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(originally published by Booz & Company)


When Safety Measures Boomerang for Online Auction Sites

The authors randomly identified 2,400 eBay and Amazon buyers, who were then asked to fill out a detailed survey about whichever retailer they used. The companies provided information on the customers’ transactions during the year following the survey. A total of 396 participants (122 from eBay and 274 from Amazon) completed surveys.

In a series of regression analyses, the authors found evidence to counteract the widespread notion that “higher is better” when it comes to online safeguards. When graphed, the relationship between buyers’ beliefs about the safety of their transactions and their decisions to complete transactions appeared as a U-shape; the volume of completed transactions eventually tapered off as buyers saw insignificant safety improvements from very high levels of protection.

“This counter-intuitive finding could be because some buyers may view extremely effective institutional structures as too restrictive (too much of a good thing),” the authors write, noting that the peak level of transactions takes place at lower levels of perceived protections. “Overly stringent institutional structures may discourage buyers from transacting in the marketplace perhaps because these buyers believe that extremely effective institutional structures prevent good deals.”

Economic risk is a major concern only for buyers using online marketplaces with moderate amounts of protection, the authors found. On sites they perceive as unsafe, buyers just aren’t willing to transact, whereas in marketplaces they regard as very safe, the likelihood of risk is so minimal that economic danger simply isn’t a consideration.

However, the effect of trust on transactions “extends throughout the spectrum” of risky, moderate, and extremely safe auction sites, the authors write. This means that when typical consumers buy things online, as long as they perceive a certain amount of security — credit card guarantees, for example — what they really care about is whether they can trust the seller.

“Institutional structures in today’s online marketplaces focus on tangible assurances aimed at reducing the buyers’ economic vulnerability and not on the intangible aspects of the transaction that aim at reducing their social vulnerability,” the authors note. To correct that imbalance, they say, the sites need to provide buyers and sellers with more opportunities to interact and foster relationships that could eventually lead to discounts or social network–based transactions.

Bottom Line:
Managers of online auction marketplaces may have over-invested in features that seek to safeguard customers’ transactions. These sites could be leaving money on the table by turning away consumers who find the process too restrictive for them to pursue their deals.

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