. It has
been suggested that product category risk and financial risk are two predominant types of
risks in online shopping (Bhatnagar et at, 2000). In addition, many researchers have
examined online privacy and security risks (Miyazaki & Fernandez, 2001; Tuthill, 2002;
Vice, 2001). Privacy is an issue which draws much more attention in the online
environment than in offline retailing (Wolfinbarger & Gilly, 2003). Online consumers are
keenly aware of their need for privacy/security (Culnan, 1999; Friedman et aI., 2000).

24
PhD Thesis - F. Wang McMaster - Business

Compared to in-store shopping, consumer product-related risk perception does not

significantly increase, but service-related risk perception increases in online shopping
.(Lee & Tan, 2003).

Furthermore, a comparison of frequent online shoppers, moderate online

shoppers, and online browsers, demonstrated that browsers perceived considerably more
financial risks, time/convenience risks and psychological risks than others. Frequent
online shoppers perceived fewer risks than others in all risk categories, and moderate
shoppers were more likely to perceive product performance risk than the others (Forsythe
& Shi, 2003). This confirms that risk perception of online shopping decreases as shoppers
purchase more online, and implies that shoppers at different shopping stages may
perceive different shopping risks.

3.1.2. Communication Channel

The success of relationship marketing depends heavily on the collection and
analysis of customer information. Buttle (1996) points out that marketing problems are,
by nature, information-handling problems. Knowledge about individual customers can
guide highly focused marketing strategies. Hence technology such as the Web, which
facilitates information handling, may lead to the implementation of more effective
marketing strategies.

The Internet can be an interactive channel. Many applications, such as

personalization and online communities (Holland & Baker, 2001; Thorbjornsen et aI.,
2002), can help to provide interactivitY to consumers. Individual customers can receive
tailored information through user profiles and identification. Consumers can be
welcomed with a personalized greeting when entering a site. When a returning consumer
visits a Website, the site can alter color, layout, and content according to the individual's
pre-recorded preferences.

Online communities are another interactive online application. The Web provides
a community-building infrastructure (chat rooms, bulletin boards, interactive events),
which has a positive effect on loyalty intentions (Mathwick, 2002). Dialogue can proceed
in real time in chat rooms, or asynchronously on bulletin boards. It was found that
personalized web sites developed stronger consumer-brand relationships for respondents
with extensive Internet experience, and customer communities developed stronger
relationships among respondents with limited Internet experience (Thorbjornsen et al.,
2002).

Perceived interaction consists of three aspects: interaction quality, interaction

quantity, and personalization. The Web enables consumers to interact with retailers and
product manufacturers (Mundorf & Bryant, 2002). Generally, this process is consumer-
directed computer interaction. In current practice, personal interaction with sales staff is
lacking in the online experience. The technological nature of the interaction enables
service automation, which may decrease the intensity of individual interaction but

25
PhD Thesis - F. Wang McMaster - Business

increase the overall level of interaction received by the general population. Individual
interaction, in cases such as technical support, can be complemented through the
integration of other media, such as the telephone. Due to the wide availability and ease of
use of Web interaction, consumers may tend to interact easily with marketers in this
environment (Teo et aI., 2003). Because of the high personalization that can be
incorporated into Web interactions, consumers may perceive higher interaction quality
levels. The Web also provides a convenient way for consumers with similar interests to
interact through virtual communities.

Online consumers have more opportunities for product/service involvem·ent.

Online consumers can even be involved in product design and product testing (Chen et
aI., 2001). For example, online consumers can help to design cars or select new songs for
promising artists. The Web enables them to provide product feedback much more easily
than they could in the traditional market. They can search for answers to their problems
and share knowledge in virtual communities. The value chain becomes transparent to
them in the sense that they can understand what happens behind the retail scene, and thus
online consumers may feel more involved in the value delivery process. An increase in
both psychological and activity-based involvement from consumers is important for RM
(Pressey & Mathews, 2000).

The Internet channel also differs from traditional channels in that it has network
externality effects. The more people that use it, the more valuable it may be to an online
shopper in terms of the usefulness of information or level of involvement. However, the
value of the online channel for a consumer is complicated. Sohn et ai. (2002) pointed out
that, besides the positive network externality of the online channel (the more users the
better), the presence of more users implies a reduction of available capacity, which
consumers care about. Sohn et ai. (2002) developed a model to estimate consumer utility
through a function of all other consumption, knowledge, and network externalities (Sohn
et aI., 2002). Their results indicate implies that online interaction is very complex,
consisting not only of retailer-consumer relationships but also consumer-consumer
functions (Sohn et aI., 2002).

3.1.3. E-tailer Opportunities

The Web enhances the retailer's ability to implement RM (Berthon et aI., 1996;
Burke, 1996; Werbach, 2000). In the past, firms did not have the tools to manage
numerous interactive actors, and consumers were passive because they had no way of
expressing themselves. E-tailers are more capable, in terms of available techniques and
implementation cost, to implement RM (Gorin, 1999). Through the Web, companies can
respond to various consumer requests and create a feedback loop. Personalized Web sites
and communities can be built (Holland & Baker, 2001; Thorbjornsen et aI., 2002). It is
typically more feasible and cost efficient for online marketers than traditional marketers
to track Web users and deliver personalized messages.

26
PhD Thesis - F. Wang McMaster - Business

The Web can expedite the integration of products and services in retailer
offerings, since products and services can be bundled. A developing characteristic of
online offerings is the enhanced ability of e-tailers to customize offerings (Grewal et al.,
2003). For example, individual customers at Dell Computers ([Link] can
choose a computer configuration that best matches their needs. While much of this is
done through computer automation, consumers may perceive this as individual treatment
in the shopping experience. E-tailers are moving from a core product sale to a service-
based offer, or from a product-centered view of value creation to a service-centered view
of value creation.

Customized service also is viewed as an opportunity provided by the Web

(Hindman, 2000). Because of this service perspective of retail offerings, the way retailers
keep their market promises has changed (Gronroos, 1996). Instead of focusing on product
features, as in the traditional market, e-tailers need to consider elements such as
technology, knowledge, and time, which are involved in the service aspect. Bitner et al.
(2000) suggested that the latest advances in Internet technology, including greater access
to customer data and speed of service, are providing finns with the ability to resolve
specific problems more quickly and thoroughly and, thus, with better service recovery.
The impacts of service components on e-tailing are complicated. Consumer product-
related risk perception online is not higher than in-store, but the service related risk
perception online is higher than with in-store shopping (Lee & Tan, 2003).

Service components are most prominent in the informationlknowledge and

delivery aspects of e-tailing. Personalization becomes an important service dimension for
Web users (Yang & Jun, 2002). E-tailers are faced with the challenge to design usable
and useful Web storefronts to facilitate customer navigation. Many e-tailers feature a
large portfolio of products, requiring powerful search tools and methods to cater to the
heterogeneity of consumer information requirements. The Web encourages after-sales
service by facilitating access to rich information and customer interaction. Customer
relationship management (CRM) systems have become popular tools to support these
relational interactions (Dunn, 2003). CRM systems can automatically record detailed
consumer activities, and the data collected can be used to build consumer profiles. By
understanding consumers better, marketers can employ relationship marketing techniques
in the retail market to provide personalized services.

3.1.4. Online [Link]

Surveys (Ernst & Young, 200.1; Shneiderman, 2000) show that the gap in Internet
usage between men and women, and among different age groups, has been declining.
However, online customers still represent a distinct group with higher income and
education. In making their decisions, they search the Web for information, lower prices,
and higher value. They have access to more information and thus possess more market
knowledge. They actively exchange information with other customers, evaluate products,
and purchase either on- or offline. Online customers may have different decision-making
processes, and incorporate evaluation criteria that rely on electronic tools. Lynch and

27
PhD Thesis - F. Wang McMaster - Business

Ariely (2000) show that lowering search costs through effective navigation design in WIS
(Web Information Systems) may alter a customer's decision-making criteria.

Online customers may have different price sensitivity, compared to traditional

retail customers. Alba et al. (1997) propose that, when quality-related information
becomes a brand-differentiating factor for customers, interactive retailing could lead to
lower price sensitivity. Degeratu et al. (1999) found that online promotions, which are
indicators of price discounts, lead to higher price sensitivity. Shankar et al. (1999) also
identify the effects of various online characteristics on customer price sensitivity. Lynch
and Ariely (2000) conducted an experiment to test the online effects of three different
search costs on consumer price sensitivity: search cost for price information, search cost
for quality information, and search cost for comparing across two stores. Their empirical
results showed that lowering the cost of search for quality information reduced price
sensitivity, while lowering the cost of cross store comparison increased price sensitivity.

The passiveness of consumers in a traditional environment may be attributed to a

lack of interaction possibilities, rather than a lack of desire to interact (Pels, 1999). With
the Internet, consumers online may be more active. Both marketers and consumers
perform information-processing and decision-making tasks. Market participation is
determined by interaction and information-processingldecision-making activities.

The Web is an integrated channel, which greatly facilitates information access,

collection, and analysis for all market participants. Both consumers and marketers can
actively participate in the market at all interaction phases. While consumers can
dramatically increase their market power, various marketers can also enhance their
market capabilities. The communication medium and distribution channels are no longer
market buffers but rather they serve as interaction carriers, allowing both marketers and
consumers to establish direct contact with each other. Therefore, the capabilities of the
communication medium and distribution channel do not limit the power of market
participants. Timely and accurate feedback can be delivered to manufacturers, and
consumers can fmd information that fits their specific needs.

This new market participation model leads to various changes in consumer

characteristics, attitude and behaviors. Consequently, consumers playa different role in
the marketing process. Marketing has traditionally been viewed as a task undertaken by
marketers. Consumers take on a more active role in Web market participation. The
opinion that consumers carry out their own marketing tasks is addressed by the concept
of "reverse marketing" (Koulopoulos, 2000; Mitchell, 1999) or "marketing by
consumers" (Wang et at, 2000). Wang et al. (2000) pointed out the importance of
recognizing and facilitating consumer control of databases, and formation of relationship
networks, for the success of consumer RM.

As outlined above, electronic shoppers may possess different characteristics than

traditional retail customers. User characteristics also affect online interactivity.

28
PhD Thesis - F. Wang McMaster - Business

Mehlenbacher et al. (2000) found that reflective, global learners performed significantly
better than active, sequentialleamers in online environments, despite the fact that no
differences between them exist in the conventional offline environment. Ramey (2000)
also pointed out the importance of user characteristics in improving online interactivity.

The nature of the electronic shopper will continue to evolve. For example, the
"Net generation" refers to the generation born after 1977 (Chen, 2000), who grew up with
and spent the majority of their learning years with the developing Web. Understanding
the Net generation is critical to understanding the future of e-tailing, and still requires
tremendous effort. As analyzed by Wood (2002), different generations have different
requirements and expectations for e-shopping. For example, the "boomer" (those
consumers born between 1946 and 1965) generation focuses more on convenience, while
"boomlets" (consumers born between 1977 and 1997 and also known as "Gen Y") are
more prone to product customization (Wood, 2002). It is important to understand the
characteristics and needs of new generations, in order to design successful long-term
marketing strategies.

Consumer power has been a major enhancement of the Web. Consumers can
access more information, and better-informed consumers may make better decisions.
Consumers can also exchange information with each other and form virtual communities.
In this way, it is easer to accumulate and share market knowledge. Consumers can also
group together and form a market force to influence retailers. For example, retailers may
improve product features, which are critiqued and discussed in consumer forums.
Consumers can interact with retailers to negotiate and personalize. In the traditional
market, marketers sell available products or services, and meeting future consumer needs
depends on the new product development team. Consumers in the Web market may also
join the product development process. Their power may call for a change of business
structure or business strategy, such as promoting business alliances between retailers and
suppliers. Also, consumers can employ their own tools to process and manage market
information, such as through a Web agent. For example, [Link]
([Link] helps consumers to search a desired product across several
online retailers for availability and cost. Consumer involvement is required to facilitate
consumer self-service and self-management. Through all these changes brought by the
Web, consumers can become an active and knowledgeable market force.

The Web helps to increase consumer power. Andresen (1999) proposed that the
Internet is a voice channel for consumers to speak up, as compared to silently trying to
influence retailers by exercising their power to "exit" the relationship. First, the Web
helps consumers to access market information and gain knowledge (Sharma & Krishnan,
2000). Through increased knowledge, consumers not only understand more about the
market, including products, marketers, and the value delivery process, but they also can
understand more about themselves, such as their behavior in a shopping process. Thus,
they can make better decisions by knowing their needs, identifying their constraints, and
searching for best solutions.

29
PhD Thesis - F. Wang McMaster - Business

Second, consumers now have control over the interaction medium through the
Web (Godin, 1999; Peterson et aI., 1997). They can choose the hardware, software and
interface used. They can post messages and use various Web-based shopping services
such as the shopping lists provided by online grocery retailers to manage their own data.
They have more control over their shopping processes and can play an active role in both
searching for information and providing feedback. Online consumers can initiate
interactivity and manage the interaction. The potential for the user to modify the
environment is the essence of user control (Klein, 2003).

The Internet threatens the amount of control marketers have over the source and
character of information presented to consumers (Ward & Ostrom, 2003). Although
word-of-mouth (WOM) has always been largely out of the marketer's control, WOM and
WOM-like information has never before been so readily available in a mass medium
(Ward & Ostrom, 2003). It has been found (Ward & Ostrom, 2003) that Internet searches
are more likely to return information from "unofficial" than "official" sources.
Additionally, consumers who gather information from online discussions (Internet
forums or bulletin boards) report greater interest in the product topic than those
consumers who acquired information from market-generated sources (Bichart &
Schindler,2001). Not only do Web groups have a strong effect on purchaser decision-
making (Armstrong & Hagel, 1996; Kozinets, 1999; Wotring et at, 1995), but they may
also affect market variables such as products and prices. For example, stocks that capture
the attention of participants in chat rooms can move noticeably in price (Bruce, 1997).

Third, online consumers may have a greater impact on the market environment
and the purchasing process. For example, there are various techniques or tools on the
Web for negotiation or bargaining (Sharma & Krishnan, 2000). Web price comparison
agents allow consumers to compare price and offerings. The Web provides a transparent
environment (Sinha, 2000), where retailer and fellow consumer knowledge is available
for negotiation support. For example, consumers can name their prices for airline tickets
on Priceline (w\[Link]). Online car referral services can help their average
customers pay approximately 2% less for a car (Morton et at, 2000). As an interactive
marketplace, the Web also gives the consumer data selection and personalization power.
Customers can select information of interest and personalize presentation forms for their
own use. Personalized Web pages, which can be constructed quite easily, increase
customer power (Rousseau et at, 1999). Customers on the Web have greater control
over what they view and examine. They can select their own path through the
information network, process the data, or initiate communication with marketers.

The mass of information available on the Web prepares online consumers with
knowledge. Consumer knowledge is important in explaining brand loyalty, choice and
search behavior (Ratchford, 200 I). Knowledgeable consumers gain a better position in
negotiation with marketers. It is often advised that negotiators learn as much as they can
about the other party (Thompson, 2001). Consumer intimidation in negotiation often

30
PhD Thesis - F. Wang McMaster - Business

comes from a lack of information about the negotiation process, about the other side's
reservation price, and so on (Bazerman, 2001). With the Internet, a large number of
Websites (e.g., [Link]) provide information specifically to help in consumer
negotiations.

3.2. Online Consumer Relationship Marketing

The new generation of communication technologies (most notably, the Internet)
provides not only a tool for consumer RM, but also a new marketplace where many
conditions for consumer RM are enhanced (Wang et aI., 2002). Technology's role for
consumer RM has long been recognized (Gronroos 1996). Zineldin (2002) even argued
that, without the effective use of technology, RM is not an effective strategy. He used the
word "technologicalship" to refer to the relationships based on the use of information
technology, and argued that relationship marketing based on technological advances can
be considered a new paradigm.

A variety of research can be found in the literature related to online consumer

RM. For example, Lee and Tan (2003) studied consumer choices between e-tailing and
physical retailing. It was found that retailer relationships and manufacturer relationships
with consumers converge to some extent in e-tailing, in that online consumers shop for
well-known brands and they are less likely to shop online from lesser-known retailers
who carry well-known brands than from reputable retailers, even if the latter carry lesser-
known brands (Lee & Tan, 2003). Grewal et al. (2003) studied the impacts ofthe Internet
on the price-value-loyalty chain and suggested that marketers have to explore online
consumer value components and determine newer ways to create and deliver such value.

With the Web's ability to reach consumers, and the resulting privacy threat it
brings, the permission marketing concept has become important. Popularized by Godin
(1999), permission marketing suggests that marketers obtain consumer permission to
send customized advertising material to them. Godin (1999) suggested the following
levels of permission:
1). Intravenous level: a marketer has the permission to make the purchasing
decisions on behalf of the consumers. Sometimes, in a purchase-on-approval model,
consumer authorization is required before an actual purchase is made.
2). Points level: reward points programs, which reward consumers who
accumulate enough points, are a formalized, scalable approach to attracting and keeping
the prospect's attention.
3). Personal relationships level: establish personal relationships with customers.
4). Brand trust level: a marketer with a trusted brand has some power in
communicating with consumers, such as in brand extension.
5). Situation level: ask permission each time when contacting consumers.

Tezinde et al. (2002) analyzed relevance factors (affiliation and personalization)

affecting consumer permission. A study was carried out by sending letters to university
alumni to ask them to enroll as alumni members. The response rate was analyzed with

31
PhD Thesis - F. Wang McMaster - Business

respect to two relevance constructs (high/low affiliation and hand-written/printed

address). It was suggested (Tezinde et aI., 2002) that relevance, in terms of
personalization, brand equity, and previous relationships, influenced response rates.

Finally, a developing body of research examines the factors that affect online
consumer relational attitudes and behaviors (DeWulf et aI., 2003). This research stream is
discussed in detail in the following sections.

3.2.1 Research Focusing on the Market, Channel, Marketers, and Consumers

From the interactive communication channel perspective, research indicates that
online interactivity affects online consumer attitude and behavior. Berthon et al. (1996)
found that the interactivity level of a site was critical in converting site visitors to
interactive customers. It has also been suggested that the relationships between Web
users and the Web may change when the level of interactivity changes (Hoffman &
Novak, 1996; Light & Wakeman, 2001). Teo et al. (2003) compared three Web sites
with different levels of interactivity in a controlled laboratory experiment and suggested
that increased levels of interactivity on a Web site have positive effects on user perceived
satisfaction, effectiveness, efficiency, value, and overall attitude towards the site.

Various research has addressed online consumer behavior, the motivations, task
characteristics, and personal characteristics of online consumers .. Convenience is
consistently reported as an important consideration when shopping online (Childers et aI.,
2001; Liao & Cheung, 2002; Park, 2002; Shim et al. ,2002). Consumers are also
motivated by factors such as freedom, control, and fun (Wolfinbarger & Gilly, 2001).
Childers et al. (200 I) further classified online shopping motivations into utilitarian and
hedonic dimensions. For example, Holland and Baker (2001) suggested that consumer
goals in visiting a Website (task or experiential) affect their propensity to be site-loyal.

Personal characteristics are a further determinant of online consumer behavior

(Bellman et aI., 1999). Life style, perceptions, needs, and the situation, an affect
consumer online involvement (Wu, 2002). Shim et al. (2001) showed that consumer
attitudes toward Internet shopping, perceived behavioral control, and previous Internet
purchase experience, are predictors of consumer intentions to use the Internet to search
for information. In tum, a consumer's intention to use the Internet for information search
is a strong predictor of online purchase intention (Shim et aI., 2001). Product interest,
product type, entertainment shopping orientation, experience of online buying, and Web-
site trust also predict online purchase intention (Park, 2002). Research has also addressed
the role of Web visit tasks in consumer behavior.

From a retailer's perspective, research has addressed the business aspects that
impact e-loyalty. Srinivasan et aI. (2002) identified 8 "Cs" (customization, contact
interactivity, care, community, convenience, cultivation, choice, and character) As
dimensions of customer relationship investment. With the exception of convenience,
these constructs were significant antecedents of e-Ioyalty. A recent study (Jiang, 2002) of

32
PhD Thesis - F. Wang McMaster - Business

online computer shopping found that most online consumers are not yet willing to pay
more for customization. However, those who are willing to pay tend to be more confident
in their purchase choice, more likely to be satisfied, and more likely to revisit the
customization provider.

Wolfinbarger and Gilly (2003) addressed e-tailing quality and established four
dimensions for customer judgment of quality, website design, fulfillment/reliability,
privacy/security, and customer service. Web design features such as reliability,
navigation, quality information, product comparison, personalized information,
experiential, speed and ease of ordering contribute to establishing a Web site image,
which leads to online consumer loyalty (Page & Lepkowska-White, 2002). The online
retailing industry also recognizes the importance of Web site design for consumer
relationships. Through interviews with Web site designers, Geissler (2001) proposed a
model illustrating a direct relationship between Web site design and the online customer
conversion process.

From a market perspective, many have addressed the role of risks in online
consumer behavior. It was found that risk is an important factor affecting consumer use
of online shopping (Bhatnagar, Misra, & Rao, 2000; Liao & Cheung, 2001, 2002).
Forsythe & Shi (2003) found that perceived risk is a useful tool for explaining consumer
patronage behavior, while Park and Jun (2002) found that the perceived risks of online
shopping significantly affected online shopping frequency in Korea, but not in the U.S.

3.2.2. Mediators
While computer user satisfaction has traditionally been a subject for management
information systems (MIS) research investigation, consumer satisfaction has been a
research topic in marketing. Since an online consumer is a user and a shopper
simultaneously, it is necessary to measure online shopper satisfaction from both stand
points. Cho and Park (2001) developed a user-consumer satisfaction index for online
shopping by incorporating 51 items from 10 factors (product information, consumer
service, purchase result and delivery, site design, purchasing process, product
merchandising, delivery time and charge, payment methods, ease of use, and additional
information services) identified in the fields of marketing and MIS. Szymanski and Hise
(2000) examined e-satisfaction from consumer perceptions of online convenience,
merchandising (product offerings and product information), site design, and financial
security. It was found that convenience, site design, and financial security are dominant
factors in consumer assessment of e-satisfaction (Szymanski & Hise, 2000). Most studies
of the relationship between satisfaction and customer relational behavior have been
carried out in a traditional shopping context. Studies investigating outcomes of e-
satisfaction are needed (Szymanski & Hise, 2000).

Trust is also an important construct discussed in online consumer RM literature.

Yoon (2002) studied the role of trust in online purchase decision-making by analyzing
the antecedents (transactional security, Web-site properties, search functionality, and

33
PhD Thesis - F. Wang McMaster - Business

personal variables), consequences (purchase intention), and mediating variables (Web-

site awareness) of online trust. Gefen (2002) analyzed dimensions of trust and
trustworthiness among online consumers from integrity, benevolence, and ability
perspectives, and showed that window-shopping intentions were affected by the ability-
trustworthiness ofthe vendor, while overall trust in the vendor and its integrity-
trustworthiness affected purchase intentions.

Trust and satisfaction have complicated roles in online consumer behavior. First,
they may respond to different antecedents. Y oon (2002) found Web site trust depended
significantly on site properties, including image-related variables such as company
awareness and company reputation, whereas satisfaction depended on navigation
functionality. Trust and satisfaction can be highly correlated, and both are important to
online purchase intention.

Compared to trust and satisfaction research, there have been few studies of
switching costs in online retailing contexts. However, some have studied switching costs
in the online service environment (Chen & Hitt, 2002; Keaveney & Parthasarathy, 2001).
Keaveney and Parthasarathy (2001), for example, studied switching behavior among
general online service users and reported that certain behavioral (information that
customers used when making the online service decision, and their service usage),
attitudinal (risk-taking propensity), and demographic (income and education) factors
were effective in discriminating between continuers and switchers.

Chen and Hitt (2002) studied switching costs and customer intention in the online
brokerage industry. Examining the effects of systems usage, service design, and other
firm and individual-level factors on switching and retention, they found that firms had
different abilities to establish switching costs. System usage measures, system quality,
and firm characteristics such as product line breadth and quality, were associated with
reduced switching, just as they are in an offline environment. However, customer
demographics had little effect.

3.2.3. An Evaluation of Previous Studies

Because this thesis focuses on the factors and mechanisms that affect online
consumer relational intention, it is especially important to review previous model
development and empirical results pertaining to factors that affect online consumer
relationship building. Tables 3.4(a) and 3.4(b) summarize empirical studies that
examined various consumer relationship building stages/characteristics of e-tailers.
Table 3.2(a) includes work that focused on constructs in the consumer acquisition stage,
while those in Table 3 .2(b) explicitly considered the consumer retention stage. This
summary provides an outline of relevant published empirical research rather than a
comprehensive portrayal of all literature in this stream.

The research included in Table 3.2(a) examines constructs that are important in
customer acquisition, and considers both Web site and customer perspectives. Montoya-

34
PhD Thesis - F. Wang McMaster - Business

Weiss et al. (2002), for example, explored the impact of Web site design on consumer
attitude toward the site and found that navigation structure, information content, and
graphic style were important in attracting customers. Shim et al. (2002) examined the
effect of Web presentation on online shopper experiences, and found that convenience
and simplicity were more important than other factors such as customer-service policy
information, leading-edge technology, or presentation ofproductlservice information, for
online shoppers. Park and Jun (2002) tested a model of online buying intention as
explained by Internet usage, perceived risk, innovativeness of the site, and online buying
experience in Korea and the U.S .. They found that Internet usage time and innovativeness
on the Internet were more important in the U.S. than in Korea, while the perceived risks
of online shopping were more important in Korean. The length of Internet usage period
affected online shopping frequency in both counties.

In addition to investigations concerning consumer response to technical aspects of

online channels, other research has examined the online shopping environment more
generally. Childers et al. (2001), for example, found that navigation, convenience, and the
substitutability of the electronic environment for personal examination of products were
important predictors for online shopping attitude. Furthermore, consumer hedonic
motivations, (mediated through "enjoyment"), were as important as utilitarian
motivations (mediated by ''usefulness'' and "ease of use") in affecting consumer online
shopping intentions. Schlosser and Kander (2000) found that interactivity and marketing
content were important in determining consumer attitudes toward a site and intention to
buy. Teo et al. (2003) focused on the effect of interactivity on Web user attitude. They
suggested that increased level of interactivity on a Web site has positive effects on user's
perceived satisfaction, effectiveness, efficiency, value, and overall attitude towards a
Web site. Shim et al. (2001) tested an online pre-purchase intention model and found that
intention to use the Internet to search for information was the strongest predictor of
Internet purchase intention, and that it mediated relationships between purchasing
intention and other predictors (i.e., attitude toward Internet shopping, perceived
behavioral control, and previous Internet purchase experience).

Some research examining online customer acquisition addressed other constructs

that are important in customer retention (relationship building). Krishnamurthy (2001)
examined the antecedents to customer confidence in e-tailers. It was found that the ease
of use of a site, the level of online shopping resources, and the presence of a trusted third
party seal, all positively impact the level of customer confidence, but online relationship
services did not have an impact on consumer confidence. No large differences were
identified across different product categories.

Gefen (2002), Loiacono et al. (2002) and Y oon (2002) addressed the trust
construct. Gefen examined online consumer trust in a three dimensional scale, dealing
with integrity, benevolence, and ability. It was found that different consumer beliefs
influence different consumer activity intentions. Window-shopping intentions were
affected by the ability-trustworthiness of the vendor, while overall trust in the vendor and

35
PhD Thesis - F. Wang McMaster - Business

Articles Dependent Variables Independent Variables

Online shopping
Childers et al. Navigation, convenience, substitutability
attitudes, usefulness,
(2001) of personal examination
easy of use, enjoyment
Overall trust, window-
Gefen (2002) shopping intentions, Ability, integrity, benevolence, purchase
purchase intentions
Krishnamurthy Site ease of use, online resources,
Consumer confidence
(2001) relationship services
Ease of understanding, intuitive operation,
Loiacono et al. Intention to purchase, information quality, interactivity, trust,
(2002) intention to revisit response time, visual appeal,
innovativeness, flow
Montoya-
Navigation structure, information content,
Weiss et al. Online channel use
graphic style
(2000)
Frequency of online
Park and Jun, Hours online per week, length of Internet
shopping, online buying
(2002) use, perceived risks, innovativeness
intention
Person interactivity (customer service),
Schlosser and Attitudes toward site,
machine interactivity (navigation and role
Kander (2000) intentions to buy
playing), traditional marketing content
Intention to use the
Internet for information Attitude toward online shopping,
Shim et al.
search, intention to use subjective norm, perceived behavioral
(2001)
the Internet for control, Internet purchase experience
purchasing
Customer-service policy information,
Shim et al. Consumer evaluation of leading-edge technology,
(2002) an e-tailer site convenience/simplicity, presentation of
product/service information
Satisfaction,
Teo et al. effectiveness,
Interactivity
(2003) efficiency, value,
attitude
Web site trust, web site
awareness, Web site Transaction security, Web site properties,
Yoon (2002)
satisfaction, on/offline navigation functionality, personal variables
purchase intention

Table 3.2(a) Research Focusing on Customer Acquisition

36
PhD Thesis - F. Wang McMaster - Business

Articles Dependent Variables Independent Variables

Web store functionality, product attribute
Francis and description, ownership conditions,
Intentions
White (2002) delivered products, customer service,
security
Satisfaction, revisit
Jiang 2002 Customization
intention
Koufaris et al. Unplanned purchases,
Perceived control, shopping enjoyment
(2001-2002) intention to return
Lee et al. Socio-psychological value, economic
Satisfaction
(2003) value, product value
Customization, contact interactivity, care,
Srinivasan et
Customer loyalty community, convenience, cultivation,
al. (2002)
choice, character
Szymanski and Convenience, merchandising, site design,
Satisfaction
Rise (2000) financial security
Personalized Web sites, customer
Thorbjomsen Consumer-brand
communities, consumer Internet
et al. (2002) relationships
experience
Wolfinbarger
Fulfillment/reliability, website design,
and Gilly Quality
privacy/security, customer service
(2003)
Yang et al. Satisfaction! Product cost and availability, customer
(2000) dissatisfaction service, online information systems quality
Overall site quality,
attitude toward site,
Yoo and
online purchase Ease of use, design, speed, security
Donthu (2001)
intention, site loyalty,
site equity
Efficiency, reliability, fulfillment, privacy,
Zeithaml et al.
Quality customer service (responsiveness,
(2002)
compensation, contact)

Table 3.2(b) Research Addressing Customer Retention

its integrity-trustworthiness affected purchase intentions. Lioacono et al. (2002) also

studied the importance of trust in determining consumer intention to purchase online, and
to revisit a site. Y oon (2002) website trust was influenced by site properties and personal
variables, and it was an important mediator in online purchase intention.

Research summarized in Table 3.2(b) was conducted with e-shoppers who had
previous online shopping experience, and addressed their re-purchase intention or post-
purchase evaluation. Some of these studies examined online shopper satisfaction and its

37
PhD Thesis - F. Wang McMaster - Business

antecedents. Lee et al. (2003) examined relationships between the customer's

commitment value and the customer's satisfaction. Commitment value refers to a total
value perception from a buyer and is composed of three components: socio-
psychological, economic, and product values. It was found that the socio-psychological
value (i.e., shopping enjoyment and convenience in purchasing) and the product value
(i.e., product quality) contributed significantly to the attainment of customer satisfaction,
while the economic value (i.e., reduction oftime spent in Internet shopping) did not.
Szymanski and Hise (2000) examined the role that consumer perceptions of online
convenience, merchandising (product offerings and product information), site design, and
financial security play in e-satisfaction assessments, and found that convenience, site
design, and financial security are the dominant factors in consumer assessments of e-
satisfaction. The study by Yang et aL (2000) identified that product cost and availability,
customer service, and online information systems quality, were important for consumer
satisfaction.

Other investigators have focused on the construct of quality. Zeithaml et al.

(2002) examined the service quality of e-tailers, and found that efficiency, reliability,
fulfillment, privacy, and customer service were important for consumer evaluation of
quality. Wolfinbarger and Gilly (2003) suggested that four factors (website design,
fulfillment/reliability, privacy/security, and customer service) were strongly predictive of
customer judgment of quality. Y 00 and Donthu (200 I) suggested that overall site quality
was important for consumer attitude toward a site, and consumer loyalty.

A third research stream concerns consumer re-purchase intentions (Jiang, 2002;

Thorbjornsen et aI., 2002). Foufaris et al. (2001-2002) found that customer intention to
return is associated with perceived control and shopping enjoyment. Srinivasan et aL's
(2002) identification of factors that impact e-Ioyalty also confirmed that e-Ioyalty has two
customer-related outcomes: word-of-mouth promotion and willingness to pay more.

While the above work contributes to our understanding of the online consumer
relationship building process, there are research gaps and weaknesses. First, as noted by
Wolfinbarger and Gilly (2003), previous research tended to provide a list of attributes,
instead of adequately defined constructs. For those who employed higher level constructs
in their studies, the authors did not adequately address why they were chosen over some
other possible constructs (Wolfinbarger & Gilly, 2003).

Second, while the previous research creates a picture of attributes that are
important to online consumers, the research fields of e-tailing and consumer RM are not
well integrated. Most of this research has failed to address the fundamental changes the
Web brings to retailing, or to examine the impacts of these fundamental changes on
consumer relationship building in a systematic fashion. For example, convenience is an
important consideration when shopping online (Childers et aI., 2001; Liao & Cheung,
2002; Park, 2002; Shim et aI., 2002), but it may not be an important contributor to online
consumer relational behavior. Srinivasan et ai. (2002) failed to identify the connection

38
 PhD Thesis - F. Wang McMaster - Business

between convenience and e-Ioyalty. Meanwhile, many studies examined the Website
design perspectives and benefits of e-tailing such as convenience (Childers et al., 200 I) .
. However, these e-tailing characteristics can apply to every e-tailer, and thus they do not
result in a sustainable competitive advantage.

Third, most previous research did not consider a complete relationship

mechanism, which is how market characteristics affect consumer relationship intentions.
Many (e.g., Muylle et aI., 1999; Zeithaml et at, 2002) employed relationship mediators
such as trust and satisfaction as the destination construct, or examined the direct
relationship (e.g. Wolfinbarger & Gilly, 2003) between market/consumer/channel
characteristics and relational intentionlbehavior. Without considering the overall
mechanism, our understanding is incomplete.

3.3. Discussion
Recently, there have been an increasing number of research papers on online
consumer behavior. Cheung et al. (2003) classified 351 articles published since 1994 that
are related to online consumer behavior, and incorporated them in three stages of
consumer online behavior: consumer online purchasing intention, consumer online
purchasing, and consumer online repurchasing. After reviewing research in these three
stages of consumer relationship building, they concluded that research on consumer
online repurchase is in its infancy; very few studies have attempted to investigate the
impact of online market factors, such as medium, merchant, and intermediary
characteristics, on consumer online repurchasing.

The research in the following chapters will help to fill this void by establishing
and empirically testing a model of online market factors and the mechanism by which
consumer relational attitudes are affected. Based on the discussion provided by Chapters
2 and 3, a hypothesized model is developed in Chapter 4 and tested in Chapter 5. This
model incorporates the fundamental impacts of the Web on the retail market, channel,
marketers and consumers, and examines their impact on consumer relational intention
through the relationship mediators of trust, satisfaction, and perceived switching costs.
The hypothesized model integrates research findings from the fields of consumer RM and
e-tailing, as discussed in Chapters 2 and 3. Important market characteristics (consumer
power, perceived relationship investment, perceived interaction, and perceived shopping
risks) will be selected, based on e-tailing research in terms of their importance on market
impacts, and the potential for retailers to differentiate from their rivals and to build
sustainable competitive advantage. The impact of these factors on online consumer
intentions will be examined by incorporating relevant mediators (perceived switching
costs, trust, and satisfaction) from consumer RM research. Meanwhile, the main effort
will be on establishing and validating constructs for online consumer RM research.

39
PhD Thesis - F. Wang McMaster - Business

Chapter 4. A Model for Consumer Relational Intention

Having reviewed and evaluated previous research in consumer RM in general

(Chapter 2) and in the online environment in particular (Chapter 3), this chapter builds a
hypothesized model that:
I) examines the impacts on consumer relationship building of the most fundamental
changes the Web brings to the retail market,
2) examines the role of mediators in the formation of relational intention, and
3) outlines relevant hypotheses.

This chapter is organized as follows. Section 4.1 provides a brief discussion of the
hypothesized model. Section 4.2 addresses the ultimate dependent construct, consumer
relationship intention. Section 4.3 describes the three relationship mediator constructs,
which are perceived switching costs, satisfaction, and trust, and outlines their
relationships with consumer relationship intention. Section 4.4 discusses the four
constructs of consumer market perceptions, including perceived relationship investment,
perceived consumer power, perceived interaction, and perceived shopping risks.

4.1. The Hypothesized Model

Relationship marketing (RM) literature (see Chapter 2) emphasizes that there are
certain environmental requirements, covering markets, marketers, consumers, and
channel perspectives, that should be satisfied if RM implementation is to be successful
(Christy et aI., 1996; De Wulf et aI., 2001; Pels, 1999; Pressey, 2000; Sheth & Parvatiyar,
1995). These requirements are often lacking in brick-and-mortar retail outlets. As
discussed in Chapter 3, the Web provides many new opportunities for e-tailers. Assessing
the impacts of e-tailing on consumer relational intention, particularly from the consumer
perspective, may help to fill a gap that exists in online retailing studies and RM research.

Figure 4.1 provides a model that investigates attitudinal and perceptional factors
affecting consumer relationship building in the online environment. Three layers of
constructs are organized in this model: consumer market perceptions, relationship
mediators, and consumer relationship intention. Consumer market perceptions include
four constructs: perceived consumer power, perceived relationship investment, perceived
interaction, and perceived shopping risks. The model suggests that consumer market
perceptions should be a precursor for consumer relationship intention. This model also
seeks to examine relationship mediators: perceived switching costs, trust, and
satisfaction, which have been incorporated between consumer perceptions and the
relationship building process.

Table 4.1 provides a summary of the characteristics and expected changes of the
constructs in Figure 4.1 for online consumer shopping. There are two common criteria for
the four constructs of consumer market perceptions. First, as discussed in Chapter 3,
these factors: perceived shopping risks, perceived relationship investment, perceived
consumer power, and perceived interaction, represent the fundamental changes the Web
40
PhD Thesis - F. Wang McMaster - Business

Consumer Market Perceptions Relationship Mediators

Figure 4.1: The Hypothesized Model

brings to consumer shopping from four perspectives: market, retailer, consumers, and
channel, respectively. Based on the theoretical analysis in Chapter 2, they may represent
major facilitators for successful consumer RM. Second, the four consumer market
perceptions may be evolving. As discussed in Chapter 3, the Web can be viewed as a
marketing tool or a new marketplace. As the view of the Web evolves, so do the
consumer market perceptions. Details of these constructs are presented in the following
three sub-sections.

4.2. Consumer Relationship Intention

It is important to understand how and why online consumers participate in long-
term relationships. Consumer relational behavior is generally demonstrated through the
action of repeat purchases. Some researchers, such as Sheth & Parvatiyar (1995), also
view it as purposeful choice reduction behavior. Practitioners also use various pointers,

41
PhD Thesis - F. Wang McMaster - Business

such as consumers thinking of a retailer first when considering a purchase, low price
sensitivity, etc., to evaluate consumer relational behavior (Claycomb & Martin, 2001).

Constructs Characteristics and expected chan2es in online shoppin2

0 High
Perceived 0 May possess a correlation with length and quality of
consumer relationship
power 0 Future focus shift from market feedback loops to product
(I'J
design. and overall market
=
.......= 0 High
=-
~
tJ
Perceived
0 An additional/complementary channel for traditional retailers
J. relationship
~ 0 Future focus shift from retention orientation to relationship
...=-
~
investment
orientation
~
J.
('II
0 High: many interaction opportunities, personalized
e
J. Perceived
interaction
~ 0 Consumer-directed computer interaction
e interaction
Future focus shift from B2C computer orientation to
=
(I'J
0

interaction with a broad range

U
=
= 0 High
Perceived 0 Online shoppers have overcome a certain level of risk
shopping perception to transact online
risks 0 Future focus shift from transaction or product related risks to
relationship or service related risks
Perceived 0 Unsure, may increase or decrease depending on the specific
switching shopping context
-==- =
.... (I'J

J. costs 0 New categories of switching costs

=.-...
(I'J

-.......= ('II 0 An important mediating factor to relationship building

('II
"CI
~
Satisfaction
~ e
0 Subjective judgment based on previous experience
~ 0 Difficult to build
Trust
0 An explicit effect in consumer shopping decisions
Relationship 0 A high level of relationship intention
intention 0 Speeded/reduced relationship building process

Table 4.1: A Summary of the Constructs in the Model

Various constructs have been used to represent consumer relational

characteristics. Moorman et al. (1992) and Grayson and Ambler (1999) use commitment.
Garbarino (1999) applied commitment and future intentions. Relationship intention is
used as the final dependent construct in the model developed in this chapter. This
construct represents consumer attitudes toward future shopping behavior, which underlies
their psychological reasons for relational behavior. Also, since online shopping is still in
its infancy, many shoppers may not have formed long term relationships with retailers. It
42
PhD Thesis - F. Wang McMaster - Business

is likely that many are in the process of relationship building. Therefore, relationship
intention is an appropriate construct to research the consumer relationship building
process.

4.3. Relationship Mediator Constructs

Perceived switching cost, trust, and satisfaction constructs are used to mediate the
relationships between consumer perceptions of market characteristics and their relational
behavior.

4.3.1. Perceived Switching Costs

Switching costs refer to those incurred when customers change suppliers (Lee, et
at, 2001). Switching costs have long been associated with customer satisfaction and
loyalty (Lee et aI., 2001), but little research has examined the role of switching costs in
online shopping (Chen & Hitt, 2002).

The online environment was once said to present lower switching costs for
consumers than the brick-and-mortar shopping environment, because of the high
availability of online alternatives (Lee et al., 2001) and ease of comparison. Other
constructs, such as perceived relationship investment, perceived shopping risk, and
efficiency needs, may also positively impact perceived switching costs (Chiagouris &
Wansley, 2000; de Figueiredo, 2000; Wang et at, 2000). Online shoppers may have
additional technology-related efficiency needs (Nielsen, 1993) compared to traditional
shoppers. A Web user may go through a learning curve before skillfully browsing a
commercial site and identifying targeted information. This may build a high technology-
related switching cost. Most online transactions require financial information such as
credit card information and certain personal information. This may present a high
security and privacy-related switching cost. There is no evidence yet as to whether
overall switching cost is increased or decreased in the Web environment.

Perceived switching cost is a component of perceived relationship value. When

consumers think that switching to another retailer is costly, they are more likely to stay
with the current retailer and exhibit relational market behavior. Thus, it is proposed:
H 1: A higher level ofperceived switching costs leads to a higher level of relationship
intention in online shopping.

Consumers realize that online market information is vast and easy to access
(Smith et al., 1999; Sweat, 2000). Retailing competitors are a click away in the online
environment (Sinha, 2000; Wang et aI., 2002). Knowing that it is easy to access other
retailers and that decisions are based on comparison of market offerings, will enhance
consumer satisfaction. On the other hand, knowing that a purchase has to be made from a
particular retailer because of the high switching cost may decrease overall satisfaction.
Thus, it is proposed:
H2: A higher level of perceived switching costs leads to a lower level ofsatisfaction in
online shopping.

43
PhD Thesis - F. Wang McMaster - Business

4.3.2. Satisfaction
Based on existing literature (Fornell et aI., 1996; Garbarino & Johnson, 1999;
Spreng et aI., 1996), satisfaction is used here to refer to a consumer's purchase evaluation
through a comparison of perceived/expected value and received value. Customer
satisfaction may consist of different aspects. Here, overall satisfaction or cumulative
satisfaction is used as a mediating construct between consumer perceptions of market
characteristics and their relational choice. Overall satisfaction could be an accumulation
of separate satisfaction evaluations with different factors such as the shopping
environment or products, among others (Westbrook, 1981).

For online consumer satisfaction, Szymanski and Hise (2000) concluded that
convenience, site design, and financial security are the dominant factors in consumer
assessments of e-satisfaction. This model examines the antecedent effects of consumer
market perceptions such as perceived relationship investment, perceived interaction,
efficiency needs, and consumer power. Satisfaction is widely used to predict behavioral
intentions (for example, Fornell et aI., 1996; Garbarino & Johnson, 1999; Jiang, 2002;
Lee et aI., 2002; Teo et aI., 2003; Zeithaml et aI., 1996). For a long-term non-contractual
relationship, customers have to be satisfied continuously. Otherwise, they may begin to
search for alternatives. It is one of the most important criteria for customer loyalty
(Heskett et at, 1994).

Satisfaction is highly correlated with long term relationships (Fornell et aI., 1996;
Ganesan, 1994; Garbarino & Johnson, 1999; Mittal & Kamakura, 2001; Olsen, 2002);
relationships are actually based on continuous satisfaction (Olsen, 2002). With previous
satisfactory experiences, consumers will tend to repeat their purchases from a particular
retailer.

Satisfaction also plays an important role in the formation of trust (Claycomb &
Martin, 2001; Garbarino & Johnson, 1999). When consumers are satisfied with the
previous purchase, they start to believe that the retailer will provide another satisfactory
shopping experience. Most studies of the relationship between satisfaction and customer
relational behavior have been carried out in a traditional shopping context. Studies
investigating outcomes of e-satisfaction are needed (Szymanski & Hise, 2000). It is
proposed that:
H3a: A higher level ofsatisfaction leads to a higher level ofrelationship intention in
online shopping.
H3b: A higher level ofsatisfaction leads to a higher level of trust in online shopping.

4.3.3. Trust
Trust refers to the reliability of a market player and the confidence others have in
that player (Garbarino & Johnson, 1999; Moorman et aI., 1993; Morgan & Hunt, 1994).
It is usually a result of the market player consistently fulfilling promises. Certain market
knowledge, attitudes, or perceptions, such as the brand name of a retailer, positive

44
PhD Thesis - F. Wang McMaster - Business

experiences shared from a friend, a recommendation from a consumer review report, or a

certificate or a seal of trust from a third party (Head & Hassanein, 2002), may invoke the
generation of trust even before a market interaction.

Trust is a multi-dimensional construct, and different dimensions of trust affect

different stages of customer equity management (Blattberg et aI., 2001; Sirdeshmukh et
aI. , 2002), including customer acquisition, retention, and relationship expansion. In e-
tailing, it has been found that window-shopping intentions are affected by the ability-
trustworthiness of the e-tailer, while overall trust in the e-tailer and its integrity
trustworthiness affect purchase intentions (Gefen, 2002). Trust plays an important role in
fostering strong relationships (Sirdeshmukh et aI., 2002), and is positioned as perhaps the
single most powerful RM construct available to a company (Berry, 1996).

In a traditional market, since the consumer visits the "brick-and-mortar" store and
can physically examine the product, it is easier to believe that the shop will satisfy its
market promise. The risk factor of shopping with an unfamiliar retailer is typically low.
With online shopping in its infancy, consumers display different levels of trust towards
online retailers. It may take significantly longer to build trust online than offline (Head &
Hassanein, 2002). Trust is expected to play an important mediating role in an online
market. Based on the above, it is proposed:
H4a: A higher level of trust leads to a higher level of relational intention in online
shopping.
H4b: A higher level of trust leads to a higher level ofsatisfaction in online shopping.

4.4. Consumer Market Perception Constructs

F our consumer market perception constructs are tested in the hypothesized model:
perceived relationship investment, perceived shopping risks, perceived interaction, and
perceived consumer power. As shown in Chpater 3, it appears that there are significant
differences in online vs. offline markets, marketers, channels and consumers (Andresen,
1999; Bhatnagar et aI., 2000; Godin, 1999; Krishnamurthy, 2001; Miyazaki & Femander,
2001; Peterson et aI., 1997; Sharma & Krishnan, 2000; Tuthill, 2002; Vice, 2001; Yang
& Jun, 2002). The constructs incorporated in the hypothesized model represent some
important enhancements in online retailing. They may invoke significant changes in
consumer relationship orientation, as shown in the analysis found in Chapter 2 (Coviello
et aI., 1997; De Wulfet aI., 2001; Krishnamurthy, 2001; Pressy & Mathews, 2000; Sheth
& Parvatiyar, 1995; Smith, 1998). By analyzing these constructs, we can better
understand the mechanics of Web effects on consumer relationship building.

4.4.1. Perceived Relationship Investment

Perceived relationship investment is a consumer's perception of the extent to
which a retailer devotes resources, efforts, and attention to maintain or enhance
relationships with customers (De Wulf et aI., 2001; Smith, 1998).

45
PhD Thesis - F. Wang McMaster - Business

The employment of the Web in retailing increases perceived relational

investment. As outlined in Chapter 3, e-tailers are more capable, in terms of available
-techniques and implementation costs, of implementing RM tactics (Godin, 1999). E-
tailers have more tools to build relationships with consumers, such as personalized Web
sites and communities (Holland & Baker, 2001; Thorbjomsen, Supphellen, Nysveen, &
Pedersen, 2002). The Web not only helps B2C communication, but also affects market
offerings. Service is an essential part of online offerings. As a result, online consumers
may receive better individual treatment, including personalized interaction and
customized offerings.

E-tailer RM efforts may be more visible to consumers. Due to the convenient and
interactive nature of the Web, consumers may respond favorably to an e-tailer's RM
tactics. Even when RM is not the central strategy of a commercial Website, consumers
may appreciate the information and contacts provided. Consumers may interpret a
retailer's employment of the Web as customer-caring and as intent for interaction.
Consumer perception of marketer RM efforts may lead to their willingness to enter into a
relationship.

Retailers with higher perceived relationship investment encourage customer

retention and create psychological bonds for customers to reciprocate retailer relationship
efforts. Research in the traditional retailing context has demonstrated that perceived
relationship investment affects relationship quality, ultimately leading to behavioral
loyalty (De Wulf et al., 2001). Online empirical data reports that the greater the online
resources offered to enhance the shopping experience, the greater the customer's
confidence (Krishnamurthy, 2001).

Relationship investment is an important aspect of retailer marketing strategy and

is highly context specific. The effect of relationship investment on online consumer
attitude is not fully understood. While it has been demonstrated that perceived
relationship investment affects relationship quality, ultimately leading to behavioral
loyalty (De Wulf et at, 2001), Krishnamurthy's results (2001) did not support the
proposition that online relationship services positively impact consumer confidence. The
hypothesized model predicts the impact of relationship investment on consumer relational
attitude through three mediators. Consumers do not gain benefits from retailer
investments by switching to another retailer. Consumers feel that the retailer with a high
relationship investment cares about them, leading to high trust and satisfaction. Based on
the above, hypothesis 5 is presented:
H5a: Perceived relationship investment positively impacts perceived switching costs in
online shopping.
H5b: Perceived relationship investment positively impacts satisfaction in online
shopping.
H5c: Perceived relationship investment positively impacts trust in online shopping.

46
PhD Thesis - F. Wang McMaster - Business

4.4.2. Perceived Shopping Risks

Risks are associated with online shopping. As discussed in Chapter 3, e-tailing is
associated with many kinds of risks, such as financial, product perfonnance,
psychological, and time/convenience loss risk (Forsythe & Shi, 2003), as well as privacy
and security risks (Miyazaki & Fernandez, 2001; Tuthill, 2002; Vice, 2001). These risks
affect consumer online patronage behavior (Forsythe & Shi, 2003).

Online shopping risks may consist of two aspects: (i) environmental risk
associated with the online media and thus affecting all retailers; and (ii) retailer risk
associated with a specific retailer, which can have varying effects on trust. Perceptions of
environmental risk may differ significantly among individuals. The higher the risk
evaluation is, the less trust consumers may have in any online retailers. On the other
hand, online shoppers have to overcome certain levels of risk perception about retailers to
purchase online. It has been found (Yang & Jun, 2002) that the concerns about risk
components for online purchasers and non-purchasers are different. Where reliability is
the most important dimension for online purchasers, security is the most critical concern
for non-purchasers (Yang & Jun, 2002). In a high-risk situation, environmental risk may
reinforce the trust a shopper has in a particular retailer, since it is valued by shoppers and
difficult to build. Higher perceived risk leads to a greater consumer propensity to reduce
choices and engage in relational market behavior (Sheth & Parvatiyar, 1995). Relational
behavior develops consumer self-confidence (Sheth & Parvatiyar, 1995).

Since perceived shopping risks is a construct here representing changes in retail

market, this research focuses on testing environmental risk rather than retailer risk. Thus,
the higher the perceived risks are, the higher the trust may be. Meanwhile, it is feasible
that the higher the risk is, the higher the perceived switching costs. Based on the above
theoretical analysis and findings, the goal is to confinn that:
H6a: A higher level ofperceived shopping risk leads to a higher level ofperceived
switching cost in online shopping.
H6b: A higher level ofperceived shopping risk leads to a higher level of trust in online
shopping.

4.4.3. Perceived Interaction

The Web is viewed as an interactive medium (Coviello et aI., 2001; Sohn et aI.,
2002; Wang et aI., 2000). With the high interactivity enabled by the Web, the point is no
longer whether interaction may occur, but rather in understanding the different levels of
interaction that the various actors may desire (Pels, 1999).

As addressed in Chapter 3, the Web creates opportunities for enhanced consumer

interactivity. A higher level of interaction creates opportunities for, and speeds the
building of, relationships. Interactive marketing is an important category of RM (Coviello
et aI., 1997,2001), and interaction during the shopping process is important for a
satisfactory shopping experience (Pels, 1999). It is an essential process for consumers to
access information that will answer their questions (Kolesar & Galbraith, 2000).

47
PhD Thesis - F. Wang McMaster - Business

Consumers may believe that a good and informed decision is made through interaction
with retailers (Wang et aI., 2000).

Interaction online has two aspects: retailer ability and willingness to interact, and
consumer ability and willingness to interact. Retailer offers of interaction may be
perceived as a special attribute of relationship investment and may thus increase the
perceived switching cost. On the other hand, consumers play an important role in
interaction. Personal orientations toward interactions may apply to aU retailers and make
switching easier, thus negatively influencing the relationship between perceived
interaction to perceived switching cost. Additionally, online consumers may require
certain skills, such as computer proficiency, to feel comfortable in interacting with
retailers. In this respect, high perceived interaction may demonstrate consumer ability
and tendency to interact online. Consumers with high ability and tendency to interact may
access more competing retailers, resulting in lower switching costs. In the online
environment, the consumer side of the interaction is especially prominent. From the
retailer side, interactions provided by most online retailers are quite standard. Higher
interaction levels may not build switching barriers online. It is suspected that the effect of
perceived interaction on perceived switching cost is negative. Thus, it is proposed that:
H7a: A higher level ofperceived interaction leads to changes in perceived switching cost
in online shopping.
H7b: A higher level ofperceived interaction leads to a higher level of satisfaction in
online shopping.

4.4.4. Perceived Consumer Power

Power is the ability to act or produce an effect and possession of control,
authority, or influence over others (Merriam-Webster's Collegiate Dictionary,
\[Link]). In the hypothesized model, consumer power is defined as the ability
to understand, control and potentially change the marketplace. The enabling and limiting
factors of consumer power can be analyzed through four main categories: constellation of
actors and interests, context of interaction, process of interaction, and outcomes (Granmo
& Olander, 1991).

There is an imbalance of power between consumers and retailers in the traditional

market, where consumers are passive targets for fixed offerings. While consumers can
negotiate pricing in select situations, such as car purchasing, they may not achieve their
ideal goals due to limited market information. Pressey and Mathews (2000) confirmed
that reducing the imbalance of power facilitates the conditions needed for relationship
building in a consumer market.

As discussed in Chapter 3, the Web empowers consumers and creates a

transparent environment. Online consumers can access more information and make better
decisions. The Web can serve as a voice channel for consumers. Consumers can interact
with each other and group to influence retailers. Because of the interactive nature of this
channel, consumers have more opportunities to negotiate with retailers.

48
PhD Thesis - F. Wang McMaster - Business

Consumer power is important for long-term relationships. Both long-term

relationships and coordination exist with parties that have balanced power (Pressey &
Mathews, 2000). Consumers will not have the same level of power across different
retailers. Since consumer power is related to specific retailers, retailers may build a
switching barrier by enabling consumer power. It is also suspected that power will affect
consumer satisfaction. This has not been studied in previous research, but will be
explored as a possible additional path. Therefore, it is proposed:
H8: A higher level o/perceived consumer power leads to a higher level o/perceived
switching costs in online shopping.

4.5. Discussion
This chapter provides a model to systematically examine the mechanism of the
relationships between Web impacts on the retail market and consumer relationship
intention. The model is different from those studied in previous research in that it:
(1) focuses on the fundamental elements of online retailing, which provides
opportunities for online retailers. The model addresses perceived risks, perceived
relationship investment, perceived interaction, and perceived power from consumer
perceptions on the retail market, channel, retailer, and consumer respectively. If it can be
shown that these constructs work for consumer relationship building in online retailing,
e-tailers can focus on these aspects to build consumer relationships, and gain an online
competitive advantage.
(2) specifically addresses consumer relational intentions. Rather than addressing
the common constructs of consumer online shopping intention and adoption (Cheung et
aI., 2003), this research specifically focuses on examining consumer relational attitude
through their re-purchase intention. The model designed has a solid theoretical basis in
consumer RM literature.
(3) investigates the mechanism of the impacts of consumer market perceptions on
relationship intention, involving three mediators: satisfaction, trust, and perceived
switching costs. The constructs in this model have been carefully selected and designed
in a manner that should lead to an understanding of how these mechanisms affect
consumer intentions.

The hypothesized model is based on a theoretical analysis of research in both the

e-tailing and consumer RM fields. The next chapter describes the survey and
confirmatory analysis that investigate this model.

49
PhD Thesis - F. Wang McMaster - Business

Chapter 5. An Empirical Study of Consumer Relational Intentions

Following the theoretical research of the previous chapters, this chapter reports on
an empirical study, carried out to:
1) test the hypothesized model proposed in Chapter 4, and
2) help fill gaps found in previous research.

This chapter is organized as follows. Section 5.1 discusses research methodology,

including research settings, sample, procedures, and the development of measurement
models. Section 5.2 provides research results and findings. Section 5.3 further discusses
the meaning of the research results and addresses some research limitations.

5.1. Methodology
5.1.1. Setting, Samples and Procedure
A survey was conducted at two Ontario universities. Paper-and-pencil
administration of questionnaires was used instead of online questionnaires or a mix of the
two. In their evaluation of computer vs. paper-and-pencil questionnaires, Webster and
Compeau (1996) found that different patterns of relationships exist among constructs
between the two modes of questionnaire administration. A copy of the survey instrument
appears in Appendix I. This study measures subjective opinions of online shopping.
First, online shopping is a computer-related experience where certain measures may be
sensitive to online testing. Using an online questionnaire may make the online
perspective more salient, thus influencing the relationships among constructs (Drasgow et
al., 1993). Second, subjective instead of objective measures were used in this study and it
has been found that relationships among subjective measure are more affected by
different questionnaire administration modes (Webster & Compeau, 1996). Thus, the
administration of questionnaires with only one of the two modes is preferred, to avoid
any possible discrepancies with multiple administration methods. Paper-and-pencil was
chosen for this study.

Consumers with online shopping experience were asked questions based on their
last shopping experience, rather than providing a hypothesized context. Survey
participants were asked whether they had previously purchased books, CDs, or DVDs
online. If they had, they were asked to answer the questionnaire according to their last
experience in this product category. Ifnot, they were asked to report on the product
bought in their last online shopping experience and to answer the questionnaire
accordingly. If they had no online shopping experience, they were not asked to complete
the questionnaire.

The product category of books, CDs, and DVDs was selected for several reasons.
First, since the ultimate goal of this research is to investigate consumer relationship
building factors and mechanisms, it was desirable to eliminate any product-associated
variables. Second, according to a recent Ernst and Young report (2001), books and CDs
are among the top four online purchased categories in most countries, including Canada.
50
PhD Thesis - F. Wang McMaster - Business

During a pre-survey research session, it was found that this product category would
obtain the highest response to the survey.

During a six-week survey period, 186 survey responses were received.

Preliminary data inspection showed that 9 respondents had purchased the products in this
category in online auction sites, such as eBay. Because auction sites did not comply with
our research parameters, these respondents were excluded. Thus, a total of 177 responses
were retained for analysis.

Since the survey was conducted at universities and data were from students, the
respondents tended to be young (mean age = 26), well educated (62% held or were
working towards a bachelor degree, 38% held or were working towards a masters or
Ph.D. degree), and from lower income brackets (80% had annual income below
CAN$30,000). Male respondents (119) out-numbered female respondents (58).
Approximately half of the respondents were from engineering majors, and most of these
were male. For respondents with majors other than engineering, males slightly
outnumbered female respondents. The respondents were Web proficient, with 60%
spending more than 7 hours online per week. The top five online retailers the respondents
purchased from were: Amazon (37.85%), Chapters/Indigo (21.47%), HMV (5.65%),
Columbia House (5.65%), and Future Shop (3.39%). The average amount spent on their
last online purchase was CAN$87. Thirty-six percent of the respondents were first time
shoppers at the online retailer where their last purchase was made. Twenty-one percent
reported two purchasing experiences from the retailer, and 35% reported three or more
purchasing experiences from the retailer.

The data were analyzed with structural equation modeling (SEM) techniques.
SEM was chosen because of its advantages over other methods. SEM can be used as an
alternative to multiple regression, path analysis, factor analysis, time series analysis, and
analysis of covariance, which can be seen as special cases of SEM (Garson, 2002). It is
more powerful in that it "takes into account the modeling of interactions, nonlinearities,
correlated independents, measurement error, correlated error terms, multiple latent
independents each measured by multiple indicators, and one or more latent dependents
also each with mUltiple indicators" (Garson, 2002). The result is more accurate parameter
estimation and a "more realistic" (Bollen, 1989) analysis. SEM has other advantages such
as allowing more flexible assumptions, the ability of testing models overall rather than
individual coefficients, the ability to model error terms, handle difficult data, and so on
(Garson, 2002).

The sample size obtained in the survey was sufficient to analyze the hypothesized
model using SEM. According to Anderson and Gerbing (1988), a sample size of 150 is
needed to obtain parameter estimates that have standard errors small enough to be of
practical use in SEM. Also, a rule of thumb (Bentler & Chou, 1987) is that the ratio of
sample size to the number of free parameters should be at least 5: 1, and a ratio of about
10: 1 is desirable (Bentler & Chou, 1987). A meta-analysis performed by Baumgartner
51
PhD Thesis - F. Wang McMaster - Business

and Homburg (1996) showed that the average ratio of sample size to number of
parameters estimated is 6.4. According to these guidelines, the sample size used in this
analysis was sufficient, at approximately 10: 1.

5.1.2 Measurement Models

The data were analyzed using LISREL 8 (Joreskog & Sorbom, 1993,2001,2002).
The models were tested using the two-step structural equation procedure advocated by
Anderson and Gerbing (1988) and employed by many other researchers (e.g., Garbarino,
1999; Lee et aI., 2003; Shim et aI., 2001; Spreng, et aI., 1996). Separate measurement
models were run for constructs of consumer market perceptions (exogenous constructs),
and constructs of relationship mediators and relationship intention (endogenous
constructs).

Three evaluation criteria are essential to measurement development: reliability,

content validity, and construct validity (Gefen, 2002). Reliability reflects the extent of
consistency among construct measures, and often is assessed by statistics such as the
Cronbach a (Gefen, 2002). Content validity is a qualitative assessment of whether
measures ofa construct capture the real nature of the construct (Gefen, 2002), and is
usually established through the literature and expert judges. Construct validity is a set of
quantitative measures that assess how accurately the scale measures the studied construct,
and is usually evaluated through convergent discriminant validity (Gefen, 2002). This
section focuses on reporting content validity by explaining the measure development.
Construct reliability and validity are addressed in subsequent sections.

The construct measures are based on existing literature, as outlined in Table 5.1.
Measures for many constructs are available in the literature (Bhatnagar et aI., 2000; De
Wulf et aI., 2001; Garbarino & Johnson, 1999; Mitchell, 1999; Park & Jun, 2002), and
have been adapted to suit the context of this survey. Because of the novelty of research in
online shopping, some measures were based on previous related literature, because no
appropriate, previously validated, measurements were available. Three core
measurements were employed in each of the eight constructs, respectively. Due to the
inherently high correlation that may generally exist among the various relationship
constructs (Garbarino & Johnson, 1999; Morgan & Hunt 1994; Smith & Barclay 1997),
which may cause high errors in validating the measurement model, as a precaution, one
alternative question was included in the questionnaire for each ofthe six constructs.
Shown in Table 5.1, the eight alternative questions are not as good as the core questions,
and were not included in the data analysis. However, after the establishment of the
measurement model, a test was conducted that included these alternative questions in the
measurement model. It was found they do not improve the model fit. Seven-point Likert-
scales were employed in the questionnaire. The questionnaire was pre-tested by 12 Ph.D.
students in the DeGroote School of Business and revisions (mostly clarification of
wording) were made according to their suggestions.

52
PhD Thesis - F. Wang McMaster - Business

Construct Validated Measures in the Measurement Items Used in This Study

Literature
This store makes efforts to increase This retailer makes efforts to increase
regular customers' 10yalty(De Wulf et regular customers' loyalty.
.9-
,.c::
al.,2001)
'" This store makes various efforts to This retailer makes various efforts to
.=
.. =
o - improve its tie with regular customers improve its ties with regular customers.
~
- 0
S (De Wulf et aI., 2001).
~ 1;)
"0 0 This store really cares about keeping This retailer really cares about keeping
~ ~
• ..-.1 .""""
regular customers (De Wulf et aI., regular customers .
0
~ 2001)
0
t:l; Developed according to Odekerken- This retailer implements many marketing
Schroder et aI. (2003) techniques to enhance customer
relationship. *
Not available (NIA) I can easily find a way to communicate
with the retailer.
"0
o .9= N/A I can easily get answers for my questions.
.....o> -ell (.)

~ I-<
N/A The retailer values my feedback. *
02
t:l; .S This website gives you personal The retailer provides me with personalized
attention (Wolfinbarger & Gilly, interaction.
2003)
I-<
0
N/A I feel that I can influence this retailer on
§ their offerings, pricing, or services.
'" N/A I think I can easily communicate with or
=~
0
(.)
I-<
0 influence other consumers in the online
"0
0 0
0...
environment.
>
'Q) N/A I have many choices for products and
~ retailers. *
0
t:l;
N/A I can control myonline shopping process.
I do not think there is much risk It is risky to purchase from an unfamiliar
involved with purchasing .... online retailer.
..I<'" (Schoenbachler & Gordon, 2002)
'"
·c Proposed online risk categories If I purchase from an unfamiliar online
00
.S (Bhatnagar et aI., 2000) retailer, I am concerned about giving
0...
§< financial or personal information.
...c:: Proposed online risk categories If I purchase from an unfamiliar online
"0'"0 (Bhatnagar et aI., 2000) retailer, I am concerned about refund and
.....0> after-sale service procedures .

t:l;
~ Proposed online risk categories Shopping with an unfamiliar online retailer
(Bhatnagar et aI., 2000) may pose problems for me that I just don't
need. *

Table 5.1(a): Content Validity for Exogenous Measure Development

53
PhD Thesis - F. Wang McMaster - Business

Construct Measures in the Literature Measurement Hems used in

this Study
How satisfying was your last shopping experience I am satisfied with this
at this store? (Sirdeshmukh et aI., 2002) purchase.
t:l How would you rate this theater compared with Compared to other online
.S
..... other off-broadway companies on the overall retailers, this retailer provides
u
$ satisfaction? (Garbarino & Johnson, 1999) good service.
.;!i
.....
ro N/A I made a good choice by
r:rJ
purchasing from this retailer.
N/A My shopping was done in an
effective and efficient way. *
N/A Becoming a regular customer
of this retailer will benefit me
.....
(/J

(/J in future online shopping

0
u experiences. *
OIl
t:l I feel unhappy if for some reason I had to switch to I feel unhappy when shopping
:.a.....u another organization (Pressey & Mathews, 2000). from another retailer.
.~ It would cost me more money, or I would lose It will be financially
(/J

"d money, in were to switch to another organization detrimental for me to switch

(Ij
;> (Pressey & Mathews, 2000). to another retailer.
'vu If I used another organization I would lose some If I purchase from another
.....
(Ij
p.. kind of benefit (Pressey & Mathews, 2000). retailer, I would lose some
other kinds of benefits such
as convenience or confidence.
I trust ... (Gefen, 2002) This retailer can be trusted.
I have trust in this store (De Wulf et al., 2001)
... likely to be reliable (Gefen, 2002) This retailer is reliable .
.....
rIO
:::l This store's behavior meets my expectations This retailer consistently
.....
[-< (Jarvenpaa et aI., 2000). meets my expectations. *
I can count on ... (Gefen, 2002) This retailer can be counted
knows how to provide excellent service (Gefen, on to provide high quality
2002) products and services.
Proposed consumer RM theories (Sheth & I will reduce my searching
Parvatiyar, 1995) process the next time I shop
t:l online with similar needs. *
.S
.....,
t:l I plan to do business with this company in the I will purchase from this
(Ij
..... future (Schoenbachler & Gordon, 2002) retailer the next time J shop
.S
...ce- Use this airline the very next time you need to online with similar needs .
rIO travel (Sirdeshmukh et aI., 2002)
t:l
.S I would keep buying there as a regular customer I would like to become a
....
ro (Odekerken-Schroder et aI., 2003) regular customer of this
~
~ retailer.
J feel loyal toward this store (Odekerken-Schroder I feel loyal to this retailer.
et al., 2003).
* AlternatIve questIons
Table 5.1.(b): Content Validity for Endogenous Measure Development

54
PhD Thesis - F. Wang McMaster - Business

Excluding the alternative questions asked in the questionnaire, twenty-four

measures were used in the data analysis to capture the various latent constructs (shown in
Table 5.2). Separate confirmatory factor analyses were performed on variables associated
with the exogenous constructs and variables measuring the endogenous constructs. The
exogenous models initially were run with 12 measures to assess four latent constructs.
One measure ("I can control my online shopping process") was excluded from the
exogenous model because of loading on two other constructs (perceived relationship
investment and perceived interaction). Multiple loadings of a measure need to be
interpreted substantively by theories or underlying logic, which was not the case for this
measure.

~easure~entlte~s SD t-Value
Construct Mean "-
Perceived This retailer makes efforts to increase regular 5.28 1.37 0.82 12.57
relationship customer loyalty.
investment This retailer makes various efforts to 5.19 1.25 0.82 12.48
improve its ties with regular customers.
This retailer really cares about keeping 5.25 1.29 0.85 13.13
regular customers.

Perceived I can easily find a way to communicate with 4.53 1.46 0.85 12.08
interaction the retailer.
I can easily get answers for my questions. 4.20 1.31 0.66 8.89
The retailer provides me with personalized 4.43 1.59 0.73 10.01
interaction.

Perceived I feel that I can influence this retailer on their 3.15 1.46 0.84 10.49
consumer offerings, pricing, or services.
power I think I can easily communicate with or 3.58 1.63 0.84 10.51
influence other consumers in the online
environment.
I can control my online shopping process. *

Perceived It is risky to purchase from an unfamiliar 5.66 1.41 0.79 11.96

shopping online retailer.
risks If I purchase from an unfamiliar online 5.69 1.32 0.83 12.76
retailer, I am concerned about giving
financial or personal information.
If I purchase from an unfamiliar online 5.42 1.41 0.89 14.13
retailer, I am concerned about refund and
after-sale service procedures.

Table 5.2(a): ~easures and Esti~ates for Exogenous Constructs

55
PhD Thesis - F. Wang McMaster - Business

Construct Measurement Items Mean SD A- t-Value

Satisfaction I am satisfied with this purchase. 5.29 1.19 0.74 11.09
Compared to other online retailers, this 5.52 1.21 0.95 16.04
retailer provides good service.
I made a good choice by purchasing from 5.76 1.18 0.79 12.22
this retailer.

Perceived I feel unhappy when shopping from 2.99 1.56 0.81 10.48
switching another retailer.
costs It will be financially detrimental for me to 3.10 1.69 0.78 10.15
switch to another retailer.
If I purchase from another retailer, I would
lose some other kinds of benefits such as
convenience or confidence. *

Trust This retailer can be trusted. 5.61 1.20 0.92 15.10

This retailer is reliable. 5.68 1.19 0.95 15.89
This retailer can be counted on to provide
high quality products and services. **

Relationship I will purchase from this retailer the next 4.91 1.49 0.57 7.73
intention time I shop online with similar needs.
I would like to become a regular customer 4.72 1.48 0.88 12.44
of this retailer.
I feel loyal to this retailer. *
*Item dropped because of loading on more than two constructs.
** Item dropped because of high error correlation.
SD =standard deviation

Table 5.2(b): Measures and Estimates for Endogenous Constructs

Based on the criteria of fitness indices, convergent validity, and Cronbach alphas,
shown in Tables 5.2, 5.3, and 5.4 respectively, it was determined that the measurement
models achieved good fits. While a large sample was used, the measurement models still
presented very good fitness indices. P-values of both the exogenous construct
measurement model and the endogenous construct measurement model were not
significant (p=0.20, 0.06, respectively, exceeds 0.05). The ratios of chi-square to degrees
of freedom (d.t.) were 1.19 and 1.53 for the exogenous constructs and endogenous
constructs, respectively, below the cutoff ratio of 3: 1 used by Gefen et al. (2003) and 5: 1
suggested by Marsh and Hovecar (1985). Goodness-of-fit indices (GFls) of both models
are 0.96, above 0.9, a commonly used reference point for acceptable fit (Baumgartner &
Homburg, 1996; Gefen et aI., 2000; Hair et ai., 1998). Comparative fit indices (CFIs)
(Bentler 1990) of both models are 0.99, above the commonly used thresholds of 0.9
(Gefen et al., 2000; Gefen et aI, 2003; Hair et aI., 1998) or 0.95 (Hu & Bentler, 1999).
56
PhD Thesis - F. Wang McMaster - Business

Adjusted goodness-of-fit indices (AGFls) of both models are 0.92, above 0.8, which was
suggested as an acceptable value (Gefen et aI., 2000; Gefen et aI., 2003; Hair et aI.,
1998). Convergent validity is shown through large t-values and average squared multiple
correlations (SMC). The I-values in Table 5.2 show that all the measures loaded
significantly on the intended latent constructs (t > 1.96). The squared multiple
correlations (SMC) ranged from 0.32 to 0.90, and the averages are reported in Table 5.4.
Large values for average SMCs indicate that a substantial amount of the variance in the
measures is captured by the latent constructs. The Cronbach alpha is used to judge set
reliability. Rivard and Huff (1988) suggest that the Cronbach alpha measures for
reliability should be higher than 0.5 and ideally higher than 0.7. Nunnally (1978) also
recommends the Cronbach alpha of a scale should be greater than 0.7 for items to be used
together as a construct. The Cronbach alphas of seven constructs out of the eight exceed
the 0.7 threshold, with the remaining construct having a 0.63 alpha value. There were no
standardized residuals greater than 3.00. Root mean square errors of approximation
(RMSEA) of the models were 0.033 and 0.055, respectively, below the cutoff value of
0.06 suggested by Hu and Bentler (1999) and 0.08 suggested by Jarvenpaa et aI. (2000).

a Average SMC
Exogenous constructs
Perceived relationship investment (3 questions) 0.85 0.69
Perceived interaction (3 questions) 0.75 0.56
Perceived consumer power (2 questions) 0.80 0.70
Perceived shopping risk (3 questions) 0.84 0.70

Endogenous constructs
Satisfaction (3 questions) 0.83 0.69
Perceived switching cost (2 questions) 0.73 0.63
Trust (2 questions) 0.87 0.87
Relationship intention (2 questions) 0.63 0.55
Note: a = Cronbach alpha; SMC = squared multiple correlation.

Table 5.3: Construct Validation

Model df X//df p GFI AGFI CFI RMSEA p

Exogenous 38 45.17 1.19 0.20 0.96 0.92 0.99 0.033 0.78
constructs
Endogenous 21 32.18 1.53 0.06 0.96 0.92 0.99 0.055 0.38
constructs
Note: df= degree of freedom; X2 = chi-square; GFI = goodness of fit index; AGFI =
adjusted goodness of fit index; CFI = comparative fit index; RMSEA = root mean square
error of approximation (prefer non-significant p value).

Table 5.4: A Summary of Fit Indices for the Measurement Models.

57
PhD Thesis - F. Wang McMaster - Business

Setting the correlation between each pair of constmcts in the two measurement
models to 1, one pair at a time, a discriminant validity test was carried out following the
procedure recommended by Anderson and Gerbing (1988). In all cases, the overall fit of
the model, as shown by chi-square fitness, GFI, AGFI, and CFI, is significantly
diminished, confirming that all the constmcts are empirically distinct.

5.2. Results and Findings

The hypothesized stmctural model was analyzed using LlSREL 8 (Joreskog &
Sorbom, 1993,2001,2002). The correlation matrix is shown in Table 5.5.

YI Y2 Y3 Y4 Xl X2 X3 X4
Satisfaction (YI) 1.00
Perceived switching cost -.09 1.00
(Y2)
Trust (Y3) .66 0.5 1.00
Relationship intention .66 .49 .70 1.00
(Y4)
Perceived relationship .48 .30 .47 .52 1.00
investment (Xl)
Perceived interaction (X2) .45 .16 .27 .42 .38 1.00
Perceived consumer power .13 .49 .07 .31 .30 .47 1.00
(X3)
Perceived shopping risk .18 .03 .23 .15 .12 .09 -.17 1.00
(X4)

Table 5.5: The Correlation Matrix of Constructs

Figure 5.1 shows the standardized parameter estimates and t-values (in
parentheses) for the hypothesized paths of the stmctural models. These parameters also
are summarized in Table 5.6. Thirteen out of the total 14 hypothesized paths (93%) were
significant, with absolute t-values exceeding 1.96. The path from perceived shopping
risks to perceived switching costs (H6a) is not significant. The perceived shopping risks
tested here is the risks perceived on the online shopping environment. A significant level
of environmental risk perceived by online shoppers may be overcome as shoppers
become more comfortable with the online environment. This may also reflect the fact that
there are many competitive or brand name retailers in this product category. Perceived
shopping risks do positively affect tmst, which positively affects relationship intention
directly and indirectly through satisfaction. Thus, perceived shopping risks contribute to
relationship intention. The data analysis supports the theoretical framework underlying
hypotheses H6b and H7a, and confirms that perceived shopping risks positively impacts
tmst, and perceived interaction negatively impacts perceived switching costs. This
highlights the importance of tmst in online shopping and the importance of the consumer
aspect in interaction.

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 PhD Thesis - F. Wang McMaster - Business

H3a: 0.46
(10.49)

Consumer Market Perceptions Relationship Mediators

Note: the numbers following the colons are parameter estimates, the numbers in
parentheses are t-values.

Figure 5.1: The Model with Confirmatory Analysis Results

The data from the survey support the hypothesized model, as seen in Table 5.7.
The overall fit of the model was excellent. Chi-square (8 d.f.) was 9.76 and the ratio of
chi-square to degrees of freedom is 1.22. The p-value (0.28) of chi-square was not
significant. Goodness of fit index, adjusted goodness of fit index, and comparative fit
index were 0.99, 0.94, and 1, respectively. Root mean square error of approximation was
0.036 with ap-value of 0.57. No modification indices were suggested by the LISREL
program.

After the confirmatory analysis, it was natural to perform some additional

exploratory research (e.g., De Wulf et aI., 2001; Garbarino & Johnson, 1999). A series of
nested models were tested which included the exploratory propositions in the previous
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PhD Thesis - F. Wang McMaster - Business

analysis (relationships: power to satisfaction, and perceived interaction to trust). The

estimate for the link from power to satisfaction was 0.00. The links from perceived
. interaction to trust was insignificant, with a t-value of 0.20. Thus, no link from the nested
tests was recommended.

Parameter Estimate I-value

HI: perceived switching costs to relationship intention .51 15.37
H2: perceived switching costs to satisfaction -.24 -4.39
H3a: satisfaction to relationship intention .46 10.49
H3b: satisfaction to trust .29 2.02
H4a: trust to relationship intention .37 8.37
H4b: trust to satisfaction .31 2.45
H5a: perceived relationship investment to perceived switching .19 2.73
costs
H5b: perceived relationship investment to satisfaction .30 3.64
H5c: perceived relationship investment to trust .31 3.52
H6a: perceived shopping risk toperceived switching costs .11 1.69
H6b: perceived shopping risk to trust .14 2.38
H7a: perceived interaction to perceived switching costs -.17 -2.27
H7b: perceived interaction to satisfaction .29 5.12
H8: perceived consumer power to perceived switching costs .53 7.02

Table 5.6: Standardized Parameter Estimates for the Hypothesized Model

df ,l ,lldf p GFI AGFI CFI RMSEA P

8 9.76 1.22 0.28 0.99 0.94 I 0.036 0.57
Note: refer to Table 5.4 for notatIons.

Table 5.7: A Summary of Fit Indices for the Structural Model

To confirm the mediating role of the three mediators (perceived switching costs,
trust, and satisfaction) in the hypothesized model, an alternative model, shown in Figure
5.2, was tested. The alternative model was constructed following De Wulf et al. (200 I)
and Garbarino and Johnson (1999) in that the mediators became the ultimate constructs.
In this model, perceived switching costs, trust, and satisfaction were not mediators, and
direct links from four consumer market perceptions (perceived consumer power,
perceived relationship investment, perceived interaction, and perceived shopping risks)
were added. As shown in Table 5.8, the overall fit of this model was not as good as that
achieved with the hypothesized model. The three market mediator constructs were also
excluded one at a time as the mediating links from the four consumer market perceptions
to the relationship intention construct. The overall fit was also decreased significantly (all
p-values of chi-square were reported as 0.00000). The mediating role of the three market
mediator constructs was therefore confirmed.

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PhD Thesis - F. Wang McMaster - Business

Consumer Market Perceptions

Figure 5.2: An Alternative Model

df '1..2 '1..2/df P GFI AGFI CFI RMSEA p

9 229.10 25.45 0.00 0.75 0.018 0.55 0.377 0.00

Table 5.8: A Summary of Fit Indices for the Alternative Model

The effects of the three mediator constructs were further assessed using the
method proposed by MacKinnon (1995). In this approach, a model with both mediators
and direct paths is included. According to Mackinnon (1995), if the direct path
coefficient is zero when the mediator is included in the model, then the program effect is
entirely mediated by the mediating variable.

Based on MacKinnon's (1995) approach, a model, as shown in Figure 5.3, was

constructed and tested. In this model, four direct paths, from the four market perception
constructs to the relational intention construct, were added to the hypothesized model.

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PhD Thesis - F. Wang McMaster - Business

Consumer Market Perceptions Relationship Mediators

Figure 5.3: Another Alternative Model

The estimates of the direct paths from the four market perception constructs to the
relationship intention construct from the LISREL results are summarized in Table 5.9.
The estimates for the four paths are all very small and have non-significant t-values.
These results, therefore, provide additional evidence that the selected mediators
(satisfaction, perceived [Link], and trust) are appropriate and that they mediate
the effects of the market perception variables (investment, interaction, power and risk) on
the relationship variable.

Direct path to Relation Coefficient I-value S!gnificance (a=0.05)

Perceived Relationship Investment -0.05 -1.23 Non-significant
Perceived Interaction 0.08 1.95 Non-significant
Perceived Consumer Power -0.08 -1.90 Non-significant
Perceived Shopping Risks -0.05 -1.58 Non-significant

Table 5.9: Estimation of the Direct Paths

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PhD Thesis - F. Wang McMaster - Business

Further exploratory analyses were conducted by testing models where each of the
relationship mediators was removed. As shown in Table 5.10, none of these models
improved fit compared to the hypothesized model, which further supports the soundness
of the original model.

Models df '1...
2 x2/df P GFI AGFI CFI RMSEA p
Without 9 87.59 9.73 0.00 0.89 0.56 0.84 0.226 0.00
Satisfaction
Without 7 108.64 15.5 0.00 0.85 0040 0.71 0.291 0.00
Perceived .2
Switching
Costs
Without Trust 8 57.66 7.21 0.00 0.92 0.66 0.91 0.191 0.00

Table 5.10: A Summary of Fit Indices for Alternative Models Removing

Relationship Mediators

5.3. Discussion
Overall, the results from the above data analysis provide strong support for the
hypothesized model. It is clear that the four factors: perceived relationship investment,
perceived consumer power, perceived interaction, and perceived shopping risk, can be
important characteristics in online shopping, by facilitating relationship building through
their effects on satisfaction, trust, and switching costs. This research is valuable for both
theoretical research and industry practice. From the theoretical perspective, this is one of
the few empirical studies of RM in the consumer market and it is certainly one of the
earliest to systematically apply RM to online consumer groups. This research combines
fmdings from different areas (RM, online retailing, and consumer research), and extends
previous research to a new domain. We developed and/or validated measures for four
consumer perceptions, three relationship mediators, and relationship intention. The
perceived consumer power construct is novel, and its measures achieved a good fit. This
can serve as a basis for future research in this area. The research results also present
valuable implications for practitioners. It identifies the important areas online retailers
should concentrate on to help build customer loyalty, showing that consumer satisfaction,
trust, and perceived switching costs work together and can have a profound effect on
customer relationship building. Shown in Table 5.2 (b), the means of two measures of the
relationship intention construct value are 4.91 and 4.72, respectively. This corresponds to
a response of "somewhat agree", and indicates online shopper intention to build a
continuous relationship with e-tailers.

It has been shown that customization is more important than reliability in

determining customer satisfaction (Fomell et al., 1996). Tested in the online context, our
perceived interaction construct includes a customization component by asking shoppers
to evaluate "personalized interaction". While no questions were asked directly about the

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PhD Thesis - F. Wang McMaster - Business

reliability of the e-tailer from whom the respondents purchased, the relative reliability of
the e-tailer was implied in the perceived shopping risks construct through shopper
evaluation of risks with unfamiliar online retailers. This study shows that perceived
interaction is an explicit antecedent to satisfaction, while perceived shopping risk is not.
This finding is somewhat consistent with the findings of Fomell et al. (1996) on the
effects of customization and reliability on satisfaction.

It has been found that the risk perception with a retailer in a traditional context is
not an important antecedent for trust building (Schoenbachler & Gordon, 2002).
However, this thesis found that risk perception plays an important role in trust building in
online retailing. This simply highlights the high risk perceptions of online shoppers and
the importance that retailers should place on mitigating some of these risks.

Furthermore, this study confirms the mediating role of perceived switching costs,
trust and satisfaction between market perceptions and customer relationship intention.
The mediating roles of these constructs were discussed and evaluated in previous
research. For example, Olsen (2002) proposed satisfaction as a mediator between quality
and repurchase loyalty.

Previous research claimed that satisfaction is linked to repeat purchases (Magi,

2003; Mittal & Kamakura, 2001). It was also found (Mittal & Kamakura, 2001) that
consumers with different characteristics display varying thresholds such that, at the same
level of rated satisfaction, repeat purchase rates are systematically different among
different customer groups. Our research confirms the relationship between satisfaction
and repeat purchase intention, and shows that relationships work for online consumers.

The high correlation between trust and satisfaction has long been discussed and
repeatedly evidenced (Garbarino & Johnson, 1999; Y oon, 2002). The reciprocal
relationship between trust and satisfaction was analyzed in the hypothesized model of this
study and supported by data. Trust and satisfaction may play different mediating roles in
various market environments. Garbarino and Johnson's work (1999) demonstrated that
trust is a primary mediating construct between attitude components and future intentions
for high relational customers but not for low relational customers, and satisfaction is the
primary mediating construct for low relational customers. The online environment may
be a highly relational environment. However, because most online consumers have
emerged during the last few years, they are in the early stages of using this media for
shopping. Depending on shopper personal attributes, they may be high or low relational
customers. Thus, both satisfaction and trust appropriately played mediating roles in our
study.

This research confirms that a higher level of perceived switching costs leads to a
lower level of satisfaction in online shopping. While switching costs have been
associated with customer loyalty, few studies have examined the mediating role of
switching costs between customer satisfaction and customer loyalty. Due to the
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PhD Thesis - F. Wang McMaster - Business

perception that switching costs are low in online shopping (Nunes et al., 2000; Sinha,
2000), few have examined switching costs in online shopping. This work contributes to
the literature by examining switching cost and its mediating role in the online
environment. Lee et al. (2001) confirmed the mediating role of switching costs between
satisfaction and loyalty in the mobile phone service industry by showing that some
seemingly loyal customers are actually dissatisfied but do not defect because of high
switching costs. Our research provides a further step in explaining the complex relation
between switching cost and satisfaction. While switching cost has a direct positive effect
on relationship building, it has a negative effect on customer satisfaction in online
shopping. Online retailers who choose to be listed in search engines, shopping agents, or
provide competitor price search buttons and match the lowest competitor price instantly,
may generate higher consumer satisfaction and trust.

This research has some limitations. The first of these pertains to the hypothesized
model. While the model is designed to address RM effects from the impacts of the Web
on consumer market perceptions, being in a relationship may also affect consumer market
perceptions (perceived relationship investment, perceived interaction, perceived
consumer power, perceived shopping risks), and evaluation of relationship mediators
(satisfaction, trust, perceived switching costs). For example, repeat online shoppers may
perceive more relationship investment, interaction and power, due to their familiarity
with the e-tailer. Meanwhile, repeat shoppers may also possess higher trust, satisfaction,
and switching costs with an e-tailer. The benefits from being a repeat shopper are called
commitment values (Lee et al., 2003). Lee et al. (2003) studied the effect of the
commitment value, from socio-psychological (shopping enjoyment and purchasing
convenience), product, and economic (cost reduction, time spent, and time to receive
product) aspects, to customer satisfaction. For the hypothesized model tested in this
thesis, this means that feedback loops may exist from the construct of relationship
intention to the constructs of consumer market perceptions and relationship mediators.
However, due to the research focus of this thesis and the way in which the measures were
designed for the empirical study, these potential feedback loops were not investigated.
This is an area that can be further explored in future research.

Second, the survey was conducted in a university setting, using a student

population sample. Researchers have raised concerns about the generalizability of
student-based findings across the consumer population (Burnett and Dunne, 1986; Park
and Lessig, 1977; Szymanski & Henard, 2001). For example, the respondents to this
survey tended to be low income, young, well educated, and highly Web proficient. In
general, responses of college student subjects tend to be slightly more homogeneous than
those of non-student subjects (Peterson, 2001). These sampling issues may influence
how students evaluate each construct, and the relationships among constructs.

A sampling problem may also rise with the unbalanced gender population, with
males significantly out-numbering females. Previous research suggests that males and
females follow different decision making processes. For example, men and women have
65
PhD Thesis - F. Wang McMaster - Business

different thresholds for elaborating on message cues (Meyers-Levy & Sternthal, 1991).
Sex roles, when activated, influence male and female judgments (Meyers-Levy, 1988).
To test for possible gender differences, the data were divided into female (58 students)
and male (119 students) groups and t-tests were conducted to verify whether the two
groups share the same mean values. The t-statistics and p-values are reported in Table
5.11. All p-values were non-significant (i.e., we cannot reject the null hypothesis that the
two groups have the same mean values), thus, no significant differences were detected in
the survey responses across gender. However, it is not clear whether gender influences
the links in the hypothesized model. For example, does the perceived power construct
playa more important role in determining the endogenous constructs in the male group
than in the female group? Does the perceived relationship investment construct playa
more important role in the female group than in the male group? Due to the sample size
limitation (58 female responses and 119 male responses), it was not possible to test the
model for female and male groups respectively. Future research may be conducted to
verify this.

Potential sampling problems may have been mitigated through the survey design
by using the sample population in the selected product category. In one way, online
shoppers are likely to be Web proficient since consumers need to overcome the initial
technical difficulties and risk perceptions and must feel comfortable with the "virtual
world" to shop online. In another way, college students are frequent book buyers and can
represent more mature market behavior. In his meta-analysis, Peterson (2001) proposed
that effects frequently differed from those derived from non-student subjects, both
directionally and in magnitude, though no systematic pattern was observed. However, our
research is not only "effects application research" (Calder et aI., 1981) at the descriptive
level (Farber, 1952), but also "theory application research" (Calder et aI., 1981) at a
"conceptual level" (Farber, 1952). Our research has a particular focus on the latter in that
it is a theory application at a conceptual level. As research with a theoretical nature, the
use of college students is supported (Calder et aI., 1981; Peterson, 2001). However,
caution must be exercised when generalizing findings from this study.

Attitudinal measures, such as enjoyment and perceived competency, can be used

to capture consumer preferences. These attitudes may not translate directly into behavior
due to promotions, product availability and seasonality. Therefore, attitudinal measures
should be combined with behavioral measures for a more complete evaluation of
consumer relational choice (Wyner, 1999).

Focusing on online consumer relationship building, this thesis did not consider the
elements and impacts of the traditional channel versus the online channel. However, the
traditional channel for multi-channel retailers and the traditional media for pure-play e-
tailers are important for online consumer relationships. Since online consumers are
exposed to both offline and online channels, integration is important (Sheehan &
Doherty, 2001). It has been suggested (Balabanis & Reynolds, 2001) that attitudes
towards a retailer's brand (predisposition) transfer to attitudes towards the retailer's
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PhD Thesis - F. Wang McMaster - Business

Construct Measurement Items t-Value I!..-Value

Perceived This retailer makes efforts to increase regular 0.5388 0.5907
. relationship customers' loyalty.
investment This retailer makes various efforts to improve its 1.0456 0.2972
ties with regular customers.
This retailer really cares about keeping regular 0.4026 0.6878
customers.
Perceived I can easily find a way to communicate with the 1.9400 0.0540
interaction retailer.
I can easily get answers for my questions. 1.0552 0.2928
The retailer provides me with personalized 0.4744 0.6358
interaction.
Perceived I feel that I can influence this retailer on their -0.3974 0.6916
consumer offerings, pricing, or services.
power I think I can easily communicate with or influence -0.6576 0.5117
other consumers in the online environment.
Perceived It is risky to purchase from an unfamiliar online 1.2094 0.2281
shopping retailer.
risks If I purchase from an unfamiliar online retailer, I 0.9349 0.3511
am concerned about giving fmancial or personal
information.
If I purchase from an unfamiliar online retailer, I 0.5004 0.6174
am concerned about refund and after-sale service
procedures.
Satisfaction I am satisfied with this purchase. 0.9825 0.3272
Compared to other online retailers, this retailer 0.9307 0.3533
provides good service.
I made a good choice by purchasing from this 1.0953 0.2749
retailer.
Perceived I feel unhappy when shopping from another -1.4777 0.1413
switching retailer.
costs It will be financially detrimental for me to switch -0.7232 0.4705
to another retailer.
Trust This retailer can be trusted. 0.2140 0.8308
This retailer is reliable. -0.1634 0.8704
Relationship I will purchase from this retailer the next time I 0.5611 0.5755
intention shop online with similar needs.
I would like to become a regular customer of this -0.7345 0.4636
retailer.

Table 5.11: Test Results on the Difference between Male and Female Groups

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PhD Thesis - F. Waug McMaster - Business

shopping site. This means that consumer relationship intentions and the three relationship
mediator constructs are affected by consumer attitudes towards the offline channel and
media, which was not included in the hypothesized model tested in this research.

Lastly, the survey was conducted in the product category of books, CDs, and
DVDs. This may lead to some product category-related characteristics being incorporated
in the data. Caution needs to be taken when generalizing the research results to other
contexts, especially distinctly different product categories.

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PhD Thesis - F. Wang McMaster - Business

Chapter 6. Conclusions and Future Research

The research for this thesis began in 1999, when most people believed that the
Web was a medium that presented very low switching costs, and loyalty was not
important in the online environment. At that time, there were very few voices advocating
the importance of consumer relationships in the Web market. This research represents
one of those voices.

This thesis extended relationship marketing (RM) and Internet research in the
retail market by investigating the factors and mechanisms of e-tailing opportunities that
affect online consumer relational attitudes. Chapter 1 addressed the importance of this
research and outlined three key research questions:
1). What Internet characteristics facilitatelhinder relationship marketing in online
retailing?
2). Do online customers seek relationships with e-tailers?
3). What factors are important to online customers in determining their relationship
intentions with e-tailers?

Compared to the price focus of early e-tailing implementations, both academic

and industrial practitioners now recognize the importance of building online consumer
relationships. A variety of research has been published in recent years, but most target the
early stages of online consumer relationship building (Cheung et aI., 2003). In general,
the research findings from e-tailing and consumer RM have been poorly integrated and
thus failed to provide a solid theoretical basis for online consumer RM research. Many
researchers did not examine the role of mediators in consumer relationship building, or
simply used constructs such as satisfaction and trust as the destination constructs. Such
research cannot develop a complete understanding of consumer relational intention.
Constructs such as switching costs have been studied mostly in service marketing, rather
than in an e-tailing context. Furthermore, previous empirical research on online consumer
behavior has been criticized for employing multiple attributes instead of developing
higher level constructs (Wolfinbarger & Gilly, 2003).

This thesis addressed the foregoing shortcomings by responding to the three key
research questions in a manner that draws together the e-tailing and consumer RM
literature. To better understand consumer RM, Chapter 2 describes a consumer
relationship continuum in which consumers were categorized as transactional, repeat, and
relational shoppers. Marketing strategies and tactics for the three stages were discussed,
as were the conditions and factors that facilitate consumer relationships. Conditions that
facilitate consumer relationships were further examined from market, channel, marketer
and consumer perspectives. In addition, three important concepts that relate to consumer
relationships (satisfaction, trust, and switching costs) were identified.

Chapter 3 focused on the online perspective, and began with a discussion of

online marketing research in general. Next, the impact of the Web on retailing and RM
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PhD Thesis - F. Wang McMaster - Business

was elaborated upon according to four important aspects: markets, marketers, channels,
and consumers. The information intensity and presentation limitations of the Web have a
profound impact on RM. On one hand, the availability of massive online information
enables comparison shopping and decreases switching costs. On another hand, the lack of
tactile cues, distance shopping, and information overload make customer relationships
valuable. As an interactive channel, the Web facilitates RM and has special features for
interactivity, such as network externality. This extends the content of consumer RM to
consumer-to-consumer relationships. The Web also enhances retailer abilities to
implement RM. Online consumers are more knowledgeable and active, compared to
offline shoppers, which positively affects relationship building with retailers. Since
online shopping is still in a developmental stage, there may be generational differences.
Additional research is needed to better understand shopping cohorts.

The discussion from this section also resulted in the inclusion of four market
perception constructs: perceived risks, perceived relationship investment, perceived
interaction, and perceived consumer power. With the intention of analyzing factors and
mechanisms affecting online consumer intentions, the relevant research was reviewed
and evaluated. Previous research was found inadequate in its understanding of online
consumer relationship building, and the need for theoretical and empirical work that
integrates e-tailing and consumer RM research was made clear.

Following from the discussions in Chapters 2 and 3, Chapter 4 developed a

hypothesized model outlining the impacts of four market perceptions (perceived shopping
risks, perceived relationship investment, perceived interaction, and perceived consumer
power) on consumer relational intention. Three mediators (perceived switching costs,
trust, and satisfaction) were proposed. Based on the theoretical framework developed in
the preceding literature review, fourteen hypotheses were outlined.

Chapter 5 discussed a survey and confirmatory analysis conducted to test the

hypothesized modeL Structural equation modeling (SEM) was employed to analyze the
data using LISREL software. Thirteen out of fourteen hypotheses were supported, and the
model achieved a good fit. This indicates that the model reflected market data well, at
least in an online retailing context for products such as books and CDs. Consequently,
this chapter responded to the third key question by confirming the hypothesized model of
factors and mechanism by which consumers form relationships with online retailers. Four
factors (perceived consumer power, perceived relationship investment, perceived
interaction, and perceived shopping risks) and three mediators (perceived switching costs,
satisfaction, and trust) have been proven important in consumer relationship
development.

The model also addressed the second research questions: Do online customers
seek relationships with retailers? The evaluation of the relationship intention construct
indicated a response of "somewhat agree", indicating a base level of interest in building a
continuous relationship with e-tailers.

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PhD Thesis - F. Wang McMaster - Business

6.1. Contrii:mtions
This research combines work on e-tailing and consumer RM. The research
provides a theoretical basis and empirical evidence that certain e-tailing practices can
drive successful online consumer relationships. A model was proposed in this research
that examines the factors and mechanisms of Web impacts on consumer relationship
building in the retail marketplace. This model brings together many pieces of consumer
analysis from e-tailing and RM and provides a structured view of how market perceptions
are transferred to consumer relationship intentions.

This research developed some new constructs and employed some constructs
based on previous research. For example, consumer power is a new construct developed
for online consumer research. Additionally, while switching cost has been used in a
service context, it has not been previously validated in a retailing context. However, it is
an important construct that is especially important for understanding the satisfaction-
loyalty link (Lee, Lee, & Feick, 2001). The constructs used in this research were
validated through an empirical study. This provides a foundation for future research
employing similar constructs.

This research provides one of the first empirical studies designed to analyze
whether the Web's use in consumer shopping is contingent on consumer relational
choice. Several authors have stressed that the Web may provide the opportunity to
successfully implement RM in the retail marketplace (for example, Gronroos, 1996;
Zineldin, 2002). Yet few empirical studies have been conducted to assess the mechanics
and moderating roles of RM. This research seeks to determine the mechanics of certain
consumer characteristics, and confirm their impacts on relationship building. Some
consumer characteristics, such as perceived retailer relationship investments, have been
explored in previous research in support of relational choice (De Wulf et aI., 2001), but
many others have not. Studying these mechanisms is important since it provides a basis
for research on consumer characteristics and behavioral loyalty.

This research focused on the potential impact of the Web on consumer

relationship building. It is known that consumers establish relationships with several
retailers from whom they shop offline. Online consumers may actually reduce the
number of their alternative retailers. For example, it is reported that Web customers tend
to consolidate their purchases with one primary retailer, to the extent that purchasing
from the retailer site becomes part of their daily routine (Reichheld & Schefter, 2000).
This implies that e-tailing may be more relationship friendly than offline retailing. This
research pointed out four aspects where the Web can significantly impact consumer
relationship intentions. Online consumers can have better interaction with retailers,
possess higher market power, perceive or receive higher retailer relationship investment,
and perceive higher shopping risks. The Web can alter these four aspects. E-tailers have
more means for relationship investment in that they can collect more shopper data and
provide personalized offerings. The communication medium provides timely interaction.

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 PhD Thesis - F. Wang McMaster - Business

There are more risks involved in online shopping than offline shopping, including
financial risks, security risks, service related risks, product evaluation risks, and so on.
. However, online consumers have more opportunities for feedback than offline shoppers.

This research provides insights on online consumer relationship building that

enables e-tailers to design online RM strategies and tactics. First, it indicates that
perceived risks, perceived interaction, perceived relationship investment, and perceived
consumer power, are critical for improving consumer relational intentions. Retailers need
to address these important aspects to enhance their online consumer relationships.
Retailers can design risk aversion strategies (Tan, 1999), such as using reference group
appeal and specific warranties, to lower consumer risk perception. Marketer reputation
and brand image can also serve as effective risk relievers for the potential Internet
shoppers (Tan, 1999). E-tailers can design interactive channels such as personalized Web
sites and communities (Thorbjornsen et aI., 2002) to explore the benefits of the Web as
an interactive media. E-tailers can demonstrate their commitment to consumer
relationships through various RM programs, to address customer concerns and questions,
to use all convenient channels to communicate with customers, to provide better services
such as product/service recommendation through data mining. To improve consumer
power, e-tailers can involve customers in product/service design and development stages,
create channels for customers to express their ideas, concerns and feedback, and address
these issues effectively. As an example of a current development in enhancing consumer
power, Amazon lets customers send in names/descriptions of the products they would
like to order, which are not currently available in the market, and notifies the customers
when the products are available. However, building relationships is not quick and easy,
and may take a long time to develop and to have an impact. For example, consumer
power with a retailer depends on the retailer's strategy and consumer involvement. Thus,
these are aspects e-tailers may utilize to build a sustainable competitive advantage.
Furthermore, this study demonstrated that switching costs can playa negative role in the
e-tailing satisfaction-loyalty link. E-tailers need to exercise special care when building
switching barriers. Lower barriers, such as joining a shopping search database, may
enhance consumer satisfaction, thus improving loyalty.

6.2 Limitations and Future Research

This thesis analyzed the impacts of e-tailing's potential, opportunities, and threats
for consumer relationship building, and is rooted in previous e-tailing and consumer RM
research. Thus, the hypothesized model and subsequent empirical study were of a
confirmatory nature. The constructs of consumer market perceptions and relationship
mediators were selected based on existing literature and following certain selection
guidelines. The leading relationships among the constructs were supported by theoretical
analyses, based on existing knowledge. However, online shopping and research in online
consumer relationships are both developing. It is believed that the Web has caused and
may continue to cause many changes in consumer behavior and shopping processes. As
such, some exploratory research may be valuable in discovering the unknown and
unexpected.

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PhD Thesis - F. Wang McMaster - Business

This research addressed four market perceptions: perceived risks, perceived

relationship investment, perceived interaction, and perceived consumer power. It
analyzed the Web's potential to heighten these perceptions. The empirical study showed
that these perceptions lead to online consumer relational intention. However, while the
Web provides opportunities to change these perceptions, it is unclear at this point how
these changes occur. For example, it is worthwhile to examine the detailed strategies e-
tailers can implement to enhance consumer power, interaction, consumer perceptions of
relationship investment, and at the same time reduce risks. It also is unclear as to whether
online consumers truly have better interactions and more enhanced power than shoppers
in a traditional retailing context. We do not know how well e-tailers are implementing
RM compared to their rivals in the traditional retailing environment. Further research
should be conducted to compare these constructs in online and offline contexts.

Some research limitations related to the empirical study have been addressed in
Chapter 5. One of these limitations is that the empirical study was conducted in an online
book and CD retailing context. Product categories can influence consumer behavior and
consumer RM. Testing the model in one industry limits its generalization. Will the model
work for other online retailing categories? Also, will the three mediators in the model
(satisfaction, trust, and switching costs) play different roles or have different weights in
other contexts? Will some market perceptions become more critical and others not as
important in different contexts? Future research can answer these questions.

The model tested in this research did not incorporate any feedback loops, while in
reality feedback loops may exist. For example, they may link the construct of relationship
intention to the constructs of consumer market perceptions and relationship mediators.
Perceived switching costs, satisfaction, and trust may also increase with higher
relationship intention. In addition, consumers with higher relationship intention may be
more active, thus leading to better interaction and perceived relationship investment. The
existence and impacts of these feedback loops should be explored.

Also, it is not clear if and how sex roles affect consumer online relationship
building processes. This research did not reveal significant differences in the survey
responses across gender. However, it is not clear whether gender influences the links in
the hypothesized model. For example, does the perceived power construct playa more
important role in determining the endogenous constructs in the male group than in the
female group? Does the perceived relationship investment construct playa more
important role in the female group than in the male group? Future research may be
conducted to test the model for female and male groups respectively.

In this study, attitudinal measures were used to evaluate consumer relationship

choices. To more fully understand consumer relationship building, both attitudinal and
behavioral measures can be employed and compared. It is important to understand the
drivers that cause differences between consumer attitudes and behaviors in online

73
PhD Thesis - F. Wang McMaster - Business

shopping. To further validate and generalize the model, behavioral measures can be
combined with attitudinal measures to achieve a more complete evaluation of consumer
relationship choices.

As identified in this research, online shoppers provided positive responses to the

four market perception constructs, which implies that the Web may facilitate these
constructs. To validate this implication, further research is needed to compare responses
from online and offline shopping. While respondents provided positive evaluation on
relationship intention constructs (shown in Table 5.2), it is still too early to conclude if
online consumers are more relational than offline shoppers. More research is needed in
this area.

As consumer relationship becomes important, traditional retailers, e-tailers, and

brick-and-click retailers may develop different strength in retaining consumers. This
research provides a starting point for comparing online and offline environments. Future
research can compare consumer response on the model constructs in various shopping
environments to see whether e-tailers achieve differentibetter consumer perceptions in
terms of relationship investment, shopping risks, interaction, and consumer power, and
relationship preferences. Future research can also analyze the detailed components of
each model constructs to address possibly different effective attributes to enhance
consumer market perception and relationship intention in online and offline
environments.

This research established a consumer oriented model, which may serve as a

starting point for considering an e-tailer oriented model. From this model, it is understood
that from consumer point of view, four market perception constructs and three mediators
are important. E-tailers need to address these important aspects in building consumer
relationships. However, an e-tailer oriented model has to address issues from the e-tailer
point of view. Each consumer perceptions may need to be broken down to several e-tailer
implementation issues. For example, consumer trust perceptions may results from e-
tailers use of a third-party trust seal and a brand name. Thus, the relationship among
constructs analyzed in this model may be altered in an e-tailer model, that is, constructs
in an e-tailer model corresponding to consumer market perception constructs in this
model may not lead to constructs in an e-tailer model corresponding to relationship
mediator constructs. In this way, different factors may be used in an e-tailer-oriented
model.

From an e-tailing perspective, this research focused on online consumer

relationship building. However, there are many other strategies implemented by current
online retailers. For example, some retailers compete heavily on price. Since this
research has an e-tailing component, it can be geared to analyze various strategies for e-
tailing success. Future work can be conducted to address the role of the constructs
discussed in this research (such as interactivity, consumer power, and satisfaction) across
diverse e-tailing strategies.

74
PhD Thesis - F. Wang McMaster - Business

Another important area of research is the analysis of process and evaluation

method development for e-tailers. How do e-tailers evolve their RM strategies and
tactics? What processes andlor roads do they take? How is the effectiveness of their
strategies evaluated? With more traditional retailers going online and new e-tailers
emerging, it is important to provide guidelines to avoid common mistakes and facilitate
success. Certain factors or elements may be critical in the initial stages of e-tailing
business or consumer relationship building processes. Traditional methods to evaluate the
success of a business may not be sufficient. Appropriate evaluation methods are critical
to identify potentially successful e-tailers and determine their key success factors.

As relationship marketing draws more and more attentions from both academics
and industry as an important strategy in retailing, and the Web becomes an important
retailing channel, this thesis is one of the efforts to understand the Web's impact and
facilitation for consumer RM. This research examined the impacts of the online retailing
characteristics on consumer relationship building. The results from this study can help e-
tailers to design successful online consumer RM strategy.

75
PhD Thesis - F. Wang McMaster - Business

Appendix I. A Survey on Online Shopping Experiences

Investigator: Fang Wang, wangf3@[Link]

Instructor: Dr. M. Head, headm@[Link]
Michael G. DeGroote School of Business, McMaster University

Thank you for participating in this survey. The purpose of this survey is to understand
online shoppers' attitudes toward online shopping environment and online retailers, and
the impact of these attitudes on customer relationship/loyalty building process.

By participating in this survey, you are expected to complete the following tasks:
1). Read and sign the Consent Form;
2). Answer the Questionnaire.
You should be able to finish this survey in 10 minutes.

The Questionnaire and the Consent Form will be collected separately, so the data you
provide will be collected anonymously. The data collected will be analyzed through
statistical methods and used for research purpose only. You may request a copy of the
fmal survey by contacting the investigator after July 2003.

Upon completion ofthe survey, your name will be included in a draw for Titles gift
certificates. There will be eight prizes at $50 each. If you can not return the questionnaire
on the survey site, please leave it at the drop box outside of MGD 403.

Thank you again for your participation. Have fun!

76
PhD Thesis - F. Wang McMaster - Business

Consent Form

Please sign below if you agree with the following statements:

1. I have freely volunteered to participate in this study.

2. I have been informed in advance about the nature of the study, what my tasks will be,
and what procedures will be followed.
3. I have been given the opportunity to ask questions and have had my questions
answered to my satisfaction.
4. I understand that the information I provide will be treated confidentially and with
anonymity. My identity will be not be revealed in the reporting of the study's results.
5. I am aware that I have the right to withdraw consent and discontinue participation at
any time.

Signature:

Printed Name: ---------------- Date:

-----------------

E-mail Address (optional, but if you wish to be included in the draw for 8 Titles gift
certificates ($50 each), you must include your email address.):

Phone (optional):

77
PhD Thesis - F. Wang McMaster - Business

[Link]

1. Your age: 2. Gender: Male 0 Female 0

3. Current occupation:

4. Education (if you are a student, indicate High school Bachelor Master and above
the degree you are working towards) 0 o o

5. Annual income $30,000 $30,001- $50,001- $70,001- $100,001

(inCAN$) or below $50,000 $70,000 $100,000 or above
o o o o o

6. Average time 2 hours or Between 2 hours Between 4 hours Above 7

online per week below and 4 hours and 7 hours hours
o 0 0 o

7. 2002 annual online $100 or below $101-$500 $501-$2000 $2001 or above

purchase (in CAN$) 0 0 o 0

8. Have you bought any books, CDs, or DVDs online? Yes 0 NoO
If yes, please answer all following questions with regards to your last purchase of a book
or CD online.
If no, what was the last purchase you made online? _ _ _ _ _ _ _ _ __
Answer all following questions with regards to your last online purchase.

9. With regards to this purchase,

Who was the Website (name and/or Web address)?
How much did you spend (in CAN$)?

78
PhD Thesis - F. Wang McMaster - Business

How many times have you purchased from

this Website (including your last purchase)?

With regards to this purchase and the online retailer, please answer the following
questions in the following scale:
Strongly Disagree Somewhat Neutral Somewhat Agree Strongly
Disagree Disagree Agree Agree

CD (2) @ 00 @ @ CV

Disagree Neutral Agree

1. This retailer makes efforts to increase customer
CD®@@@@CV
loyalty.
2. This retailer makes various efforts to improve its tie
CD®@@@@CV
with customers.

3. This retailer really cares about keeping its customers. CD®@@@@CV

4. This retailer implements many marketing techniques
CD®@@@@CV
to enhance customer relationship.
5. I can easily fmd a way to communicate with the
CD®@@@@CV
retailer.

6. I can easily get answers for my questions. CD®@@@@CV

7. The retailer appears to value my feedback. CD®@@@@CV
8. The retailer provides me with personalized
CD®@@@@CV
interaction.
9. I can control my online shopping process (including
information searching, transaction completion, CD®@@@@CV
delivery, after-sale service).
10. I have many choices for products and retailers
CD®@@@@CV
during online shopping.

79
PhD Thesis - F. Wang McMaster - Business

11. I feel that I can influence this retailer on their

offerings, pricing, or services.
12. I think I can easily communicate with or influence
CD®@@)@@(1)
other consumers in the online environment.
13. I am satisfied with this purchase. CD®@@)@@(1)
14. Compared to other online retailers, this retailer
CD®@@)@@(1)
provides good service.
15. I made a good choice by purchasing from this
CD®@@)@@(1)
retailer.
16. My shopping was done in an effective and efficient CD ® @ @) @ @ (1)
way.
17. Becoming a regular customer of this retailer will
CD®@@)@@(1)
benefit me in future online shopping experiences.
18. I feel unhappy when shopping from a competitor
CD®@@)@@(1)
retailer.
19. It will be financially detrimental for me to switch to
CD®@@)@@(1)
another retailer.
20. If! purchase from another retailer, I would lose
some other kinds of benefits (such as convenience CD®@@)@@(1)
or confidence).
21. This retailer can be trusted. CD®@@)@@(1)
22. This retailer is reliable. CD®@@)@@(1)
23. This retailer is able to consistently meet my
CD®@@)@@(1)
expectations.
24. This retailer can be counted on to provide high
CD®@@)@@(1)
quality products and services.
25. I will reduce my searching process the next time I
CD®@@)@@(1)
shop online with similar needs.

80
PhD Thesis - F. Wang McMaster - Business

26. I will purchase from this retailer the next time I

shop online with similar needs.
27.1 would like to become a regular customer of this
CD®®@@@CV
retailer.
28. I feel loyal to this retailer. CD®®@@@CV
29. It is risky to purchase from an unfamiliar online
CD®®@@@CV
retailer.
30. If I purchase from an unfamiliar online retailer, I
am concerned about giving financial or personal CD®®@@@CV
information.
31. If I purchase from an unfamiliar online retailer, I
am concerned about refund and after-sale service CD®®@@@CV
procedures.
32. Shopping with an unfamiliar online retailer may
CD®®@@@CV
pose problems for me that I just don't need.

81
PhD Thesis - F. Wang McMaster - Business

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