Lund School of Economics and Management

Department of Business Administration

BUSN23 Retailing and Distribution Channels

Reflection paper

How can e-tailers use trust in order to

develop their business?

Supervisor:

Veronika Tarnovskaya

Student:

Alejandro Sánchez Contreras

Date:

2014-12-16

Word count:

2.978

Contents 1. Problem definition ..................................................................................................................... 1

2. Introduction to the company Årstiderna .................................................................................... 1

3. E-commerce barriers and the element of trust ........................................................................... 1

3.1 Why is trust important for e-tailers? Consequences and benefits of trust ........................... 2

3.2 How does trust work? .......................................................................................................... 2

3.3 Why is it difficult to build up online trust? ......................................................................... 3

3.4 How to build up online trust? Antecedents/Triggers of trust .............................................. 3

3.4.1 Familiarity .................................................................................................................... 4

3.4.2 Disposition to trust ....................................................................................................... 4

3.4.3 Personality-based trust, cognitive-based trust and institutional-based trust ................. 5

4. What is then, the overall picture of online trust? .................................................................. 6

5. Conclusions ........................................................................................................................... 7

References ................................................................................................................................. 8

1

1. Problem definition

With the development of Internet there has been a growing number of companies that

base their business on the net (Yingchan & Ghose, 2003). Particularly high has been the

increase in online food sales, reaching 30% per year and representing about 6% to 8%

of the total online shopping (Kingham, 2014). However, markets like Sweden are still

below the average (ibid). The reasons for this could be consumers who prefer to see and

touch the products or perhaps others might prefer to talk to the seller in person. In any

case, one of the most important problems that has been addressed in the literature is the

lack of trust when purchasing products online (Gefen, 2000).

Therefore, the topic of this paper explores the concept of trust in online retailing (or e-

tailing) through the question: how can e-tailers use trust in order to develop their

business? To answer this question, an analysis of the difficulties, antecedents,

consequences and benefits of online trust has been done in this paper based on recent

literature. Furthermore, the paper is complemented by the case of the e-commerce

organic food company Årstiderna presented in a lecture at Lund Unversity in Sweden.

In this paper, trust has been studied from the perspective of the consumer rather than

from the business-to-business one.

One of the aims of this paper is to provide a deeper understanding of trust as a key

element that can act as a driver or as a barrier (lack of trust) of e-commerce. Moreover,

it also intends to provide specific actions through examples that can tackle the addressed

problems based on the case of Årstiderna.

2. Introduction to the company Årstiderna

According to Kingham (2014) Årstiderna is an on an online organic food retailer

inspired by the company Riverfood and located in Sweden and Denmark. The orders

from customers are exclusively done online and the food is delivered in boxes directly

to their addresses. The transporters are part of the company and they have the door

codes of some customers’ buildings in order to avoid delivery problems when the

customer is not at home. Årstiderna has no bricks-and-mortar stores and the main

personal interaction with customers is done through promotion campaigns on real

markets in cities. Their main competitors are Ekoladan, Mossagarden (which uses drop-

off points instead of home delivery), COOP online and Ecoviva.

3. E-commerce barriers and the element of trust

E-commerce is a type of “remote ordering channel” (Zentes, Morschett & Schramm-

Klein, 2011, p. 35), meaning that there is usually no direct contact between the

companies and the customers. According to Ha & Stoel (2009) e-commerce has been

growing constantly during the last years, and it is influenced by various factors like

security regarding payments (Gefen, 2000; Allred, Smith, & Swinyard, 2006), privacy

2

and reliability (Gefen, 2000) and perceived risk among other factors (Mansour, Kooli,

& Utama, 2014). However, trust (Ha & Stoel, 2009; Gefen, 2000; McKnight, &

Chervany, 2002); Awad, & Ragowsky, 2008) and lack of trust (Bhattacherjee, 2002;

Chen & Barnes, 2007; Kelley, Rhinelander, & DeMoulin, 2001; Kim, & Benbasat,

2003) are of particular importance and have been addressed by many authors in the

literature. These factors, despite they might be also somehow present in the “offline

world” (i.e. traditional retailers), they are more influential for e-tailers as it has been

analyzed in this paper.

3.1 Why is trust important for e-tailers? Consequences and benefits of trust

To answer this question, it is essential to understand the consequences of online trust

(Mansour, Kooli, & Utama, 2014). First of all, the essence of the problem of trust is

directly related to purchase intention (Gefen, 2000; Mansour, Kooli, & Utama, 2014)

and therefore it affects directly the sales of e-tailers. In this line, Isaac and Volle (2013)

point out that, in general, online demand has been below the offer, which means that,

despite the opportunities are easily available on the Internet, many people have still not

stepped forward and there is still place for potential and improvement. For example

only 1% of total Swedish food sales is done online compared to 7% in UK (Kingham,

2014).

A second consequence of online trust has to do with perceived risk (Kim, Ferrin & Rao,

2008; Yoon, 2002), which a customer would calculate based on the probability of losing

(Rousseau, Sitkin, Burt & Camerer, 1998). Therefore, according to Grazioli and

Jarvenpaa (2000) high risk perception means that the customer will be less willing for

example to share their personal information and lastly to purchase.

These two consequences of online trust (purchase intention and perceived risk) have

major consequences for an e-tailer like Årstiderna, since they have almost only online

presence (Kingham, 2014). For this company a big problem could be the lack of

communication regarding the organic procedure of the food, resulting in customers

being not well informed and probably more reluctant to trust the company.

On the other hand, one of the main benefits of trust is that people are willing to

participate in activities even when there is certain risk and to adopt new technologies

(Fukuyama, 1995), which is particularly relevant for e-commerce (Gefen, 2000).

Moreover, trust reduces complexity in interactions, thus facilitating intentions that lead

to behaviors (ibid). In the case of Årstiderna, increasing trust would have a direct impact

on the sales of their organic food from their website.

3.2 How does trust work?

According to Gefen (2000), trust is based on expectations that people create from

passed experiences. So, when a certain behavior is observed in the interactions with an

individual, we automatically expect that the other person will continue to behave in the

same way. Trust can take two different directions. On the one hand, trust is a positive

factor that reduces people’s uncertainty about other people’s actions (Kramer, 1999).

3

On the other hand, lack of trust would lead to people considering multiple scenarios

where the unexpected happens (Gefen, 2000).

In our empirical case, a potential online customer that has already bought organic

products from Årstiderna will expect that the same vegetables he or she bought in the

last purchase will be delivered in the same conditions, with the same quality and within

the same delivery time. The lack of trust would make customers afraid of vegetables

delivered in bad conditions or not in time, which would make the online purchasing

more complex and would result in customers deciding not to buy online. Moreover,

since Årstiderna positions its products as not having neither pesticides nor any other

hazardous chemicals, lack of trust could be based on the belief that its products are not

as organic as they promote.

3.3 Why is it difficult to build up online trust?

One of the problems of trust in e-commerce is that continuous (and personal)

interactions usually do not take place on the virtual world, unlike in the real one,

making it difficult to build up trust (Gefen, 2000). For example, Årstiderna operates

online and almost the only regular personal interaction the customer has with the

company is with the transporters that deliver the food.

To overcome this problem, Årstiderna is actually planning to try door-selling in the city

of Lund (Kingham, 2014), which, despite meaning higher costs, will probably have a

positive impact on customers’ trust. Also, Årstiderna currently do events on the streets

(the so called street kitchens) so that people can get to know them and try samples of

their products (ibid). Another solution with relatively low cost could be doing phone-

selling and satisfaction calls in which there is certain level of human interaction. A more

costly option could be opening a store where people could receive information about the

products, see and touch them, ask questions and in general interact with the personnel.

The aim would be to create those personal interactions that people sometimes need in

order to trust a company before purchasing online, as well as to build up the brand

around a physical store (Andersson, 2014). In fact, they could use the store as a drop-off

point, somehow similar to what their competitor Mossagarden do. This delivery system

has the advantage (regarding trust) that customers do not have to share their address and

they can interact more with the company in the drop-off point, as well as with other

customers. Moreover, it could be interesting in order to raise the awareness of the

company through “offline” presence.

3.4 How to build up online trust? Antecedents/Triggers of trust

Building up trust is a complicated process, since it requires considering a variety of

factors that have been analyzed below. Hence, it is necessary to know what the

antecedents or triggers of trust are (Mansour, Kooli, & Utama, 2014), so that e-tailers

can take actions that gain trust from potential and current customers.

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3.4.1 Familiarity

Familiarity, which is a positive factor and a precondition for building up trust, does not

require personal interactions and it is therefore more suitable to be exploited in e-

commerce (Luhmann, 1979). To understand familiarity, Gefen (2000) explains it as “an

understanding of the current actions of other people”, unlike trust, which relates to

“beliefs about the future actions of other people” (p.3). Despite being different, as the

author explains, both elements are related and influence each other, but trust is normally

more important for e-commerce since it concerns risk and security. Nonetheless,

familiarity has also a negative side that can jeopardize trust if the customer had a

negative experience (Gefen, 2000).

Applying this to our case, for instance, a potential customer of Årstiderna who has

entered their website a few times will have more familiarity (knowledge) about how to

look for the different organic food, prices and how to order it on their website; and trust

would be represented by the belief that ordering a box of organic food with a credit card

will not imply the risk of someone misusing his or her bank information or personal

data like the door code they share with Årstiderna to deliver the food into the buildings.

An example of negative familiarity can be a customer who finds Årstiderna’s online

catalogue difficult to understand. Knowing this, Årstiderna could design their website in

a format that people already know, like a big player (e.g. how do people order products

from Amazon?) or a successful company within the sector (e.g. Riverfood). A good

alternative could be to sell their food through a big player like Google shopping,

Amazon or Alibaba, since they are worldwide recognized, they have a good reputation

and they have very good processes (Andersson, 2014). These initiatives could increase

familiarity and trust, leading to people being more willing to purchase the food online

and even attracting customers from the competence.

3.4.2 Disposition to trust

It is also necessary to know that disposition to trust is another trigger (or antecedent) of

trust (Gefen, 2000). This trigger is said to be present in people after many years of

experience (Rotter, 1971) and is related to the general concept of trusting humanity

(McKnight, Cummings & Chervany, 1998). It therefore relates to the concept of societal

trust (in contrast with individual trust) in which people and institutions are related

(Mansour, Kooli, & Utama, 2014). This suggests that a customer’s trust is not only the

result of his or her own experience, but also an outcome from the society he or she lives

in. So, despite the efforts of some e-tailers to gain trust from customers, if they already

have a preconception of trust learnt in their society, it will be harder for e-tailers to be

perceived as trustworthy.

In the case of Årstiderna, it would be sensible to research Swedish and Danish

customers’ willingness to trust online companies as well as search what institutions

support the development of e-commerce. However, disposition to trust seems to be a

factor difficult to influence by a single company.

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3.4.3 Personality-based trust, cognitive-based trust and institutional-based trust

Mansour, Kooli, & Utama, (2014) collect from the literature various antecedents of trust

and classifies them into “personality-based trust, cognition-based trust, and institutional-

based trust” (p.4). Each of these three factors has one or more dimensions that are

explained below and applied to the case of Årstiderna in order to show how the

company can face them.

a) The first antecedent, personality-based trust, has three dimensions and these can be

easier understood from the perspective of the online customer and applied directly to

e-commerce through questions:

i. Credibility: do I believe that the company has the expertise to respond my

order?

ii. Integrity: is the company interested in my welfare and is looking for a common

goal?

iii. Benevolence: will the company respect the confidentiality of information and

ensure the safety of the transaction?

Firstly, regarding credibility, Årstiderna could emphasize on their website values like

professionalism, dedication, service and the experience of their employees. Moreover, if

they manage to be selected as a best practice in the industry and receive an award for

that, it could be used as a driver of credibility and consequently of trust.

To tackle integrity, Årstiderna could be promoted with a slogan that addresses their

concern for their customers’ health and welfare, and even include these values in their

mission. Furthermore, they could promote interaction among customers on their website

through blogs and forums, so that they could write each other, share experiences and

even suggestions for making recipes, therefore showing interest in them. In fact,

Årstiderna currently sends a newsletter with recommendations to their customers via e-

mail. In other words, they could further develop their virtual community for customers

and the company (Kingham, 2014).

The benevolence dimension about confidentiality and safety could be faced, for

instance, by showing on their website that they comply with certain online payment and

information security procedures (for example, including a recognized system like

PayPal as a possibility to pay). Moreover, they could share comments and videos from

real customers on their website stating how the overall experience with ordering the

food was, so that people feel that the company is trustable. This latter suggestion is

related to the so called word-of-mouth, which is a driver of online trust (Fingar, Kumar

& Sharma, 2000; McWilliams, 2000). Therefore, to overcome the benevolence

dimension, it is important to offer good and clear information (Andersson, 2014). For

example, the website could briefly explain the steps to follow in order to purchase the

food, how the process of delivery looks like, send a confirmation e-mail and offer to

follow up or track the delivery until it reaches the customer.

b) The second antecedent of trust is cognitive-based trust and is based on the knowledge

people have or get from friends or family before buying online (Li, Hess & Valacich,

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2008). Furthermore it is said to be affected by the reputation of an e-tailer (ibid;

McKnight, Choudhury & Kacmar, 2002; Jarvenpa, Tractinsky & Saarinen, 1999),

which is also formed by experiences and information coming from close friends or

relatives (Li, Hess & Valacich, 2008). Moreover, cognitive-based trust is also related

to the costs generated if the company deceives the customer (Shapiro, Sheppard &

Cheraskin, 1992), meaning that the customer calculates the possible costs if this

situation occurs.

The former initiative of word-of-mouth would also help to build up reputation,

especially for new customers who have no information and depend on third-people’s

opinions and experiences. To tackle the problem of customers thinking of the possible

costs of being cheated, it could be helpful to include some guarantee in their offer. For

example, “If your food is not delivered on time, get 50% off in your next order”.

Nonetheless, this is an example and a clear cost calculation should be properly made

beforehand by the company.

c) The third antecedent of trust is institutional-based trust, which means institutions

providing trust through legal conditions and norms (Bachmann and Inkpen, 2011).

This is related to Gefen’s (2000) statement that rules reduce complexity and

therefore increase trust. According to Mansour, Kooli, & Utama, (2014),

institutional-based trust encompasses situation normality as an influential factor of

trust that refers to people’s belief that the situation (in this case, the online purchase)

has an appropriate order or is normal (Baier, 1986).

To improve trust based on rules, procedures and legislation it could be sensible for

Årstiderna to follow certain quality processes established by recognized organizations

(e.g. European Union) to ensure that the food Årstiderna sells is organic and safe. Then,

these certifications could be shown on labels stuck to the products. However, it would

be necessary to show the certifications on both the website and on the products

delivered.

Summarizing, it is important to use these triggers to build up trust, since a relevant

observed online consumer behavior is that they search on the Internet but most of them

do not buy due to a lack of trust (Johnson, 2007).

4. What is then, the overall picture of online trust?

The consequences and antecedents of trust have been analyzed, obtaining an overall

picture of this factor. Figure 1 shows how combining these elements it is possible to

increase online trust.

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5. Conclusions

Online trust is a vital element to develop e-tailers’ business since it directly relates to

purchase intention. One of the main problems of building up online trust is the general

lack of personal interactions, which can be somehow overcome. However, if trust is

achieved it will reduce the complexity of the online interaction for the customers,

reduce their perceived risk and facilitate their final purchase decision. So, responding to

how can e-tailers use trust in order to develop their business?, first it is essential to

know and understand the antecedents or triggers of trust and their dimensions, as well as

implement specific actions that deal with them. Moreover, combining these actions in

an overall trust strategy will probably have a higher impact on trust than just facing

them separately. Lastly, it is important to create a long-term strategy that maintains and

increases trust gradually.

ANTECEDENTS/TRIGGERS OF ONLINE TRUST

ACTIONS TO INCREASE ONLINE TRUST

CONSEQUENCES OF ONLINE TRUST

Familiarity

Disposition to trust

Personality-based trust

Cognitive-based trust

Institutional-based trust/rules

· Design an easy website familiar to customers (e.g. similar to a big player)

· Open a store· Do street events· Sell through big player (e.g. Amazon)· Sell through phone and do satisfaction calls

· Show expertise/experience· Build up a strong virtual community· Rely on popular/recognized security And

payment Systems (e.g. PayPal)

· Build up reputation (word-of-mouth)· Share customers’ experiences through

videos and comments· Offer guarantee

· Use recognized quality processes· Gain certifications or industry awards· Show labels complying with legislation

· Study people’s general willingness to trust

Reduced complexity for the customer

Reduced perceived risk for the customer

Increased purchase intention

Source: Bachmann and Inkpen (2011); Fingar, Kumar & Sharma (2000); Greffen (2000); Jarvenpa, Tractinsky & Saarinen (1999); Kim, Ferrin & Rao (2008); Li, Hess & Valacich (2008); Luhmann (1979); Mansour, Kooli, & Utama (2014); McKnight, Choudhury & Kacmar (2002); McKnight, Cummings & Chervany (1998); McWilliams (2000); Shapiro, Sheppard & Cheraskin (1992); Yoon (2002).

Figure 1. The Process of Building up Trust

8

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