On Product-Level Uncertainty and Online Purchase Behavior: An Empirical Analysis

AbstractOnline consumers are uncertain about subjective product quality e.g., fit and feel of clothing and texture of materials because of the absence of experiential information. In this paper, we examine the dynamic change of the products purchased online over time in the presence of this type of uncertainty. Using individual-level transaction data, we find that consumers purchase products with a high degree of product uncertainty as their online shopping experiences help them better estimate product quality. Our results also show that the average and highest prices of market baskets decrease around 1% when online shopping experience increases 10%. This implies that online consumers are reluctant to buy expensive products with only digitally transferred information, whereas they tend to purchase more of the cheaper products online along with their accumulated online shopping experience. We also verify the interaction effects of product uncertainty and product price on online consumers' purchase decision. When online consumers buy products priced under $50, they readily buy products with a high degree of product uncertainty regardless of their online shopping experience. But consumers are unlikely to buy expensive products online if there is a high degree of product uncertainty, even when they have accumulated much online shopping experience. In addition, we find that online vendors can effectively overcome product-level uncertainty by taking advantage of retailer reputation in the physical world and through the use of digitized video commercials. Our study on the dynamics in the set of products purchased online expands the understanding of consumer purchase behavior under uncertainty.This paper was accepted by Lorin Hitt, information systems.