Understanding consumer online shopping behaviour from the perspective of transaction costs



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 et al.
1999, Wu
 et al.
2014, Meskaran
 
et al.
2013). Although online shopping is becoming an accepted way to purchase many kinds 
of products and services (Soopramanien and Robertson 2007), most online consumers are 
still “window shoppers” in that they use information gathered online to make purchases off-
line (Forsythe and Shi 2003, Riquelme and Román 2014). Several authors (Ahuja
 et al.
2003, 
Tsai
 et al.
2011, Taddei and Contena 2013) have attributed consumers’ reluctance to 
purchase online to apparent barriers, i.e. credit card issues, privacy issues, service frustrations. 
Furnell et al. (2008) and Hong and Thong (2013) also highlighted that the reason more people 
have yet to shop online is due to a fundamental lack of faith in online privacy and security 
protection. It is therefore imperative for online vendors to change the current situation and 
improve consumers’ incentive for purchasing goods online. 
In mature and highly competitive markets, the profitability of firms largely depends on 
customer loyalty (Chiu
 et al.
2009b). However, online vendors reveal that the Internet seems 
to make customer loyalty irrelevant and acknowledge that the Internet has had a detrimental 
impact on building and maintaining customer relationships (Chen 2007). Gupta and Kim 
(2007) point out that only 1 per cent of the online shoppers eventually return and make 
purchases from the online store where they have purchased before. Two reasons are often 
cited to explain why it is hard to build long term loyalty in online shopping. Firstly, online 


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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 


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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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