The influence of ethics on perceived customer value

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The influence of ethics on perceived

customer value

A research in the context of digital music

Master Thesis

Ralf Poelman

October 2009

University of Groningen

Faculty of Economics and Business

Landleven 5

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The influence of ethics on perceived

customer value

A research in the context of digital music

Master Thesis

Ralf Poelman

Student number: 1229451

E-mail:

ralfpoelman@gmail.com

Telephone number: +31(0)6 41012516

Noorderhaven 39A

9712 VH Groningen

Faculty of Economics and Business

Department of Marketing

University of Groningen

October 2009

Supervisors

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Summary

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Preface

Since I have written many prefaces during my years in Groningen, I thought it would be easy writing this one. But just as it was sometimes hard writing this thesis it’s hard finding these last words. I could have written a fantastic story here about my years in Groningen, about the things I have learned or about my future but that would not fit on one page. So I leave it up to your imagination.

Though writing a thesis is largely a lonely road, I would like to thank some people without whom this work would never have been completed. First, I am thankful to my supervisor, Dr. Mirjam Tuk. All trough the process of writing, her comments were very helpful. She provided me with useful input and good feedback.

On a personal level I am deeply grateful for all the support from my family.

Groningen, October 2009

Ralf Poelman

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Table of Content

Summary SummarySummary Summary ... 333 3 Preface PrefacePreface Preface... 4...44 4 1. Introduction and Problem Statement

1. Introduction and Problem Statement1. Introduction and Problem Statement

1. Introduction and Problem Statement ... 7...77 7

1.1 Introduction ... 7

1.2 Music defined ... 8

1.3 Music sales ... 9

1.4 Dutch music market ... 9

1.5 Online music models ... 10

1.6 Customer value ... 11

1.7 Customer value and purchase intention ... 13

1.8 Consumer ethics ... 14

1.9 Problem statement... 15

2. Thesis structure overview ... 16

2. Theoretical Frame 2. Theoretical Frame2. Theoretical Frame 2. Theoretical Frameworkworkworkwork ... 17171717 2.1 Perceived value concepts ... 17

2.1.1 The value experience... 19

2.1.2 Customer value and digital music services ... 20

2.1.3 Ethical Conern ... 22

2.2 Consumer ethical decision making ... 22

2.2.1 Ethical decision making process ... 22

2.2.2 H-V model and digital music procurement ... 24

2.2.3 Applying the H-V model ... 24

2.3 Research Model ... 26

2.3.1 Factors influencing the ethical judgement ... 26

2.3.2 Creating awareness... 27

2.3.3 Different ways to create ethical awareness... 28

2.3.4 Ethical Concern... 29

2.3.5 Attitudes towards piracy ... 30

2.3.6 Piracy Behaviour ... 31

2.3.7 Demographic variables ... 31

2.3.8 Non Hypothesized relations ... 32

2.9 Conceptual model ... 34

3. Research 3. Research3. Research 3. Research Method Method Method... Method... 35353535 3.1 Research type ... 35

3.2 Data collection... 35

3.3 Sample... 35

3.4 Survey Design ... 36

3.4.1 PCV... 37

3.4.2 Attitude towards music piracy... 37

3.4.3 Ethical concern ... 38

3.4.4 Piracy behaviour ... 38

3.4.5 Additional variables ... 38

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4 44

4. Results. Results. Results. Results... 40...404040

4.1 The effect of ethical statements on PCV ... 40

4.2 Ethical Concern as Moderator ... 42

4.3.1 Attitude and Piracy Behaviour... 43

4.3.2 Attitude towards piracy and PCV ... 45

4.4 Piracy behaviour and PCV ... 45

4.5 Ethical concern and age... 45

4.6 Age and Attitude towards piracy ... 46

4.7 Gender and Attitude towards piracy and PCV... 46

4.8 Non Hypothesized relations ... 48

5 5 5 5 DiscussionDiscussionDiscussionDiscussion... 50...505050 6 Conclusion 6 Conclusion6 Conclusion 6 Conclusion... 54...545454 7 77 7 Practical implications future research directions Practical implications future research directions Practical implications future research directions Practical implications future research directions... 56565656 8 88 8 References References References References ... 59595959 9 99 9 Appendix Appendix Appendix Appendix... 64646464 Output Statistical Analysis Output Statistical AnalysisOutput Statistical Analysis Output Statistical Analysis... 222 2

Sample Description... 2

The effects of ethical statements on PCV ... 3

Ethical Concern as Moderator... 6

Attitude and Piracy Behaviour ... 7

Attitude towards Piracy and PCV ... 9

Piracy behaviour and PCV ... 11

Ethical Concern and Age... 14

Age and Attitude towards piracy... 15

Gender and Attitude towards piracy and PCV ... 17

Non Hypothesized Relations... 27 Experimental conditions / FrontPages

Experimental conditions / FrontPagesExperimental conditions / FrontPages

Experimental conditions / FrontPages... 32323232 Example of Dutch questionnaire

Example of Dutch questionnaireExample of Dutch questionnaire

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1

1. .

. Introduction

.

Introduction

Introduction and Problem Statement

and Problem Statement

1.1 Introduction

1.1 Introduction1.1 Introduction 1.1 Introduction

The music industry had to cope with several changes over the past decades. The major music industry as we know it nowadays exists for about 50 years. Before music could be recorded it could only be consumed in live setting. Although people were able to record music before nineteen hundred it didn’t gain mass popularity until the transistor radio was invented, the worlds first personal music device. While music gained mass popularity during the second half of the past century the way in which it was distributed did not change much. The music format however switched from gramophone disc to tapes onto compact discs and is nowadays consumed in the digital mp3 format.

Music was sold through the bricks and mortar channel. This channel was suitable while it offered an experience to the consumer. They could for example listen to music in stores before purchasing the product. It was also a place in which you could meet people with the same interests and discover new bands and artists. Although ordering trough catalogue was also possible, the bricks and mortar channel has always been the most popular sales channel for music.

In the 1990`s a new sales channel arose. Music could be ordered by the use of internet. This was in the beginning more a substitute for the catalogue. The invention of the MP3 music format however had a bigger impact. The digitalization made music more intangible. Before that day music could not be bought without purchasing a physical product like a cassette or a CD.

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does not sell as much as expected. Many lost customers do not perceive value concerning the legal online models or have to be convinced of the added value of the new models opposed to their free/illegal alternatives.

This study examines perceived customer value with regard to online music. Perceived value is a consumers` overall assessment of the utility based on perceptions of what is received and what is given (Zeithaml, 1988). Knowing what consumers value is essential for understanding their behavior. Research concerning the more tangible aspects of online legal music services come up with the same sort of solution, that is, increasing the functionality and efficiency of the websites and lowering mp3 prices (Styven, 2007). This is in some way an obvious solution. For some reason however record labels are not willing to make a full transition right now to a digital market. This could have multiple reasons. They are still accustomed to the old retail model. Hard to find the right technology to protect copyright owners. They do not want to bundle their forces with other record labels offering the customer a very wide variety of music online.

The fact that current online music services do not offer a perfect online model to the consumers can also be caused by how consumers behave. Many businesses that offer digital products with copyright on them acknowledge the problem of illegal downloads. This is still a major problem. This study therefore focuses on consumer ethics and moral consumer behavior. Consumers now have a choice between illegal models and legal models. Even if these models are the same in functionality consumers have a choice. A difference that does exist between these models is that a legal purchase is considered to be more ethical. Therefore this study examines the ethical component in consumers purchasing behavior in the online music context. So, can legal models increase their customer value by focusing on the ethics component by creating ethical awareness amongst consumers for the different stakeholders involved?

1.2 1.21.2

1.2 Music definedMusic definedMusic definedMusic defined

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(Dhar, Wertenbroch 2000). Products like these are driven by the experience provided rather than the utilitarian benefit offered by its bundle of attributes (Moe, Fader 2001). Being a hedonic product also means that product evaluation is primarily based on individual consumer taste.

1. 1.1.

1.3333 Music sales Music sales Music sales Music sales

Many studies have tried to explain the sales changes in the music industry over the past two decades. By analysts and observers Music sales decline is attributed to several factors. A lack of “blockbuster” releases, competition form other media like for example computer games and free music online (Fox, 2004). Though some studies found no causal relation between file sharing and the decreasing album purchases (Oberholzer and Strumpf, 2004). Other studies find that explanations, other than file sharing, seem to have little or no support for the recent decline in music sales (Liebowitz, 2006). Also Rob and Waldvogel (2006), find that downloading reduces sales. In the Netherlands the absolute CD sales dropped in less then twenty years from 39,2 MLN CD’s sold in ’91 to a 19 MLN CD’s sold in 20071_{. An interesting thing to notice is the increased sales of Dutch} artists with top 10 selling albums (IFPI).

Music is sold trough different channels. The traditional entertainment shop is, with 59% of the sales, still the most popular distribution channel. Stores that sell electronics, like the Mediamarket account for 14% of the music sales. They have the same share as the internet stores, also 14%. In fourth place are the department stores like for example V&D and Bijenkorf with 10% and in the last place are the drugstores and supermarkets (3%)2. The electronics and internet stores are the ones that increase their sales. The electronics shops are often selling CD’s below costs for cross selling reasons this is one reason their market share increases.

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1....4444 DDDDutchutchutchutch m music m musicusicusic mmmmarketarketarketarket

This study concerns the Dutch music market. This is an interesting market because in the Netherlands strict legislation for downloading. Only uploading is illegal. It is also a country in which many people have internet access which makes it interesting for online music models. These circumstances are good environment for e-commerce. In an environment with illegal file sharing

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possibilities however competing with legal business models is tough. A study done for GFK Netherlands in 20063 showed that 62% of their sample only downloaded movies or music without paying for it. The fact that consumers have multiple download possibilities, low switching costs has made knowledge on consumer behavioral intentions and purchase intentions more important. Especially wile so many new entrants failed to succeed in this market.

The global music market is interesting because it is transforming from a product oriented market to a service business (Fox, 2004). It would be very strange if the music industry would invest in CD`s rather than digital formats and online models. Finding young people with a portable cd player is a difficult, finding one with an mp3 player isn’t.

The transition of the music industry is much further in the US compared to Europe. US digital sales revenues were 36 percent of the total at the end of 2008. Extrapolating this growth it is expected that digital music will account for the majority label revenue in the US market in mid-to-end 2010. In Europe, only constitutes 11 percent of music revenue during 20084. In the Netherlands digital sales is even less. Worldwide revenue from digital music sales is expected to equal that of physical sales as early as 2016.

1. 1.1.

1.5555 Online music modOnline music modOnline music modOnline music modelselselsels

The record companies reacted very conservative towards the internet development during the 90’s and in the beginning of the 21ste century. Although they are still fighting against illegal models and illegal downloader’s they are also trying to meet customer needs by offering music trough different online models. Even though these models do not make up for the loss of physical music sales, they do offer potential for the future.

The most important ways in which digital tracks can be online obtained by consumers are: a la carte download sites, fee based websites, advertising supported services, fan sites, illegal download.

A la carte A la carte A la carte

A la carte download sites offer the consumer a wide variety of songs which can be downloaded at any moment. Customers are paying single songs or albums they like to download. The best know a la carte download service is Itunes. Many other organization though also showed their interest into this market. Amazon and Nokia for example are trying to enter this growth market in 2008.

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Fee b Fee bFee b

Fee based servicesased servicesased services, these services also offer downloadable songs. The main ased services difference with the al la carte model is that payments are made through a monthly fee instead of paying per song. By paying a monthly fee consumers have access to the music service. A fee based service that entered the Dutch market in 2008 is Jaha.nl.

Fan sites Fan sitesFan sites

Fan sites, are sites that promote one single artist. Record companies offer a lot of information on one artist on these sites. There are not only download possibilities, these sites are also used to sell concert tickets, t-shirts etc.

Advertising supported services, Advertising supported services, Advertising supported services,

Advertising supported services, these are the sites that offer music for free. Most of these site do not offer download option but you can only stream music. Record companies earn money trough advertising income made by these sites. Examples are social networks like LastFM and Youtube.

Illegal download sites, Illegal download sites, Illegal download sites,

Illegal download sites, there are two ways in which music can be downloaded very easy and for free. By downloading from specific servers like for example by using Kazaa or by using peer to peer programs like Bittorrent.

The models mentioned above place their weight on different attributes. Like for example sound quality, flexibility in which tracks can de downloaded and used, quantity of songs in database, download speed, price etc.

1.6 1.61.6

1.6 Customer value Customer value Customer value Customer value

Recent developments in France en Brittan show that governments are trying to tackle the possibilities of illegal file sharing5. The creative industry in these countries made government–backed agreements between the music industry and the internet service providers (ISPs). These developments are positive for the music industry in which new business models, as the ones earlier mentioned, are rapidly increasing in numbers. Most of these models have restrictions in comparison with the illegal alternatives. Customers can for example not make any copies of the downloaded music file, only listen to the files online, only use the files in combination with a certain mp3 player or phone etc.

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increasing the risk or punishments of illegal piracy is unlikely to discourage this undesirable behavior for certain consumers. In this case the ones with a high tolerance for risk. Government policies against piracy might even backfire on this group of customers causing them to increase their piracy level (ibid.). On a contrary they find that positive incentives, such as improved functionality, reduce the tendency to pirate significantly among all consumer segments studied. The challenge is to offer consumers a good alternative next to the illegal models.

From the standpoint of marketing strategy, Porter (1985) states that creating customer value in consumer marketing means meeting target customers’ needs and increasing customer satisfaction (as cited by Chen and Dubinsky (2003)). In predicting purchase behavior and achieving sustainable competitive advantage perceived customer value plays an important role. Recent studies examined this role. Bolton & Drew (1991) for example mentioned that residential customers’ assessment of quality and value are primarily a function of disconfirmation arising from discrepancies between anticipated and perceived performance levels. However they also find that perceived performance levels have an important effect on quality and value assessments.

Cronin, Brady & Hult (2000) assess the effects of quality, value and customer satisfaction on consumers´ behavioural intentions. They empirically verify that service quality, service value, and satisfaction are directly related to behavioural intentions when these variables are considered collectively.

Fox (2004), argues that in order to create growth in sales the music business has to realize the potential of the internet. This necessitates a dramatic change in thinking and infrastructure. Fox (2004) argues that the industry transforms from a product to a service industry. He states that there is a lot of potential growth if business models are developed that provide value to the customer over and above that offered by free downloads.

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variables which are present in the pre-purchase experience. Valence of experience, perceived product quality and product price have a significant influence on perceived customer value. Which in it’s turn influences the purchase intention. Different factors in the pre-purchase stage of online consumption therefore are important.

1.7 1.71.7

1.7 CCCCustomer value andustomer value andustomer value and purchase intentionustomer value and purchase intention purchase intention purchase intention

Recent studies that examined perceived customer value of digital music services focused on the more “tangible” aspects of the music services that have to be changed or improved in order to compete with the peer to peer (p2p) services. These computer networks use diverse connectivity between participants in a network. The p2p networks differ therefore from services, like Kazaa and Napster, who use their own servers on which files are stored.

Chu and Lu (2007), for example incorporated the value-intention framework into the technology acceptance model to investigate the purchase behavior of early adopters of online music in Taiwan. They found that perceived value of online music is a good predictor of the purchase intention. Key factors determining perceived value were perceived usefulness, playfulness and price (Chu & Lu 2007). Another research that concerned customer value in the light of online music purchases was a study by Styven (2007). She found that current customer perceived value of downloadable music was quite low. Her main findings also indicated that customer value could be increased by improving fundamental functions of the services. This means value can be increased by providing better value in terms of the proposed benefits in combination with lower risk. So services have to easier to use, no DRM restrictions for example and privacy risks have to be lowered. The most important aspect however in which customer value could be increased was lowering prices.

The music industry nowadays is in a transitional phase. Fox (2004), states that digital downloading is transforming the music business from a product to a service business. Fox claims that while global music sales stagnate it is unlikely that future growth trough existing business models, relying on physical products, can be achieved.

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their album free of charge on their own website but more people downloaded it illegally (George Pike, legal issues). A same phenomena occurred in America while television broadcaster FOX offered episodes of the popular Prison Break series, even though it was free more people downloaded it through p2p programs(nu.nl). The fact that this is happening is, according to the above, not only a concern for the music industry, also film and software developers are dealing with this problem.

Gopal et. al. (2004), tried to indentify factors that can steer individuals toward purchasing legal music. Their research provides a contrast with research into software piracy. While in software piracy research deterrent controls were found to be potential profit increasers (Gopal & Sanders, 1997), Gopal et. al. (2004) did not reveal a significant negative influence of deterrent controls on music piracy. This result can have many reasons according to Gopal et. al. (2004). They concluded with the fact that they found a strong path coefficient from the ethical index to club size, which means that ethical individuals will be less likely to form groups (smaller clubsize) to share pirated digital audio files. These findings are however not very strong. A possibility that the research suggests is public awareness campaigns, which increase consumers awareness for consequences of piracy, over longer periods. The current study will not focus on deterrent and preventive control (like DRM protection on music files) but more on the awareness of the consumer and especially on the ethical component.

1.8 1.81.8

1.8 ConConConConssssuuuumer ethicsmer ethicsmer ethicsmer ethics

Why is ethical consumer behavior important in this matter? The way music can be obtained through illegal opportunities gives the explanation. Although the record companies have succeeded in the past to diminish illegal activities by filing lawsuits against for example Napster6_{it only led to more sophisticated and} harder to control distribution programs like p2p. From these examples one can conclude that file-sharing opportunities will always exist under current law. While compact disc sales are decreasing every year overall p2p traffic levels have been steadily increasing over the past few years7. It seems like legal online music stores can not compete against these illegal download services. The main thing to change, trying to increase online legal sales, would be the price. According to

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Styven (2007), it seems that mp3 prices are the main factor withholding customers to purchase legal online music. This is very logical considering the fact that one could have the same song for nothing through the illegal services. Also the assumption that consumers perceive lower value due to the intangibility of mp3 files could be an explanation for their price sensitivity.

Current market conditions make it hard for legal services to compete with the illegal ones. In normal conditions legal mp3 stores would have the brick and mortar stores as competition. Their added value would then be offered trough speed, access, listening opportunities etc. But competing against models that offer the same added value but without the cost for consumers is almost impossible. Although this is true an aspect that does makes legal online music services different from legal ones is the fact that they are legal. There has not been any study that focuses on this ethical component in this context. So how could record companies and legal services make consumers more conscious of the ethical component in there online music procurement! Does it add value to customers knowing that they are purchasing a legal product? And how can this awareness for ethical consumption best be created? The subject of this study is important to several industries that are trying to protect their intellectual property rights. Businesses that produce books, games, movies etc. deal with piracy to some extend. Holbrook (1994), includes ethics / morality in his customer value framework. Not many services stress this component in their communication to their customers. This research looks at the importance of ethics as a value component to customers. Assuming the fact that illegal file-sharing will be available to individuals, the question is, can legal services increase there value by focusing on ethics and morality amongst consumers and create awareness for their behavior instead of filing lawsuits and increase fear of punishment amongst consumers who do share files illegally. Consumer behavior is at the heart of marketing exchanges with firms and is a concern for public policy not only when marketers harm consumers but also when customers act in ways detrimental to those exchanges (Gould, 1995; Gunlach and Murphy, 1993) as cited in Gupta, Gould and Pola (2004).

1. 1.1.

1.9999 PPPProblem statement roblem statement roblem statement roblem statement

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Can online ethical awareness increase perceived customer value? A study in the context of online legal music purchases.

The study also includes the following questions:

- Are consumers aware of their current ethical/unethical downloading behavior?

- To what extent can awareness campaigns influence consumers ethical judgment in online music consumption?

- Does ethical awareness have an influence on consumers intention to conduct ethical behavior?

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2.... Thesis structure overview Thesis structure overview Thesis structure overview Thesis structure overview

The following chapter will discuss the theoretical background of this study. It gives a more in-depth overview of how the important elements used in this study are embedded in literature so far. This is followed by the research model which applies the literature concepts to the subject of this study and adds variables which are believed to be of importance in this matter. Chapter three explains the used research method. The results will be dealt with in chapter four. Lastly, the results will be discussed and a conclusion is given.

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2

2. .

. Theoretical Framework

.

Theoretical Framework

This chapter starts with a literature review on perceived customer value and how ethics as a value component is embedded. Next ethical consumer behavior is discussed. Following this the conceptual framework and hypothesized relations will be examined.

2.

2.1 1 Perceived v

1

1 Perceived v

Perceived v

Perceived value

alue c

alue

cc

concept

oncept

oncepts

ss

s

The concept of perceived value received extensive research during the nineties and the present century. Although numerous attempts were made to establish a unified model for perceived value, views that were produced on the conceptualization of this construct diverged. Sanchez-Fernandez and Iniesta-Bonillo (2007), reveal by extensive literature review on the subject that there still exists ambiguity with respect to the definitions, dimensions, and measurement of perceived value.

Sanchez-Fernandez and Iniesta-Bonillo (2007), made an overview of the literature by which the two main research approaches to the operationalization of value can be seen.

Figure 1: Research streams on perceived value, Sanchez-Fernandez and Iniesta-Bonillo 2007.

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Chen and Dubinsky (2003, p. 326) “ a consumer’s perception of the net benefits gained in exchange for the costs incurred obtaining the desire benefits.”

Zeithaml (1988, p.14): “a consumer`s overall assessment of the utility of a product based on perceptions of what is received and what is given.”

Holbrook (1996 p.138): “as an interactive relativistic preference experience.”

The lack of agreement among scholars with respect to the conceptualization and measure of ‘perceived value’ is a consequence of its vague nature according to Sanchez-Fernandez and Iniesta-Bonillo (2007). Others have called the concept complex, multifaced, dynamic and subjective.

Figure 1 shows two streams, the uni-dimensional stream and the multi-dimensional stream. In the uni-dimensonal approach, perceived value is essentially conceived with a utilitarian perspective. The economic and cognitive reasoning are used to assess the relevant benefits and costs in this approach. Major contributions to this research stream came from Monroe (1985) and Zeithaml (1988).

Monroe’s (1985) research stream has it’s origin in price based studies. There is a focus on the quality-price relationship. This led to the initial conceptualization of value by Dodds et al., (1991), in which value was defined as ‘a cognitive trade off between perception of quality and price’. This conception of value treats price and quality as antecedents rather than as formative components of value. It is based on the economic theory of the consumer and the utility concept.

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Fig 2: Zeithaml 1988, a means-end model relating price, quality, and value.

Figure 2 shows the relationship amongst the concepts of perceived price, perceived quality and perceived value. This means consumers evaluate products/services on the basis of their perception. So it’s a subjective construct rather than objective such as actual price and quality. Zeithaml (1988) indicates in the model above that although perceived value and perceived quality are both proposed to be a higher level of abstraction, perceived value is more individualistic and personal than quality. It is therefore a higher level concept. Zeithaml (1988) also proposed a distinction between objective attributes and a perception of those attributes as can be seen in the model. Finally she suggested that the formation of value perceptions is affected by situational and contextual factor and that the consumers frame of reference has an influence on perceived value.

2.1.1 2.1.12.1.1

2.1.1 The value experienceThe value experienceThe value experienceThe value experience

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therefore have argued that the uni-dimensional (trade-off) models are to simplistic. Lemmink et. al. (1988), who examined the role of value in a delivery process of hospitality services, for example argues that if value is perceived as a utilitarian and hedonic response an affective component should be incorporated in the conceptualization of value. This component reflects the entertainment and emotional part of the perceived value. A major contribution to the research was made by Holbrook`s (1996). The construct below captures all of the economic, social, hedonic and the altruistic components of perceived value.

Fig.3 : Holbrook (1999), Typology of consumer value.

Holbrook uses the term experience in his value definition. This means that customer value not resides in the purchase but rather in the consumption experience derived there from (Holbrook, 1996).

2.1.2 2.1.22.1.2

2.1.2 Customer value and digital music servicesCustomer value and digital music servicesCustomer value and digital music servicesCustomer value and digital music services

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alternatives for getting the same products but choose to make a contribution to the artist. This could be the reason for people to purchase legal songs online.

2.1.3 2.1.3 2.1.3

2.1.3 Ethical Conern Ethical Conern Ethical Conern Ethical Conern

Muncy and Vitell (1992), explored consumers perceptions about situations which have potential ethical content for consumers. Consumer perceptions regarding the ethical content of these situations were affected by the locus of the fault, the presence of deception on the part of the consumer, and the degree of harm. Muncy and Vitell (1992), concluded that concerning the recording industry and computer software industry consumers showed a notable lack of ethical concern. Where for example 99% of the respondents thought it was wrong to drink a can of soda in a supermarket without paying for it only 33% thought it was wrong to record an album instead of paying for it.

This section addressed to ethics/morality as a value component which has an influences customer value. The following section looks at ethics from a consumer behavioural standpoint.

2.2

2.2 2.2 Consumer

Consumer

Consumer ethical

ethical

ethical decision making

ethical

decision making

Muncy & Vitell (1992) defined consumer ethics as the moral principles and standards that guide behaviour of individuals or groups as they obtain, use, and dispose of goods and services. How do consumers make these ethical or unethical decisions? Which element are important when an ethical situation arises? Hunt & Vitell (1992) have described consumers ethical decision making process in their model.

2.2.1 2.2.12.2.1

2.2.1 Ethical decision making process Ethical decision making process Ethical decision making process Ethical decision making process

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(nonmoral) of what is, probably will be, or is intended to be brought into being” (Frankena 1963, 14).

Below, the revised model by Hunt & Vittel (1993) is displayed.

Figure 4: Hunt-Vitell Theory of Ethics

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2.2.2 2.2.22.2.2

2.2.2 HHHH----V model and digital music procurement V model and digital music procurement V model and digital music procurement V model and digital music procurement

The context of this study, online music procurement, can be seen as an ethical decision making process in which a consumer makes a decision based on deontological as well as teleological evaluations. The deontological evaluation is the component in which a consumer evaluates the rightness or wrongness of the action that is taken. A consumer for example has a choice between illegal and legal downloading of music. In the deontological component a consumer evaluates the inherent rightness or wrongness of the behaviours implied by each alternative. The process involves comparing each alternative’s behaviours with a set of predetermined deontological norms. These norms are represented by personal values or rules of moral behaviour (Hunt & Vitell, 2006).

The teleological evaluation process focuses on four constructs which are: the perceived consequences of each alternative for various stakeholders groups, the probability that each consequence will occur to each stakeholder group, the desirability or undesirability of each consequence, and the importance of each stakeholder group. The stakeholder groups involved and the importance of them in a consumers evaluation process will vary across individuals and situations (Vitell & Hunt, 2006). The beliefs about the relative goodness versus badness brought by each alternative, as perceived by the decision maker, will be the overall result of the teleological evaluation (Ibid).

The core of the model is the individuals ethical judgement (Vitell & Hunt, 2006). It is the function of the individuals deontological (the applied norms of behaviour to each of the alternatives) and teleological evaluation (an evaluation of the sum total of goodness versus badness likely to be provided by each alternative for relevant stakeholders).

2.2.3 2.2.32.2.3

2.2.3 Applying the H Applying the H Applying the H Applying the H----V model V model V model V model

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of illegal file sharing this study focuses on positives cues on legal websites with regard to the antecedents of the individuals teleological evaluation according to the model of Hunt & Vitell, (1993). Compared to deontological evaluations teleological evaluation might be influenced more easily since deontological evaluations are grounded more deeply into an individual’s value/moral system. It is believed that teleological evaluation are more situation specific. By creating awareness, amongst consumers for the different stakeholders involved in the process of music sales, the teleological evaluations might be influenced. A comparison can be made with current sales of biological products or fair trade products. Advertisements for these kinds of products focus on certain stakeholders, e.g. poor farmers, animals, the consumers themselves, to increase the perceived value to the customers. Referring to the value framework by Holbrook 1996, the main increase in value is made through the ethics/moral component. Purchasing for example Max Havelaar coffee offers ethical value to some consumers which make them purchase the brand. The ethics component offers value to a certain segment. Brinkman & Peattie (2008) also stated that between consumer behaviour and consumer marketing a close and interdependent relationship exists. They shape each other. Therefore it is logical to view consumer ethics and marketing ethics as highly interdependent too.

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2

2 2....3

3 3 Research

3 Research

Research

Research M

M

Model

odel

The central question in this research is: “Can online ethical awareness increase perceived customer value?” The central component is perceived customer value (PCV). Which has been discussed in the beginning of chapter one.

There are many ways to measure perceived customer value. In some studies it is measured by a cost/benefits trade-off. This means that perceived value can be increased by lowering the costs or increase the benefits to consumers. Here we examine if consumers benefits can be influenced by increasing their ethical awareness through online statement. So, can consumers perceived benefits be influenced through ethics. Holbrook’s framework describes the different customer value components. These can be considered as benefits to a consumer if maximized in the right way according to the consumers needs. The ethics component however can not easily be increased as efficiency in this matter (f.e. a faster download service). Ethical value can online be established if the consumer involved is aware of their moral decision. If you don’t know you are appreciated for purchasing legal why wouldn’t you choose for the immoral/illegal/cheaper alternative. PCV is measured by willingness to pay and attitude towards the website.

2.3.1 2.3.12.3.1

2.3.1 Factors influencing the ethical judgementFactors influencing the ethical judgementFactors influencing the ethical judgementFactors influencing the ethical judgement

During the nineties welfare products became more popular. Purchasing f.e. coffee like Max Havelaar coffee and green consumerism. These goods do not focus on rational/economic choice behaviour but more on the morality of consumers. Consumers are for example willing to pay more for these products. It gives consumers a good feeling about their behaviour.

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though it is dominated by concerns about ethical judgement. Examples are Muncy and Vitell (1992) investigating consumer ethical judgement towards different kinds of EQB. Several studies (Rawwas, 1996, Rawwas et, al, 1996, Erffmeyer et. al., 1999) found that consumers appear to hold differential concerns towards EQB, generally perceiving actively benefiting from an illegal activity most unethical and the “No harm/no foul”, like for example recording music from the radio, the least unethical. Although this may be true, studies by Rawwas (1996) and Fullerton et. al. (1996) found that only 18,2% of the respondents appear to have strong ethical positions (more deontological). Which means that over 80% makes their ethical judgement more or less depending on the given situations instead of depending on universal moral principles (more teleological). This suggests that many consumers are influenced by situational factors (the advantages of unethical products/services), as well as rules and ethical values (Fukukawa, 2002). So in a situation in which a consumers is confronted with making an ethical judgment not only universal moral principles are important. Ethical judgement may therefore not perfectly explain the causes of ethical questionable behaviour. A consumer may for example choose to download illegal due to the prices of legal songs or the fact that the illegal offering is easier to get. However this may be the fact still record companies could focus on the fact that they offer a legal product other than filing prosecutions against individual consumers and illegal services. Changing the message to consumers may function as a better strategy. Reward consumers for good behaviour rather than punishing unwanted behaviour. Hereby it is assumed that consumers even in a digital world in essence like to behave moral and ethical.

2.3.2 Creating awareness 2.3.2 Creating awareness 2.3.2 Creating awareness 2.3.2 Creating awareness

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behaviour, by for example creating awareness amongst people that speeding can lead to a fine. But inversely the effect of making people aware of the fact that they are doing the right thing is not often studied. However, looking at welfare products, one can notice the fact that people purchase or consume these product because it makes them feel good. It’s has some kind of altruistic value. The music industry does not stress this factor in their online channels. Making customers more aware of their good behaviour and the consequences for the stakeholders involved could be of value to customers. Positive awareness for legal purchasing and doing the right thing for the stakeholders involved might lead to ethical value in the purchase itself and therefore to a increased perceived customer value.

H1: A positive causal relation is expected between increased ethical awareness and perceived customer value in the online music context.

Ethical awareness will be increased by online cues on legal music websites. These inform the consumer about their legal purchase and about the positive effect their purchase will have on the stakeholders involved.

2.3.3 2.3.3 2.3.3

2.3.3 Different wDifferent wDifferent wDifferent ways to create ethical awarenessays to create ethical awarenessays to create ethical awareness ays to create ethical awareness

Although an overall positive relation is expected, between ethical awareness and PCV, there are several ways to increase awareness for ethical consumption. In the case of online music purchases, online cues/arguments/statements, can relate to the behaviour of the consumer or the importance of legal/ethical consumption towards the artist/industry. Some consumers are expected to be sensitive for arguments that are directed towards them while others, are more concerned with the music industry or the artists. Therefore a distinction between several online arguments/cues, that increase consumers ethical awareness prior to purchase, is made.

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different arguments for legal downloading are divided into two main direction. Arguments that are directed towards the customers themselves (self-oriented) and arguments that are concerned with other stakeholders involved (other oriented, other-referenced). A third direction that is added is more general of nature. It is not directed to customers or other stakeholders but tries to give a general statement about ethical digital music consumption.

Until now no research examined this subject. Their has been some research into different motivations for ethical consumers (Freestone and McGoldrick, 2007). These were mainly directed at socially and environmentally responsible products and services. Online music can be seen as a grey area concerning consumer ethics. While pirating music is so easy, consumers must be convinced and made aware of legal music alternatives. Some would feel it is important for their own sake others might consider the artist more important or just think that pirating is generally not right. Consumers can be more altruistic in their behaviour than others and can therefore expected to be more sensitive for cues that increase their ethical awareness by focusing on others like artists and industry. Consumers that are more selfish could be more sensitive towards cues that are directed towards them and increase their sense of ethical behaviour. While this study is experimental in nature, upfront no real expected differences can be stated as to how effective the different ways to increase ethical awareness on PCV will be, it is useful to make a distinction between the three ways to increase ethical awareness. Therefore a hypothesis is rather general in it’s formulation. It is expected however that the three ways to increase ethical awareness, used in this study, will all have a positive effect on PCV

H2: Increased ethical awareness, by the use of self-, other-oriented and general ethical statements, will have a positive influence on PCV.

2. 2.2.

2.3.43.43.43.4 Ethical Concern Ethical Concern Ethical Concern Ethical Concern

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that ethical individuals are more concerned about the damage they do to the music industry, the artists, are worried about the legal consequences for themselves or do not perceive illegal products to be of a high value to them. Therefore it is expected that consumer who are generally more ethical in their behaviour, will have a stronger reaction towards increased online ethical awareness.

H3: The effect, of the different ways to increase ethical awareness on PCV, will be stronger for consumers who are generally more ethical concerned.

2. 2.2.

2.3.53.53.53.5 AttitudesAttitudesAttitudesAttitudes towards piracytowards piracytowards piracytowards piracy

A positive attitude towards piracy is expected to be a determinant of current piracy behaviour and intentions to pirate music. Consumers who believe they are doing less harm by pirating music will be more involved in downloading and file sharing.

H4: People who have a more positive attitude towards piracy are more likely to engage in piracy.

Kwong et. al. (2003), examined the impact of attitude toward piracy on intention to buy pirated CDs. They measured attitude towards piracy trough four distinct components, namely, social cost of piracy, anti-big business attitude, social benefit of dissemination, and ethical belief. They find that social benefits of dissemination and anti-big business attitude have a positive relationship with the intention to buy pirated CDs. Social cost of piracy and ethical belief have a negative relationship with the intention to pirate. Ethical belief tends to most strongly predict intention to buy pirated CDs.

This study is concerned with online activity but shows great similarities with the study performed by Kwong et. al. (2003). Therefore the same relations are examined. That is why attitude towards piracy is incorporated as a moderating variable on the relationship between increased online ethical awareness and PCV.

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2. 2.2.

2.3.63.63.63.6 Piracy Behaviour Piracy Behaviour Piracy Behaviour Piracy Behaviour

The fact that many consumers have downloaded illegal files of the internet could make it harder to convince them of any kind of value trough legal offerings. Having swapped music over the internet in the past is a determinant of one’s intention to pirate again (d’Astous; Colbert; Montpetit, 2005). This however does not mean that these consumers are not willing to pay for music in general. However in this study it is expected that consumers with past illegal download experience will be more difficult to convince to pay for legal online music. So an increased download experience will have negative consequences for perceived value of new legal models in general. It is also expected to have consequences for the relation between increased ethical awareness and PCV in the following way.

H6: That is, the effect of online increased ethical awareness on PCV will be lower for individuals who pirate more music.

2.3.7 2.3.72.3.7

2.3.7 Demographic variablesDemographic variablesDemographic variablesDemographic variables

Muncy and Vittel (1992), investigated ethical beliefs of the final customer. Their analysis indicated that consumers` ethical decision making may be related to certain demographic characteristics. Their research focused on a very extensive numbers (shoplifting, stretching the truth on an income tax, lying about child age in order to get a lower price) of ethical questionable behaviour. They identified strong relationships between ethical concern and certain demographic descriptors. Older consumers seem to be more ethically concerned than younger ones. Kwong et. al. (2003) found a significant negative relationship between age and the intention to buy pirated CDs. The find the same relation as Ang et al., 2001 and Tom et al., 1998, that young people are more likely to be buyers/consumers of pirated goods.

H7: Individuals become more ethical concerned as age increases.

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CD’s and the idea of making some kind of payment for music are expected to be generally more negative in their attitude towards piracy.

H8:There is a negative relation expected between one’s age and his or her attitude towards piracy. That is, the older people are the more negative their attitude towards piracy will be.

Kwong et. al. (2003), also found a significant relation between gender and the intention to pirate CDs. Males where found to be more likely than women to be buyers of pirated goods. They also found significant differences between men and women and their attitude towards piracy concerning social costs of piracy and ethical belief in the context of buying illegal CD’s.

H9: It is expected that men have a more positive attitude towards piracy than women.

2.3.8 2.3.82.3.8

2.3.8 Non Hypothesized relationsNon Hypothesized relationsNon Hypothesized relationsNon Hypothesized relations

Not all consumer demographic variables are hypothesized in this study. Although some expectation can be made as to how these variables could influence PCV or the effect increased ethics on PCV any hypothesis were not made. For segmentation reasons however some extra variables were added to this study. Current occupation, income and music interest are added to the conceptual model to see if they are influencing PCV or the effect of increased online ethical statements on PCV. Below the reasons for adding these are described.

Current occupation Current occupation Current occupation Current occupation

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music that can be gained fast and easy compared to students or people that are pensioned and have lots of spare time.

Income Income Income Income

Peoples income may be a driver for interest in online legal music stores and their valuation of these services. Wealthy individuals may have a preference towards compact discs which are more expensive generally than mp3`s. Maybe they are more easily interested in legal services. Maybe they perceive more value from legal alternatives because of the instant access and quality compared to illegal alternatives. This could influence their perceived value. To see if there is any difference in their valuation of online music services and the effect of ethical statements on PCV, compared to less wealthy consumers, this variable is also added.

Music interest Music interest Music interest Music interest

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2.9

2.9 2.9 Conceptual model

Conceptual model

The conceptual model is shown with the hypothesized relations described earlier. Perceived customer value encompasses willingness to pay and attitude towards the website/legal music service.

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3.

3. 3. Research

Research

Research Method

Method

The previous chapter led to the conceptual model. This chapter explains how the research was conducted and how the hypothesized relation have been tested. The research type, data collection, sample and survey design are discussed in following order. The statistical tests or the way in which the analysis are performed are explained in next chapter. Due to the variety of tests this was expected to give a better insight in the way the analysis were performed.

3.1 Research 3.1 Research 3.1 Research 3.1 Research typetypetypetype

This research can be best characterized as an experiment. An experiment tries to find a causal influence of an independent variable (or experimental variable) on a dependent variable according to Baarda & de Goede (2000). Here the independent variable ethical awareness is manipulated by the use of different online ethical statements (experimental conditions). Website front-pages are developed and the different statements are implemented. The effect of these manipulation on perceived customer value is measured. Several variables, like attitude towards piracy/ethical concern, piracy behaviour and consumer demographics, which are expected to have a moderating effect, are thereby taken into account.

3.2 3.2 3.2

3.2 Data collection Data collection Data collection Data collection

To test the hypothesized relations in the conceptual framework quantitative data was obtained by using an online survey. It can be defined as a single cross-sectional research design while the information needed from the sample was only obtained once (Malhotra, 2004). The online survey was used instead of an offline survey for several reasons. It was easier and more realistic to visualise a website in an online environment and add ethical statements. Online surveys are fast and flexible in use and respondents can take there time in answering the questionnaire. The online method makes it impossible to flip through the questionnaires pages. Due to the subject of study this is expected to increase the objectivity of the information. The research took place during the last the weeks of May and the first week of June 2009.

3.3 Sample 3.3 Sample 3.3 Sample 3.3 Sample

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in music. Almost every household in the Netherlands nowadays is connected to the internet. Since many people are also interested in music the target population for online music services is enormous. There is not a clear view of specific users of legal online music so far. For this reason it was decided to take a rather broad sample. Data was gathered through Snowball sampling (Baarde en de Goede, 2000). To partly overcome the problem of recruiting the same sort of respondents within the four groups the initial surveys were first distributed to respondents in different age categories. They were asked to contact others by sending a link. Through thesistools8_{, which is an online survey application, 160} surveys were returned of which 133 were found to be useful. It must be mentioned that this is a relatively small sample.

3.4 3.43.4

3.4 Survey Design Survey Design Survey Design Survey Design

A structured questionnaire was used. It was based upon the conceptual model and the research questions in the previous chapter. Most questions were scaled on a seven point Likert-scale. Questions about purchasing/illegal downloading habits of mp3`s and CD`s had categories (heavy/light users).

For this research the front-page of an online music service website was developed, in which the ethical statements could be placed. These statements were manipulated and functioned as the experimental conditions. This resulted in four different websites that were used in the questionnaire. Three experimental conditions (different statements) and one control condition (no statement). In summary:

- A control website in which nnnno ethical statemento ethical statemento ethical statemento ethical statement was placed.

- A website in which a self-oriented ethical statement was placed. “I support I support I support I support legal music sales

legal music saleslegal music sales legal music sales”

- A third website in which the ethical statement was directed towards others, in this matter musicians. “Purchasing legal music means Purchasing legal music means Purchasing legal music means Purchasing legal music means supporting artists

supporting artistssupporting artists supporting artists”

- The fourth website held a more general ethical statement. “Legal musLegal musLegal musLegal music is ic is ic is ic is

honest music honest musichonest music honest music”

Perceived customer value was measured to examine if these different ethical statements had an effect on the respondents. First an overview is given of the

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how the questionnaire was assembled and it’s different constructs/measures. Then the results will be examined.

Before respondent had to answer the questions some preliminary information was given about the music services use and possibilities. In a short introduction about the music service they were told it was a fast, save, and easy way to obtain legal music at home in a spit second. The music they would purchase would not contain any copy restrictions and they would be able to find any music they liked in just three steps.

In trying to identify the effect the statements (the independent variables) would have on respondents PCV in an truthful way the questionnaire started with the picture of the website and question’s that gathered information about respondents perceived customer value, the dependent variable, concerning the music service shown. The questionnaire than proceeded with questions about respondents attitude towards piracy, ethical concern, downloading behaviour and consumer demographics.

3. 3.3.

3.4444.1.1.1 PCV .1PCV PCV PCV

Perceived customer value was examined by two measures. Willingness to pay and Attitude towards the website. Willingness to pay was measured by the amount respondent were willing to pay for a single mp3 download. Measuring respondents attitude towards the website was done by the use of five questions to which respondent could agree or disagree on a 7-point likert scale. They had to respond to questions like, ”This website offers opportunities to support artists”, “This site gives me a good feeling for possible future purchases”.

3.4 3.43.4

3.4.2.2.2 Attitude .2Attitude Attitude Attitude ttttowards owards music owards owards music music music pppiracypiracyiracyiracy

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3.4 3.43.4

3.4.3.3.3 Ethical .3Ethical Ethical Ethical cccconcern oncern oncern oncern

This scale was borrowed form Gopal et. al. (2004) who also used it in the context of online music piracy. It determines the ethical profile and core beliefs of respondents. Respondents had to react to four vignettes describing an ethically questionable situation. The ethical index is computed by summing the responses to the four ethical questions. Respondents were asked to indicate their level of acceptability on a 7 point likert scale from totally acceptable to totally unacceptable. A higher scale value indicated higher ethical values.

3.4 3.43.4

3.4.4.4.4 Piracy .4Piracy Piracy Piracy bbbbehaviour ehaviour ehaviour ehaviour

This concept was measured by past illegal downloading behaviour and future illegal downloading intentions of respondents. The question on past behaviour asked how often respondents had downloaded a song over the past six months. Answers ranged from zero up to more than 10 songs a week. The same question was asked for future illegal downloading intentions.

3. 3.3.

3.4444.5.5.5 Additional variables .5Additional variables Additional variables Additional variables

In addition to the preceding measures, the questionnaire included demographic questions like age, gender, income, education. Other questions that were found to be important and therefore added were questions about reasons for using illegal downloading services and if respondents considered there selves to be music lovers. The last question functioned as a check question in order to find out if respondents had read the ethical statements on the websites.

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Figure 7: FrontPage / Experimental Condition 1

S SS

Summaryummaryummaryummary survey design survey design survey design survey design

The questionnaire is the same for all respondents except for the online statements which were developed to increase ethical awareness. The self-oriented statement focused on the respondent by stressing the fact that they supported legal music purchases. The other-oriented statement stressed the fact that legal online music purchases means supporting artists. The general statement supported the fact that legal music is honest music. The questionnaire that was presented to the respondents in the control group contained no statement referencing to the consequences or ethics associated with legal music purchases. The next chapter displays, describes and analyzes the results of the collected survey data.

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4

4. .

. Results

.

Results

To give some insight into the sample distribution the main demographic figures are first given. In the appendix tables can be found with complete overview of information. In many studies concerning music consumption and downloading respondents were often students (Gopal et. al., 2004, Shang, Chen and Chen, 2007). The sample used in this study is somewhat broader. The sample of 133 respondents was composed of a greater number of male respondents (55,6%). Most of the respondents were in the age of 25-34 (48,1%). The average age of the total sample is 35,9 year. Men had an average age of (38,4) which was slightly older then women’s average age (32,8). Many respondents (76,4%) had an average or above average income level. Most were employees (66,2%) and the second largest group consisted of students (17,3%). Of the 133 respondents 77 had used illegal download services over the past six months and still do. Throughout the analysis of the data a p-value smaller or equal to α = 0.05 results in a significant difference or result. The results will be discussed in the same order as they were previously mentioned in the theoretical framework chapter.

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4.1 The effect of ethical statements on PCV .1 The effect of ethical statements on PCV .1 The effect of ethical statements on PCV .1 The effect of ethical statements on PCV

Before examining the hypothesized effects of the different ethical statements the PCV construct was checked for internal consistency. A Cornbach`s Alpha coefficient of 0.871 indicated satisfactory internal consistency reliability. The combination of WTP and Attitude to measure PCV led to a alpha coefficient of .742. Both exceeding 0.6, which is generally considered as the minimum for the alpha coefficient (Malhotra, 2007).

The F-test or ANOVA was performed to look for significant differences between the four groups, and their PCV scores. As dependent variables WTP and the five different questions on attitude towards the website were used. For the independent variable (the factor) the different statements (three statements plus the control group) were taken. Examining the p-values no significant differences were found between the four groups. The impact of the different ethical statements on PCV was not statistically significant (p<0.05). The ANOVA test can be found in the appendix. H1 and H2 are therefore not supported.

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scores are added below. The higher the WTP score the more respondents were willing to pay. Lower attitude scores however mean that respondents were more in agreement to the questions which is interpreted as being more positive in their attitude towards the website. The average scores are plotted below and the tables can be found in the appendix.

Different Statements General ethical statement Other-oriented statement Self-oriented statement No ethical online statement M e a n W T P i n e u ro c e n ts 50 45 40 35 30 PCV1

WTP for single mp3 per Ethical Statement Different Statements General ethical statement Other-oriented statement Self-oriented statement No ethical online statement M e a n A v e ra g e A tt it u d e S c o re4,0 3,8 3,6 3,4 3,2 3,0 PCV2

Av. Attitude towards website per Ethical Statement

Figure 8: PCV

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stronger linear relations in both figures above. While women and men scored structural different on the PCV scores some additional tests were conducted for only men or women. No interaction effect for gender was found however. What is also interesting to see is that the scores for attitude towards the website are close to neutral agreement. The lack of experience with legal downloading might be an explanation for this fact. Of the total sample 49 females and 56 males which together sum up to almost eighty percent of the total sample have downloaded not one song through a legal service during the past six months. In other words have had very little experience with this kind of service.

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4.2 .2 .2 .2 EthicEthicEthicEthical Concern as Moderatoral Concern as Moderatoral Concern as Moderatoral Concern as Moderator

Although their does not seem to be a significant influence of the independent variable (IV) ethical awareness through the use of online ethical statements and the dependent variable (DV) PCV it is possible that this relation is moderated by certain other variables. In the theoretical model several other variables were added as possible moderators. The first one to discuss here is ethical concern. First the Cronbach`s alpha was computed as an indicator of scale reliability. For the construct of four vignettes used in this study to measure respondents ethical concern a Cronbach`s alpha of 0.667 was found. Therefore it can considered as reliable (Malhotra, 2007).