Trust in Electronic Commerce chapter 6

1
Trust in Electronic Commercechapter 6

• Dr Nancy Pouloudi
• Department of Management Science and Technology
• Athens University of Economics and Business
• (pouloudi_at_aueb.gr)

2
Objectives

• To learn about the importance of trust
• To examine the factors influencing business trust
• To differentiate between various types of
  business trust
• To study an e-commerce trust model
• To understand how to alleviate consumer perceived
  risks of making business transactions
• To learn how to build and sustain trust

3
Your perspective as consumers

• Why dont some of you shop on-line?
• When do you trust a web site?

4
Your perspective as businesses

• Do you consider trust to be a problem? Why?
• Do you trust your customers (consumers)?
• Do your customers trust you?
• Do you trust your other online business partners
• How do you deal with these issues?
• Who deals with such issues in your company?

5
Trust in e-commerce

• Enables business development
• creates valuable transactional relationships
• becomes more difficult, yet more critical
• higher interdependence requirements
• can increase if
• secure systems are designed
• private information remains private
• customer relationships are built effectively

6
Definition of trust

• willingness to rely on an exchange partner in
  whom one has confidence
• expectancy that the word of another can be relied
  on
• the key to all relational exchanges

7
Factors affecting trust

• Reputation
• willingness to customise
• expertise
• frequent business contact
• anticipated future interactions
• intention for future interaction
• size
• publicity

• Negative trust effects
• confidential information sharing
• length of relationship
• perceived power

8
Types of business trust

• A calculative trust process (costs/rewards)
• predictability (repeated interaction long-term
  relationships)
• ability to meet obligations (credibility)
• identification-based trust (based on empathy and
  common values)
• a transference process (from one trusted proof
  source)

9
The B2C e-auctions insights
10
www.sandafayre.com www.sandafayre.com/html/Securit
y.htm

• Transactions are based on credit card payment
  people are quite happy to give us their credit
  cards, we find, because we are a reputable
  company (being a reputable company makes them
  trustworthy)
• They also use encryption software for all data
  made available by the customers (registration
  information, bids, credit card details) and
  provide a guarantee for unauthorized use of
  credit cards.
• Rhetoric on the companys web site regarding
  security the company presents itself as
  trustworthy because it also has a physical
  presence When buying over the internet it is
  important to know that you are dealing with a
  bonfide sic business that exists in reality as
  well as on the web. They also provide office
  hours and postal address details for interested
  parties.

11
www.karamitsos.com

• Trust and opportunistic behavior are not really a
  problem. The company only had 2 incidents in 2
  years where the customers bid and then cancelled
  (possibly genuine mistakes).
• The use of credit cards make transactions more
  trustworthy for the company (previously they had
  to wait for payment from international customers
  they would send products to regular customers
  before receiving payment not to give the
  impression they didnt trust them). On the web
  site only the payment frame is made secure to
  maintain possibility to load the web pages fast
  hence many customers think the page isnt secure
  because there isnt an s after http for the
  whole page.
• All customers are given the opportunity to return
  the goods (e.g., if not described accurately)
  which is important for establishing trust.
• Personal contact also very important for trust
  they estimate they have met with about 70 of
  their customers (despite the geographical
  spread).

12
www.vliegtarieven.nl

• In order to bid one has only to give address,
  telephone number and e-mail. Why makes it easy
  to start bidding, it is difficult to expand their
  customer base if they ask for credit card details
  (many of their customers dont have a credit card
  or dont want to give out their credit card
  details).
• They feel that the price (cost, risk?) of
  trusting their customers is lower than the cost
  to the business of asking for credit card
  details.
• They follow up winning bids with phone calls (the
  customer can then pay by credit card or other
  means). Bidders receive alerts when someone
  places a higher bid. In the future they may allow
  full payment on-line by credit card (this will be
  offered as an extra feature offering 24hour
  access but alternative means of payment will
  still be available).
• They monitor the auctions regularly in case there
  is a problem (e.g., somebody bid 50000 Dfl at one
  point, because he accidentally pressed too many
  zeros, so they had to correct the auction entry
  to the previous bid)

13
www.snowball.gr

• The company takes security very seriously (e.g.,
  they are certified by VeriSign) and is a pioneer
  in Greece for the implementation of the latest
  trends in e-commerce security. For example, they
  do not record credit card details this
  information is sent directly to the bank for
  processing. The company was the first to
  implement this system and actually helped in
  debugging the code when it was first implemented
  so that it works reliably.

14
Our preliminary conclusions (1)

• Electronic auctions, as most commercial
  transactions, rely on the trust between the
  parties involved.
• Trust in this context entails the extent to which
  the company is perceived as trustworthy by the
  customers but also the extent to which the
  company trusts its customers. The quality of the
  product, and in some cases (e.g., in
  sandafayre.com) the breadth of product offer is
  significant. Customers have more confidence in
  the product and consequently trust the company
  more in this respect, the quality of the product
  is a key success factor for maintaining good
  relationship with customers.

15
Our preliminary conclusions (2)

• One perhaps surprising finding is the extent to
  which personal contact continues to matter in the
  electronic market. Snowball.gr, vliegtarieven.nl
  and karamitsos.com all indicated the value of
  face-to-face contact with suppliers but also with
  customers in the case of karamitsos.com.
• In general our respondents did not see
  opportunistic behavior as a problem, and had only
  faced problems with customers in only one or two
  cases these problems were easily rectified.
  Maybe the reason for relatively few cases of
  inappropriate customer behavior is due to the
  business-to-consumer model of the auction, which
  discourages opportunistic behavior.

16
Our preliminary conclusions (3)

• Companies were aware of security as a problem and
  acknowledged it as an important issue for the
  companys trustworthiness. Indeed, security
  measures were explained at length in the web
  sites and the companies offered guarantees in
  case of problems.
• The use of credit cards is of particular
  interest it always came up as an issue during
  the interviews, although companies had not faced
  any security problems in practice. It is also
  noteworthy that the companies dealt differently
  with credit cards vliegtarieven.nl do not
  require credit card information when a customer
  registers and consider this a differentiator for
  their company karamitsos.com and budget provide
  alternative means of payment and snowball.gr
  does not record credit card information on the
  companys databases the information is passed on
  directly to the creditor.

17
Issues Measures for trust in e-commerce

• lack of awareness
• users need to be assured on security, privacy,
  integrity and systems issues
• consumers inability to control the actions of a
  Web vendor (esp. on personal information)

• system trust
• structural assurances (regulations, guarantees,
  contracts)
• economic incentives vs. perceived level of risk
  (doesnt always work - opt out options)

18
more on personal information

• In the marketspace
• increased data mining possibilities (analysis of
  data for relationships)
• additional information becomes available
• electronic addresses, history of places visited
  and goods searched for/requested, contents of the
  consumer's data storage device
• users cannot know how the information will be
  used, shared, disseminated

19
Trust mechanisms

• Third-party trust (e.g., financial institutions)
• Security (encryption, digital signatures,
  certificate authorities)
• Integrity (same, unbroken information reaches the
  final destination)
• Privacy

20
Four privacy principles

• Notice say what information you collect and what
  you are planning to do with it
• Choice opt in (and opt out)
• Security give confidence
• Review and correction allow checks/edits of
  personal information

21
Shopping.com when e-commerce isnt a
bargainAlter (1999)

• Under what circumstances does it make sense to
  order a product from an online vendor? Or from
  any vendor?
• Was it reasonable for Bottleberry to order
  software products from Shopping.com? Explain the
  criteria that should be used in selecting an
  online merchant and then explain how those
  criteria apply to Bottleberrys decision.

22
More discussion questions

• 3. The case mentions that eSmart.com provides a
  list of questionable online merchants. How could
  a more extensive "consumer alerting" service
  gather the necessary information in order to warn
  consumers of questionable merchants? Would this
  service require the use of internal company
  information such as rates of complaints and
  actual delivery results? Alternatively, to what
  extent would it suffice to invite comments from
  customers and to monitor bulletin boards and
  other sources on the web?

23
More discussion questions

• 4. Assume that a good "consumer alerting" service
  existed on the Web. Would you be willing to pay
  for such a service? If so, explain how much you
  would be willing to pay to use such a service. If
  not, explain why you would be unwilling to pay
  for it at all.

24
Case 6.2

• Cold Storage (Singapore)
• Establishing trust among on-line consumers
• pp. 385-394
• Note case 6.1 is also related

25
Case teaching objectives

• to develop an understanding of the concept of
  building trust on-line and how this differs from
  building trust offline when shopping through
  conventional/physical stores
• to identify the factors that contribute to
  establishing trust in the marketplace
• to evaluate the benefits and limitations of
  third-party trust schemes

26
Case questions

• How are trust issues different in the storefront
  retailing environment and the virtual retailing
  environment?
• What factors helped Cold Storage to build its
  customers trust and confidence in shopping
  on-line?
• How could Cold Storage fully benefit from being
  CaseTrusted?

27
Nine actions to foster a trusting relationship...
28
Summary

• Trust in an important foundation of commerce
• Four major reasons why establishing trust in the
  marketspace is difficult
• environmental complexity leading to outsourcing
• increased interdependence among transacting
  parties
• from product-centricity to service-centricity to
  relationship building
• anonymity of the Internet
• peoples perceptions, biases and cultural habits
  further exacerbate these difficulties
• building trust should be a long-term process
• Companies can rely on their brand, use seals of
  approval, take a consumer-centric approach,
  strive to understand cultural specificities
  Appendix 1 lists 9 actions