Nov 16, 2009

Share the risk

It's interesting to analyze the low penetration of e-commerce in India from a consumer behavior perspective. Why are Indian consumers not really buying this idea of e-commerce? What are the critical factors that prevent them from becoming an actively engaged buyer in the Internet marketplace? Although the factors could be many, I would like to look at it more from a risk perspective.

Pick up any text on consumer behavior and you will come across this relevant concept called "perceived risk". Schiffman and Kanuk in their book on consumer behavior define perceived risk as "the uncertainty that consumers face when they cannot foresee the consequences of their purchase decisions".

Although Internet has become a powerful tool in enabling information search and content aggregation, many consumers still prefer to make the final transaction by visiting a store. There are certain uncertainties in the minds of consumer that need to be addressed.

Consumers think about the following consequences before transacting online:

- Is my financial information secure? Has the correct amount been debited from my credit card? What will happen if there is a network issue and the financial transaction between the e-commerce provider and my bank is incomplete? How do I resolve such issues?

- Will the product that I order be delivered on time? Will there be any issues with the quality of product delivered? What if I'm not happy with the product? How do I return?

The first set of questions can be classified under "financial risk" while the second set of questions can be classified under "functional risk" or "time risk".

How can e-commerce providers ensure the financial risks are mitigated? Although transactions using standard payment gateways are secure, the firms need to ensure the consumers are made aware of the facts in case of any issues. The e-commerce providers should take responsibility to enable safe transactions. In case of an issue, the provider shouldn't delegate the responsibility of issue resolution to the consumer. Instead, he can help the consumer in resolution by working with the bank and payment gateway providers. This will help a great deal in increasing the trust levels of the consumer. Completion of a financial transaction in a safe and secure manner is a basic hygiene factor that e-commerce providers should take care of. They should work with banks and payment gateway providers to identify and set the right performance SLAs.

The time risk elements can be alleviated by letting the customers know in advance when exactly the product is expected to be delivered. The e-commerce provider has to be specific with the timelines. Individual status tracking notices such as "Product dispatched through XXX courier service - tracking ID yyy" can also be emailed so the consumer doesn't get anxious.

Return policies and warranties should be provided to the consumer as part of the transaction flow so the consumer can review them and continue with the transaction only if he agrees with the policies set by the e-commerce provider. The risk levels could be reduced by being transparent and providing the required information as part of the buying cycle even though the customer may not have asked for such details explicitly.

As a service category, if e-commerce has to evolve and grow, these perceived risks ought to be resolved so that consumers find the service to be more credible and trustworthy. Unless these basic factors are taken care of, the industry will continue to face challenges in growth.

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