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«Journal of Air Transportation Vol. 9, No. 1 - 2004 ASSESSING PERCEIVED RISK OF CONSUMERS IN INTERNET AIRLINE RESERVATIONS SERVICES Dr. Lawrence F. ...»

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Journal of Air Transportation Vol. 9, No. 1 - 2004

ASSESSING PERCEIVED RISK OF CONSUMERS

IN INTERNET AIRLINE RESERVATIONS

SERVICES

Dr. Lawrence F. Cunningham

University of Colorado at Denver

Denver, Colorado

Dr. James Gerlach

University of Colorado at Denver

Denver, Colorado

Dr. Michael D. Harper

University of Colorado at Denver Denver, Colorado

ABSTRACT

This research investigates the premise that the use of Internet airline reservation systems is perceived to be riskier than traditional airline reservation systems.

Unlike previous studies on perceived risk that typically focused on the relationship of perceived risk and information search, this study examines the dynamics of perceived risk throughout the various stages of the consumer buying process. A survey of 159 respondents reveals that perceived risk for both traditional and Internet airline reservation services follows a systematic pattern throughout the consumer buying process. Perceived risk for both traditional and Internet airline reservation systems falls during information search but recovers and rapidly increases as consumers approach the moment of purchase. When viewed as a dynamic process, perceived risk for Internet airline reservation services shows more radical changes in risk levels than the traditional service. Another major finding of this study is the discovery of a risk premium for Internet airline reservation services that permeates all stages of the consumer buying process.

Lawrence F. Cunningham is a Professor of Marketing at the Business School at the University of Colorado at Denver where he teaches graduate courses in services and international marketing. Professor Cunningham research interests are in the areas of services marketing with particular interest in the classification of services, the perceived risks of services and airline service. He has published in Journal of Marketing Theory and Practice, Journal of Services Marketing, Transportation Journal, Advances in Services Marketing. He holds an M.S. from Northwestern University, an MBA and DBA from the University of Tennessee.

© 2004, Aviation Institute, University of Nebraska at Omaha 22 Journal of Air Transportation

INTRODUCTION

Online airline ticket sales reached approximately $14.2 billion in 2002 (Foss, 2003). Travel business on the Internet accounts for about 15% of overall travel sales; about one-half of that is spent on airline ticket sales.

Although Internet-based airline reservation services has been one of the fastest growing Internet services, researchers have suggested that even faster growth is precluded because of barriers such as perceived risk (Cases, 2002;

Forsythe & Shi, 2003; Jarvenpaa & Todd, 1997; Liebermann & Stashevsky, 2002; Lim, 2003; Tan, 1999; Vijayasarathy & Jones, 2000). By examining barriers such as perceived risk in the context of one of the fastest growing Internet services, researchers may determine whether there is a need to develop expensive mitigation strategies that lower perceived risk and spur growth.

This research reports on a survey of consumers that compares and contrasts their awareness of perceived risk when making airline reservations over the Internet as opposed to making reservations traditionally.

Specifically, the study addresses the following key questions:

1. Do consumers experience a higher level of perceived risk when they shop over the Internet than when they shop traditionally?

At what stages of the consumer buying process do differences occur?

2. Does perceived risk follow a systematic pattern as the Internet customer progresses through the consumer buying process? Do traditional shoppers experience similar fluctuations in perceived risk?

3. If an Internet risk premium exists, does it also follow the same pattern?

James H. Gerlach is professor of information systems at the University of Colorado at Denver.

His research interests include e-commerce and management of information systems technology.

Gerlach holds a MS in computer science and a PhD in management, both from Purdue University. He is a member of the IEEE and the ACM. His work appears in such notable journals as Management Information Systems Quarterly, IEEE Software, Communications of the ACM, and The Accounting Review.

Michael D. Harper is a senior instructor of quantitative methods in the Business School at the University of Colorado at Denver. After receiving a B.S. in geophysical engineering from Colorado School of Mines, M.S. in mathematics from University of Tulsa, M.S. in operations research and statistics, and a Ph.D. in operations research and statistics from Rensselaer Polytechnic Institute, he worked in research at Los Alamos Scientific Laboratory, in business as a consultant in the oil industry, and in university teaching. He has published in government research publications and technical journals.

Cunningham, Gerlach, and Harper 23

THEORETICAL FOUNDATIONS

Perceived Risk and the Consumer Buying Process Consumer perceptions of risk have been widely dealt with in the past literature and have been shown to shape all purchase decisions to varying degrees, and thereby influence consumer behavior (e.g., Bauer, 1960;





Bettman, 1973; Chaudhuri, 1997; Cox, 1967; Cunningham, 1967; Mitchell, 1992; 1999). A purchase decision involves risk when the consequences connected with the decision are uncertain and some results are more desirable than others (Kogan & Wallach, 1964; 1967; Pollatsck & Tversky, 1970; Rapoport & Wallsten, 1972; MacCrimmon & Wehrung, 1986). A situation where the only possible result is a sure loss of some magnitude is not risk, since there is no variance among the possible results. Kogan and Wallach (1964) describe the concept of risk as having two dimensions: (a) the chance aspect where the focus is on probability, and (b) the danger aspect where the emphasis is on severity of negative consequence. Although many refinements to the definition of risk have been proposed, including expected value theory (Cunningham, 1967) and expected utility theory (Bonoma & Johnston, 1979; Currim & Sarin, 1983; Hauser & Urban, 1979), risk remains a subjectively determined expectation of loss by the consumer (Stone & Winter, 1987); thus the term, perceived risk.

It is theorized that when perceived risk falls below an individual’s acceptance value, it has little effect on intended behavior and is essentially ignored (Greatorex & Mitchell 1993). On the other hand, an extremely high level of perceived risk can cause a consumer to postpone or avoid a purchase entirely. The extent of the exposure depends on the importance or magnitude of the goal, the seriousness of the penalty for not attaining the goal, and the amount of means committed to achieving the goal (Cox, 1967; Dowling & Staelin, 1994). Perceived risk is usually measured as a multidimensional construct: physical loss, financial loss, psychological loss, time loss, performance risk, and social risk (Roselius, 1971, Jacoby & Kaplan, 1972).

Generally, perceived risk is conceptualized as a typical influence that is addressed during the early stages of the consumer buying process (e.g., Cox, 1967; Dowling & Staelin, 1994; Murray, 1991; Murray and Schlacter, 1990;

Zeithaml & Bitner, 2003). The consumer buying process is often described as a five-stage linear process (Blackwell, Miniard & Engel, 2003; Hawkins, Coney, Best & Hawkins, 2003): stage one -- need recognition, stage two -information search, stage three -- alternatives evaluation, stage four -purchase decision, and stage five -- post-purchase behavior. In the need recognition stage, consumers first perceive risk when they recognize the need for a product or service. In the presence of uncomfortable levels of perceived risk, consumers apply risk reduction strategies during the second 24 Journal of Air Transportation and third stages, such as reliance on personal recommendations (Cunningham, 1967; Midgley, 1983; Perry & Hamm, 1969), seeking additional information about a product or service (Beatty & Smith, 1987;

Cox, 1967; Lutz & Reilly, 1973), a preference for national brands (Bauer, 1960; Locander & Herman, 1979; Lutz & Reilly, 1973), and the security of warranties (Bettman, 1973; Cox, 1967; Dowling & Staelin, 1994). It is generally assumed that these practices are sufficient for mitigating risk, and risk is seldom studied beyond the information search stage.

Although the impact of perceived risk on the consumer buying process for services is less studied than for products, the effect of perceived risk is believed to have a greater effect on the consumer for services (Guseman, 1981; Murray, 1991; Murray & Schlacter, 1990). Services are generally intangible, non-standardized, usually sold without guarantees, and often need to be experienced before they can be assessed (Parasuraman, Zeithaml & Berry, 1985; Zeithaml & Bitner, 2003). Consumers find themselves trying to evaluate virtually indistinguishable service alternatives and providers.

These characteristics make services more difficult to evaluate than goods.

As a result, service purchasers rely less on brand loyalty (Mitra, Reiss & Capella, 1999) and more heavily upon personal information sources and recommendations during the pre-purchase interval (Murray, 1991; Murray and Schlacter, 1990).

Like most services, airline services are intangible, somewhat standardized, heavily dependent upon human performance, and often sold with limited guarantees. While consumers may anticipate an airline experience because of prior experience, each airline experience varies and carries risk. Although airline reservation usage is amongst the heaviest of all Internet product and service categories, there is no research evidence that evaluates the role of perceived risk in the consumer buying process.

Perceived Risk and E-Commerce The majority of research on perceived risk is focused on traditional purchasing situations. However, Internet shopping is much different than shopping in stores. Internet shopping technologies are essentially selfservice technologies that offer the benefits of round-the-clock convenience, ubiquitous availability, time and money savings, and a reduction in the anxiety caused by judgmental service representatives (Bitner, 2001; Meuter, Ostorm, Roundtree & Bitner, 2000). Of course, there are disadvantages to Internet shopping such as system complications, computer phobia, and loss of pleasure and social interaction (George, 1987). As a self-service technology, Internet airline reservation places a significant burden and responsibility on the consumer. The consumer is responsible for searching multiple carriers for fares, comparing prices, and proper booking. Mistakes Cunningham, Gerlach, and Harper 25 are the sole blame of the consumer who has very limited recourse for correcting errors. Of course, similar concerns are applicable to a wide range of Internet services and shopping situations, and are not limited to airline reservations.

Although Internet airline reservations have not been studied specifically, Internet shopping has been studied generally. Researchers (Vijayasarathy & Jones, 2000) found perceived risk to be a significant factor affecting Internet consumer behavior. Liebermann and Stashevsky (2002) and Fosythe and Shi (2003) provide evidence to support a relationship between perceived risk and frequency of use. Fosythe and Shi contend that perceived risk is likely to have the greatest impact on infrequent Internet shoppers, which precludes the conversion of Internet browsers into Internet shoppers.

These researchers (Vijayasarathy & Jones, 2000; Liebermann & Stashevsky, 2002; Fosythe & Shi, 2003) present a substantial argument for including perceived risk as a factor influencing Internet shopping behavior and usage. This raises the question of whether perceived risk has an influence beyond information search. The present authors suggest further exploration of the influence of perceived risk at all stages of the consumer buying process.

Research Model and Research Questions The authors suggest, based on the literature review, that two major factors influence perceived risk: shopping method (i.e., traditional versus Internet) and consumer buying stage (i.e., problem recognition, information search, evaluation of alternatives, purchase and post-purchase). The first factor, shopping method, encapsulates all properties related to the design of the shopping method, including physical characteristics and the business models underlying the application. The second factor is the relationship between perceived risk and consumer buying stages, which is unexplored at the latter stages in the extant literature. Based on this research model, the

following questions are pursued in this study:

Question 1: Does an Internet perceived risk premium exist at each consumer buying stage for airline reservation services?

Question 1 is based on the supposition that Internet airline reservation services are perceived to be riskier than traditional airline reservation services. The Internet perceived risk premium is measured as the difference in perceived risk between the two shopping methods: Internet and traditional. It reflects the incremental risk to the consumer of using Internet airline reservation services over traditional services.

While question one tests for an Internet risk premium at each and every stage of the consumer buying process, question two investigates whether the 26 Journal of Air Transportation premium holds constant across stages. The second question is based on the belief that perceived risk is not fixed and varies throughout the consumer buying process. If perceived risk holds constant, it displays a horizontal line.

However, if perceived risk varies, it displays a systematic pattern that shows that the level of perceived risk varies by stage of the consumer buying process. The second question examines Internet airline reservation services and traditional services respectively, as well as the Internet risk premium.

Question 2: Does a systematic pattern of perceived risk exist for traditional and Internet airline reservation services? Does the Internet risk premium follow a systematic pattern as well?



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