How a feedback system enhances vendor reputation, mitigates product complexity and facilitates online purchase decision-making : insights from B2C transaction logs

Despite the growing population of Internet customers, purchasing online can still be a confusing and overwhelming activity. Perceived risk plays a crucial role in online buying decisions. The mechanism of online customer feedback has been identified to improve trust and to reduce risk in online marketplaces. Feedback from previous customers greatly builds online vendor reputation and establishes trust, which positively influence the intent to purchase. This study aims to find out how a feedback system enhances vendor reputation and can thereby be used to mitigate product complexity and facilitate online purchasing decisions in the B2C environment. The cooperation with a feedback company creates an experimental setting that allows a relationship between positive feedback, conversion rate, arbitrations and feedback submissions to be inferred. The access to real feedback and transaction data allows the investigation of actual risk perception and the need for risk evaluation. This study considers both the user’s and the vendor’s interaction with the feedback system. Nelson’s (1970) product classification is used to divide product categories into different levels of product complexity. The study follows a positivist quantitative approach and applies deductive strategies and procedures to address the research objective. The author presents a number of hypotheses and has analysed data from 400 online stores that have implemented a feedback system. Transaction and feedback data were drawn from a feedback company database and have been analysed using linear regression and partial correlation. The results of this research indicate that product complexity has an inevitable influence upon an online buying process. The greater the transaction value (average price) and the functional/technical complexity of the product (product complexity), the more the presence of feedback grows in importance. However, the aspect of trust, that emerged due to of the percentage of positive feedback by past customers, only influences sales of highly complex products, which means that product category matters with regard to the trust transference theory. The findings identified different risk types which corraborate the theory that risk is multi-faceted. Finally this study provides valuable insights about the vendor's strategic work with a feedback system. The conclusions provide suggestions for online vendors as to how they can use online feedback systems as tools for dealing with the shortcomings associated with electronic commerce. It is important for vendors of complex products to invest in their reputation and to establish trust on the basis of feedback that is as positive as possible. By better understanding the relationships among positive reputation profiles and certain risk types (financial risk, product risk, physical risk, time risk), vendors may be able to take more appropriate actions in their efforts to make shopping online a less risky experience and motivate certain behaviour, such as purchasing. It is recommended that the vendor carries out proper complaint management in the form of arbitration procedures on negative feedback. A feedback system gives online vendors the advantage of protecting themselves against the negative opinions spread on the World Wide Web. The process of arbitrations enables vendors to show competence and has the ability to turn dissatified customers into satisfied customers. In order to enhance the online reputation, organisations should offer workshops on the efficacy of working with a feedback system and how to conduct arbitrations properly.