Determinants of consumers' perceived risks from organizations' innovative offerings in the marketplace.

• Author: Byramjee, Framarz

ABSTRACT

Consumers' resistance and negative behavior toward innovations can be viewed as a vital barrier to enterprises and can occur due to a variety of reasons. The risks that consumers perceive from innovations can be attributed to as one of the major causes that dissuade consumers from adopting innovations. This paper attempts to consolidate much of the literature pertaining to consumers' risk perceptions from innovations, and develop a comprehensive model encompassing many of these risk determinants arising from organizations' innovative offerings in the marketplace.

INTRODUCTION

Organizations strive to develop and market new products and services and position their image favorably to gain consumer acceptance and sizeable market shares. Innovations are important to a firm and suggest its proclivity to remain abreast of the latest market trends and cater to those demands accordingly. However, the failure rates of innovations are very high till this date. The major reason that can be attributed to the failure of new offerings is the lack of consumer acceptances, for those innovative offerings. Most global enterprises are confronted with this dilemma, and it becomes problematic when lack of acceptance leads to declining sales and directly hits the company's bottom Line. Consumers' resistance and negative behavior toward innovations can be viewed as a vital barrier to enterprises and can occur due to a variety of reasons. Hence, it would be imperative for firms to favorably act upon these risk factors associated with their business in order to overcome consumers' resistance to their innovations in the marketplace.

LITERATURE REVIEW

Consumers' perceived risk is a significant barrier to the adoption of new hi-tech products. Satin, Sego and Chanvarasuth (2003) developed a theoretical framework that suggests how bundling a new hi-tech product with an existing technology could help reduce consumers' perceived risk associated with the purchase of the new hi-tech product. Consumers perceive the purchase of a new hi-tech product to be a risky decision because such products and industries exhibit pervasive technological and market uncertainties (Davidow, 1986; Moriarty & Kosnik, 1989; Mohr, 2001). The uncertainties include doubts about product reliability and performance, as well as questions about the market acceptance of a new technology. In addition, consumers are concerned about rapid obsolescence and depreciation of hi-tech products (Dhebar, 1996).

Hi-tech products generally do not function in isolation. They either need complementary products to function effectively, or they act as complementary products to others (Cohan, 1997; Davidow, 1986; Kim & Mauborgne, 1999; Mohr, 2001). Therefore, when purchasing hi-tech products, consumers are subject to additional worries about the availability of complementary products and the compatibility between parts of a product system (Dhebar, 1996). Dowling and Staelin (1994) argued that these two aspects of a purchase situation are mapped into the construct of perceived risk. Consequences might include monetary loss, loss of social status, product performance, physical harm or injury, psychological loss, loss of future opportunity, and/or time lost (Kaplan, Szybillo & Jacoby 1974). Risk may lead to consumer anxiety (Mitchell & Greatorex, i993), and may cause the consumer to delay, defer or cancel the product purchase (Dhebar, 1996; Mohr, 2001).

Consumers' perceived risk associated with a product offering has a negative relationship with consumers' intention to buy (Holak & Lehman, 1990). From the consumer's perspective, radical innovations present greater risk than incremental innovations (Crawford, 1983). When considered on a continuum, the level of innovation represents a degree of newness presented by the product (Sarin & Mahajan, 2001). A high level of innovation is likely to present greater performance risk and potential for time loss to the consumers than low levels of innovation.

Adoption of innovations can be influenced by economic constraints. Consumers may delay adopting a new product because they feel its price is too high (Robinson & LaKhani, 1975), or they expect its price to fall (Holak, Lehmann & Sultan 1987; Narasimhan, 1989). Under such conditions, consumers prefer to wait and see results from others who can afford to take economic risk (Sheth, 1968). Roselius (1971) suggests that consumers may buy a more expensive product because they perceive less risk based on price-quality association. Alternatively, others argue that price acts as a constraint to purchase and represents a financial risk (e.g., Bertman 1973; Kaplan, Szybillo & Jacoby 1974).

Campbell and Goodstein (2001) proposed that perceived risk is an important situational factor that moderates the impact of congruity on evaluations. When consumers perceive high risk associated with a purchase, the moderate incongruity effect is reversed such that the congruent is preferred to the moderately incongruent product. Campbell and Goodstein (2001) proposed that the moderate incongruity effect will not arise when a consumer perceives high risk. Instead, when perceived risk is relatively high, consumers will have a preference for the norm over the novel, preferring an option that is congruent with an evoked product schema to one that is moderately inconsistent.

Consumers' perceptions of risk are considered to be central to their evaluations, choices, and behaviors (Dowling, 1999). Consumer researchers define perceived risk in terms of uncertainty and consequences; perceived risk increases with higher levels of uncertainty and/or the chance of greater associated negative consequences (Oglethorpe & Monroe, 1987). Thus, perceived risk moderates the effect of incongruity on evaluations, and preferences for moderate incongruity will not appear when risk is high.

Dholakia (2001) presented a conceptual motivational process model, explicating the processes by which involvement and consumer risk perceptions are caused, and influence one another, as well as subsequent behavioral responses of consumers. Jacoby and Kaplan (1972; Kaplan et al., 1974) identified five risk dimensions including psychological, financial, performance, physical, and social. In this research, psychological risk perception is viewed as the experience of anxiety or psychological discomfort arising from anticipated post-behavioral affective reactions such as worry and regret (Perugini & Bagozzi, 1999) from purchasing and using the product. Other cognitively-evaluated types of risk arise from objective features of the product or service such as cost (financial risk), performance features (performance risk), possibility of bodily harm (physical risk) and the possibility of excessive investment of time (time risk). Rothschild (1979) advocated the use of perceived risk as an implicit measure of product involvement and points out the usefulness of functional and psychological risk as predictors of product involvement. The affectively evaluated psychological risk, as well as the motivation arising from the purchase situation, both contribute to subsequent cognitive evaluation of the risk associated with the product. A second important component of perceived risk is likelihood of occurrence of these adverse consequences (Dowling, 1986). It is possible that the negative emotional state...