Analysis of an Online Business - Amazon

by steven1989225 (student)

University Degree Business and Administrative studies

The Internet has been available for public service since 1983. With it’s rapidly expanding popularity, the number of internet users has quickly risen to over fifty million in a four year period (Bingi, Mir and Khmalah, 2000). One of many advantages of Internet use is the potential and accessibility as a tool for electronic trade. Electronic commerce also known as e-commerce, can be referred to as the purchasing and retailing of products or services over an electronic system. It is increasing at an exponential rate. Credit Card Company ‘Visa’ reports the amount of internet use has increased rapidly from $600million in 1996 to $13 billion in 1999 and is expected to reach $100billion by 2003 (Tedeschi, 1998; Anderson 1997). Future business transactions seem to be transforming from in store shopping to online shopping (Kotler, 2000). Amazon.com was the first company who recommend books from in-store into the World Wide Web (Machlis 1998; Munk, 1999). The Economist (2000) noted the name ‘Amazon’ has become increasingly popular with e-commerce and it is one of the few brands recognised in the whole world. It is also the most visited site in the USA and top two or three in the UK, France, Germany and Japan.

According to the book ‘Jeff Bezos: the founder of Amazon’ written by Ann Byers (2006). The company ‘Amazon’ was incorporated in 1994, in the state of Washington. It was named after the Amazon River, one of the largest rivers in the world. The logo of Amazon.com represents a smile of customer satisfaction and hopes to have every product in the alphabet. It started online as an online book store in 1995 by Jeff Bezos and sold its first ever book on the 15th of July, soon expanding into a much bigger retail company and claimed to sell millions of different products to more than 6.3 million customers in over 160 countries. Amazon has been proven to be a highly successful business with the value of $35.3 million in 2003. Despite losses, Amazon’s net income in March 2011 was $201m.

Chuchinprakarn (2005) has found out trust is one of the key factors for successful e-commerce and for a success relationship between vendor and buyer. In e-commerce, trust can be described as a consumer’s ideas and expectations of the seller to be trustworthy and the quality of the products to meet these expectations. Trust is known to be the key factor to maximise online transactions for online retailer, as many consumers do not buy goods online because of their concern about online payment security, trustworthiness of the company and its lack of privacy policy. American Life Project reported 68% of online shoppers have issues disclosing personal financial information but only 48% had purchased online with a credit card; 3% reported they had been cheated by online vendors or their credit card details had been stolen (Fox, 2000). (The Economist, 2001), reported online vendors face the difficult challenge of building consumers trust so they will make purchases online from them.

For online retailers to enhance online trust, it is necessary to know what factors are likely to affect consumers’ confidence in e-commerce. Chuchinprakarn (2005) reported the theory of reasoned action (TPA) could predict behaviour intention such as intention to shop online. Studies have shown trust, confidence in using credit cards, influence of friends and past behaviour has had significant effects on online shopping behaviour. A model of trust for Electronic Commerce (MoTEC) was first developed by Egger (1998); It contains three components: the pre interactional filters ‘a factor where it affects consumers’ confidence in online retailers before any online communication takes place’; the interface properties of the web site ‘the appeal of the interface such as the branding and usability’; the information content of the web site ‘information about the risk in online transactions and seller’s privacy policy and confidential information’ The advantage of this model is that it contains the entire interaction process between the retailer and consumer and the importance of consumer trust in e-commerce. However it could be argued there is a problem with this previous research as there is little empirical evidence for these models of trust in e-commerce as most of the published studies only investigated the intention of trust rather than the act of trusting, which means this trust literature has methodological problems as only few studies involve online purchasing engaged in real life. Kraute & Kaluscha (2003) pointed out most of studies on trust involved hands off and no purchase, some studies even have no interaction with trust at all (Sillence , Briggs, Fishwick and Harries, 2004)

With amazon.com becoming one of the leading online retail companies and spending almost 40 per cent of its income on brand building (Margolis, 1999) due mainly because of the belief trusted branding is what customers look for when they purchase a product online (Hof and Hemelstein, 1999). It is central to see what kind of mechanisms have been applied to Amazon electronic store in order to maintain a business. Amazon is the first company which allows users to search and order various books online even if the book is not common (Postrel, 1996); users are able to track their order through email alerts. (Hof, Neuborne and Green, 1998). ; Application such as ‘One click’ programs that automatically stored customer’s information, including credit card detail. This function makes the whole shopping experience much more convenient for the customer as it is only few clicks on the keyboard and the product has been purchased (Mellahi & Johnson, 2000). Additionally, Amazon is the first company to use recommender system technology (Mellahi & Johnson, 2000). E-commerce like Amazon itself used recommender system as a personalisation device to review previous buyer’s purchase history and then suggest items based on other buyers who have a similar purchase history and what they have bought (Resnick & Varian, 1997) this technology has soon become one of the main features of Amazon due to it proving to be highly valuable in attracting new customers. Previous research of Schafer, Konstan and Riedi (1999) reported this technology could increase loyalty of customers to online retailers which is essential for sites like Amazon itself due to many site’s competitors being a few clicks away. Recommendations can be used through email to remind customers of the product they had been looking for as soon as it becomes available online. This feature helps to increase the chance of customers returning and therefore contributing to the profit of the company. Amazon.com has a number of other features such as text comments, average rating and top N to increase loyalty between client and online retailer. Text comments itself allows customers to leave feedback on an item or about the seller they have bought from the site, other customesr are allowed to read this feedback when RS recommends items that are similar to their interests. This can increase loyalty and profit for the company as if enough people claim a particular item or seller is good, the customer will be more likely to believe and trust it and buy the particular item themselves and if the recommended item matches their expectation, they will be more likely to return to the same site and buy more products.

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Average rating feature is a bit like text comments however it allows customer to rate products rather than leave feedback even though these features are slightly different. Both features help convert potential clients and transform them into online buyers, it will help to increase loyalty to the site due to customers believing third parties such as amazon.com recommendations and if they like the product or the service they are receiving, they are more likely return to site and buy more products. Top-N features learns the information about what sort of product customers might like based on their previous buys then recommends a number of un-rated products that match that particular customer. This not only helps online retailers like Amazon to increase the loyalty of customers, it also helps to expose customer awareness of something they might like but have never heard of before and can help them to make a decision that they weren’t certain of before. Sinha, R & Swearingen K. (2001) examined the quality of recommendations by comparing recommended items by online retailers to recommendations made by a user’s friends. Results showed that user’s friends constantly proved to be better at recommending than the recommendations provided by RS however users found recommendations made by RS were useful as the recommended items tended to be new or unexpected. It has been shown that users tend to trust and come back to sites more if the recommended item has been previously liked or recommended by other users online. This indicates that amazon.com RS has its downsides, however it is still very useful in recommending items to customers. With the successful history of amazon.com itself, the company could become a major provider aswell as an online retailer. (Deck, 1999).

Enhancing consumers trust through direct contact with the company employees has been proved to be effective (Riegelsberger & Sasse, 2002) however it has disappeared in the e commerce. For amazon.com, it needs more effective methods to continue their trustworthiness to first time visitors and transform them into a consumer. All online retailers depend mainly on their electronic store to attract customers, which means applying physical features to the web page interface of online retailers is the most effective way to enhancing online trust. Previous research on enhancing consumer trust has frequently focused on graphic design (Kim & Moon, 1998), surface cues (Cheskin research & Studio Archetype, 1999) and user experience design (Nielsen Norman Group, 2000). However, although these studies contribute to how important design is to consumer trust, none of them have given us knowledge in depth or guidelines on how to design a trustworthy site, a site not just about web interface but the entire buying and selling interaction.

Fogg et al., (2002) carried out an internet study that involved 2440 comments from internet users regarding the credibility of web interface. The found 46.1% of consumers agreed the credibility of web interface, based on overall visual design such as the layout, front size and colour schemes. Kim and Moon (1998) reported the overall colour and layout affected consumer trustworthiness to the site and indicated that using three dimensional clipart to cover half of the total screen and low brightness colour for the whole interface would enhance the trustworthiness of the site . Karevonen and Parkkienen (2001) indicated online retailers using real photographs rather than cartoon to display their product creates more consumer confidence and trustworthiness of the site however criticism from Ligtner (2003) reported too many graphics can also damage the professionalism of the site. Criticism from Jarvenpaa, Tractinsky and Saarinen (1999) argued it could simply be down to culture differences due to American and Japanese consumers proving to trust online retailers more than Chinese and French (Fukuyana, 1995) so it could simply be argued that graphic design and any other features have nothing to do with consumer trust. However in comparison with this theory to Amazon’s web interface which has used white colour as a main colour in the whole interface, this makes the design clear and easy for the consumer to read, it also provides different links for the consumer to click to the product they want to look at. (See appendix 1). It also uses high quality pictures to display its products and automatically shows different products that consumer might want to look at ( EG, if customer is looking at SLR Camera, Amazon will automatically displayed all the other kind of SLR Camera for customer to choose. (See appendix 2). All these indicate the consumer trust between amazon and the buyer.

The structure and design of the site has been shown to be important for web interface. In Cheskia and Sapient Report (1999) it has been shown that the accessibility and consistency is key to promoting online trust. It points out consumers prefer sites to be of a clear design and consistent as information wouldn’t be duplicated from page to page so there will be no risk such as wasting time and experiencing frustration. Zhang, Vondran, Small and Barcellos (1999) reported if web interface contains broken lines and meaningless images, these factors have a relation to displeasure for the user to site. In the same report, it indicated guides and instructions on how to perform a secure online transaction increases consumer trust. Belanger, Hiller and Smith (2002) showed the structure design of the web site has a major influence on consumers to purchase online based on their shopping behaviour. To compare with Amazon web interface, the web site is shown to have a very clear design and has a help section to solve any issues or concerns customer might have ( see appendix 2). It also has a link to the instruction page to show customers how to conduct a secret transaction step by step. ( See appendix 3) This indicates another reason why consumers trust Amazon to purchase their goods from.

Numerous research has pointed out the importance of content of design, Egger (2001) reported good branding of a company could enhance its reputation. In Cheskin and Sapient Reports (1999) a company who provides company contact information such as contact number, history and current performance, privacy policy and provides links to information such as a tracking system, return policy etc to customers has much better consumer trust than other companies who do not provide such information. With Amazon’s web interface, it has its own brand logo which has a very high reputation in the world (See appendix 3), Egger (2001) reported the better branded and reputatable the company is, the higher the consumer trust. Amazon also provide contact information and a help section with links for any enquiries consumers might have. (See appendix 4). The help section and its log will help amaon.co.uk to enhance its trust with consumers.

With social cues such as direct contact with company employees shown to be an important and effective way to enhance consumers’ trust however it is disappeared in e-commerce (Riegelsberfer, & Sassee, 2002). It is important to know what companies like Amazon have to do to re-solve this problem. Reigslsberger and Sasse (2002) analysed 15 users’ impressions of the German version of Amazon.de. Results showed that the site that displayed photographs, usually of company employees evaluated positively for online consumer. Steinbyruck, Schaumburg, Dua and Kruger (2002) found that websites which displayed photographs gained more consumer trust than sites which lack the inclusion of photographs. Furthermore, Basso, Goldberg, Greenspan and Weimer (2001) found out that communication such as real time interaction with company employees to resolve any issues consumers might have was shown to be the most effective way to enhance consumers’ trust. However Amazon has not got any instant real time interaction features with the current web interface but it has used features such as well chosen photographs to display its own products on the site. (See appendix 2)

With the rapid growth of business to consumer electronic e-commerce, and only online buyers online spending being about 1.7 % of the overall whole retail revenue indicates a lack of trust and may lead to unwillingness in engaging in online shopping (Fox, 2000). To fight this fear, online retailers need the most effective way to enhance consumer trust. Nielsen Norman Group, 2000 pointed out the design, social, content, structure and functionality is the most effective way to enhance consumer trust for online retailers as it has been proved to be most effective way by (Cheskia and Sapient Report, 1999). Amazon.co.uk seems to have applied all these mechanisms mentioned above otherwise it is hard to understand how Amazon is still one of the top companies in the world, however it is hard to say as all this previous research has provided in depth knowledge on how to design a trustworthy web interface as most of the previous literature on trustworthy web interface is still in preliminary stages so it is still in need for more evaluation and suggestions on how to apply effective features in furthering the enhancement of online trust by web interface . Previous literature (Sinha, R & Swearingen, 2001; Javrebpaa et al. 1999) has criticised the trustworthiness of web interface based on more than just the functionally of the site and web interface is designed as consumer trust could be affected by other factors, cultural factors could be one of many, so it is important to have future research to expand on how other factors could have an effect on enhancing how trustworthy it is for consumers to purchase products online.

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