Proceedings of the 33rd Hawaii International Conference on System Sciences - 2000

Electronic Store Design and Consumer Choice: an Empirical Study Ting-Peng Liang and Hung-Jeng Lai Department of Information Management National Sun Yat-sen University Kaohsiung, Taiwan [email protected] Abstract Web-based electronic stores have become more and more popular. However, there are not many guidelines, nor theories, showing what features of a store would work and why. This paper develops a set of functional guidelines for designing electronic stores and classifies them into three categories: motivational, hygiene, and media richness factors. An empirical study was conducted to evaluate the relative effect of these factors. The results show that the store design does have an effect on consumer purchase decision. A two-factor theory is plausible: hygiene factors are the major concern when consumers decide whether to shop electronically, while motivational factors play a key role when consumers choose among different electronic stores. Media richness factors are, in general, less important. The implication of the findings is that, for a web store to beat its electronic competitors, providing good transactional support is the key. If they would like to attract customers from traditional stores, special attentions must be paid to the hygiene factors.

1. Introduction Electronic commerce is the cutting edge for today’s business. The introduction of Internet, coupled with the rapid proliferation of world wide web (WWW), has created a challenging arena for the future. A surge of interests in electronic commerce has propagated from the United States to virtually every corner in the world. Web-based electronic stores on the Internet increase in an unprecedented speed. More and more consumers are using Internet as a valuable source for collecting information and placing orders. According to reports from the Internet Society, over 186 countries have been connected with Internet. The total number of users is approximately 30 million by the end of 1996 (Chen, 1997). More than half US Internet users purchased merchandise online, and sales totaled

more than $500 million in 1996. As the Internet continues to grow, analysts predict $100 billion in retail Internet sales by the year of 2000 (Hamilton, 1997). These figures indicate that Internet is an extremely promising market. In fact, some early birds have already converted the opportunity into fortunes. For example, Amazon sold more than 17 million dollars of books and Auto-by-Tel sold more than 200 thousand automobiles through the Internet (Her, 1997). Given the enormous business potential, research in the area has attracted much attention recently. For instance, Hoffman, et al (1997) and Hamilton (1997) examined the opportunities and challenges of the web. Tennebaum, et al. (1997) proposed an architecture for Internet commerce. Kambil (1997) studied potential electronic business processes. Bailey and Bakos (1997) examined the impact of electronic markets on intermediaries. Lee and Clark (1996) examined the impact of electronic markets on firm competitiveness and market structures. Jarvenpaa and Todd (1996) studied consumer reactions to electronic shopping and identified product perceptions, shopping experience, and customer services as major factors for consumers. Bhimani (1996) and Denning (1997) discussed the security in electronic commerce. Panurach (1996) and Neuman (1997) studied electronic payment systems. Gupta, et al (1996,1997) studied merchandise pricing in electronic commerce. Liang and Huang (1999) found that transaction costs play a key role in consumer selection of electronic channels in an empirical study. Although some stores are quite successful, many of them have difficulties in attracting enough customers to visit and purchase. Since there is little face-to-face contact between the store manager and customers in electronic stores, the web pages become the sole source for customers to know the items available at the store and make a purchase. Therefore, the homepage design of an electronic store is much more critical than the layout of a traditional store. A well-designed store that can deliver

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Proceedings of the 33rd Hawaii International Conference on System Sciences - 2000

information more accurately is assumed to be more attractive for customers to visit and purchase. The purpose of this article is to develop guidelines for designing a good electronic store on the web and examine the effect of store design on consumer choice. In addition, we intend to explore whether and why certain requirements are more important than others. The importance of electronic store design is understandable. It is well-known that, in a traditional store, floor plan and shelf layout have significant effect on sales. Design of information systems is also known to have effect of system usage and user satisfaction. For electronic stores, therefore, it is reasonable to assume that a well-designed store will have positive effects on customer choice. In this paper, the consumer choice model proposed by Engel, Kollat and Blackwell (1982), called the EKB model, is adopted to induce the functional requirements at each stage of the customer decision process. The derived requirements are then organized to create a set of guidelines for designing and evaluating electronic stores. These guidelines are then grouped into three theoretical categories: motivators, hygiene factors, and media richness factors. Motivators, such as having a good search engine, provide direct support to the customer transaction process. Hygiene factors, such as having a better security, protect customers from risks or unwanted events in the transaction process. Media richness factors, such as providing chat rooms, add more information channels or richness in information presentation during the transaction. An empirical study was conducted to evaluate the relative effect of various design factors. The result shows that the quality of store design has significant effects on consumer choice. The experimental subjects purchased more from the well-designed electronic stores. The subjects also indicated higher willingness to return to the well-designed stores for future visit and purchase. Information collected from the experimental subjects allows a two-factor theory to be constructed for explaining the observation: hygiene factors are the major concern when consumers decide whether to shop electronically, while motivators play a key role when consumers choose among different electronic stores. Media richness factors are, in general, less important. The implication of the findings is that, for a web store to beat its electronic competitors, providing good transactional support to the customer is the key. If they would like to attract customers from the traditional stores, attentions must be paid to the

hygiene factors.

2. Guidelines for Electronic Store

Designing

an

When people purchase at an electronic store, they may have different considerations at different decision stages. A good design must support customer needs at each stage of their decision processes. Therefore, the EKB model was used as a base to derive user requirements for electronic stores. The model divides consumer decision processes into five stages: problem recognition, search for information, evaluation of alternatives, choice, and outcome evaluation. When a problem is recognized, demand for certain products that can eliminate the recognized problem is derived. Product information is collected and alternative products are proposed and evaluated. Once an alternative is chosen, the consumer evaluates the outcome and saves the experience for the future. Following the model, possible support and functional requirements for an electronic stores at different stages can be summarized in the following.

2.1 Problem Recognition Problem recognition is the stage where customers feel the need for a certain product. Factors that may help customers recognize a need include environmental stimulation, individual experience, and inner motivation of the consumer. Although it is hard to support individual experience and inner motivation through store design, developing a stimulating environment may be helpful. Possible guidelines include the following: 1. Easy to get started To achieve this goal, the store needs to have (1) Consistent interface styles, and (2) Hierarchical product organization 2. Guiding shopping routes Most electronic stores have thousands or even millions of items (such as the Amazon bookstore), it is necessary to have a good shopping guide and search engine. Proper use of special effects and carefully designed hyperlinks are also very important. 3. Stimulating the desire of purchase To stimulate the desire of purchase, the following are possible alternatives: (1) Using POP advertisement (2) On-line broadcasting of background music (3) Adding auction mechanism 4. Providing reference groups Consumers sometimes rely on their friends or other consumers for opinions. For

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Proceedings of the 33rd Hawaii International Conference on System Sciences - 2000

example, people tend to go to popular stores that have more visitors. Consumers may have fun by knowing the existence of other shoppers. Two approaches may be used: (1) Showing the number of current visitors (2) Providing chat rooms

2.2 Search for information Before making a purchase, consumers often look for relevant information. Therefore, providing functions to support information search may be useful. 1. Allowing fast product search A good search mechanism that helps customers to find a particular item rapidly is important. In addition to a proper organization of products, another alternative is to have a builtin search engine. Customers use the engine to find what they need. 2. Providing value-added information One advantage of electronic stores is their ability to offer value-added information. This information, such as the best sellers, headline news, fashion trends, or activity announcements, may be useful for interested customers. 3. Providing customized Information Another advantage of electronic store is its ability in providing and using customized information. For instance, the system can analyze sales data and consumer preferences by data mining or other techniques to create customized information.

2.3 Evaluation of alternatives A store may provide functions to support customer evaluation of products and to help build trust in an electronic shopping environment. 1. Support of product evaluation During product evaluation, customers often compare candidates by certain attributes, inquire information from staff, and bargain for a better price (Baty and Lee, 1995). It helps if a store provides: (1) Comparison of prices and other attributes (2) Customer interactions 2. Building the trust in an electronic environment For customers who are not familiar with electronic purchasing, it is important to build their confidence. Possible mechanisms include: (1) Claiming Security of transactions (2) Offering the VIP system (3) Providing adequate service phone numbers

2.4 Choice At the choice stage, consumers need tools to aggregate information and make a selection. Functions that make their choice easier and suggest for more purchases are useful. 1. Providing shopping carts for easy handling of multiple items In a traditional store, consumers often use shopping barrows or carts to carry their merchandise. In the electronic environment, shopping carts are helpful for consumers to order multiple items and control their budgets. 2. Suggesting substitute products, if necessary The system may help customers choose proper products by offering choice models. Sometimes, customers may be restricted by their budgets. In this case, providing information about substitute products may help sell more. 3. Using online salespersons Sometimes, having on-line salespersons or intelligent agents to deal with special problems may be necessary. Their main responsibility is to interact with customers, observe consumer's reaction, and promote their products.

2.5 Transaction and post-sales services After selecting a product, the transaction process and post-sales services become important. 1. Supporting the transaction process Major steps in a transaction process and their possible support include: (1) Easy to sign up as a member (2) Placing an order on-line (3) Multiple alternatives for delivering products (4). Multiple methods to pay for the product 2. Post-sales services (1) Inquiring and tracking order status: Customers often would like to know the status of their order. They would feel more comfortable if the status is conveniently available. (2) Allowing for product returns: Support of product returns is also necessary. (3) Organizing buyer clubs: A buyer club provides a channel through which buyers can exchange their opinions and share their experiences. This may increase customer loyalty. In summary, from the consumer’s perspective, a good electronic stores must provide adequate functions to support their shopping needs throughout the whole customer decision process. Table 1 is a summary of the requirements described above.

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Proceedings of the 33rd Hawaii International Conference on System Sciences - 2000

Table 1. Functional requirements at different stages Problem

Information

Recognition

Search

Evaluation

Choice

Transaction/ Postsales service

- Consistent style

- Fast search

- Price comparison - Shopping carts - Easy to sign up

- Product

- Value-added

- Customer

- Substitute

- Order on-line

organization

information

interaction

suggestion

- Home delivery

- Guiding routes

- Customized

- Security

- On-line sales

- Multiple payment

- Special effect

information

- VIP

person

methods

- Service phone

- POP

- Credit card

- On-line

- Product tracking

broadcasting

- Allowing for

- Auction

product returns

- Visitor

- Organizing buyer

information

clubs

- Chat room

Current Purchase

Hygiene factors

Motivators

Design Quality

Consumer Choice

Media richness factors

Future Visit

Future Purchase

Figure 1: Research Framework

3. Empirical Study In order to examine whether the store design affects customer purchase decision and the underlying mechanism of effective design, an empirical study was conducted. The study includes two major dimensions. One is to assess the quality of store design and the other is to analyze consumer choice of electronic stores. The assessment of design quality was done by both consumers and experts based on the factors discussed in the previous section. Consumer choice was measured in three ways: consumer’s current choice, their willingness to visit again in the future, and their willingness to purchase

again in the future. The first measure is an objective recording of whether they did purchase from the store considered to be the best in design by them, and the later two are their reported willingness to visit or purchase again in the future. Figure 1 shows the framework for the empirical study. Three hypotheses can be formulated. H1: Better-designed electronic stores will attract more consumers to purchase. H2: Better-designed electronic stores will attract more consumers to visit again in the future. H3: Better-designed electronic stores will attract more consumers to purchase again in the

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Proceedings of the 33rd Hawaii International Conference on System Sciences - 2000

future. Design quality is determined by three kinds of factors: motivators, hygiene factors, and media richness factors. A motivator is a design factor that may motivate the customer to shop from a store because the shopping process is easier. For instance, providing a good search engine is a motivator because it helps the customer to find the desired merchandise. Allowing for convenient purchase of multiple items is also a motivator. A hygiene factor is a design factor that prevents possible problems associated with electronic transactions. Providing good security and allowing for return of goods are two examples of hygiene factors. Media richness is a medium’s capacity for immediate feedback, multiple cues, language variety, and personal focus of sources (Daft & Lagend, 1984; Daft, et al., 1987). It has been used to study information systems recently. Media richness factors are defined as factors associated with the nature of providing multiple communication channels, multiple sources of information, and multiple presentations of information. For example, providing chat rooms is a media richness factor. The design quality is measured by the degree of having these three

types of factors. Table 2 shows the factors in each category. 3.1 Subjects and experimental design Three electronic bookstores in Taiwan were chosen for the experiment. They were Kingston (www. kingstone.com.tw), Books (www.books.com.tw), and Sanmin (sanmin.com.tw). Kingston and Sanmin also have traditional stores, while Books is a pure electronic store. Three experts were asked to assess the design quality of the stores based on the attributes listed in Table 1. Thirty student volunteers (21 male and 9 female) were recruited and each received an NT$500 (equivalent to US$16) stipend for the experiment. All subjects had experience in using WWW, owned at least one email address and a credit card. Twenty-five of them had visited at least one electronic store before participating the experiment and eight had purchased from electronic stores. Table 3 shows the profile of the participants. Since purchasing books is a common real-world behavior for students, using student subjects in this experiment is less likely to incur the limitations associated with using them in other empirical studies.

Table 2. Classification of Factors Motivator

Hygiene Factor

Media Richness Factor

- Search engine

- Security

- Product organization

- Easy to register

- Product tracking

- Guiding routes

- Shopping carts

- Allowing for product returns

- Price comparison

- Home delivery

- Service phone

- VIP

- Order on-line

- Consistent style

- Substitute suggestion

- Multiple payment methods -

- POP

Credit card payment

- Value-added information - Customized information - On-line sales person - Buyer clubs - Customer interaction - Special effect - On-line broadcasting - Auction - Visitor number - Chat room

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Proceedings of the 33rd Hawaii International Conference on System Sciences - 2000

Table 3. Profile of the Subjects Age

Gender

WWW Experience (month)

Male

Female

(mean)

12

21

9

24.47

2

4

2

22

Yes

No

Previous on-line shopping experience Visited electronic stores before

25

5

Purchase at electronic stores before

8

22

design factors considered important to store design by them, and factors that actually affected their purchase decisions.

In the experiment, participants were asked to visit all three electronic bookstores for at least five minutes each. To ensure that they actually visited all stores, they were asked to find the price of a designated book at each store. After visiting all stores, they were asked to buy two items of their choice from the stores. So, there were a total of 60 items been purchased. A questionnaire was used to collect three kinds of information from the subjects: their background,

3.2 Results (1) Desirable functions for electronic stores When the subjects were asked about what attracted them to go to certain stores to buy their items, store design was cited as the most important one. Price was the second. Table 4 shows the frequencies of the cited reasons.

Table 4. Reasons for purchase at certain stores Major reasons Design

Price

Reputation

Special needs

First item

14

12

11

7

Second item

15

14

6

3

Total

29

26

17

10

Then the subjects were asked to assess the relative importance of the functional requirements listed in Table 1. Each factor was designed as a 5-point Likert-scale question, with 1 being very undesirable and 5 being very desirable. The result, as shown in Table 5, indicates that protecting transaction security (mean =4.90), providing search engines (4.87), allowing for product return (4.77), order tracking (4.73), and good product organization (4.60) are the top five factors considered very desirable features for electronic stores. The Kendall’s W test indicates that the subjects’ assessment was consistent (Kendall’s W=0.585, p=0.000). The Duncan’s multiple range test divides these factors into four levels: very desirable (>=4.5), desirable (>=4.0), somewhat desirable (>=3.0), and somewhat undesirable (