Preferences and the influence of influencers under different
conditions of perceived risk
A new conjoint analysis with multiple buyer groups
Preferences and the influence of influencers under different conditions of perceived risk
A new conjoint analysis with multiple buyer groups
Student: Arjan Nieuwbeerta (1590987)
Supervisors: Mr. J.E Wieringa Mr. W. Jager
Date: July 2009
Faculty: Business and Economics
Course: MSc. Business Administration
Profiles: Marketing Management Marketing Research
MANAGEMENT SUMMARY
In this research, the preferences of multiple buyer groups and the influence of influencers are investigated under different conditions of perceived risk. This research resulted from the request of COMPANY X to come up with a customer strategy for a health insurance for students. For the student health insurance, a decision making unit consisting of multiple persons have to be considered. It appears that both students as well as parents purchase a student health insurance. Because these groups differ in characteristics, it was expected that also the preferences of these groups may differ, despite it concerns a similar service. As a consequence, the preferences of multiple buyer groups are taken into account. Moreover, the influence of influencers in the decision making unit are considered. To explain why consumers evaluate a similar service differently, perceived service category risk is used as a moderating factor on the relation between multiple service attributes/information sources and the likelihood of purchase.
For this purpose, a conjoint analysis was conducted for both buyer groups. The results reveal that the preferences indeed differed regarding some service attributes. First, the brand is the most important subjective attribute for the parents, while the students find the opinion of the parents more important. This probably indicates that the parents are more brand loyal than the students. Second, the parents seemed to find service quality more important as the students do. Instead, the students use the opinion of the parents as a more important quality indicator or information source. Fourth, the parents appeared to prefer more health coverage compared to the students. The students find an extra level of additional coverage as sufficient, while parents are more inclined to choose an optimal level of additional coverage. On the other hand, both groups seemed to perceive price as the most important attribute, when they purchase a student health insurance. The price appeared to have a strong negative (linear) effect on the likelihood of purchase.
To assess the moderating effect of perceived category risk, the sample of both groups was divided into a low and high perceived risk sample for each risk type. Subsequently, the attribute importances of the low and high risk samples are examined for both buyer groups.
From the results, it appeared that the respondents differ in their preferences, if the different high and low risk samples are compared for each risk type. First, the financial risk moderated
the relation between the opinion of the parents and students about the health insurance and the likelihood of purchase. Second, time/convenience risk moderated the relation between the brand and likelihood of purchase and the relation between the opinion of the parents about the health insurance and the likelihood of purchase. Third, psychological risk moderated the relation between price, brand and opinion of parents, and the likelihood of purchase.
From the results, some important recommendations for COMPANY X are derived. First, COMPANY X should add value by including extra coverage within the additional health and tooth insurance. Moreover, to increase the net value of the service, COMPANY X should offer price discounts, if multiple services are purchased by new customers. Second, marketing resources, which are intended to attract new customers, should be focussed on the students.
Third, promotional activities, intended to attract new customers, should be directed to lower time/convenience and psychological risk.
TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION ... 7
1.1 Background ... 7
1.1.1 COMPANY X and the health insurance market ... 7
1.1.2 Decision making unit ... 9
1.1.3 Buying roles ... 10
1.1.4 Differences between buyer groups ... 11
1.2 Problem statement ... 13
1.3 Scientific relevance ... 13
1.4 Structure of research ... 14
CHAPTER 2 THEORETICAL FRAMEWORK ... 16
2.1 The health insurance service ... 16
2.2 Individual risk profiles ... 18
2.3 Perceived risk ... 19
2.3.1 Perceived risk ... 19
2.3.2 Service category risk ... 20
2.4 Determinant service attributes of purchase decision ... 21
2.4.1 Service quality ... 22
2.4.2 Price ... 24
2.4.3 Brand ... 26
2.5 Influence of influencers and user ... 29
2.5.1 Influencers ... 29
2.5.2 User ... 31
2.6 Conceptual model ... 32
CHAPTER 3 RESEARCH DESIGN ... 33
3.1 Research method ... 33
3.1.1 Perceived service category risk ... 33
3.1.2 Conjoint analysis ... 34
3.2 Data collection method ... 39
3.3 Plan of analysis ... 39
CHAPTER 4 DATA PREPARATION ... 42
4.1 Data preparation method ... 42
4.2 Parents sample ... 43
4.3 Student sample ... 44
CHAPTER 5 RESULTS ... 45
5.1 Descriptive statistics ... 45
5.2 Preferences of buyer groups ... 45
5.2.1 Preferences of parent buyer group ... 45
5.2.2 Preferences of student buyer group ... 49
5.2.3 Comparison between parents and students ... 52
5.4 Influence of perceived category risk ... 53
5.4.1 Performance risk ... 53
5.4.2 Financial risk ... 55
5.4.3 Time/convenience risk ... 57
5.4.4 Psychological risk ... 57
CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS ... 60
6.1 Discussion ... 60
6.2 General recommendations and implications ... 63
6.2.1 Target group ... 63
6.2.2 Price ... 64
6.2.2 Product ... 64
6.2.4 Promotion ... 65
6.3 Recommendations COMPANY X ... 65
6.4 Limitations and further research ... 67
REFERENCES ... 70
APPENDICES ... 75
CHAPTER 1 INTRODUCTION
1.1 Background
Several consumer markets are to a great extent controlled by government regulations. This also involved the Dutch health insurance market. But since the legislation that came into effect in 2006, the Dutch health insurance system changed dramatically. Under the new system all citizens are required to be insured by a private health insurer and the health insurers have to accept all applicants during an annual transition period.
During the previous health insurance system, the competition was limited and consumers had little incentive to switch insurers. But the new system placed greater emphasis on consumer choice and competition among health insurers. The potential of such competition depends largely on consumer preferences for price and quality of service (Van den Berg, Van Dommelen, Stam, Laske-Aldershof, Buchmueller and Schut, 2008). So, with the new legislation the preferences of consumers have become more important. Although the basic insurance products have to cover a legally defined package of benefits, insurers also have the possibility to design their additional insurance products to better correspond with consumer preferences. An opportunity for insurers is to adapt to these consumer preferences by developing new products and services for specific consumer segments. Nowadays, most health insurers are segmenting the consumers on the basis of their lifecycle stage. Examples of consumer segments are students, singles, families with children and retirees.
1.1.1 COMPANY X and the health insurance market
One of the regional insurers in the health insurance market is COMPANY X (further as COMPANY X). COMPANY X targets the health insurance market in the six most Northern provinces of the Netherlands. COMPANY X has a market share of about 3% in the Netherlands and 65% in the province Friesland. Figure 1 represents the relative market shares of the health insurers in the Netherlands. COMPANY X’s goal is to retain their market position in the province Friesland and to increase their market share in the other five Northern provinces of the Netherlands. To compete with the other health insurers COMPANY X conducts a Customer Relationship Management strategy (Treacy and Wiersema, 1993).
Figure 1: Relative market share health insurers Netherlands (Van den Broek and Streng, 2007)
During the introduction period of the new legislation in 2006 approximately 125.000 new customers choose to purchase a health insurance of COMPANY X. However, the last two years the growth of new customers stagnated. To increase the growth next year COMPANY X targets new consumer groups with new specific products. This approach appears to be successful in the health insurance market. Other competing health insurers attracted a considerable number of new customers by introducing specific products for well-defined consumer segments.
One of the new target groups of COMPANY X are students between the age of 18 and 27 years. Typical characteristics of this group are a high education level, low income and low spending power. Nevertheless, from research it appears that the student group is a commercially attractive group in terms of health care usage, because this group can be characterized as very healthy. As a result, students are assumed to be primarily focused on the basic health insurance. Moreover, it is also a group with great potential. Students may become valuable and loyal customers in later stages of the life cycle, if they are successfully retained from the beginning. So, they represent a future market of potential adult consumers. However, it appears that this group can also be described by a relatively high churn rate. Hence, students should be relatively easy to attract from competitors but harder to retain compared to the other target groups in the consumer market. It also appears that the orientation for a health insurance is often done via Internet with the aid of comparison websites (Mulder and Van Ees, 2008). This simplifies the comparison of health insurances for the student, which is often
perceived to be difficult and complex. This perceived difficulty can be explained by the fact that most students are active consumers of a health insurance for a short period. Until their 18th anniversary they are included in the insurance policy of their parents and do not have to pay for the insurance. This means that in general students are relatively unexperienced with health insurances and have little product knowledge. Due to these consumer characteristics they may perceive a health insurance as a complicated and risky purchase decision (Murray and Schlacter, 1990).
Since the year 2007, the competition already targeted students and youngsters directly with specific products in a successful manner. The competition is mainly competing on price in this segment, because students appear to have little money to spend and seems to be very price-sensitive (Mulder and Van Ees, 2008). Furthermore, the possibilities to compete with the product are restricted. Only the coverage of an additional health insurance can be specified to the needs of the concerning group while the coverage of the basic insurance is the same for every insurer trough legislation. The only aspect of the basic insurance that can be controlled by insurers, is the price or price discount.
Nowadays, COMPANY X is mainly targeting families and elder people with their marketing instruments, but the student target group requires a different approach. However, to come up with a well-founded customer strategy for the students, COMPANY X has to gain more insight in the decision making process by conducting empirical research.
1.1.2 Decision making unit
The subject of this research becomes more complicated, if the composition of the decision making unit is considered for a student health insurance. The decision making unit includes all the individuals who participate, and influence the consumer buying-decision process (Kotler, Wong, Saunders and Armstrong, 2000). From a study of NIBUD (2008), it appears that besides the students themselves also the parents are responsible for the purchase and payment of the health insurance. The study of NIBUD indicates that about 42% of the health insurance for students between 18 and 25 years are paid by the parents. Moreover, this research indicates that the parents are responsible for purchasing the health insurance for students in 37% of the cases. And, in 22% of the cases the health insurance is purchased jointly (see Table 1). Especially, in the beginning of the product life cycle of the student as
active consumer (starting when a student becomes 18 years old), parents appear to assist the students in their decision making. In the age category of 18-22 years, only 31% of the students purchase their health insurance themselves, 27% of the students purchases the insurance together with the parents and 42% of the health insurances for the student is purchased by the parents.
Payment health insurance
Purchase health
insurance Student Together Parents Total
Student 84% 7% 10% 41% (N=269)
Together 43% 14% 43% 22% (N=141)
Parents 14% 10% 76% 37% (N=245)
Total 49% (N=320) 9% (N=62) 42% (N=273) 100% (N=655)
Table 1: Payment and purchase of health insurance for students between 18-25 (NIBUD, 2008)
In summary, this service involves a decision making unit consisting of more than one person, while for many other products and services it is easy to identify one person as having all roles (Kotler, 2003).
1.1.3 Buying roles
In the decision making unit, it is possible to distinguish several buying roles that consumers can occupy. These are the initiator, influencer, decider, buyer and user. The initiator is the person, who first suggests or thinks about purchasing a particular product or service. The influencer offers opinions and advise that carry some weight in making the final decision. The decider has the authority to choose whether to buy, what to buy, how to buy and where to buy.
The buyer is the person, who is physically involved in the decision making process and concludes the transaction. In general, the buyer is also the payer of the purchase. The user is the person, who eventually consumes or uses the product or service (Kotler et al., 2000).
In this research context, some roles are not always fulfilled by the same person. Here, two situations are distinguished depending on which group purchases the service. If the student purchases the health insurance, it is assumed that he or she occupies the role of decider, buyer and user of the health insurance simultaneously. The initiator role is assumed to be always occupied by the parents, because the parents are responsible for the insurance at least until the 18th anniversary of the student. Until this moment, parents or students do not have to pay for
the insurance, but after the 18th anniversary of the student they do. At that moment, the students are not inclined to initiate the purchase of their health insurance, because they want to ‘let sleeping dogs lie’. If students would initiate the purchase, they risk the probability of negative financial consequences, because they have to pay the health insurance themselves.
However, the influencer role can be occupied by multiple persons depending on which person is the buyer and decider in this research context. If the student is the buyer, their parents and peers are assumed to be possible influencers. On the contrary, if the parents occupy the buyer and decider role, the student is the user and also may influence the purchase decision besides peers. This situation is illustrated in Figure 2.
A similar situation with multiple persons occupying different roles can often be found in a business marketing environment. The decision making unit of a buying organization is called the buying center. It is composed of all those individuals and groups, who participate in the purchasing decision making process, and shares some common goals and risks arising from the decisions (Webster and Wind, 1996). Kotler (2003) stated that to target the marketing efforts properly in this situation, marketers have to figure out: Who are the major decision participants? What decisions do they influence? What is their level of influence? And what evaluation criteria do they use? These questions constitute the basis of this research.
1.1.4 Differences between buyer groups
Due to the different characteristics of both buyer groups (students and parents) it is likely that the evaluation criteria and preferences between these groups will differ. Each buyer has personal motivations, perceptions and preferences that are influenced by the buyer’s age, income, education and attitudes toward risk (Kotler and Keller, 2006). As mentioned before, the student group has among other things a lower income, less experience with the service and less product knowledge than the parents. It is expected that these characteristics cause differences in the evaluation criteria and preferences for a health insurance, despite the fact that it concerns a similar service (see Figure 2).
Figure 2: Model of background situation
In summary, the competition targets the students directly, but do not regard the parents as important active buyers or influencers in this market. Nevertheless, multiple buyer groups and the buying roles in the decision making process have to be considered for marketing activities of a health insurance for students. As a consequence, also the evaluation criteria and preferences of multiple buyer groups have to be considered. Due to the difference in characteristics between these groups, it is expected that the preferences of these groups may differ, despite it concerns a similar service. Hence, research can produce an interesting understanding by investigating what influence the groups have on each other and how they evaluate a health insurance service.
SERVICE EVALUATION
(paragraph 2.4) Influencer
parents and peers (paragraph 2.5)
Influencer and user peers and student
(paragraph 2.5) Characteristics of
buyer group (paragraph 2.2/2.3)
Decider, buyer and user
student
Decider and buyer parents
PREFERENCES (chapter 5)
CUSTOMER STRATEGY (chapter 6)
1.2 Problem statement
As a result of the previous description of the research background, the following problem statement is formulated:
How should a service be marketed considering the situation of multiple buyers and influencers in the decision making process?
The problem statement can be divided into the following research questions:
• What are the preferences of the buyer groups considering the service?
o Which service attributes influence the purchase decision of a service?
o What is the difference in the evaluation of the services attributes between the buyer groups?
o Which factor(s) can explain differences in the evaluation of services?
• What is the influence of the user and influencers on the purchase decision of the buyer groups?
• What customer strategy should be implemented in this situation?
1.3 Scientific relevance
By examining the evaluation of a service, while taking the buying roles into account, this research can produce interesting scientific insights. The preferences of multiple buyer groups are assessed and the influence of influencer groups on the purchase decision is investigated.
Many service firms have to deal with the situation that the decision making unit consists of multiple persons, for example insurance companies, banks, traveling agencies and restaurants.
So, this research may also yield interesting findings for these companies. Moreover, this research compares how the consumers’ preferences of both buyer groups may vary depending on a moderating factor, influencing consumer evaluations. Hence, this research can produce an interesting contribution to service marketing by taking this situation and its consequences into account with the planning and implementation of the marketing resources. This concerns the contribution to marketing of services in general as well as marketing of a (student) health insurance in particular.
Also Ostrom and Iacobucci (1995) examined the consumer trade-offs and evaluations of services. They investigated preferences for different services that varied on a number of
service attributes and compared how preferences vary depending on a number of moderating contextual factors. These contextual factors were criticality and the type of service. The authors suggested further research by including different service attributes and contextual factors, for example other operationalizations of risk. In addition, they proposed that more research is needed to prove the usefulness of the explanation that risk differentially makes salient benefits and costs. This research may contribute in this respect by examining which factors make particular service attributes more or less important.
Also at the sector level, this research may contribute to the marketing of services. A prior study of Van den Berg et al. (2008) assessed which attributes of health insurers matter to consumers and their willingness to make trade-offs between price and different aspects of quality. The authors included the price, the quality of providing customer service and the quality of contracted care. In addition, the authors compared the responses of high and low risk individuals, where risk represented the presence of a costly chronic disease. This research will include different service attributes and compares the responses taking another moderating factor into account. In this way, more insight is generated why consumers choose a particular health insurance.
1.4 Structure of research
The main goal of this research is to obtain a better understanding of how different buyer groups evaluate a similar service. Moreover, the influence of the influencers on both buyer groups is assessed. Another objective is to find an explanation for possible differences in the preferences between consumers. Therefore, the responses are linked with an explanatory concept. These insights will help to develop and implement a well-founded customer strategy for the service. To achieve these objectives, the remaining part of this research is divided into five chapters. In chapter 2, the theoretical framework of the research is discussed. First, the explanatory concept is introduced that is assumed to influence service evaluation. Second, different service attributes are discussed that are proposed to influence the purchase decision.
Third, the influence of the influencers (parents and peers) and the user (student) is discussed.
The effect of the attributes, the explanatory concept and the influence of the influencers and user is formulated as hypotheses. Subsequently in chapter 3, the research method and analyses techniques are described and in chapter 4 data preparation techniques are discussed.
Chapter 5 consists of an overview of the results. The main focus of this chapter is the analysis of the preferences of both buyer groups. Finally, in chapter 6 of the research, conclusions and recommendations are given. Also some limitations of this research and suggestions for further research are presented.
CHAPTER 2 THEORETICAL FRAMEWORK
In this chapter, the theoretical background of the problem statement is discussed. First, the health insurance product is described to give a clear image of the aspects concerning a service product in particular. Secondly in paragraph 2.2 and 2.3, the explanatory concept for differences in the evaluation of a service is introduced and arguments are given why this particular factor is chosen. In the subsequent paragraph 2.4, the service attributes are discussed that may directly influence the purchase decision. The goal is to identify the preferences of the buyers concerning these attributes. The influence of the service attributes on the purchase decision is expressed in the likelihood that a buyer would purchase the service. The main effects of the attributes on the likelihood of purchase are hypothesized.
Also, hypotheses are formulated about the moderating effect of the explanatory concept on the relation between the attributes and likelihood of purchase. In paragraph 2.5, the influence of the influencers and user on the likelihood of purchase is discussed. Eventually, the relations are represented in a conceptual model in paragraph 2.6.
2.1 The health insurance service
In literature, a distinction is made between products and services. This distinction is essential, because the concepts and practices developed in manufacturing companies are often not directly transferable to service organizations. The implementation of the marketing instruments in a service environment tends to differ from those in a manufacturing environment. In general, the differences between services and goods can be explained by the following characteristics (Lovelock and Gummeson, 2004):
• Intangibility: intangible elements often dominate value creation of services and services are often hard to evaluate.
• Heterogeneity: services are often hard to standardize, because operational inputs and outputs tend to vary more widely.
• Inseparability: the consumption and production of a service often takes place simultaneously.
• Perishability: most service products can not be inventoried after the production.
• No ownership: service consumers obtain value from access to a variety of value creating elements rather than from a transfer of ownership.
The first four characteristics do not apply equally to all services. Therefore, Lovelock and Gummeson (2004) asses the generalizability of these characteristics by applying them to four different categories of services, based on whether the service involves tangible actions to either people’s bodies or their physical possessions and intangible actions to either people’s minds or to their intangible assets (Lovelock, 1983).
Who or what is the direct recipient of the service?
What is the nature of the service act?
People Possessions
Tangible actions People processing (services directed at people’s bodies)
Health care, fitness centers, restaurants
Possession processing (services directed at physical possessions)
Retail distribution,
repair/maintenance, warehousing
Intangible actions Mental stimulus processing
(services directed at people’s minds)
Advertising, education, concerts
Information processing (services directed at intangible assets)
Banking, research, insurances
Figure 3: Four categories of services (Lovelock, 1983)
A health insurance is allocated to the information processing category. This involves some consequences for the applicability of the characteristics. The customers are absent during the production of the service, which indicates that consumption and production are separable. The health insurance product can be inventoried in a printed or electronic form, for example the policy terms. And, the heterogeneity characteristic is also applicable in a limited form with health insurances, because the service can be standardized for a major part. On the other hand, services within this category can all be characterized by intangibility and non-ownership. The intangibility of the health insurance has some important implications. For instance, the service is harder to evaluate, it is more difficult to distinguish from the competitors and customers perceive greater risk and uncertainty (Lovelock and Wirtz, 2007). Therefore, research suggests that perceived risk has a greater impact on the behavior of buyers of services than buyers of goods. The broad-based finding comparing goods with services in terms of perceived risk is that services are perceived as more risky purchases than products (Laroche,
McDougall, Bergeron and Yang, 2004; Mitchell and Greatorex, 1993; Murray and Schlacter, 1990). The increase of perceived risk for services raises the uncertainty in the purchase of services and may cause consumers to be cautious, when choosing services and to stick with known items rather than innovating by exploring other alternatives. This is stressed by the finding that brand loyalty is the most important risk reliever for services (Mitchell and Greatorex, 1993).
2.2 Individual risk profiles
In this paragraph, the explanatory concept is introduced that can explain differences in evaluation criteria and preferences between buyer groups. In this way, it is attempted to answer the question why consumers evaluate a similar service differently.
Kotler and Keller (2006) stated that each buyer has personal motivations, perceptions and preferences, which are influenced by the buyer’s age, income, education and attitudes toward risk. Therefore, it is likely that each buyer gives priority to different evaluation criteria, when making a purchase decision. From research, it appears that these personal characteristics may also influence the rating of risk, co-producing an individual risk profile. These individual risk profiles consist of traits that are static in nature (for example personal characteristics and demographics), dynamic needs (for example motives), and culture factors, which affect the consumer’s response to uncertainty and risk (Conchar, Zinkhan, Peters and Olavarrieta, 2004). This concerns the perceptions of the importance of risk dimensions, the extent of information search, the perception of the extent of risk and willingness to make a risky choice.
Each of these profile elements may influence the level, number and types of loss to be used in a particular situation. For example, a person may perceive the purchase of a refrigerator as inherently risky, while another person may perceive such a purchase as almost riskless on the basis of his or her knowledge and past experiences.
Researchers have used several concepts to describe the personal traits that are linked with risk. For example, risk aversion (Zinkhan, Joachimsthaler and Kinnear, 1987), risk preferences, risk tolerance and risk propensity (Sitkin and Pablo, 1992). Moreover, Conchar et al. (2004) suggest that there may be more additional demographic characteristics that affect the risk profile, like gender, age, education and income. For example, an individual with a high level of financial assets may find the financial loss associated with the purchase decision
less important then an individual with a small financial asset. The risk profiles are assumed to shape the consumers responses to every aspect of risk in the perceived risk processing phases, including the perceptions of risk pre-purchase (Conchar, et al., 2004). This indicates that by assessing the perceived risk pre-purchase, the effects of the individual’s risk profile on the evaluation of a product or service are also accompanied. For this reason, the pre-purchase risk is considered as a good predictor of differences in service evaluation of consumers. In the next paragraphs, the risk concept is introduced more broadly.
2.3 Perceived risk
The risk concept appears to be an important concept for understanding how consumers make choices (Grewal, Gotlieb and Marmorstein, 1994; Mitchell, 1999). Ostrom and Iacobucci (1995) stated that if risk varies, different service characteristics become more or less important in their purchase. Here, it is proposed that if the perceived service category risk (pre-purchase) varies for different risk types, consumers evaluate particular service attributes as more or less important. Due to this assessment, it is possible to determine, which attributes function as an important risk reliever for a particular risk type. In this paragraph, the risk concept is discussed more extensive and the choice for this explanatory concept is argued.
2.3.1 Perceived risk
Perceived risk is defined as a consumer’s importance-weighted subjective assessment of the expected value of inherent risk in each of their possible choice alternatives for a given decision goal. Perceived risk involves two dimensions: the perceptions of uncertainty and consequences buying a product or service (Dowling and Staelin, 1994). Other measurements consider a more integrated conceptualization of risk as the expectation and importance of losses (Peter and Tarpey, 1975). The understanding of consequences has changed over time focusing on adverse consequences and identifying different types of losses (Conchar et al., 2004). For instance, Jacoby and Kaplan (1972) decomposed perceived risk into several types of risk; financial, performance, physical, social, and psychological risk. Briefly, financial risk is the potential loss of money associated with the item purchase, and performance risk is the potential loss due to item failure after purchase. Physical risk is defined as the probability of the purchase resulting in physical harm or injury. Social risk can be defined as the potential loss of esteem, respect, and/or friendship offered to the consumer by other individuals.
Psychological risk is the potential loss of self-image or self-concept as the result of the item
purchase (Jacoby and Kaplan, 1972). But in this research, psychological risk is defined as the experience of anxiety or psychological discomfort arising from anticipated post-behavioral affective reactions such as worry and regret from purchasing and using the product or service (Dholakia, 2001). This because it is not likely that the consumers of the concerning service perceive potential loss of their self-image. The brands in the concerning service category do not have personal image attributes and consequently lack a stereotypical user, with whom the consumers can compare their self-image. Additionally, time or convenience risk is assessed in this research. Time/convenience risk involves the required time and effort that is needed to purchase the product or service (Hassan, Kunz, Pearson and Mohamed, 2006).
The relative importance of these risk types does not have to be the same across purchase decisions (Stone and Grönhaug, 1993). In this research context, only performance, financial, time/convenience and psychological risk are referred to. Social risk is not discussed here, because the service in this case does not contain any status element. So, if a buyer makes a bad choice, he or she will not be afraid that other people will think less highly of him or her.
This risk type is more salient in socially conspicuous products such as cars or services such as health-club membership (Dholakia, 2001). Moreover, the physical risk type is not discussed in this research, because a health insurance can not directly result in physical harm or injury.
2.3.2 Service category risk
Besides the different types of consequences, another distinction in perceived risk can be made by dividing risk into inherent and handled risk. Inherent risk is the latent risk a product class holds for a consumer and handled risk is the amount of conflict that can be aroused, if a buyer chooses a brand from a product class in his usual buying situation (Bettman, 1973). Similarly, Dowling and Staelin (1994) referred to an individual’s predisposition toward the product class as product category risk. The product category risk captures an individual’s perceived risk of buying an “average product” in the product category. They refer to the second component, handled risk, as product specific risk.
Product or service category risk is assessed before consumers process and evaluate additional information about the specific product attributes, whereas product specific risk includes the effects of particular brand information. So, product specific risk, to a first approximation, represents the end results of the action of information and risk reduction processes on product
category risk. This indicates that if a consumer has no information, the product specific risk is equal to the product category risk (Bettman, 1973). For example, an individual may feel there is a great risk purchasing a car. However, he or she has a favourite car brand that he or she buys with great certainness. In this case, the brand functions as a great risk reliever. Hence, it is proposed that the type of product category risk influences the risk reducing behaviour.
Again taking the previous example into consideration, it is likely that the individual feels a great deal of psychological risk associated with purchasing a car in general, because he or she finds it very important that the car fits his or her self-image. Consequently, he or she will use the brand as the most decisive and important product attribute to choose a car. So, the type of loss inherent in the product or service category may be deterministic for the evaluation and risk reducing behaviour of the product or service. Therefore, this concept is included as a moderating factor for differences in evaluation of the service.
In short, it is suggested that the perceived service category risk for each risk type may vary depending on the individual buyer or buyer group. For example, avoiding financial loss might be fundamental to the choice of a service for students, while avoiding performance loss may be crucial in the choice of a service for parents. This is due to the consumer characteristics of these buyer groups (Conchar et al., 2004). In this case, the parents buyer group may find reducing other risk types more important, because they acquired new information about or experience with the service (Turley and LeBlanc, 1995). Here, it is stated that the perceived service category risk reflects the effect of the individual’s risk profiles on the evaluation of the service attributes. More specifically, it is proposed that the effects of the individual risk profile characteristics like income, experience with service, product knowledge, self- confidence and risk affinity are encompassed in the level that a buyer perceives a type of risk.
So, on the bases of the findings in literature, it is suggested that perceived category risk of the different risk types is fundamental for evaluating a service.
2.4 Determinant service attributes of purchase decision
In literature, considerable attention is devoted to the evaluation of product or service attributes. Consumers evaluate services on the basis of multiple service attributes or cues. The preferences or preference structure of the consumers are reflected in their evaluation criteria, when making a purchase decision for a service (Ostrom and Iacobucci, 1995). In this paragraph, the attributes are discussed that may influence the evaluation of a service and may
become more or less salient, depending on the level of perceived service category risk of the risk types. These attributes include the service quality, price and brand. The most essential aspects and theories, which are related to the attributes in literature, come forward in this paragraph. Additionally, hypotheses are formulated about the relationship between the attributes and the likelihood of purchase. Besides the main effects, also hypotheses are formulated about the moderating effects of the perceived service category risk on the relation between the service attributes and the likelihood of purchase. The hypotheses are supported with findings in prior studies.
2.4.1 Service quality
In literature, quality is considered as an essential element for success in today’s competitive environment. Researchers argue that the nature of services requires another approach to defining and measuring service quality. Unlike goods quality, which can be measured objectively, service quality is an abstract and elusive construct, because of three unique features of services: intangibility, heterogeneity and inseparability of consumption and production (Parasuraman, Zeithaml and Berry, 1985). In absence of consistent objective measures, an appropriate approach of assessing quality is to measure the consumers’
perceptions of quality. This perceived service quality is the global judgement or attitude, related to the superiority of the service (Parasuraman, Zeithaml and Berry, 1988). To measure the perceived service quality Parasuraman et al. (1988) developed the SERVQUAL. The criteria used by the consumer in assessing service quality consist of five broad dimensions:
• Tangibles: the physical facilities, equipment and appearance of personnel.
• Reliability: the ability to perform the promised service dependable and accurately.
• Responsiveness: the willingness to help customers and provide prompt service.
• Assurance: the knowledge and courtesy of employees and their ability to inspire trust and confidence.
• Empathy: the care and individualized attention the firm provides its customers.
The authors measured the perceived quality by assessing the extent a service meets or exceeds customer expectations. The expectations were constructed as two levels of expectations. The first level is the desired service, which is the level of service the customer hopes to receive, consisting of a blend of what the customer believes can and should be delivered. The second level of service is the adequate service, which is the level of service the customer will accept.
This is the minimum service level a company can provide and still hopes to meet customers’
basic needs. The level of service between the desired and adequate level is called the zone of tolerance. This is the range of service within which a company is meeting customer expectations (Zeithaml, Berry and Parasuraman, 1996).
Subsequently, Zeithaml et al. (1996) related perceived service quality with different favourable behavioural consequences. They associated service quality of a service provider with the customers’ intention to stay loyal to them, spend more with the company, say positive things about them, recommend them to others and pay price premiums. In addition, Cronin et al. (2004) related the service quality to satisfaction, service value and behavioural intentions like staying loyal and recommend the company to others. Although in literature the service value is considered as a trade-off between quality and sacrifice, Cronin et al. (2004) found that the service value is mainly explained by the perceptions of quality. Based on this finding, they suggest that service consumers find quality even more important than the costs associated with the purchase. Furthermore, the authors indicated a direct positive influence of service quality on purchase decision intensions. In addition, Dodds, Monroe and Grewal (1991) showed that perceived product quality affects the willingness to buy a product positively. Despite it concerns perceived product quality (instead of service quality), it stresses the proposition that service quality has a same positive effect on the willingness to buy a service. Hence, in this research it is proposed that service quality has a positive effect on the likelihood of purchase for a service.
H1a: Service quality has a positive (linear) effect on the likelihood of purchase.
Ostrom and Iacobucci (1995) found that the importance level of the quality attribute of the service increased in a high risk purchase decision. In their article, the risk factor was represented by the level of criticality of the purchase and whether the purchase involved a credence or experience service. Experience services are those that consumers can evaluate after some purchase consumption, and credence services are those that are difficult to evaluate even after some trial has occurred. Consistently, in this research it is stated that the performance risk influence the importance of the service quality attributes. Shimp and Bearden (1982) already linked perceived quality to performance risk. According to these authors, a higher perceived quality may serve to mitigate the risk that is associated with the uncertainty whether a product performs the intended function well. Likewise, Argarwal and
Teas (2001) found that perceived quality is negatively related to performance risk. These findings strengthen the assumption that if an individual perceives more performance risk with a particular service category before the purchase, he or she places greater emphasis on the service quality attributes of the service to reduce the risk type.
H1b: Service quality has a greater positive effect on the likelihood of purchase when a buyer perceives more performance category risk.
2.4.2 Price
Quality and price are probably the most important attributes, when consumers evaluate products or services. These attributes are discussed in many researches and are considered as important determinants of shopping behaviour, probability of purchasing and purchase choice (Erickson and Johansson, 1985; Gijsbrechts, 1993; Völckner and Hoffman, 2007; Zeithaml, 1988). In literature, considerable attention is devoted to the relationship between price and quality. Below, the price effects are discussed more broadly.
Research has confirmed that price is an important marketing instrument (Gijsbrechts, 1993).
In literature, two important perspectives on the price effect are discussed. One view on price is considering price as an indicator of the amount of money an individual must sacrifice to satisfy their needs. From this perspective, price represents a financial charge and has a negative role. This negative role means that a higher price negatively affects the purchase probability of a product or service (Dodds, Monroe and Grewal, 1991; Erickson and Johansson, 1985). In this context, the price is considered as a constraint (Erickson and Johansson, 1985). Besides this negative effect, price is also considered as a quality signal in literature (Erickson and Johansson, 1985; Völckner and Sattler, 2005). This positive role of price suggests that a higher priced product or service would have a higher quality, which in turn can increase the product preference. The underlying assumption is that high quality products in general cost more to produce than low quality products and competitive pressures limit the possibilities of firms to charge high prices for low quality products. Consistent with this assumption, Erickson and Johansson (1985) indicated a positive relation between the perceived price and perceived quality. However, the price belief appears to have a negative effect on the probability of purchasing the product in this same study. Also a study of Völckner and Hofmann (2007) showed a weak positive effect of price on quality. However,
the positive role of price depends on the presence of other signals. Monroe (1973) pronounced that the positive effect of price is caused by a lack of information about the quality and thus price is almost the only possible indicator of quality. In summary, the effect of price on quality is found to be positive, but weak and strongly situational dependent. Moreover, as indicated by Dodds et al. (1991), price has a significant negative linear effect on the willingness to buy.
According to the study of Völckner and Hofmann (2007) the product category (fast-moving consumer goods, durable goods and services) also affects the price-quality relation.
Consumers buying services tend to use price less as a quality indicator than they do for fast- moving consumer goods. A possible explanation for this result is that consumers tend to be less motivated to engage in extensive decision making for fast-moving consumer goods than for services. Consequently, they will be more inclined to use easily recognizable cues such as price to facilitate their shopping. Relying on the price cue saves time and provides convenience by simplifying the decision-making process. This finding is in line with the results of Bijmolt, Heerde and Pieters (2005), which indicated that consumers’ price sensitivity is higher for durable goods than for nondurable goods. These findings indicate that a decrease in price, increases the sales more strongly for durable goods than for nondurable goods and thus a weaker price-quality relationship. Durable goods can be compared to services in terms of the difficulty in the quality assessment before the purchase. Durable goods are difficult to judge because of there complex nature and services are low in quality attributes that a consumer can determine before purchase (Völckner and Hoffman, 2007).
Hence, it is more likely that the price has a negative effect on the likelihood of purchase, if it considers a service.
Considering these previous findings, it can be concluded that the positive effect of price on the likelihood of purchase can be neglected in this research. Here, price is not the only indicator of quality and the price is expected to be a very weak representation of quality, because it considers a service purchase. As a result, price is supposed to have a negative (linear) effect on the likelihood of purchase.
H2a: Price has a negative (linear) effect on the likelihood of purchase.
Ostrom and Iacobucci (1995) concluded that as risk increases service quality becomes more important and in situations of relatively low risk consumers are more price-sensitive. The willingness of consumers to pay more increases as the consequences of the service have more impact. However, in this research it is proposed that price-sensitiveness of consumers depends on the perceived financial (category) risk. This assumption is supported by the findings in a study of Agarwal and Teas (2001). They found that price is positively related to financial risk although mediated by sacrifice. This because lower prices imply lower monetary sacrifice and in turn, sacrifice can serve to reduce the potential financial losses. In their article, the perceived value is also related to considerations of risks. In particular, it appears that financial risk has a negative impact on perceived value. In turn, perceived value has a positive effect on willingness to buy (Dodds et al., 1991) and purchase intention (Cronin, Brady and Hult, 2000). Based on these findings, it is probable that if a buyer perceives more financial risk inherent in the category, the price becomes a more important service attribute in the evaluation of a service. Therefore, it is suggested that in this situation, the negative effect of price is expected to increase, when evaluating the service. So, the perceived financial risk of the service category moderates the relation between price and the likelihood of purchase.
H2b: Price has a greater negative effect on the likelihood of purchase when a buyer perceives more financial category risk.
2.4.3 Brand
A brand is defined as a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition. To consumers brands can change their perceptions and experiences with a product. An identical product may be evaluated differently by a consumer depending on the brand identification or attribution it is given (Keller, 2003). This indicates the importance of the brand, when consumers evaluate a product or service.
Brands can adopt different roles for the consumer. First, brands can reduce the search costs.
Consumers can use their present brand knowledge to save additional thoughts or information seeking when making a purchase decision. Also, trough brand knowledge consumers are able to form assumptions and expectations about unknown brand properties. Second, brands can reduce risk. A way to handle risks is to make a save choice. In this case, consumers tend to
buy well known brands or those brands with which consumers have had a good experience.
Third, brands may function as a symbolic device that enables consumers to project their self- image. By consuming a particular brand, consumers can express what they are or want to be.
Fourth, the brand can function as a type of bond or pact between consumer and brand.
Consumers offer loyalty and trust under the condition that the brand performs consistently and continues to provide benefits and satisfaction. Another role is signaling particular product characteristics. This role is especially important to services, because services are more intangible and are more likely to vary in quality depending on the particular person or people in providing the service. Brand symbols may help to make the abstract nature of the service more concrete and take away some perceived risk (Keller, 2003).
A fundamental concept in the brand literature is the customer-based brand equity. Brand equity is formally defined as the differential effect the brand knowledge has on consumer response to the marketing of that brand. The consumer responses are affected by the brand awareness and brand image. Brand awareness is related to the strength of the brand node or trace in the memory, which is reflected by consumers’ ability to identify the brand under different conditions. Brand awareness is affected by the consumers’ ability to confirm prior exposure to the brand and the ability to retrieve the brand from memory. The brand image is related to the associations a consumer has with the brand. Thus, to achieve favorable consumer responses firms have to attain a high level of brand awareness and strong, favorable and positive brand associations in consumers’ memory (Keller, 2003).
The brand equity explains a lot of difference in consumer responses. For instance, a positive brand equity yields greater loyalty, less sensitiveness to price increases, improved brand extension opportunities, increased advertising effectiveness and increased probability of brand choice (Keller, 2003). Furthermore, Argarwal and Teas (2001) found that favorability of the brand is positively related to perceived quality. In turn, perceived quality may enhance the perceived value and willingness to buy a service (Dodds et al., 1991). Hence, it is proposed that the brand affects the likelihood of purchase. The effect of the brand on the likelihood of purchase may be positive or negative depending on the brand equity.
H3: The brand affects the likelihood of purchase.
The brand can be related in several ways to perceived risk. As mentioned before, a brand may save time and effort when seeking additional information and thus can reduce time/convenience risk when purchasing a product or service. Moreover, a brand may reduce psychological risk (in terms of the potential loss of self-image), because a brand may also function as a symbolic device (Keller, 2003). Consumers tend to buy brands that are perceived similar to their own self-concept. The self-concept can be defined as the totality of the individual’s thoughts and feelings having reference to himself as an object (Sirgy, 1982).
Brands own besides functional and utilitarian attributes also personal image attributes. These personal image attributes represent the stereotype of generalized users of the brand, which is determined by advertising, price, and other marketing and psychological associations.
Consumers compare their self-image with the stereotypical user of the brand. This psychologically comparison between the product-user image and customer self-concept produces a subjective experience, which is called self-image congruency (Sirgy, Grewal, Mangleburg, Park, Chon, Claiborne, Johar and Berkman, 1997). As a result, the consumers tend to purchase the brands that are consistent with there self-image and thereby maintain or enhance one’s self-concept (Sirgy, 1982). Consequently, self-image congruency appears to have influence on consumer behavior, for example satisfaction, brand preferences and purchase intentions (Erickson, 1996; Jamal and Al-Marri, 2007; Sirgy et al., 1997). In the context of this research, the self-congruency theory is not very likely, because the brands in the concerning service category do not have personal image attributes and thus a stereotypical user. On the other hand, it is likely that the brand can reduce the psychological discomfort arising from anticipated post-behavioral affective reactions such as worry and regret from purchasing and using the service. This psychological risk can be reduced by buying a well- known brand or a brand with which consumers have had a good experience. Simultaneously, consumers can reduce the potential loss due to item failure after purchase and thus performance risk.
In summary, a brand is able to reduce performance, psychological and time/convenience risk of a buyer. So, the brand can not be clearly related to one particular risk type. Therefore, no hypothesis is formulated about the moderating effect on the relation between the brand and likelihood of purchase. Nevertheless, the moderating effect of the risk types on the relation between the brand and the likelihood of purchase is tested empirically.
