Understanding consumer online shopping behaviour from the perspective of transaction costs

 et al.
2012b, Yen
 et al.
2013) would 
have high levels of perceived costs of online shopping (Yen
 et al.
2013, Wu
 et al.
2014). The 
web as an online shopping channel presents some unique challenges to the consumer decision 
processes as consumers are wary of sharing their personal as well as financial information, 
such as credit card details (Hong and Thong 2013). In addition, they are concerned about the 
usability of web interface, reliability of online products and effectiveness of e-service 
(Hausman and Siekpe 2009). All of these concerns may lead to TCs.
Building on the extant studies on consumer behaviour in online and traditional business-to-
consumer markets (Bowen and Jones 1986, Byramjee and Korgaonkar 2004), this study 
contends that consumer TCs in online environments do exist and it is reasonable to extend the 
concept of consumer TCs to an online shopping setting. Recognition of the importance of 
these TCs will help many online vendors to take action to effectively mitigate the TCs 
perceived by consumers.

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Importantly, TCs in online shopping environments deserve special attention for a number of 
reasons. Firstly, in online environments, there is a physical separation between consumers 
and the retailers. There is also a separation between consumers and the merchandise, and lack 
of a store environment or a salesperson that facilitates building a direct relationship between a 
buyer and seller (Yen
 et al.
2013). All these factors create a high level of ambiguity in web-
based shopping. The consumers would face high level of risks and bear potential 
psychological costs stemming from the fear of purchasing inferior products due to their 
inability to check the products before making the purchase (Yeh
 et al.
2012b).
Secondly, consumers are chary of providing personal information during online transactions, 
and even if they do so, they want to know that the marketers will handle their personal details 
with sensitivity. Privacy issues include customer tracking through explicit and implicit means, 
data collection on consumers and sharing of this information with third parties. Several 
studies have pointed out privacy as one of the top concerns of consumers (Brown and 
Muchira 2004, Pan and Zinkhan 2006, Taddei and Contena 2013). High levels of privacy 
concerns have been found to increase TCs of online shopping (Kim and Li 2009b).
Thirdly, consumers adopting online shopping also need to have the basic knowledge and 
skills of online shopping. The basic understanding of online shopping process, especially the 
online payment necessary to complete the online transaction may become an obstacle to 
online shopping adoption (Van Deursen and Van Dijk 2009). This additional requirement for 
Internet and online shopping knowledge are likely to increase TCs of online shopping 
perceived by consumers.

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Finally, the large number of online vendors who have emerged in recent years has also 
created considerable uncertainties regarding the viability and credibility of the online 
shopping sites (Bock
 et al.
2012). For consumers, online shopping offers opportunities based 
on efficiency, convenience, and selection. At the same time, Internet-only firms have little 
history and, therefore, little record of reputation on which consumers can reply to establish 
their trust (Benedicktus
 et al.
2010). For brick-and-click firms with both physical and online 
presence, existing reputations may play an important role in allaying consumer concerns and 
building trust (Ranganathan 2012). These two types of firms (Internet-only firms and brick-
and-click firms) both operating in online environments compete with each other to expand 
their customer bases and market share. In such circumstances, minimizing online TCs by 
reducing consumers’ perceived risks of online transactions might become a critical 
determinant of firms’ competitive advantages. The consumer opportunities inherent in online 
shopping coupled with the retailers’ need to attract and sustain online shoppers necessitate 
newer interdependencies in ways that are different than the interdependencies fostered in 
conventional shopping environments. For each of these four reasons, TCs are salient in online 
environments and reducing TCs is extremely desirable because it means reduced 
uncertainties and risks which will greatly facilitate the decision-making process in online 
shopping.
Drawing upon the theoretical propositions of the firm-level TCT, this study further argues 
that the concept of consumer TCs can be used to understand consumer’s general shopping-
related choices. According to Williamson and Ghani (2012), TCT can be used to theoretically 
explain why a transaction subject chooses a particular form of transaction instead of others. 
In other word, TCs determine the selection of transaction mode. The basic principle of TCT 
is that people like to conduct transactions in a way that minimizes their TCs. Rational 

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customers prefer modes of transaction which minimize costs. When consumers go shopping, 
they mainly face two options. One is to purchase from a brick-and-mortar, offline channel, 
and the other is to purchase from an online channel. Based on the logic underlying TCT, 
consumers will choose the shopping channel that can minimize their TCs. If the TCs of 
online shopping channel are lower than those of traditional shopping channel, consumers will 
choose online shopping channel (Kim
 et al.
2013b). Therefore, it is reasonable to employ 
TCT to explain consumers’ shopping channel choices.
Since purchasing from an online store can be considered as a consumer’s choice between 
online and offline channel, and being loyal towards the online store can also be viewed as the 
consumer’s choice between certain store rather than other stores, this study argues that TCT 
is capable of being adapted to online environments to explain consumers’ actual online 
purchase behaviour and post-purchase behaviour (i.e., customer loyalty). TCT therefore 
appears appropriate for explaining why consumers are willing to adopt online shopping rather 
than continuing to use their current methods of conducting offline transactions. On this basis, 
TCT is used as the theoretical foundation for the research model of this study.