Understanding consumer online shopping behaviour from the perspective of transaction costs

 et al.
2013, 
Wu
 et al.
2014). In many instances, consumers may not have complete information on 
product, service or firm attributes to make an informed decision. In the absence of complete 
information, consumers would encounter the problem of information asymmetry which 
would constrain their decision processes. Consumer decision-marking literature is rife with 
studies that support that consumers have limited cognitive and information processing 
capabilities under conditions of incomplete information, particularly in online environments. 
As such, their perceived uncertainties and risks of online shopping may increase, leading to 
an increase in their perceived costs of online shopping. Marketing research suggests that such 
high transaction costs (TCs) are likely to hinder purchase intention (Liang and Huang 1998, 
Teo and Yu 2005).
Therefore, a clear understanding of the TCs is an essential factor in driving the success of 
online business efforts. It is believed that the Teo et al.’s (2004) expanded focus on TCs can 
broaden the range of outcomes beyond those currently investigated and therefore provide 
greater implications for marketing programs. Responding to such advocacy, the current study 
focuses on TCs which are opposite to transaction benefits to investigate their influences on 

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consumers’ online purchase behaviour and loyalty. The focus on cost-reduction activities 
would offer the online vendors a new perspective of attracting and/or retaining consumers.
In organizational operation, TCs are consistently advocated as a key factor in deciding the 
vertical integration of firms, contract forms and buyer-seller collaboration (Rindfleisch and 
Heide 1997). A buyer, be it a firm or an individual, incurs not only a purchase cost, but also a 
host of other costs associated with the particular transaction. TCs are an inevitable part of 
consumer purchase and consumption experiences (Tyagi 2004). In online environments with 
incomplete information, consumers may be concerned about how secure the online site is, 
how their personal data will be used, and whether or not the website can be trusted (Ruiz-
Mafé
 et al.
2009, Luo
 et al.
2010, Hong and Cha 2013). As an illustration, consider a 
consumer intending purchase of a new personal computer (PC) online. Although the 
consumer might be aware of certain product attributes such as PC configuration, features and 
peripherals that he or she would like to have, there might be considerable ambiguity 
regarding the product’s performance, reliability, and the web site from which the purchase in 
contemplated, further, considerable uncertainty could also stem from the online medium that 
does not offer a direct experience of the product as in an offline environment. In such 
instance, the consumer might perceive high level of uncertainties and risks of online shopping, 
resulting in an increase in perceived overall TCs associated with online shopping. 
The advantages of online shopping, such as convenience, better price, variety of products, 
would alleviate some of the concerns regarding online shopping (Kim and Kim 2004, Clemes
 
et al.
2013), thereby reducing the costs associated with online shopping. These costs and 
their effects on consumers’ psyche may influence consumers’ choice of online store, their 
attitude, intention, final purchasing decision and future purchase behaviour toward an online 

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store. With low TCs, consumers would choose an online vendor for transactions; with low 
TCs, consumers would display their loyalty to an online vendor, spend more, generate large 
transactions, buy more products, pay a premium price, and refer more people and bring in 
more business. By lowering TCs perceived by consumers, online vendors could attract people 
to their sites, convert visitors into purchasers, create barriers to switching for customers, build 
long-term relationships with customers in ways that cannot easily be replicated by 
competitors, and ultimately, increase market share and earn real profits in the rough-and-
tumble world of online marketing. Therefore, TC reduction can be positioned as a powerful 
marketing tool available to the online vendors (Chircu and Mahajan 2006). Chircu and 
Mahajan (2006) also state that lowering TCs perceived by online consumers is a strategic 
issue that should be of interest to strategy researchers and practitioners because of the 
positive economic consequences that it has for businesses.