UNIVERSITI PUTRA MALAYSIA

A CONCEPTUAL FRAMEWORK OF IRANIAN CONSUMER TRUST IN BUSINESS TO CUSTOMERS ELECTRONIC COMMERCE

FETEMEH MESKARAN FSKTM 2010 4

A CONCEPTUAL FRAMEWORK OF IRANIAN CONSUMER TRUST IN

BUSINESS TO CUSTOMERS ELECTRONIC COMMERCE

By

FETEMEH MESKARAN

Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia, in

Fulfilment of the Requirements for the Degree of Master of Science

June 2010

ii

My Beloved My Father and Mother,

My Dear Amin, Mahnaz and Javad

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Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment of the

requirement for the degree of Master of Science

A CONCEPTUAL FRAMEWORK OF IRANIAN CONSUMER TRUST IN

BUSINESS TO CUSTOMER ELECTRONIC COMMERCE

By

FETEMEH MESKARAN

June 2010

Chairman: Rusli Abdullah, PhD

Faculty: Computer Science and Information Technology

Developing countries such as Iran are facing difficulties to establish e-commerce as part of

their economics activities. Previous studies have shown that trust is one of the most

important factors affecting the growth of e-commerce. The primary aim of this study is to

develop a conceptual framework for Iranian customer trust in Business-to-Customer

(B2C) e-commerce by identifying the antecedents and consequences of trust. A survey

was conducted on Tehran customers in Iran through a set of questionnaires. Collected

survey data are analyzed by using SPSS software based on 11 hypotheses. The proposed

conceptual framework called ITM (Iran Trust Model), which is founded on the accepted

hypotheses.

In ITM model, two additional influencing factors are introduced and ineffective

antecedents of trust are removed. The additional factors include the type of payment and

reputation, which are two main antecedents of customer trust. The next factor is

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recommendation of friends as a type of reputation. A prototype of an online shopping

website is implemented to validate the framework. The deployment of ITM in the

shopping website has increased the rate of visitors to the website. An increase in the rate

of visitors signals an increase in customer’s willingness to buy. This model concludes that

improved trust affects on attitude and risk, and finally on willingness to buy.

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Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai

memenuhi keperluan untuk ijazah Master Sains

KONSEP RANGKA KERJA KEPERCAYAAN PENGGUNA IRAN DALAM

PERNIAGAAN-KEPADA-PELANGGAN PERDAGANGAN ELEKTRONIK

Oleh

FETEMEH MESKARAN

June 2010

Pengerusi: Rusli Abdullah, PhD

Fakulti: Sains Komputer dan Teknologi Maklumat

Negara-negara membangun seperti Iran menghadapi masalah bagi membangunkan e-

perdagangan sebagai sebahagian daripada aktiviti ekonomi mereka. Kajian terdahulu

menunjukkan bahawa salah satu daripada faktor- faktor yang mempengaruhi pertumbuhan

e-perdagangan adalah kepercayaan. Tujuan utama kajian ini adalah untuk membangunkan

sebuah kerangka konsep untuk tahap kepercayaan pelanggan-pelanggan Iran di dalam

Perniagaan-kepada-Pelanggan (B2C) melalui cara mengenal pasti kesan dan akibat

kepercayaan. Satu tinjauan telah dibuat ke atas pelanggan-pelanggan Tehran di Iran

melalui suatu set soalan kaji selidik. Data tinjauan yang diperolehi telah dianalisa dengan

menggunakan perisian SPSS berdasarkan 11 hipotesis. Kerangka konsep yang

dicadangkan telah dinamakan sebagai Iran Trust Model (ITM) berasaskan hipotesis yang

telah diterima pakai.

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Di dalam model ITM, dua faktor baru mempengaruhi telah diperkenalkan dan kesan-kesan

pengaruh yang tidak efektif telah dikeluarkan. Faktor- faktor tambahan tersebut

termasuklah pembayaran dan reputasi, iaitu dua pengaruh utama dalam kepercayaan

pelanggan. Faktor yang berikutnya adalah saranan rakan-rakan sebagai sebahagian

daripada reputasi. Sebuah prototaip laman web pembelian atas talian telah dibangunkan

bagi mengesahkan kerangka tersebut. Pelaksanaan ITM di dalam laman web pembelian

telah meningkatkan kadar pengunjung di laman web tersebut. Peningkatan kadar

pelanggan menandakan peningkatan kesediaan pelanggan untuk membuat pembelian.

Model ini merumuskan bahasa pengingkatan tahap kepercayaan mempengaruhi sikap dan

risiko, serta akhirnya kesediaan membeli.

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ACKNOWLEDGEMENT

First and foremost I would like to thank my supervisor, Dr. Rusli Abdullah, who has

shown large and consistent interest in this project during all times. Many of his scientific

discussions and constructive comments have greatly improved this work.

My thanks and appreciation also goes to the committee members, Dr. Masitah Ghazali and

Dr. Masrah Azrifah Azmi Murad for their guidance, support, and recommendation.

I am also greatly indebted to Dr Mohammed Reza Shahnazari for his continual

encouragement and support. Above of all, I thank my parent and my husband, who stood

beside me and encouraged me constantly. My thanks are also due to my sister Mahnaz,

who became my best friend with generous help.

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APPROVAL

I certify that an Examination Committee met on 14 June 2010 to conduct the final examination of Fetemah Meskaran on her Master of Science thesis entitled ―Conceptual

Framework of Iranian Consumer Trust in B2C Electronic Commerce‖ in accordance with Universiti Pertanian Malaysia (Higher Degree) Act 1980 and Universiti Pertanian Malaysia (Higher Degree) Regulations 1981. The Committee recommends that the

candidate be awarded the relevant degree of Master Science.

Members of the Examination Committee are as follows:

Ali Mamat, PhD.

Associate Professor Faculty of Computer Science and Information Technology Universiti Putra Malaysia

(Chairman)

Abdul Azim Abd Ghani, PhD.

Professor Faculty of Computer Science and Information Technology

Universiti Putra Malaysia (Internal Examiner)

Rodziah Atan, PhD. Faculty of Computer Science and Information Technology

Universiti Putra Malaysia (Internal Examiner)

Abdul Razak Hamdan, PhD.

Professor

Faculty of Information Science and Technology Universiti Kebangsaan Malaysia

(External Examiner)

_____________________________________

BUJANG BIN KIM HUAT, Ph.D. Professor and Dean School of Graduate Studies

Universiti Putra Malaysia

Date:

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This thesis submitted to the Senate of Universiti Putra Malaysia and has been accepted as

fulfilment of the requirement for the degree of Doctor of Philosophy. The members of the Supervisory Committee were as follows:

Rusli Abdullah, PhD

Senior Lecturer Faculty of Computer Science and Information Technology Universiti Putra Malaysia

(Chairman)

Masitah Ghazali, PhD

Senior Lecturer Faculty of Computer Science and Information Technology

Universiti Putra Malaysia (Member)

Masrah Azrifah Azmi Murad, PhD

Senior Lecturer

Faculty of Computer Science and Information Technology Universiti Putra Malaysia

(Member)

_____________________________________

HASANAH MOHD. GHAZALI, PhD

Professor and Dean School of Graduate Studies Universiti Putra Malaysia

Date: 6 September 2010

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DECLARATION

I hereby declare that the thesis is based on my original work except for quotatio ns and citations which have been duly acknowledged. I also declare that it has not been

previously or concurrently submitted for any other degree at Universiti Putra Malaysia or other institutions.

_____________________________________

FETEMEH MESKARAN

Date: 14 June 2010

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TABLE OF CONTENTS

Page

ABSTRACT iii ABSTRAK v

ACKNOWLEDGMENT vii APPROVAL viii DECLARATION x

LIST OF TABLES xiv LIST OF FIGURES xvi

LIST OF ABBRAVIATION xviii

CHAPTER

INTRODUCTION 2 1.1 Background 2

1.2 Problem Statement 4 1.3 Objectives of research 6 1.4 Scope of research 6

1.5 Limitation of study 7 1.6 Organization of this thesis 8

LITERATURE REVIEWS 10

2.1 Introduction 10

2.2 Electronic Commerce 11 2.2.1 E-commerce History 13

2.2.2 Classification of E-commerce 14 2.2.3 Importance of B2C E-commerce 15 2.2.4 Developing Countries and E-commerce 17

2.3 Limitations of E-commerce 18 2.4 Special Limitations in Developing Countries 20

2.5 The Role of Trust in E-commerce Growth 21 2.5.1 Definition of Trust 22 2.5.2 Types of Trust in E-Commerce 24

2.5.3 Trust in Developing Countries 25 2.5.4 Factors Influencing Trust 26

2.6 Frameworks 33 2.6.1 Frameworks of E-commerce 33 2.6.2 Model of Trust for e-Commerce 36

2.7 Demographic Scope 44 2.7.1 Iranian Culture 45

2.7.2 Internet in Iran 46 2.7.3 Online Shopping in Iran 48

2.8 Summary 49

METHODOLOGY 51

3.1 Introduction 51

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3.2 Research Approach 51

3.3 Research Strategy 52 3.4 Hypothesis 54

3.4.1 Reputation and Size 55

3.4.2 Recommendations from Friends and Families 56 3.4.3 Physical Store 57

3.4.4 Type of Payment 57 3.4.5 Customer Trust, Attitude, and Willingness 58 3.4.6 Trust and Risk 58

3.4.7 Risk, Attitude, and Willingness 59 3.5 Research Design 59

3.5.1 Data Collection 59 3.5.2 Questionnaires 62 3.5.3 Pretest of Questionnaires 63

3.5.4 Sampling 63 3.5.5 Population 66

3.6 Data Evaluation 66 3.7 Multi Collinearity Problem 67 3.8 Method of Framework Development 68

3.9 Implementation and Prototype 69 3.10 Validity and Reliability 70

3.10.1 Validity 70 3.10.2 Reliability 71

3.11 Summary 72

DATA ANALYSIS AND FRAMEWORK 73

4.1 Introduction 73 4.2 General Survey 73 4.3 First Section of Questionnaire 75

4.3.1 Gender 75 4.3.2 Education 76

4.3.3 Internet Experience 78 4.3.4 Prior Purchase through WWW 79

4.4 Second Section of Questionnaire 80

4.4.1 Measurement Scale 81 4.4.2 Multi-Collinearity Problem and VIF 82

4.4.3 Results 85 4.4.3.1 Perceived Reputation (PR) 85 4.4.3.2 Perceived Size (PS) 86

4.4.3.3 Physical Store (PHS) 88 4.4.3.4 Type of Payment (TOP) 89

4.4.3.5 Recommendation of Friends (ROF) 91 4.4.3.6 Customer Trust (CT) 93 4.4.3.7 Attitudes (ATTD) 95

4.4.3.8 Perceived Risk (PR) 97 4.4.3.9 Willingness to Buy (WTB) 99

4.5 Hypothesis Testing 100 4.6 Discussions 104

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4.7 Proposed Framework of ITM 106

4.8 Differences between ITM and Javenpaa et al. 107 4.9 Conclusions 109

IMPLEMENTATION 110 5.1 Introduction 110

5.2 Simple Prototype 110 5.3 How the Website is Organized? 112

5.3.1 Sellers Section 113

5.3.2 Customer Section 114 5.3.3 Shopping Section 117

5.3.4 Admin Section 117 5.4 Website Details 117 5.5 Publishing the Website over the Internet 119

5.6 Testing 119 5.7 Results 121

5.8 Discussions 125 5.9 Conclusions 127

CONCLUSIONS 129 6.1 Introduction 129

6.2 Main Contributions 130 6.3 Future Works 131

REFERENCES 133

APPENDIX A 140

BIODATA OF THE AUTHOR 145 LIST OF PUBLICATIONS 146

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LIST OF TABLES

Table Page

2.1 Studied Frameworks 43

2.2 Iran Internet Usage 47

3.1 Research Operation 51

3.2 Relevant Situations for Different Research Strategies 53

3.3 Model Variables and Related Questions 60

3.4 The Area of Study 65

4.1 The Number of Male and Female in Three Shopping Centers 75

4.2 The Different Levels in Education in Three Shopping Centers 77

4.3 Internet Experience in Three Shopping Centers 78

4.4 Online Purchasing Experience in Three Shopping Centers 80

4.5 Correlation Coefficients of Variables 84

4.6 Collinearity Statistics 84

4.7 Reputation Importance in Three Shopping Centers 86

4.8 Perceived Size in Three Shopping Centers 86

4.9 Physical Store Importance 88

4.10 Percentages of Participants According to Type of Payment 91

4.11 Importance of Recommendation in Three Shopping Centers 93

4.12 Customer Trust in Three Shopping Centers 94

4.13 Attitude of Consumer in Three Shopping Centers 96

4.14 Perceived Risk in Three Shopping Centers 98

4.15 Participants Willingness to buy 100

4.16 Hypotheses Evaluation 102

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5.1 The Results During Test Time 121

5.2 Others Results During Test

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5.3 Post Testing for Invited Customers 124

5.4 Post Testing for Others 124

5.5 Percentage of Choosing Credit Card among Credit Card Owners 125

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LIST OF FIGURES

Figure Page

1.1 Thesis Layout 9

2.1 Internet Domain Survey Host Count 12

2.2 Growing of B2C 16

2.3 Influencing Factors on Trust 16

2.4 Framework of E-commerce 34

2.5 Poong et al. Framework of E-commerce 35

2.6 Framework of E-commerce base on TRA 36

2.7 Jarvenpaa et al. Framework of Trust 38

2.8 Maori Trust Model 40

2.9 Thompson and Liu Framework 42

3.1 Hypothesis Chart 55

4.1 Number of Participants in Different Shopping Centers in Tehran 74

4.2 The Number of Male and Female 76

4.3 Online Shopping Experience 79

4.4 Importance of Reputation 85

4.5 Importance of Perceived Size 87

4.6 Importance of Physical Store 88

4.7 Achieved Results for Type of Payment Importance 90

4.8 Preferable Type of Payment 90

4.9 Recommendation of Friends Importance 92

4.10 Level of Trust 95

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4.11 Attitudes of Participants 97

4.12 Importance of Risk 99

4.13 Structural Model 103

4.14 Iran Trust Model (ITM) 107

5.1 The Homepage of Testing Website 112

5.2 Seller Registration Form 113

5.3 Registration Form for New Users 114

5.4 Process of Buying 116

5.5 List of Tables 118

5.6 Illustrating of Table User-Info 119

5.7 Number of Visitors during First Two Weeks (Pre-test) 120

5.8 Results for First Week 123

5.9 Results for Second Week 123

5.10 Number of Customers and Visitors During the Test 126

5.11 The Rate of Customer to Visitors During Test and Post test 127

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LIST OF ABBREVIATIONS

ATTD Attitudes

B2B Business to Business

B2C Business to Customer

C2B Customer to Business

C2C Customer to Customer

CF Component Flexibility

CT Customer Trust

E-commerce Electronic Commerce

EFT Electronic Funds Transfer

EDI Electronic data interchange

IF Instance Flexibility

IT Information Technology

ITM Iran Trust Model

PR Perceived of Reputation

PRISK Perceived Risk

PS Perceived Size

RS Recommender System

RDBMS Relational Database Management System

ROF Recommendation of Friends

SPSS Statistical Package for Social Science

TAM Technology Acceptance Model

TRA Theory of Reasoned Action

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TOP Type of Payment

VIF Variance Inflation Factor

WTB Willingness to Buy

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CHAPTER 1

INTRODUCTION

1.1 Background

The rapid rise of the Internet has made the potential of e-commerce more promising. In

recent years, e-commerce has been rapidly developed. It is now widely stated that the

Internet and e-commerce will transform traditional business and customer life.

Nonetheless, developing countries have a small role in this development (Männistö, 1999).

E-commerce will enable vendors in the developing countries to participate in the

worldwide electronic market. In addition, e-commerce also allows these countries to

perform purchase transactions buy goods and services from the developed world, which is

impossible under the traditional commerce.

Based on the nature of electronic transaction, e-commerce includes transactions of

Business-to-Business (B2B), Business-to-Customer (B2C), Customer-to-Business (C2B),

and Customer-to-Customer (C2C). At present, B2C is the leading transaction of e-

commerce and the business is growing rapidly (Lauden and Traver, 2006). The main

objective of this study is to define a conceptual framework for improving customer’s trust

and their willingness to commit for purchase from Iranian online shopping websites. Aside

from B2C, B2B is another type of e-commerce transaction that will generally lead to B2C

(Naraine, 2003).

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In general, there exist several limitations to e-commerce especially in B2C, both from

technical aspect and non-technical aspects. Technical limitations involve barriers such as

standards, communication protocols, or bandwidth, which are beyond the scope of this

study. Meanwhile, non-technical limitations involve cost, security, privacy, and trust. In

this research, we concern on limitation on trust, which has been identified as the most

significant long-term barrier for realizing the potential of e-commerce to consumers

(Kraeuter, 2002). Trust is the key differentiator that will determine the success or failure of

many web-based companies (Urban et. al., 2000).

The main problem with trust in e-commerce is the lack of it. According to the theory of

reasoned action (TRA), intention to perform behavior is determined by the individual

attitudes toward the behavior. These attitudes are affected by beliefs or expectation

directed to the attitudes (Ajzen and Fishbein, 1980). Based on TRA, Jarvenpaa et al.

(1999) propose a positive relationship between trust and attitude. Their research also

explores the negative relationship between trust and risk, which at the end, lead to

improved willingness in customers to commit for online purchase. This means that

increasing trust in an e-commerce vendor will cause an improved customers attitude and

decreased the customer risk of that vendor. Consequently, an increased willingness to buy

in customers will improve the rate of customers to visitors.

This study focuses on trust in Iran, with sample population of customers from three

shopping centers used as source of data collection. The study is based on the framework

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proposed by Jarvenpaa et al. (1999). The framework models trust level within customers in

an Internet store, whether the trust affects the customer’s willingness to patronize the store.

Aside from that, the framework also proposes reputation and size of the physical store as

additional factors that are able to evoke customer’s trust.

Following Jarvenpaa et al. (1999), other improvement to the framework include the factor

of word of mouth (Peszynski and Thanasankit, 2002) and reputation, size, system

assurance, and customer’s propensity (Thompson and Liu, 2007). Thompson and Liu

(2007) examine the antecedents of customer trust in the context of e-commerce based on

trustor and trustees. All the antecedents – reputation, size, system assurance, and

customer’s propensity have positive impact affect on customer trust.

In this study, antecedents and consequences of customer trust will be analyzed and

compared. The existing factors in trust frameworks and extra factors related to trust are

considered and tested for developing a framework of trust in B2C e-commerce in Iran.

After framework formation, a prototype will be developed to illustrate the usage of this

framework.

1.2 Problem Statement

E-commerce is undoubtedly part of future commerce and transactions. Nonetheless, in

most of developing countries, the application of the Internet as a marketing tool in online

business is still at its infancy. This is reflected by relatively low percentage of Internet

5

usage in such countries. Lower Internet usage results in a smaller group of online shoppers

with very little awareness.

Trust is known as a critical factor in stimulating purchases over the Internet, especially at

early stage of commercial development. Lack of trust is the most common reason in

market surveys that shows why customers do not shop online (Lee and Turban, 2001).

Unlike trust being a long-term issue in virtual world, transaction security is only a short-

term technological problem (Quelch and Klein, 1996; Peterson et al., 1997). Findings by

Mag and Yazdani (2008) and the National Report on E-commerce in Iran (2004) also

reveal that trust is the determining factor for improving motivation for online shopping.

A conceptual framework of trust in B2C e-commerce in developing countries like Iran is

very useful. The framework by Jarvenpaa et al. (1999) provides a strong theory and a

practical application. According to this framework, reputation and size are two influencing

factors that gauge customer trust and it highly influences the degree of willingness in

customers to make an online purchase. Because the framework has been tested in Australia

under specific individualism culture and the fact that customer choices are highly

influenced by such culture, results may be different in other countries under different

cultural setting. This research plans to develop and to test an extended trust tailored to the

collective culture in Iran.

The research question in this study is: How can we improve Iranian customer’s trust and

willingness to commit to online purchase under the environment of B2C e-commerce?

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Preliminary works began by discussion with the manager of Information society of Iran

searching online resources (2008) and studying the histories of related issues from the ISI

websites. Although there are researches about e-commerce (E-commerce development

report, 2005) and the development requirements in Iran (Koohi, 2006), there is no exact

study has been carried out to model B2C e-commerce trust within the context of Iranian

culture (ISI1, 2007).

1.3 Objectives of research

The main objective of this study is to propose an extended framework for Iranian

customer’s trust in B2C e-commerce. To achieve the objective, the following sub-

objectives must be satisfied:

To analyze the various antecedents and consequences of customer trust in Iran.

To test the framework on a suitable prototype.

1.4 Scope of research

The scope of this research is confined by trust, in Business-to-Customer (B2C) e-

commerce transactions in Iran. Iran is a developing country located in Middle East, which

is still lacking on communication and e-commerce trust in its economic infrastructure.

1 The website for Informat ion society in Iran available: http://www.isi.org.ir