4
shoppers could easily cover the globe in search of the best price. The Internet dramatically
reduces consumers’ search costs (Vatanasombut
et al.
2004). Consumer
choice is no longer
bound by the constraints of place or access to information (Urban
et al.
2000). Online
shoppers are endowed with relative ease of access to information and lower searching costs
compared to consumers in the brick-and-mortar, offline context, and as such they are more
likely to switch to another service provider and show a lower level of loyalty toward a
particular online vendor. Secondly, since the web is based on an open technology, websites
can
be easily imitated, duplicated, and even copied. Meanwhile, it is difficult for an online
vendor to create differentiation in their products and pricing in the same segments because
they can be quickly mimicked as well. Due to the low level of differentiation in website
design, products and pricing, online vendors have been struggling to attract and retain
customers.
Even though it is hard for online vendors to retain consumers, it is
at the core of marketing
strategies because customer loyalty can result in more purchases and higher profitability for
the vendors (Reichheld
et al.
2000, Ribbink
et al.
2004). One estimate is that if a firm is able
to increase its customer retention rate by 5 per cent, the company’s overall profit can be lifted
up to 95 per cent (Reichheld and Schefter 2000). Research conducted by Bain and Company
(2000) simulated the long-term economics of websites in different industries and found that
customer loyalty is the most important factor impacting profitability, even more so than for
traditional offline companies. In fact, the business models adopted
by the most successful e-
companies are driven by customer retention. For example, Taobao and 360Buy, two e-
commerce leaders in China, do not compromise their prices but focus instead on the delivery
of a superior customer experience that will make customers come back as they know
customer loyalty is the key to long-term profitability (iResearch 2013)
.
For Taobao and
5
360Buy, the loyal online customers are the ones who make online retailing survive and
proliferate. Online vendors are beginning to understand that this group of customers
represents their profits and growth. They are motivated to find
ways of retaining more
customers by improving the loyalty from consumers.
To entice consumers’ online purchase and make them stay loyal to the online store, most of
the online vendors focus on improving consumers’ transaction benefits. The transaction
benefits have been defined as the customer-perceived gains during the online transaction
process and are generally considered a relativistic concept (Forsythe
et al.
2006). Researchers
such as Forsythe et al. (2006) and Peterson et al.(1997) have discussed benefits of online
transaction. These benefits provide the sorts of convenience that are not readily available in
traditional shopping media. Consumers also derive transaction benefits from easy access,
lower prices,
greater merchandise vareity, unique merchandise offerings, efficient and timely
service delivery (Anderson and Srinivasan 2003, Chen and Teng 2013, Clemes
et al.
2013).
Although online vendors try to offer a lot of advantages to customers, most of the online
vendors are losing money (China Electronic Commerce Research Centre 2014). The reason
may be that superior product quality and reasonable prices alone may be not sufficient to
attract and retain customers because imitators can easily come up with similar products. In
this sense, these transaction benefits only partially explain the cause of purchase behaviour
and
customer loyalty, and others remain to be explored. Therefore, it is crucial to find out
what factors eventually drive consumers' online purchase and loyalty.
Even though consumers perceive the online shopping as offering a number of benefits, the
Internet tends to magnify some of the uncertainties involved with any purchase process.
Consumers perceive a higher level of risk when purchasing online compared with traditional
6
retail formats (Lee and Tan 2003, Chiu
et al.
2014). This is not surprising, since studies have
consistently shown that consumers perceive higher risks and uncertainties in non-store
shopping formats, such as mail order (Van den Poel and Leunis 1999), catalogue (Eastlick
and Feinberg 1999), and direct sales (Peterson
et al.
1989). In online shopping, Teo et al.
(2004) argue that there is a need to look beyond the transaction benefits and to include cost-
related factors incurred by consumers during the transaction process in
understanding their
online shopping behaviour.
Indeed, cost consideration is particularly important in online environment (Yen
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