Multisided pure-play platforms in emerging markets: Making the most of trust, familiarity and risk
Why multisided pure-play platforms receive mixed reviews
For many people, the internet has become an indispensable business tool – both as a source of information on products and services and as a vehicle for e-commerce. Given the vast potential of online trading, ‘multisided pure-play platforms’ have sprung up in various parts of the world. A pure-play is a business entity that does not have a conventional bricks-and-mortar presence in a specific location. Instead, it sells products or services only via the internet. A multisided platform (MSP), such as eBay, Alibaba, Uber and Gumtree, is a form of pure-play that facilitates interactions between two or more client bases. The owner of the platform does not sell the goods or services that are for sale; it only facilitates linkages between buyers and sellers.
Starting up an MSP can be challenging. First of all, an MSP needs sellers and buyers at the outset because sellers will not offer their products for sale via the platform if they are not convinced that they have a viable market. This creates the proverbial chicken-and-egg dilemma. In addition, some buyers will simply avoid a new MSP, especially if a particular supplier only offers its product via the MSP in question, which limits buyers’ freedom to shop around for the product. MSPs are also complex businesses to run because they are technologically demanding and involve juggling relationships, i.e. individual and/or corporate buyers and sellers and the platform itself.
A multisided platform (MSP), such as eBay, Alibaba, Uber and Gumtree, is a form of pure-play that facilitates interactions between two or more client bases.
Needless to say, the online commercial environment has become extremely competitive, with MSPs under pressure to lure customers with attractive product/service features and pricing, strong credentials and exemplary service. Despite the convenience of doing business online, it is often perceived to be risky. Unable to browse the inside of a store or mingle with sales staff, online buyers need other forms of assurance that they will be making sensible purchases and dealing with people with integrity.
If MSPs wish to create a competitive advantage for themselves in a crowded online market place, they need to understand what drives consumers’ buying decisions ‒ specifically, what consumers perceive to be the risks associated with online trading and the extent to which they trust the MSP to deliver on its promises.
The interplay between risk, trust and familiarity in online purchasing behaviour
According to many authors, the two main limitations of MSP-driven e-commerce are the perceived risk of online purchasing and the low level of trust in MSPs’ ability to successfully execute online orders. In a commercial context, risk and trust are intertwined. Risk (actually perceived risk) is a function of uncertainty and the seriousness of a particular outcome. It relates to people’s perceptions about their susceptibility to various threats. Trust, on the other hand, is the extent to which one party is willing to enter into a transaction with another party, considering the apparent benefits and risks involved. Where an MSP is the online facilitator, trust would manifest in the buyer expecting or believing that both the MSP service provider and the seller will fulfil their respective obligations.
A number of studies have been conducted to understand and measure the perceptions of risk and trust in MSP-driven e-commerce. Research to date confirms that where the risk is perceived to be high, a buyer will be less likely to purchase a product or service. However, little formal research has gone into studying the relationship between perceived risk and trust in relation to MSP-driven e-commerce in emerging markets, thereby leaving a research gap. The study on which this article is based set out to close that gap. The study was particularly timely because MSPs have gained in popularity in a number of emerging markets, including South Africa, where purely online businesses that supply products or services directly to customers have not gained much traction.
Unable to browse the inside of a store or mingle with sales staff, online buyers need other forms of assurance that they will be making sensible purchases and dealing with people with integrity.
What the literature says
- Trust. Unlike in bricks-and-mortar stores where trust is largely derived from personal, face-to-face interactions, in an online environment it is primarily linked to the transactional process, which is heavily laced with technology. Everyone approaches a purchasing opportunity from a different knowledge base and frame of reference, which in turn influences their level of trust in the opportunity presented. Personality and people’s general propensity to trust also play an important part in this.The literature provides many examples of factors that influence people’s trust in an e-commerce website. These include: ease of access to, and functionality of, the website; the quality and aesthetics of the website; a well-known brand name; certificates and third-party logos; a privacy statement regarding client information usage; and credible security features.
- Risk. Like trust, (perceived) risk is also multidimensional and has attracted considerable research attention. Much has been written about the different dimensions of risk within a commercial context, which can be applied both in online and offline contexts. These include: performance risk (the possibility of a purchased product malfunctioning); time risk (the possibility of consumers spending too much time researching different product options or learning how a purchased product works); physical risk (the possibility of a purchased product causing harm to the user); financial risk (the possibility of a high cost being incurred in purchasing and subsequently maintaining a product); and security or privacy risk (the possibility of consumers’ personal details being used without their knowledge or consent).A comparison between the factors influencing trust and the various dimensions of perceived risk suggests that trust and risk are strongly interrelated. For example, an MSP’s failure to adhere to privacy rules would diminish consumers’ trust in that MSP and its cohort of suppliers. Other actions or occurrences that would erode a user’s trust in an e-commerce website include: unwanted/spam e-mails; unreliable information on the website; inappropriate advertising; credit card fraud; and poor quality or non-arrival of purchased products.
- Familiarity. It has been said that familiarity is a precondition of trust. As people gain a better understanding of their environment through personal experience, their feelings of certainty decline and they have comparatively safe expectations about the future. In an online environment, some view familiarity not only as a precondition of trust but also as an ongoing contributor to consumers’ trust levels as time goes by.
The evident interlinkages among trust, risk and familiarity lend themselves to three hypotheses:
- H1: Users’ familiarity with an MSP positively influences their trust in the MSP.
- H2: The perceived risk associated with an MSP negatively influences users’ trust in the MSP.
- H3: The relationship between users’ familiarity with an MSP and their trust in that MSP is moderated by the perceived risk associated with the MSP.
Interestingly, research has shown that the relationship between familiarity and trust, and the moderating effect of perceived risk on that relationship, differ significantly across different demographic groups (such as men and women, and older and younger people). Culture also impacts consumers’ risk perceptions and levels of trust.
What the empirical study revealed
The empirical study involved an online survey being conducted among a sample of 380 people (all aged 18+) who had purchased a physical product online in the previous 12 months from selected South African MSPs, namely Gumtree, Junk Mail, Bid or Buy, OLX and Locanto. Participants were asked to respond to statements relating to each of these MSPs, using a five-point Likert-type scale.
If MSPs wish to create a competitive advantage for themselves in a crowded online market place, they need to understand what drives consumers’ buying decisions.
The findings from the study confirmed:
- The hypothetical link between users’ familiarity with an MSP and their trust in the MSP (HI).
- The hypothetical link between the perceived risk associated with an MSP and users’ trust in the MSP (H2).
- The hypothetical moderating influence of perceived risk on users’ familiarity with and level of trust in the MSP (H3).
Interestingly, the study revealed statistically significant differences between men and women in terms of the association between familiarity and trust. In contrast, no significant differences in this regard were revealed between younger and older users. This was surprising as it was assumed that younger users would be more familiar with, and thus more trusting of, MSPs. This warrants more in-depth research.
Unlike in bricks-and-mortar stores where trust is largely derived from personal, face-to-face interactions, in an online environment it is primarily linked to the transactional process, which is heavily laced with technology.
Strategic implications of the study
The researchers’ empirical study and the work of other authors highlight that the elements of risk, trust and familiarity all play a role in whether or not users will gravitate towards and indeed continue to use various MSPs. However, how these elements relate to and influence one another can vary from one online experience to the next. This can be challenging for MSPs that are intent on consolidating their position in the market.
What is clear, though, is that users will not trust an MSP with which they are not familiar. A key task of management, therefore, is to ensure greater familiarity through an effective marketing strategy aimed at attracting and retaining clients. Another task for management is to continually manage the trust-risk dynamic. While risk can never be completely eradicated from an online business, a good dose of trust (and familiarity) can be an effective antidote. Trust is more likely to develop if an MSP offers an easy-to-navigate website, trouble-free interactivity and reliable security features. A strong brand and reputation in the market are also important.
While risk can never be completely eradicated from an online business, a good dose of trust (and familiarity) can be an effective antidote.
Building a loyal online following takes time and often considerable investment. Taking the trouble to thoroughly understand the platform’s user base is a critical success factor, one that could give an MSP an all-important competitive edge over its competitors.
- Find the original article here: Carstens, M., Ungerer, M. & Human, G. (2019). Perceived risk, trust and familiarity of online multisided pure-play platforms selling physical offerings in an emerging market. Southern African Business Review, 23(1). https://www.ajol.info/index.php/sabr/article/view/191155
- Prof Marius Ungerer teaches strategic management, leadership and change management on programmes such as the MBA, the MPhil in Management Coaching and the PGDip in Leadership Development at USB. He is also an annual Visiting Professor at the NUCB Graduate School, International MBA Program, Nagoya, Japan, and a visiting faculty member of the University of Johannesburg.
- Marelise Carstens is an MBA alumnus of USB. This study formed part of her research assignment.
- Gert Human is professor in Entrepreneurship, Innovation & Strategic Management at Stellenbosch University, Department of Business Management, Faculty Economic and Management Sciences.