Consumer Purchase Behavior As Influenced By Online Retailers’ Provision of Customer Services: the Case of Unobservable Customer Service Quality


Hao Zhao and Yong Cao (2002) ,"Consumer Purchase Behavior As Influenced By Online Retailers’ Provision of Customer Services: the Case of Unobservable Customer Service Quality", in AP - Asia Pacific Advances in Consumer Research Volume 5, eds. Ramizwick and Tu Ping, Valdosta, GA : Association for Consumer Research, Pages: 330.

Asia Pacific Advances in Consumer Research Volume 5, 2002      Page 330


Hao Zhao, Rutgers University, U.S.A.

Yong Cao, University of Iowa, U.S.A.

This study examines consumers’ choice of online retailers as affected by online retailers’ provision of customer services. The key feature of this study is that we separate customer services into the observable component and the unobservable component. Observable services are those that customers can observe before making purchase decisions, and unobservable are those that are (partially) revealed after the purchase only if the customer encounters certain after-purchase problems. These problems may include that the delivery is delayed or not made at all; wrong items or defective items are shipped; or after trying the product, the customer is not satisfied with its quality or find the product does not fit her needs so a return of the product is necessary. In any of these instances, the customer has to deal with the e-tailer again to resolve any problems that may have arisen.

Consumers considering a purchase with one of the two e-tailers can observe each e-tailer’s price and observable service level. This assumption can be easily justified by the Internet’s nature as an effective tool to provide rich information at very low costs. Since the search cost is so low on the InternetCit virtually constitutes of a few minutes one needs to spend on each e-tailer’s Web site to get the price information and information on product descriptionsCthere is no reason for most consumers why not to visit several e-tailers’ Web sites so that they can be fully informed. However, customers cannot observe the unobservable service qualities of either e-tailer before the purchases. After the purchase, some customers will observe the unobservable services of the e-tailer they purchased from. Satisfactory resolution of customers’ post-purchase problems depends on the e-tailers’ unobservable service qualities. The unobservable services include the e-tailer’s inventory policy, which affects its delivery performance, the effectiveness of the online order tracking systems, toll free telephone support, etc. We assume that these post-purchase problems and their solutions occur during the same period to capture the effect that unobservable services will affect the sales in the future.

For ease of exposition, we use the expected delivery time as a proxy for the observable services. If the e-tailer provides limited observable services, for example, the e-tiler adopts some kind of Just-in-Time inventory policy (e.g. see Germain, Droge, and Daugherty 1994), it is more likely that stock-outs will occur, and consumers will be forced to wait for a week instead of the usual 24 hours for delivery. In this case, the customer has the choice of waiting for a week for delivery or switching to the other e-tailer immediately. There is a significant difference between traditional retailers and online retailers on stock-outs. If a customer encounters a stock-out in a traditional retailer, she may buy a substitute, go to another retailer, or drop out of the market. With an online retailer, it is not technically a stock-out because the customer receives the information that it will take a week (instead of the usual 24 hours) to deliver the product. With the online retailer, there are two different types of stock-outs: one is that the online retailer does not stock the item at all but special order it when receiving an order; the other is the typical stock-out situation where the inventory of the item has been depleted.

The number of customers who will experience post-purchase problems depends on several factors. First, the customer may order the product she regrets after actually using it because of the disconfirmation between her expectation and the actual performance. Even with the Internet’s ability to present rich information about the product, customers cannot resolve all uncertainties about the product, especially the product’s experience attributes (Nelson 1974). Second, although the search costs for all kinds of product information are significantly reduced by the Internet, it still costs customers to process the information collected in terms of customers’ cognitive ability. It is exactly because of the proliferation of information on the Internet that customers’ cognitive ability is more important (Alba et al 1997). Therefore, if the customer cannot process all the information presented on the e-tailer’s Web site, she is still prone to making wrong purchase decisions. These two factors are not under the e-tailer’s control, which means that both e-tailers will encounter unsatisfied customers no matter what their service strategies may be. The third factor involves the e-tailer’s actual service provision. The e-tailer’s policy regarding inventory control, delivery efficiency, proper training of employees, its overall capacity in handling traffic on its Web site, and overall competency will affect whether the customer has a satisfactory or dissatisfactory experience with the transaction. Therefore, we postulate that the probability that each customer will encounter any post-purchase problem is a function of the e-tailer’s post-purchase service quality v, which is unobservable to customers before purchases and to those who did not encounter any post-purchase problems.

In terms of research methodology, we employ a combination of theoretical analysis and empirical investigation for our research project. We start by setting up a theoretical model in which two online retailers compete with each other over two periods. In the first period, they decide on prices and a vector describing their respective service qualities. Consumers can observe some service qualities ex ante and others ex post. In the first period, based on the observed price and service qualities, consumers decide which retailer to shop with. In the second period, consumers, now having learned the unobservable services, decide which retailer to shop at. For the empirical analysis, we have obtained a dataset containing data on eight Internet retailers. The dataset contains data on price, shipping and handling charges, stockout occasions, and services provided by each retailer. We will use this dataset and our theoretical findings to set up a system of simultaneous regression equations to estimate the relationship between the e-tailer’s prices and its service qualities.

Our empirical study shows that, overall, the pure e-tailer enjoys the weakest loyalty. Delivery performance (unobservable service) is important in determining loyalty. Order customizability (observable service) is important in determining loyalty. Price perception (observable service) is not important in determining loyalty. But price index is important in determining loyalty. Customers who search more sites before making purchases are less loyal.



Hao Zhao, Rutgers University, U.S.A.
Yong Cao, University of Iowa, U.S.A.


AP - Asia Pacific Advances in Consumer Research Volume 5 | 2002

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