Research

E-tailers must win trust to gain ground over bricks and mortar

Lacking chic surroundings or cordial salespeople, e-tailers must work harder at gaining the trust, respect and ultimately loyalty of their customers. A research team at the W. P. Carey School of Business has concluded that "value congruence" is the best possible goal of e-tailers who want to attract and retain customers.

2005-05-09

E-tail is not retail. Without a place – a brick-and-mortar store with face-to-face customer interaction — trust is harder won, and more easily lost.

But it is winnable, and a team of researchers from the information systems department at W. P. Carey School of Business has concluded that "value congruence" – an overlap between the values of potential customers and the values they perceive the organization to possess – plays a strong role in winning the trust of e-tail customers. And e-tailers who enjoy higher levels of trust are able to charge price premiums, enable customers to share more information, and reap the benefits of customer loyalty.

Retail vs. e-tail

With the competition just a click away, e-businesses must find other ways to distinguish themselves from their competitors. In the old paradigm, retailers planned competitive strategy around place, price, product and promotion, but when commerce migrated to the Web those classic benchmarks changed.

In e-tail, there is no place – and without a store to visit, merchandise to touch and faces to see at check-out counters, it's harder to develop the consumer's trust and loyalty. As well, competition and commoditization make it more difficult to compete on the remaining P's of price, product and promotion. Besides, "organizations typically don't want to compete on price," Robert St. Louis said. "That gets to be a losing proposition for most of the players."

St. Louis, and colleagues Joseph Cazier and Benjamin Shao describe a fifth P – perception. How the customer perceives the business impacts how the customer interacts with the business, and the customer's perception of the business is strongly affected by whether the customer believes her/his values overlap (are congruent with) those of the business. "The bottom line is that value congruence is an important factor for creating trust," said St. Louis, "It cultivates trust, and can play a key role in differentiating e-sellers."

The team's research suggests that in e-businesses, the perception of value congruence may be an important marketing tool that can be used to help restore some of the competitive advantages lost owing to the irrelevance of place on the Internet.

A matter of trust

"In e-commerce," said St. Louis, "trust is even more important than in brick-and-mortar."

Trust is complex. At one level, trust is confidence in another party — one perceives another as trustworthy because of the qualities and characteristics the trustee possesses — benevolence, integrity and competence. An entity worthy of trust puts your best interest first, has the ability to perform as agreed, and actually performs as agreed.

Thus, a company with a history of on-time delivery is trustworthy, possessing the quality of competence. One that misses delivery – for example, the toy manufacturer that missed 30 percent of Christmas season deliveries its first year – is not. "It's a huge plus to an organization if people believe they're not going to over-promise, and that they're competent to do what they promise," said St. Louis.

At a higher level, trust is vulnerability — the willingness to be vulnerable to the actions of another party, which can be a person or an entity such as an e-tailer. The one who trusts must believe that the trustee will perform actions important to her/him, without being monitored or controlled.

That "willingness to be vulnerable" is especially important in online transactions, in which customers must reveal sensitive personal and financial information, like address and credit card numbers. "That's why identity theft is so damaging to trust," said St. Louis. "It violates all three elements of trust: benevolence, integrity and competence."

Online customers must trust vendors enough to put themselves in that vulnerable position, and researchers have found that in e-tail, where there is no salesperson, the primary recipient of consumer trust is the organization itself.

Value positive, value negative, value neutral

Researchers theorized that value congruence is vital to building trust, and is an important tool for enabling e-businesses to differentiate themselves. Value congruence helps to build trust and value conflict reduces trust.

For example, The Body Shop, based in Brighton, England, is perceived as environmentally responsible, and promotes those values actively to help grow its sales and build strong customer relations. Similarly, Ben & Jerry's Ice Cream of Vermont promotes what it perceives as environmental stewardship and attracts loyal customers who agree with those values.

The researchers predicted that an increase in trust from shared values may increase a customer's willingness to disclose personal information, a customer's loyalty, or the customer's willingness to pay higher prices to support common causes. To test the idea, St. Louis, Shao and Cazier conducted an experiment on 297 undergraduate business students. The subjects were given a description of a hypothetical online bookstore, and each was told that the values of the company either matched, opposed, or were unknown with respect to the values of the individual.

Three experiences are possible. In a value-neutral experience, the customer perceives the organization's values as providing no meaningful support for or harm to the beliefs of the individual. In a value positive experience, the customer perceives high compatibility with the organization's values, for example the connection between an environmentalist's values and those of The Body Shop.

In a value negative experience, the customer perceives a strong conflict between the individual's and the organization's values – for example, someone opposed to drug use who objects to Ben & Jerry's having used Timothy Leary in advertising.

"Our finding," said St. Louis, "Was that value congruence really is important – they looked at value congruence before in brick and mortar, but it's especially important for internet-based economies." When consumers perceive a value conflict, they appear to question whether the organization fairly represents its products.

The consumer's perception — that fifth P — is that the organization has violated the consumer's trust elements of integrity and benevolence. From that, the consumer extrapolates that the organization is, as a whole, untrustworthy.

Cultivating value congruence: rewards and risks

Should then an e-tailer cultivate values that attract its target demographic?

"It can't be the only thing you do," said St. Louis. "Just supporting causes, isn't going to help if a company doesn't deliver what it promises." Whatever image of benevolence or integrity a company cultivates, it cannot ignore the trust element of competence.

Also true – people claim they will be influenced by value congruence, and are willing to pay higher premiums to a value-positive organization. But what people say and do are often different. St. Louis points to the case of Wal-Mart Stores. "People will say 'I don't know if Wal-Mart's good for small towns,' but still shop there because Wal-Mart has the lowest prices." Wal-Mart is an example of a value-conflict organization, which must compete aggressively on price, product, and promotion to overcome perception.

Value-positive and value-negative perceptions are often flipsides of the same coin. Ben and Jerry attract a good many consumers with social activism, and likely repel potential consumers as well. Clothing retailer Abercrombie & Fitch antagonized parents and conservative groups with its sexually explicit and suggestive catalog. But the media attention (and likely, opportunity to annoy parents) attracted A&F's youthful target market, with a resulting boost in sales.

Not all values are as risky as A&F's erotic catalog, or Ben and Jerry's social activism. Said St. Louis, "Supporting Planned Parenthood or Greenpeace is risky, but it's hard to find anyone who thinks it's not good to feed the hungry, and I don't know anyone who's against Habitat for Humanity, or supporting community centers. Some values are universally supported."

St. Louis feels that advertising can be a force for good, and was motivated to conduct the study by the amount of money spent on celebrity endorsements. "If you took the same money they give to Michael Jordan and invested that in Habitat for Humanity, or after-school programs, or keeping community centers open, society would be a whole lot better off. The hope is those motivators are at least as powerful as an ad that implies 'buy these sneakers and you can jump as high as Michael Jordan.' Which, of course, isn't true."

While companies may gain trust through caused-based loyalty, as St. Louis points out, reputations are more easily lost than won. "The perception of hypocrisy bothers people greatly," said St. Louis. "If you advertise that you'll do something and then fail to do it, the backlash is worse than not doing anything in the first place." Philip Morris, for example, ran a commercial about sending humanitarian supplies to war-torn Serbia which was suffering shortages.

"The campaign was good, but when the news came out that Philip Morris spent more on the commercial than in distributing supplies, the campaign just plain backfired." Similarly, The Body Shop was "caught" using large commodity lots of nuts in its products, not the small lots hand-picked by native peoples as it claimed.

"We've identified that cause- and value-based marketing really has a positive effect," said St. Louis. "The next phase is to find the magnitude, and it seems to be fairly large, based on the five-point scale that we used. However, there's no measure yet of how large a price premium people would be willing to pay — that requires a different study."

Value congruence may offer the greatest opportunity for organizations to establish a long-term competitive advantage in e-commerce, particularly as competition and commoditization make it more difficult to compete on price, product and promotion.

Management Managing IT