Electronic Commerce Research and Applications 11 (2012) 241–252

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Electronic Commerce Research and Applications

journal homepage: www.elsevier.com/locate/ecra

Which is more important in Internet shopping, perceived price or trust?

Hee-Woong Kim a,⇑, Yunjie Xu b,1, Sumeet Gupta c,2
a
Graduate School of Information, Yonsei University, 134 Sinchon, Seodaemun, Seoul 120-749, Republic of Korea
b
School of Management, Fudan University, 670 Guoshun Road, Shanghai 200433, China
c
Department of Business Administration, Shri Shankaracharya Institute of Technology and Management, Junwani, Bhilai 490 020, India

a r t i c l e i n f o a b s t r a c t

Article history: Price and trust are considered to be two important factors that influence customer purchasing decisions
Received 12 August 2010 in Internet shopping. This paper examines the relative influence they have on online purchasing decisions
Received in revised form 3 June 2011 for both potential and repeat customers. The knowledge of their relative impacts and changes in their rel-
Accepted 3 June 2011
ative roles over customer transaction experience is useful in developing customized sales strategies to
Available online 24 June 2011
target different groups of customers. The results of this study revealed that perceived trust exerted a
stronger effect than perceived price on purchase intentions for both potential and repeat customers of
Keywords:
an online store. The results also revealed that perceived price exerted a stronger influence on purchase
Internet shopping
Perceived trust
decisions of repeat customers as compared to that of potential customers. Perceived trust exerted a stron-
Perceived price ger influence on purchase decisions of potential customers as compared to that of repeat customers.
Mental accounting theory Ó 2011 Elsevier B.V. All rights reserved.
Online purchase decision making

1. Introduction
Product price has long been considered a key predictor of cus-
tomer choice. Price has been regarded as either a monetary sacri-
fice for obtaining a product or a quality signal of a product
(Lichtenstein et al. 1993, Zeithaml 1988). Most leading product cat-
egories in the context of Internet shopping (e.g., tickets, books, and
music CDs) involve ‘low touch’ products and ‘no touch’ services
(EIAA 2006, Lynch et al. 2001). When products are of a low touch
nature3 (i.e., search products), product quality remains constant
across vendors (Klein 1998), allowing customers to focus primarily
on price minimization (Dodds et al. 1991, Garbarino and Maxwell
2010, Von Neumann and Morgenstern 1953, Zeithaml et al. 1988).
The efforts of customers to seek out the vendors offering the best
prices are facilitated in part by Internet shopbots or comparison
websites (e.g., BizRate.com). Electronic markets thus allow
⇑ Corresponding author. Tel.: +82 10 8976 4410.
E-mail addresses: kimhw@yonsei.ac.kr (H.-W. Kim), yunjiexu@fudan.edu.cn
(Y. Xu), sumeetgupta@ssitm.ac.in (S. Gupta).
1 Internet vendors, this is a critical strategy issue, because they need
Tel.: +86 21 2501 1198.
2
Tel.: +91 788 2291621.
3
There are two types of products: search product (i.e., low touch product) and
experience product (i.e., high touch product) (Klein 1998). Experience products are
those where there is great variation is product quality such as flowers, jewelry,
luxurious items, and apparels. Search products are those products whose product
quality does not vary across stores. For example, books and CDs are of standard
quality and therefore their quality is standard do not vary from one store to another
store.
customers to easily compare prices across vendors and find the
cheapest possible alternative.
Conversely, because of the physical and temporal distance be-
tween buyer and seller in the electronic marketplace, Internet
shopping incurs uncertainty and embodies risk, which arises from
the time lapse between the purchase and the delivery of the prod-
ucts. In the presence of such risk and uncertainty, lack of trust in an
Internet vendor has been identified as one of the greatest barriers
inhibiting Internet transactions with the vendor (Hoffman et al.
1999, Pavlou et al. 2007). Many studies (e.g., Gefen et al. 2003,
Grazioli and Jarvenpaa 2000, McKnight et al. 2002, Pavlou and
Gefen 2004) have argued that trust in an online store has become
a key predictor of customer decisions in Internet shopping. Indeed,
trust is often regarded as one of the most important prerequisites
for the success of e-commerce (Hoffman et al. 1999, Pavlou et al.
2007) as well as mobile commerce (Luo et al. 2010, Siau and Shen
2003). A popular press article (Vintone 2001) mentioned that trust
is the top factor affecting the success of e-commerce.
Although previous research has delineated the importance of
both price and trust in an online store, the synergy effect of these
two factors on online purchase decision needs more attention. For
to decide whether to compete with others on the basis of price or
trust. Based on the facts that price has long been considered a key
predictor of customer choice and that customers can easily com-
pare prices among Internet vendors and select cheaper alterna-
tives, Internet vendors could consider developing price-oriented
competition strategies. Conversely, based on the argument
advocating trust proponents, Internet vendors could consider

1567-4223/$ - see front matter Ó 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.elerap.2011.06.003
242 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252
developing trust-oriented strategies. However, trust building re-
quires additional investments, such as reputation building, service
quality improvement, and customer satisfaction enhancement (Jar-
venpaa et al. 2000, Kim and Benbasat 2006, Kim et al. 2004, Singh
and Sirdeshmukh 2000). Compromising between these two ex-
tremes, Internet vendors could try to achieve a balance between
price and trust by putting different weights on the two factors in
their strategies. In order to do this, Internet vendors need to know
the relative importance of trust and price in the online purchase
decision of customers. It would also be useful for Internet vendors
to know how trust and price may influence initial sales for new
customers and repeat sales for returning customers differently so
as to appropriately market to these two customer groups. For
example, (Reibstein 2002) found that price is the most important
factor for initial online sales, but the least important factor for on-
line repeat sales.
Based on the research needs outlined above, this study aims to
examine the relative and differing importance of perceived trust
(i.e., a set of beliefs about the trustworthiness of an Internet ven-
dor) and perceived price (i.e., subjective perception of price at an
Internet vendor in comparison with prices at other vendors) in cus-
tomer decisions in the context of Internet shopping. Specifically,
we seek to answer two research questions: (1) How would per-
ceived price and perceived trust affect online purchase intention
differently for potential and repeat customers at an Internet store?
(2) Of the two factors, perceived trust and perceived price, which
factor would exert a stronger effect on online purchase intention?
In this study, potential customers are those who have browsed the
website of an Internet vendor, but have yet to purchase from the
vendor. They may have transaction experience with other Internet
vendors, but not at the focal Internet vendor. Repeat customers are
those who have purchased from the target Internet vendor at least
once previously.
This study contributes to our knowledge on customer decisions
in a number of ways. First, it examines the relative importance of
perceived trust and perceived price when customers make pur-
chase decisions with an Internet vendor. Second, it examines the
changes in the effect of perceived trust and perceived price on cus-
tomer purchase decisions over customer type (from being a poten-
tial customer to being a repeat customer) with an Internet vendor.
Third, it offers practical insights for Internet vendors, explaining
how potential and repeat customers weigh perceived trust and
perceived price differently when making their purchase decisions.
The rest of the paper is organized as follows. In the next section
we present the theoretical background, followed by the research
model and hypotheses. We then describe the research methodol-
ogy. After interpreting the empirical results, we discuss the theo-
retical and practical implications and conclude with a summary.
2. Theoretical background
Internet shopping is characterized by risk and uncertainty for
customers. Therefore, theories that explain human behavior under
conditions of risk and uncertainty can shed light on customer
behavior in the context of Internet shopping. Two such theories
are the prospect theory (Kahneman and Tversky 1979) and the
mental accounting theory (Thaler 1985).
2.1. Theoretical foundation
Based on the assumption of rational choice and probabilistic
consideration between options, the expected utility theory (Von
Neumann and Morgenstern 1953) was developed for decision anal-
ysis. The term, ‘‘utility,’’ in the theory was originally used to de-
scribe the overall wealth or consumption, or net satisfaction
derived from a particular commodity or choice alternative. It has
been argued that this approach is of limited explanatory power
when applied to customer choice under conditions of uncertainty
(Kahneman and Tversky 1979). As a result, the prospect theory
(Kahneman and Tversky 1979) was proposed as an alternative ap-
proach for explaining choices made by customers under conditions
of uncertainty.
Prospect theory explains human decisions under conditions of
risk and uncertainty from a value maximization perspective (Kahn-
eman and Tversky 1979). This theory suggests that people put
more weight on positive outcomes that are considered certain than
positive outcomes that are deemed probable. It is this certainty
effect that causes people to be risk-averse when making decisions
involving gains, and this effect explains why people tend to prefer
an option with certain but lower benefit over an option with uncer-
tain but higher benefit. Prospect theory essentially highlights the
fact that the certainty effect brings about risk-aversion in choices
involving certain gains. Indeed, risk aversion is considered one of
the best-known generalizations about risky choices involving gains
(Kahneman and Tversky 1979).
Using prospect theory as a basis, Thaler (1985) proposed the
mental accounting theory. Total utility, which is the sum of acqui-
sition utility and transaction utility, represents the perceived total
value derived from purchasing a product. Total utility plays a key
role in predicting customer choice and decision making. High total
utility leads to a high possibility of customer purchase. Acquisition
utility is perceived based on a comparison between the equivalent
value of a product and its objective price. Equivalent value is a
measure of the benefit of having a product, as perceived by the cus-
tomer. The objective price is the total amount that a customer has
to pay to get the product. Intuitively, acquisition utility is the per-
ception of whether the product being purchased is worth its price.
Prior research has suggested that product quality enhances the
equivalent value of a product (e.g., Chang and Wildt 1994, Dodds
et al. 1991, Sweeney et al. 1999, Zeithaml 1988).
Transaction utility is perceived based on the difference between
the objective price and the reference price of the product being
purchased. Unlike objective price, the reference price is the price
that customers expect to pay for a product (Thaler 1985). Custom-
ers derive reference prices from previous experience or sales
messages (Puto 1987). Internet shopbots that facilitate price com-
parisons among Internet vendors also help customers derive refer-
ence prices. Intuitively, transaction utility represents the price
advantage or disadvantage of a deal relative to the reference price.
While prior research (e.g., Chang and Wildt 1994, Dodds et al.
1991, Sweeney et al. 1999, Urbany et al. 1997, Zeithaml 1988)
has focused on the monetary aspects of price, the non-monetary
aspects may be critical (Zeithaml 1988). Examples of non-mone-
tary aspects of price are time and effort (Downs 1961). For Internet
shopping, risk is another important non-monetary aspect (Grewal
et al. 2003) because customer deception by Internet vendors is
becoming increasingly common. Risk is conceptualized as the
probability of a future loss that reduces the equivalent value of a
product at the time of purchase (Sweeney et al. 1999) .
2.2. Perceived price and trust
The impact of the two key factors (i.e., price and trust) on cus-
tomer decisions in the context of Internet shopping can be ac-
counted for using mental accounting theory. Jacobby and Olson
(1997) distinguished between the objective price of a product
(which may include shipping costs in the context of Internet shop-
ping) and the price encoded by customers. Zeithaml (1982) posited
that customers usually do not remember the objective price of a
product. Instead, customers encode prices in ways that are mean-
ingful to them. For example, they compare objective prices
 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252
(e.g., price offered by the current vendor) with reference prices
(e.g., prices offered by the other vendors) (Dodds et al. 1991, Kahn-
eman and Tversky 1979) while shopping on the Internet, and then
encode the outcomes as either higher or lower than their refer-
ences. Such outcomes drive the price perceptions of customers,
which in turn influence their decisions (Jacoby and Olson 1997).
In this study, perceived price is considered to be the perceived level
of monetary price for one vendor in comparison with prices of
other vendors. Thus, based on a comparison between the objective
and reference price, perceived price has a direct impact on the
monetary aspect of transaction utility in mental accounting theory.
Perceived price may then affect customer purchase behavior
through total utility.
Trust as a social phenomenon has been studied in various disci-
plines. In marketing, trust has been defined as a psychological state
comprising intention to accept vulnerability based on positive
expectations of the intention of others (Singh and Sirdeshmukh
2000), or a willingness to rely on exchange partners (Ganesan
1994). McKnight et al. (2002) further differentiated trust beliefs
and trust intentions. Trust beliefs are the customer’s perceptions
of a specific Internet vendor’s attributes such as competence,
benevolence, and integrity. Trust intention is the intention to en-
gage in trust-related behaviors with a specific Internet vendor.
Trust beliefs thus indicate the perception that a specific vendor is
trustworthy. Building on this platform, research in e-commerce
has conceptualized and operationalized trust beliefs as a set of be-
liefs about the credibility, competence, benevolence, and integrity
of Internet vendors (e.g., Bhattacherjee 2002, Cho 2006, Dinev and
Hart 2006, Gefen et al. 2003, Kim and Benbasat 2006, Kim et al.
2004, McKnight et al. 2002, Pavlou and Fygenson 2006).
Based on the call for further studies on trust in new IT phenom-
ena, Luo et al. (2010) examined three dimensions of trust based on
the trust topology proposed by McKnight and Chervany (2002),
namely, disposition to trust, structural assurance and trust beliefs.
Disposition to trust is a general inclination in which people display
a trusting stance towards and show belief or faith in humanity
(McKnight et al. 2002). Structural assurance is the trust perception
about the institutional environment (McKnight et al. 2002). In the
context of this study, it would refer to the availability of legal and
technical infrastructure to carry out transaction over the online
store. Trust belief is the perception of the trustworthiness of the
vendor and consists of a set of specific beliefs about integrity,
benevolence, and competence (Gefen et al. 2003, McKnight et al.
2002). Disposition of trust is important for the formation of initial
trust and becomes less important for established trust relation-
ships. Since, last decade the volume of online transaction has
grown and thus increased customers’ trust on online transactions
and the platform provided for conducting these online transac-
tions. Therefore, disposition to trust and structural assurance are
not as important dimensions of trust in the context of this study.
Trust beliefs is important dimensions because there are number
of online vendors and therefore unless customer has not conducted
any transaction with the online vendor, there is an element of per-
ceived risk involved in conducting the transaction. Therefore,
building on previous research in e-commerce, this study adopts
the same definition of perceived trust as a set of beliefs about
the trustworthiness of an Internet vendor.
If an online vendor is perceived as trustworthy (e.g., it is ex-
pected to process online transactions honestly rather than deceiv-
ing customers), such perceived trust reduces risk perception in the
context of Internet shopping (Jarvenpaa et al. 2000, Kim et al.
2010). In addition, perceived trust can also lower the non-mone-
tary transaction price, such as the time and effort needed by cus-
tomers to choose Internet vendors (Chiles and McMackin 1996).
By reducing the non-monetary price, perceived trust may enhance
the acquisition utility and non-monetary aspects of transaction
243
utility. Perceived trust may then lead customers to purchasing
behavior through total utility.
2.3. Potential customers and repeat customers
The differences between potential customers and repeat cus-
tomers of a same Internet vendor can be accounted for using pros-
pect theory. Compared to potential customers, repeat customers
usually perceive a higher level of certainty in a transaction with
a vendor because of direct transaction experience with the vendor.
According to prospect theory (Kahneman and Tversky 1979), cer-
tainty in a transaction with a vendor increases the aversion of
losses and the desirability of gains from the transaction. Thus, re-
peat customers attempt to achieve more gains (i.e., monetary sav-
ing) from a transaction with the same vendor than do potential
customers.
In contrast, perceptions of uncertainty and risk in Internet
transactions with an online store are higher for potential custom-
ers than for repeat customers. Lambert (1972) reported that cus-
tomers tend to go for high price options when they experience
uncertainty in a transaction with a vendor. In particular, when cus-
tomers do not have enough product quality information, they may
select high price options by interpreting price as a quality signal
(Lichtenstein et al. 1993). In addition, potential customers who
perceive high uncertainty and risk may place more importance
on gaining control in the transaction, allowing prospects of control
rather than of gains (i.e., monetary saving) to determine their
behavior (Koller 1988), which confirms the risk aversion behavior
highlighted by prospect theory.
3. Hypotheses
The research model for this study is shown in Fig. 1. The
hypotheses are discussed in detail below.
With a focus on transactions, value has been conceptualized as
an assessment of benefit against cost when shopping with an Inter-
net vendor (Sweeney and Soutar 2001, Thaler 1985, Zeithaml
1988). In accordance with the concept of total utility from the
mental accounting theory, we define perceived value from the cus-
tomer’s perspective as the net benefit (perceived benefit relative to
perceived cost) from a transaction with an Internet vendor.
Past studies on consumer decisions (e.g., Zeithaml 1988) have
assumed that consumers seek value maximization, based on the
foundations of prospect theory (Kahneman and Tversky 1979)
and mental accounting theory (Thaler 1985). Consumers arguably
prefer conducting transactions with vendors whose products offer
maximal value. This view of consumers is consistent with the ra-
tional perspective. Indeed, empirical results have supported such
a perspective by demonstrating that perceived value leads to pur-
chase intention (e.g., Chang and Wildt 1994, Dodds et al. 1991).
These results are likely to apply to the context of Internet shopping
for both potential and repeat customers. Hence, we hypothesize:
Perceived
Trust
H3a,b
H2a,b
Perceived H1a,b Purchase
Value Intention
H4a,b
H5a,b
Perceived
Price
Fig. 1. Research model.
244 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252

H1 (a, b). Perceived value has a positive effect on purchase or external control factors (e.g., cooperation of others) (Ajzen
intention for potential customersa and repeat customersb. 2002). Pavlou and Fygenson (2006) regarded trust belief as a per-
ception of control over the exchange environment in which trans-
As discussed in the previous section, perceived trust may lower
actions occur. Gefen (2004) also posited that trust perception
non-monetary transaction price, which includes factors such as the
caters to the human desire to control the exchange environment.
time and effort needed for customers to select an Internet vendor
Since trust belief affects customer’s perceptions of their ability to
(Chiles and McMackin 1996) and the risk of shopping with the ven-
control the exchange environment, perceived trust is likely to
dor (Jarvenpaa et al. 2000, Kim et al. 2010). For example, when cus-
strongly impact the purchase intention of potential customers.
tomers perceive trust in an Internet vendor, they tend to expend
Conversely, repeat customers of the same Internet vendor have
less effort searching for information about the vendor and less cog-
enough information about the vendor because of their prior direct
nitive effort when carrying out transactions with the vendor. By
transaction experience with the vendor. This reduces their level of
reducing such non-monetary price components, perceived trust
perceived risk in carrying out transactions with the Internet vendor.
in an Internet vendor may enhance acquisition utility and the
Through a learning effect (Mitchell and Prince 1993), such experi-
non-monetary aspect of transaction utility, which in turn raise
ence allows customers to build up a perception that they have some
the perceived value as total utility when shopping with the Inter-
control over the transaction environment. When customers per-
net vendor. Perceived trust may also have a direct effect on pur-
ceive the importance of control less and desire less of the control
chase intention, as previous research (e.g., Chiu et al. 2010, Gefen
in their choice, perceived trust may have a weaker impact on pur-
et al. 2003, e.g., Grazioli and Jarvenpaa 2000, Jarvenpaa et al.
chase intention. Previous research (Gefen et al. 2003, Kim et al.
2000, Lu et al. 2010, Pavlou and Gefen 2004) has reported. In the
2009, McKnight et al. 1998) posited that trust belief is especially crit-
context of Internet shopping, these relationships are likely to apply
ical in determining behavioral intention before actual transactions
to both potential and repeat customers. Hence, we hypothesize:
take place because of the perceived risk of Internet transactions.
Hence, in the context of Internet shopping, we hypothesize:
H2 (a, b). Perceived trust in an Internet vendor has a positive
effect on perceived value for potential customersa and repeat
H6. Perceived trust in an Internet vendor has a stronger positive
customersb.
effect on the purchase intention of potential customers than that of
H3 (a, b). Perceived trust in an Internet vendor has a positive
repeat customers.
effect on purchase intention for potential customersa and repeat
customersb. The magnitude of the impact that perceived price has on pur-
chase intention (H5) may differ between potential and repeat cus-
Price can be seen as a monetary sacrifice for obtaining a product
tomers for the same Internet vendor. With direct transaction
or a signal of product quality (Lichtenstein et al. 1993, Zeithaml
experience, repeat customers tend to perceive a lower level of risk
1988). For Internet shopping, product quality tends to be compara-
and a corresponding higher level of certainty when conducting
ble across vendors, and customers are generally familiar with
transactions with the Internet vendor. According to prospect theory,
product attributes; therefore, in this context, price is often consid-
such transaction certainty may cause customers to be more sensitive
ered to be a monetary sacrifice (Reibstein 2002). As a monetary
to monetary gains from transactions. Given that perceived price
sacrifice, an increase in price for the current vendor in comparison
(determined when customers compare the objective price with
with prices of other vendors lowers acquisition utility when the
the reference price) is a reflection of gains in transactions (Dodds
equivalent value of the product remains constant. Furthermore,
et al. 1991), perceived price should strongly affect the behavior of re-
as was previously discussed, perceived price has a direct impact
peat customers. Therefore, perceived price is likely to strongly im-
on the monetary aspect of transaction utility; an increase in per-
pact the purchase intention of repeat customers.
ceived price lowers transaction utility. Thus, perceived price
Conversely, due to a lack of direct transaction experience, poten-
should negatively affect perceived value through acquisition utility
tial customers of the same Internet vendor may perceive higher lev-
and transaction utility. Perceived price may also have a direct ef-
els of risk and uncertainty when conducting transactions with the
fect on purchase intention. For the same product, a high perceived
vendor. Such uncertainty in transactions may cause customers to
price creates a monetary loss for customers, which should deter
be less sensitive to monetary gains from the transactions. Since per-
customers from wanting to purchase the product (Dodds et al.
ceived price is a reflection of gains in transactions (Dodds et al.
1991, Von Neumann and Morgenstern 1953). In the context of
1991), perceived price may affect the behavior of potential custom-
Internet shopping, these relationships are likely to apply to both
ers to a lesser extent. Price advantage becomes a salient decision
potential and repeat customers. Hence, we hypothesize:
component when the level of certainty in a transaction is high.
Therefore, perceived price may have a weaker impact on the pur-
H4 (a, b). Perceived price has a negative effect on perceived value
chase intention of potential customers compared to repeat custom-
for potential customersa and repeat customersb.
ers of the same online vendor. Hence, in the context of Internet
H5 (a, b). Perceived price has a negative effect on purchase inten- shopping, we hypothesize:
tion for potential customersa and repeat customersb.
H7. Perceived price has a stronger negative effect on the purchase
The magnitude of the impact of perceived trust in an Internet
intention of repeat customers than that of potential customers.
vendor on purchase intention (H3) may differ between potential
and repeat customers for the same vendor. Potential customers The magnitude of the impact of perceived trust on purchase
usually lack information about the target Internet vendor, because intention (H3) may differ from that of perceived price on purchase
they have no direct transaction experience with the vendor. Hence, intention (H5). Given that customers may purchase products only
they perceive a higher risk in carrying out a transaction with the when they expect to gain more benefit than sacrifice, prospect the-
vendor. In this more risky transaction environment, the ability to ory suggests that customers are likely to be risk averse and there-
control becomes important in determining customer behavior fore opt for certain, but smaller, gains rather than probable, but
(Koller 1988). According to the theory of planned behavior (Ajzen larger, gains. Hence, in the context of Internet shopping, customers
2002), the behavioral intentions of people are affected by their per- are likely to focus on maximizing certainty by alleviating risk rather
ceived behavioral control. Perceived behavioral control refers to than maximizing monetary benefit. When making purchases on the
beliefs about the presence of internal (e.g., personal knowledge) Internet, the elements of risk include disappointing purchases
 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252 245

(Ehrlich and Fisher 1982) and future possible losses (e.g., loss of pri-
vacy and other security threats) (Grewal et al. 2003). With trust
perception, such elements of risk are minimized (Jarvenpaa et al.
2000) because there is more certainty in the transaction environ-
ment (Gefen 2004, Koller 1988). Conversely, a lower perceived price
may only serve to maximize monetary benefit (Dodds et al. 1991), a
factor that is not the main focus of customers who perceive uncer-
tainty and risk. Thus, perceived trust may be more salient than per-
ceived price for customers making purchase decisions on the
Internet. Given that the perceived risk of Internet shopping is likely
to be higher for potential customers than for repeat customers, the
aforementioned arguments are likely to be particularly important
for potential customers.
We can also explain the relative importance of perceived trust
and perceived price on purchase intention in terms of shopping
convenience with consumption costs, especially for repeat custom-
ers. Shopping convenience means less time and effort are spent on
shopping (Berry et al. 2002). Trust beliefs enhance shopping conve-
nience by allowing customers to spend less time and effort on
Internet shopping with the vendor (Chiles and McMackin 1996).
In addition, most customers regard time and effort costs as more
important than monetary cost when low-cost standard products
(e.g., pencils) are concerned, and monetary cost as more important
than time and effort costs when high-cost products (e.g., a house)
are concerned (Downs 1961). Most leading products in Internet
shopping are low-cost, standard products such as books and CDs
(Lynch et al. 2001). Furthermore, most online customers are more
interested in shopping convenience and are willing to pay more for
it (Reichheld and Schefter 2000). Hence, in the context of Internet
shopping, we hypothesize:
H8 (a, b). Perceived trust in an Internet vendor has a stronger
effect than perceived price on the purchase intention of potential
customersa and repeat customersb.
4. Research methodology
Survey methodology was used to test the research hypotheses.
This methodology was chosen because it enhances the generaliz-
ability of the results (Dooley 2001, McGrath 1982).
4.1. Instrument development
Measurement items for purchase intention were taken from
Dodds et al. (1991). Items for perceived value were adapted from
Sirdeshmukh et al. (2002) to fit the online context. Items for per-
ceived trust were adapted from Grazioli and Jarvenpaa (2000) be-
cause of their suitability to the context of this study. Two
additional items were also included to make the measure more
complete in terms of face validity. Items for perceived price were
adapted from Gefen and Devine (2001). Two more items were
added to measure customers’ comparisons of prices at the current
online vendor with the prices of other vendors. All items were an-
chored on a seven-point Likert scale ranging from 1 (strongly dis-
agree) to 7 (strongly agree).
Three information systems scholars and one marketing scholar
reviewed the instrument for face validity. A focus group of ten peo-
ple also reviewed the instrument and provided feedback pertaining
to the length of the instrument, the clarity of the questions, and the
completeness of coverage of the questions. Some of these members
had previous Internet shopping experience, while others did not.
Table 1 shows the final measurement instrument used for data
collection.
4.2. Data collection
Since most of the products sold on the Internet are low touch
products or search products (such as books and CDs), an online
bookstore (‘‘I-BOOKS’’) in Korea was chosen to test the hypotheses
presented in this study. This store has approximately 120,000 visits
to its website every day and sells approximately 1500 books daily.
An online survey was developed and posted on the I-BOOKS web-
site, and anyone who visited the website could respond to the sur-
vey. Such a sample best represents the potential and repeat
customers of a real-life Internet bookstore.
A banner was placed on the home page of the I-BOOKS website
linking the respondents to the survey site. The survey ran for
1 week. Customers who visited the website participated in the sur-
vey voluntarily by clicking on the banner on the home page. Volun-
tary participation in a survey introduces a self-selection bias
whereby some distortion of statistics may occur because certain
characteristics that correlate to the respondents’ willingness to par-
ticipate are over-represented. To reduce this tendency, respondents
were offered five dollars as an incentive to participate in the sur-
vey. Moreover, the self-selection tendency may only exert a
marginal influence because a willingness to participate does not
influence perceived price or perceived trust.
To further prevent biased answers, the survey page assured the
respondents that there was no right or wrong answer and that
their response would be kept confidential. For the purpose of

Table 1
Measurement instrument.

Construct Item Wording Reference

Purchase intention INT1 The probability that I would consider buying a book from this store is high Dodds et al. (1991)
INT2 If I were to buy a book, I would consider buying it from this store
INT3 The likelihood of my purchasing a book from this store is high
INT4 My willingness to buy a book from this store is high
Perceived value VAL1 Considering the money I pay for buying books at this store, Internet shopping here is a good deal Sirdeshmukh et al. (2002)
VAL2 Considering the effort I make in shopping at this store, Internet shopping here is worthwhile
VAL3 Considering the risk involved in shopping at this store, Internet shopping here is of value
VAL4 Overall, Internet shopping at this store delivers me good value
Perceived trust TRS1 This store is capable of doing its job Grazioli and Jarvenpaa (2000)
TRS2 This store keeps its promises and commitments
TRS3 This store cares about its customers
TRS4 This store fulfills its job
TRS5 This store is trustworthy
Perceived price PRC1 Buying books at this store may be more expensive than at another store Gefen and Devine (2001)
PRC2 I will probably save more money buying books at another store than at this store
PRC3 It may be possible to get a better discount from another store than from this store
PRC4 It may be cheaper to buy books at this store than at another store (reverse)
246 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252

Table 2 Table 3
Respondent characteristics. Results of principal component analysis.

Demographic variable Potential Repeat Item Potential customers Repeat customers

customers customers
INT1 0.28 0.84 0.22 0.07 0.14 0.15 0.80 0.16
Age (years) Mean (std. dev.) 26.9 (7.8) 28.4 (7.6) INT2 0.33 0.82 0.21 0.01 0.26 0.23 0.84 0.17
Internet experience (years) Mean (std. dev.) 5.8 (2.4) 5.5 (2.3) INT3 0.29 0.88 0.23 0.02 0.25 0.20 0.87 0.15
Purchase experience with Mean (std. dev.) 0 (0) 11.6 (13.8) INT4 0.36 0.82 0.23 0.07 0.28 0.20 0.85 0.15
the bookstore (times)
VAL1 0.23 0.11 0.80 0.23 0.18 0.77 0.23 0.37
Internet shopping Yes 86.3% 100.0% VAL2 0.21 0.21 0.84 0.16 0.23 0.84 0.23 0.15
experience VAL3 0.09 0.24 0.84 0.20 0.25 0.85 0.16 0.09
No 13.7% 0.0% VAL4 0.15 0.23 0.83 0.11 0.24 0.83 0.19 0.21
Gender Female 62.7% 66.6% TRS1 0.86 0.21 0.09 0.06 0.80 0.23 0.27 0.04
Male 37.3% 33.4% TRS2 0.91 0.25 0.15 0.06 0.86 0.18 0.16 0.11
TRS3 0.84 0.30 0.15 0.03 0.86 0.17 0.16 0.10
Number of responses 161 352
TRS4 0.90 0.22 0.19 0.07 0.86 0.21 0.17 0.12
TRS5 0.85 0.31 0.20 0.02 0.85 0.16 0.25 0.11
PRC1 0.03 0.12 0.16 0.70 0.04 0.32 0.04 0.62
classifying a respondent as a potential or a repeat customer, the PRC2 0.03 0.07 0.16 0.88 0.11 0.10 0.21 0.87
survey page asked each respondent to indicate the number of PRC3 0.06 0.08 0.11 0.90 0.12 0.06 0.17 0.86
PRC4 0.12 0.33 0.33 0.47 0.17 0.50 0.19 0.61
transactions he or she had conducted with I-BOOKS. To ensure that
respondents actually had some knowledge of the I-BOOKS website,
the survey page asked them to enter the name and price of a book
they were considering before allowing them to respond to the sur- Table 4
vey questions. Results of Convergent Validity Tests.
Of the total 513 responses (see Table 2), 161 were from poten- Item Potential customers Repeat customers
tial customers and 352 were from repeat customers. The t-test re-
Std. path AVE CR a Std. path AVE CR a
sults revealed no significant difference between potential and
loading loading
repeat customers in terms of age or Internet experience. A
INT1 0.88 0.82 0.95 0.95 0.73 0.77 0.94 0.93
Mann–Whitney test revealed that the gender ratio did not differ
INT2 0.88 0.92
significantly between potential and repeat customers. Thus, the INT3 0.94 0.92
samples of the potential and repeat customers were comparable INT4 0.92 0.93
in terms of basic demographics. VAL1 0.82 0.72 0.88 0.91 0.85 0.76 0.91 0.93
VAL2 0.89 0.89
5. Data analysis and results VAL4 0.83 0.88
TRS1 0.84 0.81 0.95 0.95 0.83 0.75 0.94 0.93
5.1. Instrument validation TRS2 0.94 0.86
TRS3 0.88 0.87
TRS4 0.93 0.89
The data for potential and repeat customers were separately TRS5 0.91 0.88
subjected to Principal Component Analysis with Varimax rotation PRC1 0.60 0.67 0.86 0.82 0.62 0.63 0.83 0.79
(see Table 3). For each dataset, four stable factors (with eigenvalue PRC2 0.91 0.89
greater than 1) emerged. These factors explained 79.3% and 79.0% PRC3 0.91 0.84
of the variance in the data for potential and repeat customers,
respectively. All question loadings on the intended factor exceeded
0.5, except PRC4. Because PRC4 had low loading for its intended
factor for potential customers, and PPC4 loaded on two factors statistically significant for both datasets. The composite reliability
for repeat customers, this question was dropped from further and the Cronbach’s a for all constructs exceeded 0.7 for both data-
analysis. sets. Furthermore, the average variance extracted for all constructs
The constructs were assessed for convergent and discriminant exceeded 0.5 for both datasets. Hence, the convergent validity for
validity via confirmatory factory analysis (CFA) (Anderson and the constructs was established.
Gerbing 1988) using linear structural relations (LISREL). We first Discriminant validity is established if the square root of a con-
checked the unidimensionality of each construct. Following the struct’s AVE is larger than its correlation with any other construct
recommended methodological procedures (Anderson and Gerbing (Fornell and Larcker 1981). As shown in Table 5, the square root of
1988, Gefen et al. 2000), we revised the measurement model by AVE for each construct exceeded the correlation between that con-
dropping, one at a time, measurement items that shared a high de- struct and other constructs. Hence, discriminant validity was
gree of residual variance with other items. One item measuring established.
perceived value, VAL3, was dropped because this question shared
a high degree of residual variance with VAL1 and VAL2 for both 5.2. Common method variance
datasets. After dropping this item, the CFA showed an acceptable
model fit. For potential customers, the results were as follows: Method variance refers to the variance that is attributable to the
the goodness-of-fit index (GFI) = 0.91, the normed fit index measurement method rather than the construct of interest
(NFI) = 0.97, the adjusted goodness-of-fit index (AGFI) = 0.87, the (Podsakoff et al. 2003). It can result from various sources such as
comparative fit index (CFI) = 0.99 and the root mean square of a common rater, a common measurement context, a common item
approximation (RMSEA) = 0.055. For repeat customers, the results context, or from the characteristics of the items themselves.
were: GFI = 0.92, NFI = 0.97, AGFI = 0.89, CFI = 0.99 and RMSEA = Because the responses for this study were self-reported, it is
0.065. important to test for common method variance. Harman’s single
We then checked the convergent validity. As shown in Table 4, factor test (Podsakoff 1986) and the Bentler and Bonnet test (Ben-
the standardized path loadings for all of the questions were tler and Bonett 1980) are widely used tests in IS research (e.g., Song
 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252 247

Table 5
Correlations between Latent Variables.

Construct Potential customers Repeat customers

Mean (std. dev.) INT VAL TRS PRC Mean (std. dev.) INT VAL TRS PRC
Purchase intention (INT) 4.86 0.91 5.60 0.88
(1.23) (1.12)
Perceived value (VAL) 4.66 0.49 0.85 5.38 0.50 0.87
(1.00) (1.03)
Perceived trust (TRS) 5.47 0.61 0.42 0.90 5.86 0.52 0.48 0.87
(1.01) (1.02)
Perceived price (PRC) 4.12 0.10 0.35 0.03 0.80 3.53 0.39 0.475 0.31 0.77
(1.20) (1.31)

Leading diagonal shows the squared root of AVE of each construct.

Table 6
LISREL v2 Comparisons.

Model Potential customers Repeat customers Reference

v2 df % Improvement in variance v2 df % Improvement in variance Straub et al. (1995) Song and Zahedi (2005)
MM0 4471.33 136 – 12010.84 153 – – –
MM1 1771.96 119 60.3% 4600.38 135 61.6% 48.4% 48.8%
MM2 194.06 113 95.6% 467.74 129 96.1% 67.1% 95.4%

and Zahedi 2005), and thus were used in this study for detecting
common method variance.
In Harman’s single factor test, an un-rotated solution of factor
analysis was examined to determine the number of factors neces-
sary to account for the variance of the variables. The results re-
vealed four factors each, for both potential and repeat customers,
with the largest factor accounting for approximately 45% of the
variance between the independent and criterion variables.
Although 45% is on the higher side, it is difficult to conclusively
ascertain that a single factor that accounted for a large percentage
of variance in the data. Therefore, we use Bentler and Bonnet test
(Bentler and Bonett 1980) for further confirmation. In the Bentler
and Bonnet test, the v2 values of three estimations were obtained,
namely: the null model (MM0) that has no underlying factors; a
common-factor measurement model (MM1), in which all items
have one underlying factor; and the measurement model for po-
tential and repeat customers (MM2). ‘‘If, for example, the v2 of an-
other competing model, MM1, is 20% of the v2 of MM0, we can
conclude that MM1 explains 80% of the total variation’’ (Straub
et al. 1995). The findings of the three measurement models for
the potential and repeat customers are summarized in Table 6.
The results show that the variance explanation improved to
60.3% in the case of potential customers and 61.6% for repeat cus-
tomers when a single variable was introduced. The explanation
was 95.6% for potential customers and 95.4% for repeat customers
when the measurement model was tested. Following Straub et al.
(1995), a test of significance for the difference between the Chi-
square values of MM1 and MM2 showed that the fit of MM2 was
statistically superior to the fit of MM1 (p < 0.001) for both the po-
tential and repeat customers. The results are also comparable to
those found in Straub et al. (1995) and Song and Zahedi (2005).
Thus, the measurement model is better than a single factor model
or null model and does not support the existence of a common
method variance in the data.
5.3. Hypotheses testing
The hypotheses were tested using the LISREL structural model.
The structural models showed good indices for both the potential
customers (v2 to degree of freedom (Normed v2) = 1.37,
GFI = 0.91, NFI = 0.97, AGFI = 0.87, RMSEA = 0.05, and Root Mean-
square Residual (RMR) = 0.04) and the repeat customers (Normed
v2 = 2.17, GFI = 0.94, NFI = 0.98, AGFI = 0.91, RMSEA = 0.056 and
RMR = 0.04). With good fit indices, the standardized path coeffi-
cients (see Fig. 2) can be used to test the hypotheses.
For potential customers, perceived trust (H2a) and perceived
price (H4a) had a significant effect on perceived value, explaining
33% of the variance. Perceived trust (H3a) and perceived value
(H1a) had a significant effect on purchase intention, explaining
48% of the variance. However, perceived price had an insignificant
effect on purchase intention. Thus, H5a was not supported. For re-
peat customers, perceived trust (H2b) and perceived price (H4b)
had a significant effect on perceived value, explaining 40% of the
variance. Perceived value (H1b), perceived trust (H3b), and per-
ceived price (H5b) all had a significant effect on purchase inten-
tion, explaining 43% of the variance.
To compare the corresponding path coefficients across both
structural models (i.e., to test H6 of trust comparison and H7 of
perceived price comparison), this study used a two-step constraint
approach (Byrne 1998). First, we used LISREL to create a base mod-
el with the two hypothesized paths, H3 (the effect of perceived
trust on purchase intention) and H5 (the effect of perceived price
on purchase intention). With this base model, we jointly estimated
the two sub-models (one for potential customers and one for re-
peat customers) using the respective datasets. Second, we imposed
an equality constraint for the path being studied in both sub-mod-
els. For example, when testing H6, the path from perceived trust to
purchase intention was constrained to have the same value for
both potential and repeat customers. Likewise, when testing H7,
the path from perceived price to purchase intention was con-
strained to have the same coefficient for both potential and repeat
customers. Using this constrained model, two sub-models (one for
potential customers and one for repeat customers) were estimated
jointly with the respective datasets. If the constrained model had a
significantly different fit (in terms of 2) than the base model, the
coefficient of the constrained path would be significantly different
across the two sub-models.
Table 7 shows the results of applying the constrained approach.
When testing H6, the change in the model fit was significant
(Dv2 = 56.14, p < 0.01). Thus, the coefficient of the path from per-
ceived trust to purchase intention was significantly higher for po-
tential customers than for repeat customers; H6 was supported.
When testing H7, the change in the model fit was also significant
(Dv2 = 4.86, p < 0.03). Therefore, the coefficient of the path from
248 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252

0.63***(P)
Perceived 0.41***(R)
trust

0.42***(P)
0.59***(R)
Perceived 0.39***(P) Purchase
value 0.24*** (R) intention
-0.46***(P)
-0.49***(R) R2 =0.33(P) R2 =0.48(P)
R2 =0.40(R) R2 =0.43(R)
Perceived
price ns(P)
-0.22** (R)

*:p<0.05, **:p<0.01, ***:p<0.001,

ns: insignificant at the 0.05 level, (P) :potential customer group, (R): repeat customer group

Fig. 2. Structural model testing results.

Table 7 price to purchase intention; therefore, H8(a) and H8(b) were

Results of constrained tests across sub-models. supported.
Equality constraint Base model Constrained Change in model fit
imposed model 6. Discussion and implications
v2 df v2 df Dv2 Ddf p-Value
Perceived trust to 334.23 170 390.37 171 56.14 1 p < 0.01
The primary objective of this study was to examine the relative
purchase intention impact of perceived price and perceived trust on online purchase
Relative price to 334.23 170 339.09 171 4.86 1 p < 0.03 decision making. The results of this study show that customers
purchase intention in general (including both potential and repeat customers) tend
to value perceived trust over perceived price when making shop-
ping decisions at an online vendor. This finding can also be com-
pared with previous study (Reibstein 2002). Reibstein (2002)
Table 8
found that price was the most important factor that could attract
Results of constrained test within sub-models.
potential customers to transact with Internet vendors while some
Customer type Base model Constrained Change in model fit trust beliefs building factors were ranked low (e.g., customer ser-
model
vice ranked seventh and privacy policies ranked ninth out of 10
v2 df v2 df Dv2 Ddf p-Value factors). Our study shows that perceived trust is an even more
Potential customers 124.03 84 137.40 85 13.37 1 p < 0.01 important factor than perceived price in affecting customer shop-
Repeat customers 181.91 84 228.32 85 46.40 1 p < 0.01 ping decisions.

6.1. Implications for research

perceived price to purchase intention was significantly higher for
repeat customers than for potential customers; H7 was also
supported.
To compare the coefficients of two paths within the same struc-
tural model (i.e., to test H8 of perceived trust and perceived price
comparison), we adopted a two-step constraint approach (Byrne
1998) for each dataset (i.e., we analyzed the data for potential cus-
tomers and that for repeat customers separately). First, we created
a base model using LISREL with the two hypothesized paths, H3
(the effect of perceived trust on purchase intention) and H5 (the ef-
fect of perceived price on purchase intention), and we estimated
the two paths using the relevant dataset. Second, we imposed
equality constraint for the two paths to be compared (i.e., the path
from perceived trust to purchase intention and the path from per-
ceived price to purchase intention for both customer types). If the
constrained model had a significantly different fit (in terms of v2)
than the base model, then the coefficients of the two paths would
be significantly different. For this comparison, the values for per-
ceived price were reversed because perceived price had a negative
relationship with purchase intention, whereas trust had a positive
relationship with purchase intention.
Table 8 shows the results. For potential customers, the change
in model fit was significant (Dv2 = 13.37, p < 0.01). For repeat cus-
tomers, the change in model fit was also significant (Dv2 = 46.40,
p < 0.01). Thus, for both potential and repeat customers, the coeffi-
cient of the path from perceived trust to purchase intention was
significantly higher than the coefficient of the path from perceived
The results of this study also revealed that perceived trust influ-
ences purchase intention more strongly in case of potential cus-
tomers than in case of repeat customers. This result is consistent
with the certainty effect concept proposed by mental accounting
theory. Because of risk aversion, customers are willing to forgo
monetary gains for certainty in the transaction. Because potential
customers have not previously conducted transactions with the
online store, uncertainty about the success of the transaction pre-
vails; therefore, customers prefer to conduct transactions with on-
line stores that are considered trustworthy (even if these online
stores charge premium prices). Koller (1988) also argues that in
an uncertain environment, customers want to have some control
over a transaction. The trust in an online store enables potential
customers to perceive some amount of control over their transac-
tions. Conversely, repeat customers having conducted transactions
with the online store, feel more in control of the environment.
Therefore, the influence of trust on the purchase intention of repeat
customers is not as strong as on the purchase intention of potential
customers.
Regarding the relative impact of perceived price, our results re-
vealed that its influence on purchase intention is stronger for re-
peat customers than for potential customers. These results are
intuitive and conform to the certainty effect of mental accounting
theory. As a customer gains control over the transaction, his desire
for monetary gains in a transaction increases. However, a number
of studies (e.g., Reibstein 2002, Reichheld and Schefter 2000)
report that repeat customers become less price-sensitive when
 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252
purchasing products from an Internet vendor as the number of
transactions made with that vendor increases. To test this further,
a post hoc analysis was conducted taking customers’ transaction
experiences (i.e., the number of transactions conducted with the
same online vendor) as a moderator of the relationship between
perceived price and purchase intention for repeat customers.
Fig. 3 shows the model for examining moderating effect of transac-
tion experience.
The results revealed that transaction experience significantly
moderates the relationship (DR2 = 0.013, F = 5.92, p < 0.05). The
coefficients are: perceived price (coefficient = 0.51, p < 0.000),
perceived price  transaction experience (coefficient = 0.28, p < 0
.01), and transaction experience (coefficient = 0.03, p > 0.1). These
results imply that price sensitivity in a transaction decreases as the
number of transactions conducted by repeat customers with the
same vendor increases.
The hypothesis testing results, however, showed that repeat
customers are overall more sensitive to perceived price in their
purchase decision making than potential customers. The certainty
effect of mental accounting theory can partially explain these re-
sults; the certainty in a transaction with a vendor increases the
desirability of gains from the transaction. This perception of cer-
tainty should cause repeat customers to value gains in transac-
tions. Such gains are often derived in the form of lower perceived
price (Dodds et al. 1991). The certainty effect thus increases cus-
tomer sensitivity to monetary savings in the case of repeat custom-
ers (particularly those who have conducted less number of
transactions with the vendor).
Contrary to the expected results, our results show that the influ-
ence of perceived price on purchase intention is not significant in
the case of potential customers. Although mental accounting the-
ory favors trust over price in the case of potential customers, it is
unlikely that the relationship between perceived price and pur-
chase intention would not be significant. There could be a number
of reasons for this. The online bookstore examined in this study
was not a very well known vendor as compared to Amazon.com
or Barnes&Noble.com. In such a case, customers rely on perceived
trust and worry less about price. Even if the vendor is well known,
price may not be important because of the nature of the product
examined (books, in this case) is such that there is little variation
in price. Therefore, trust becomes very important. The lack of sig-
nificant direct effect of perceived price on purchase intention that
was previously noted is similar to what was discovered in a prior
study (Urbany et al. 1997). Urbany et al. (1997) found that transac-
tion utility (akin to perceived price in this study) has no significant
effect on purchase intention when customers are uncertain about
product quality. When customers do not have enough information
about product quality, they interpret price as a quality signal
(Lichtenstein et al. 1993, Zeithaml 1988). Lambert (1972) also
reported that customers tend to go for high-priced options when
Perceived
Trust
Perceived
Value
Perceived
Price
0.51***
Transaction
Experience
Fig. 3. Moderating effect of transaction experience.
249
they are concerned about undesirable consequences arising from
the purchase of unsatisfactory products. In our study, potential
customers might have been certain about product quality (i.e.,
books), but they would have been uncertain about vendor quality
because they did not have prior transaction experience with the
Internet vendor. For this reason, perceived price might have no sig-
nificant effect on purchase intention for the potential customers in
our study. Had it been a flower shop or a shop selling luxurious
goods, the results might have been different because the quality
of flowers or luxurious goods varies from store to store. We also
find support for this finding in previous studies.
6.2. Implications for practice
The results of this study are of importance to online vendors, as
they affirm the earlier suggestion that trust is one of the most
important drivers of Internet transactions (Hoffman et al. 1999).
Although the lower search costs in the electronic marketplace en-
able customers to compare prices across vendors so as to find the
cheapest possible alternative, the role of perceptions of trust in
facilitating Internet transactions cannot be underestimated. There-
fore, it is definitely worthwhile for Internet vendors to invest in
enhancing their trustworthiness, as perceived by their potential
and repeat customers. Amazon.com uses recommender agents
and customer ratings to improve customer trust in the transac-
tions, in addition to the products being purchased from its store.
The results of this study are also important because they sug-
gest that online stores can charge premium prices from their cus-
tomers if they improve their trustworthiness (Kim and Xu 2007);
this explains how Amazon.com is successful in charging premium
prices. Trustworthiness depends on how an online vendor estab-
lishes itself as a brand amongst customers in general, in addition
to its customer service (including delivery, returns and handing
complaints). For example, Barnes&Noble already had an estab-
lished brand image before it started selling through Internet. In
other words, it is worthwhile to establish one’s brand image for
increasing one’s trustworthiness. To establish brand image, online
vendors can open small retail outlets in various parts of the coun-
try. However, this could be an expensive strategy. Another way
brand image can be improved is by advertising on standard chan-
nels like Television and Newspaper. Online vendors can also tie up
with other established companies and provide discount coupons as
a free gift on purchase of products of these established companies.
While enhancing trustworthiness is a generally useful strategy,
Internet vendors may also want to adjust their strategy according
to the number of transactions that a customer has conducted (po-
tential customers versus repeat customers). This is also important
for improving the retention of repeat customers. Online vendors
should, for these cases, group practice customization strategies.
Currently, the general practice is to give freebies or services for
points accumulated by customers through previous transactions.
This is a standard strategy used by most airlines, whereby they dif-
ferentiate services provided to their customers depending upon the
number of points that a customer has accumulated through previ-
ous travels. As repeat customers become less price-sensitive with
an increased number of transactions, they can be offered premium
Purchase
Intention services such as free delivery for larger or more expensive pur-
chases. Because it is difficult to differentiate between less experi-
enced and more experienced repeat customers based on price,
additional accessories like gift wrapping or book wrapping services
can be bundled and targeted to more experienced customers. This
would not only enhance trustworthiness, but also improve the loy-
alty of the customers towards the online store.
Perceived trust influences the purchase decisions of potential
customers more strongly than those of repeat customers. There-
fore, to generate initial sales with potential customers Internet
250 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252
vendors may focus on efforts to raise their trustworthiness rather
than engaging in cut-throat competition with their competitors.
Generally, online vendors tend to attract sales based on lower
prices. However, for relatively new online stores, this could be a
death knell because of the risk involved in online transactions.
Therefore, online vendors should put effort on building their brand
by tying-up with established vendors and offering discount coupon
for their store as free gifts. They may also tie-up with schools
which provide textbooks to the students. With such tie-ups schools
can offer discount coupon as free gifts for specific purchases that
students can benefit from. Perceived price influences the decisions
of less experienced repeat customers more strongly than it does for
potential customers and more experienced repeat customers.
Therefore, to generate continuous sales, especially with less expe-
rienced repeat customers, Internet vendors may offer lower prices
(in the form of bundled products or freebies because directly lower
prices may signal discrimination between more experienced and
less experienced repeat customers) for their products and improve
their trustworthiness.
For example, Amazon.com emphasizes its reliable product
delivery system (where customers can track their product orders
online), and its product return policy attracts potential customers.
It also offers product price discounts to repeat customers, giving
them incentives to continue to do business with Amazon.com.
Given the general importance of perceived trust over perceived
price in the context of Internet commerce, successful and trustwor-
thy Internet vendors may charge premium prices, especially during
initial sales with potential customers. Smith and Brynjolfsson’s
(2001) reported that the three most reputable Internet bookstores,
Amazon.com, Borders.com, and Barnes&Noble.com, command a
$1.72 price premium over other Internet bookstores. Leveraging
trustworthiness to charge a higher price is a possible strategy that
can help Internet vendors improve their profitability (Ba and Pav-
lou 2002, Kim and Xu 2007). This is an option with a potentially
multifold impact. McKinsey & Company found that, keeping the
sales volume constant, a 1% increase in price produces an average
increase in profitability of 7.4%.
6.3. Limitations and implications for future research
The results of this study must be interpreted in the context of its
limitations. First, the data for this study was collected from the po-
tential and repeat customers of an online bookstore whose prod-
ucts belong to a ‘low touch’ or search product category. Since the
quality of books and their prices vary little across vendors, per-
ceived price does not emerge as a very important factor for poten-
tial customers. EIAA (2006), however, reports that seven of the top
ten products sold online belong to a search product category. Out
of these seven products, four – cinema tickets, CDs, DVDs, and
books – have similar characteristics (i.e., low/medium price, stan-
dard product, and no touch services required). Therefore, the find-
ings in this study can be applied to other popular Internet shopping
contexts. However, the results may vary if the product chosen is a
‘high touch’ or experience product, such as luxurious items, jew-
elry, flowers and so on where product quality is highly variable.
It would be interesting to test the proposed hypotheses and com-
pare them across search product categories and experience prod-
uct categories, as well as across various online vendors.
Furthermore, the data in this study was collected through self-
selection, which may introduce bias. To reduce this bias, respon-
dents were provided with incentives to participate in the survey.
Moreover, the self-selection tendency may not have affected this
study, because a willingness to participate in the survey would
not have any effect on perceived price or perceived trust.
Third, this study classified customers into either potential or re-
peat customers. Repeat customers could be further classified into
transactional and relational customers. The relationship marketing
literature (e.g., Reichheld and Schefter 2000) suggests that rela-
tional customers may be less sensitive to price because they are
willing to pay more to conduct their business with familiar ven-
dors; however, this may not be the case with transactional custom-
ers. It would be interesting to examine how the results for the
repeat customers in this study change when transactional and rela-
tional repeat customers are examined separately.
The post hoc analysis conducted in this study to find the differ-
ence in customers’ purchase decisions based on the number of
transactions conducted with the online vendor was based on
cross-sectional data. Given the inherent difficulties in creating a
panel and collecting data for unknown online customers, this study
relied on cross-sectional data. Survey research is better for estab-
lishing generalizability and the researcher has to forgo some
amount of realism, as argued by Dennis and Valacich (2001). To
further establish the validity of these results and obtain accuracy
(Dennis and Valacich 2001), a panel can be developed and data col-
lected using a longitudinal design. Future studies could adopt dif-
ferent research methodology, such as experiments, depending on
the research objectives because each method has its pros and cons
(McGrath 1982). For example, a survey approach is advantageous
in generalizing the findings, although it has several methodological
limitations such as a self-selection bias and common method bias.
In contrast, the experiment approach is advantageous in imparting
control of the experimental context to the experimenter, although
it is disadvantageous in reflecting real situations and generalizing
the findings. A combination of different research methods could
provide interesting implications.
This study focused on the relative impact of perceived price and
perceived trust; therefore, other factors were not considered. Other
factors, such as convenience and pleasure, also influence repeat
customers’ purchase decisions (Gupta and Kim 2010). Convenience
and pleasure are difficult to compare between potential and repeat
customers because potential customers do not have any previous
purchase experience with the online vendor. An interesting future
study could examine how convenience and pleasure, along with
price and trust, vary as the number of transactions increases.
This study considered trust and not risk. Risk and trust are com-
plementary in the sense that if risk is high, then trust is low and if
trust is high, then risk is low. Even if risk is not present in a trans-
action (such as in the case of repeat customers), trust is still re-
quired to conduct transactions.
As this study was a cross-sectional study, it did not examine the
actual purchases of potential customers because behavior comes
after perception and intention to behave in temporal dimension.
The potential customers could return to the website and make pur-
chases. Future studies could examine the actual purchases made by
the potential customers and repeat customers using a longitudinal
study and examine the effects of price and trust over their pur-
chase decision.
Since the data was collected from Korean customers, culture
may influence the results of this study. In collectivist cultures that
Korea people are more risk averse than individualistic cultures as
well as more adventurous, such as that in America. Future research
may address the influence of culture on the results of this study.
Finally, a study could be conducted for a service-oriented store,
such as sites that sell online tickets. Online tickets can be
purchased through an agent (also an online website) or directly
through the online store of the firm. Generally, these agents offer
some price rebates but charge higher transaction fees thus
exceeding the normal ticket cost. A study could compare how price
and trust dynamics work when a person has the option of purchas-
ing from an online vendor as well as an online agent of the same
vendor. For example, flight tickets can be purchased both from
the website of the flight company and also from an online agent.
 H.-W. Kim et al. / Electronic Commerce Research and Applications 11 (2012) 241–252
The dynamics of price and trust could be interesting in this case be-
cause product quality does not play a role.
7. Conclusion
This study investigated the independent and combined impact
of perceived trust and perceived price on the purchase intention
of online customers. Building on previous research, it determined
the significance of perceived trust over perceived price as a key fac-
tor affecting customer decisions in the context of Internet shop-
ping, a finding contrary to what has been reported for traditional
shopping (Von Neumann and Morgenstern 1953) and Internet
commerce (Reibstein 2002). Furthermore, this study illustrates
the differential importance of perceived trust and perceived price
in affecting the decisions of potential and repeat customers at an
Internet vendor. Based on the prospect and mental accounting the-
ories, the results of this study help to advance our knowledge of
customer decisions in the context of Internet shopping. In particu-
lar, the findings of this study should equip Internet vendors with
an evidential basis for developing effective and customized strate-
gies to make initial and repeat sales.
As the value of Internet commerce continues to grow (Pavlou
et al. 2007, Siau and Shen 2003) competition among Internet ven-
dors also becomes intense. As Internet vendors strive to attract
increasingly sophisticated customers in their efforts to increase
(or at least maintain) their market share, it is imperative that these
vendors understand the decision calculus of customers. Research
along the direction of this study serves to further such a cause.
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