Measuring perceived risk in e-retail format

Abstract

Since 5 years, India’s E-Retail Industry has grown from a 15 billion (in revenues) market in 2007-08 to a 139 billion market in 2012-13 which amounts to about 56% growth which is enormous and alarming for the traditional brick and mortar retail shops. It is expected to reach a 500+ billion revenues market in 2015-16 with consistent growth of 50-50%. Along with the increased usage of internet in everyday life, the changing lifestyles influenced by the west, increased knowledge and information about the world are some of the reasons for the boom in the E-Retail in India. Though, if one compares the online retail market with the overall retail market, the resulting figures are low and surprising. Both organized and unorganized retail in India is about a 25286 billion market, out of which only 1767 billion is organized retail. Under that, the online retail comprises a mere 139 billion market. This is just about 1% of the entire retail market in India. If we look at the developed countries, this figure is about 9-10% in United States (US) and the United Kingdom (UK). Thus even when the growth is above 50%, there is still scope for the online retail to grow to the fullest.1 The online retail is again just 17% of the whole e-commerce industry. The other components are Online Ticketing amounting to 65% is where people can buy tickets to movies, events, plays, sport games, railways, bus, hotel etc. the prominent sites are bookmyshow.com and makemytrip.com, Online Marketplaces which accounts for 18% are the interfaces which allow the buyers and sellers to interact with each other for exchanging of goods. The famous sites are eBay.com and Amazon.com. One sector which is less than 1% is the online deals which provide coupons/ codes which give some redemption during payment of goods online. Groupon.com marks the presence 1 http://www.crisil.com/pdf/research/CRISIL-Research-Article-Online-Retail-Feb14.pdf here. The last is the online portals which include portals for selling of cars, matrimonial and property sites. Shaadi.com, Naukri.com comes under this type of online retail. With a sudden growth in this industry, it is noted that the increase has majorly come from the Tier-1 cities in India which mainly comprises of the urban population. The urban customers differ a lot in terms of the buying behavior, frequency of purchases and amount of purchases etc. The typical characteristics of an urban customer are knowledge about internet, information about the world happenings, most shopping done at organized retail formats, frequency of shopping is more, young, high purchasing power, looks for exclusives and concentrates on quality, less price conscious and always look for saving time. These characteristics are all in sync with the target customers of the E-Retail industry. After much penetration in the Tier-1 cities, many e-commerce companies are looking to penetrate the Tier-2 cities. They come under middle class segment. Their characteristics are price conscious, may/may not be quality conscious, shop only when needed, frequency of shopping is low and they have low purchasing power. The major challenge faced by the online retailers to penetrate in this segment is bring the credibility and hassle free usage of internet where many are still not comfortable with working on a computer let alone using the internet. The same condition is with the Tier-3 cities where customers are highly price conscious and can trade off with quality for price due to very low purchasing power. Till now, the online retailers have been targeting customers according to the difference in the characteristics of the customers arising from their geographic location and demographics. But it has been noted not all customers targeted at the tier – 1 city are purchasing products online. Similarly, not all customers at tier-3 city are not purchasing online. This is because of personal differences among the customers and how they perceive the online shopping process. When this is studied, topic of perceived risk uncovers, which means that some people find different types of risks when they shop online. It differs from person to person as one customer may think that there is no sort of risk that he is taking while buying something online, though the other person may think that there is high risk in making payments online or even to browse through the products. This “risk” which the customer thinks there is when he/she buys online is the perceived risk. This fear of the customers makes all the retailers think that would that be a strong approach to gauge the customer intention to buy online? Though it is said that convenience is what online shopping is all about, then why this format is not able to penetrate deeper? What are the barriers that prevent customers to shop online? One of these is the perceived risk which is being studied here in this project. The perceived risk term is not only applicable to online shopping but may also be applied to brick and mortar retail shopping. Only the type of risks would differ among the two. For example, when shopping in brick and mortar shops one may think that there is a risk of time as it takes a lot of time but that may not be possible in the online shopping format. In the project, different types of perceived risk in online shopping have been identified. Much of secondary research has been done to support the listed down risks. To validate the risks, exploratory research and survey has been carried out. The results are formed against the product categories such as apparel, electronics and books.