Signals and willingness to purchase in services

Signals and Willingness to Purchase in Services Nguyen Dinh Tho University of Economics HCMC, Vietnam Abstract The purpose of this study is to employ a signaling framework to investigate the role of marketing signals in customers’ willingness to purchase (WIP) a service brand Based on a sample of 297 online shopping customers in Ho Chi Minh City, the findings produced by structural equation modeling show that brand investment together with signal credibility positively affects WTP Signal clarity and consistency have a positive impact on signal credibility; signal consistency underlies signal clarity Finally, brand investment plays it role in all three signal characteristics – clarity, consistency and credibility The findings confirm the net effects of brand investment and signal characteristics on WTP The results from necessary condition analysis demonstrate that brand investment and signal credibility have varying levels of necessity for the occurrence of WTP Signal clarity, consistency and brand investment also exhibit different levels of necessity for the occurrence of signal credibility The study findings offer a number of implications for theory, research and practice Keywords Necessary condition analysis; Signaling theory; Services; Vietnam Introduction Information asymmetry exists in a market when “different people know different things” (Stiglitz, 2002, p 469) A market is characterized by the asymmetry of information where providers know more about the quality of their offers than their customers (Connelly, Certo, Ireland, & Reutzel, 2011; Kirmani & Rao, 2000) In such a market, signaling theory is useful and providers are able to use signals to inform their customers about the quality of offers (Mavlanova Benbunan-Fich, & Koufaris, 2012; Nguyen, Barrett, & Nguyen, 2014) Signaling theory, derived from information economics under the condition of asymmetric information (e.g., Spence, 2002; Stiglitz, 2002; Tirole, 1988), has been widely applied in business research over the past several years (Connelly, Certo, Ireland, & Reutzel, 2011; Kirmani & Rao, 2000) In marketing, signaling theory has been employed by researchers to study various marketing issues such as brand equity (Erdem & Swait, 1998), warranty, product quality (e.g., Rao, Qu, & Ruekert, 1999), price and advertising (e.g., Caves & Greene, 1996), business relationships (e.g., Alsos & Ljunggren, 2017), online retail (e.g., Rao, Lee, Connelly, & Iyengar, 2018) The service market is an information asymmetric market because service providers know the quality of their services better than their consumers As such, signaling is valuable because signals help service providers to inform the quality of service brands to customers (Kirmani & Rao, 2000) However, little research has been devoted to explore the usefulness of signaling theory in services, especially in transitioning markets such as Vietnam In addition, quantitative marketing researchers have mainly employed conventional statistical tools such as multiple regression analysis and structural equation modeling (SEM) to test their theories Such conventional methods are appropriate for researchers to test the net effects (i.e., beta weights) of independent variables on dependent variables, they are however unable to help researchers to discover the causal complexity of social phenomena (Ragin, 2008) Fuzzy-set qualitative comparative analysis (fsQCA) assists researchers in examining sufficient and in-kind necessary conditions for an outcome but it does not 291 support researchers in exploring the level of necessary conditions Necessary condition analysis (NCA; Dul, 2016a) helps researchers to investigate the degree of necessary conditions for the occurrence of an outcome To bridge the aforementioned gaps, this study aims to apply signaling theory to investigate the role of brand investment and signal characteristics, including signal clarity, consistency and credibility, in customers’ willingness to purchase (WTP) a service brand Specifically, the study first uses SEM to investigate the net effect of brand investment and signal credibility on WTP and of brand investment, signal clarity and consistency on signal credibility The study then employs NCA to discover the degrees of necessity of brand investment and signal credibility for the occurrence of WTP and the degree of necessity of brand investment, signal clarity and signal consistency for the occurrence of signal credibility The remainder of the paper is organized around the following key points: theoretical background and hypotheses, method, data analysis and results, discussion and implications, and conclusions, limitations and directions for future research Theoretical background and hypotheses Signals and signaling theory Information asymmetry exists in a market when buyers and sellers are uncertain about the information concerning their exchange, or when one party owns more information than the other (Alsos & Ljunggren, 2017; Connelly et al., 2011; Kirmani & Rao, 2000; Wells, Valacich, & Hess, 2011) When faced with an information asymmetry problem, sellers and buyers will encounter a number of difficulties in making decisions For example, sellers of high quality products will be confronted with the positioning of their products (goods or services) against the products offered by low-quality sellers, and buyers may have trouble distinguishing a highquality product from a low-quality one (Mishra, Heide, & Cort, 1998; Izquierdo & Izquierdo, 2007) Under such a market condition, several signals can serve as a signal of product quality, resulting in the application of signaling theory in several disciplines (Connelly et al., 2011; Kirmani & Rao, 2000) Rao et al (1999, p 259) define a signal as “an action that the seller can take to convey information credibly about unobservable product quality to the buyer.” It is a piece of information on the product that is able to assist sellers in showing the ability of their product to meet the requirements of their buyers and to differentiate the product from other offerings, and that helps customers to make inferences about the quality and value of the product (Heil & Robertson, 1991; Nguyen et al., 2014) The information to be conveyed can take a variety of forms such as the product’s attributes, prices, advertising, and warranties (e.g., Li, Fang, Wang, Lim, & Liang, 2015; Ozsomer & Altaras, 2008; Wells et al., 2011) The quality of a product can be classified into three categories: search, experience and credence qualities (Darby & Karni, 1973) Search-quality products “are those that can be ascertained in the search process prior to purchase and experience-quality products are those that can be discovered only after purchase as the product is used Credence-quality products are those which, although worthwhile, cannot be evaluated in normal use Instead, the assessment of their value requires additional costly information” (Darby & Karni, 1973, pp 6869) The literature on signaling theory suggests that signaling theory is highly applicable to experience-quality products because those products are characterized by a combination of high pre-purchase information scarcity and high post-purchase information clarity (Kirmani & Rao, 2000) In such a market condition, through a signaling process, sellers are able to reduce such an information gap, confirming their buyers that they are selecting a high-quality product (Wells et al., 2011) A signaling process involves three key elements: the signaler, the receiver and the signal itself Signalers are holders of or insiders concerning information about the unobservable (of a good or service) which is not available to outsiders (the receiver) Such information can be positive or negative; however, signalers primarily focus on the positive information with an attempt to convey positive attributes of the product or service (Connelly et al., 2011) Signaling is a learning process (Heil & Robertson, 1991) in which outsiders (the receiver) 292 receive the signal, read and interpret it in the light of their experience, and react accordingly (Heil & Robertson, 1991) The detection and interpretation of a signal by the receiver depend on several characteristics of the signal; that is, signals have different levels of effectiveness (Li et al., 2015) Some signals may be easier to be detected and interpreted while others may not be A number of signal characteristics have been proposed in the literature such as signal clarity, intensity, observability, strength, visibility, consistency, credibility, and reliability Note that some of the above characteristics are closely related with others For example, clarity is similar to intensity, observability, strength and visibility; reliability has the same content with credibility (Connelly et al., 2011; Well et al., 2011) Accordingly, three key characteristics of a signal that help the receiver to detect and interpret the signal are clarity, consistency and credibility (Erdem & Swait, 1998; Tho, 2017) Signal clarity refers to the absence of ambiguity in the information conveyed by the signaler Signal consistency is reflected in the agreement among signals sent by the signaler Finally, signal credibility denotes the honesty of the signaler as well as the correspondence between the signal and the signaler’s quality, making the receiver to be confident in the signaler’s product claims (Connelly et al., 2011; Erdem & Swait, 1998; Tho, 2017) Signaling and WTP: Conceptual model The service market is characterized by asymmetric information, which may create higher risks for customers because prior to actual purchase of a service brand, customers lack knowledge about the quality of the service; that is, pre-purchase information is scarce The quality of the service can only be evaluated when customers complete their consumption, meaning that the quality of the service is based on customers’ experience; that is, high postpurchase information clarity In such an experience-quality service (i.e., a combination of high pre-purchase information scarcity and high post-purchase information clarity), signaling theory is appropriate, and service providers can use signals to inform their customers about the quality of their service brand (Kirmani & Rao, 2000; Wells et al., 2011) Signals can serve as a source of knowledge about service brands, reducing the information gap in the market (Nguyen et al., 2014; Rao et al., 2018; Wells et al., 2011) Several marketing-mix elements, such as warranties, advertising, prices, brand names, can serve as signals These marketing signals convey information about the service brand to customers (e.g., Erdem & Swait, 1998) In such a setting, customers would also like information that can help them to distinguish high quality service brands from low quality ones Therefore, marketing signals play an important role when consumers are not ready to evaluate the quality of a service brand before consumption Figure depicts a conceptual model explaining the role of signal characteristics and brand investment in WTP The model proposes that signal credibility and brand investment have a positive effect on WTP Signal clarity and consistency influence signal credibility and signal consistency affects signal credibility Finally, brand investment underlies all three signal characteristics (clarity, consistency and credibility) Figure Conceptual model Signal consistency Signal credibility H2 H3 H4 Signal H6 clarity H5 293 Signal credibility is the key characteristic of a signal because it determines the effectiveness of information conveyed (Tirole, 1988) When a market is characterized by imperfect and asymmetric information, it is important that a service provider should communicate credible information on its service brand to customers A credible signal can serve as a source of knowledge about the service brand, lessening customers’ perceived risk as well as costs of gathering and processing information (Erdem & Swait, 1998) Accordingly, if customers believe that the service brand’s signal is credible, i.e., the service provider is able and willing to deliver what is promised, they form a positive attitude toward the brand, leading to the willingness to purchase the brand In other words, when prepurchase information is scarce, brand credibility is an essential factor that determines the choice of customers (Erdem & Swait, 1998; Kirmani & Rao, 2000; Tho, 2017) H1 Signal credibility has a positive effect on WTP Signal clarity assists customers in easily identifying what a service provider would like to inform its target customers, such as the brand’s attributes and position To make a signal clear, every marketing-mix signal should be consistent, i.e., reflecting the same attributes, objectives, position, and stable over time (Erdem & Swait, 1998) Therefore, signal consistency is essential to signal clarity In addition, signaling theory suggests that most rational firms are unlikely to send false signals if the signals increase costs in terms of immediate profits, future profits, and reputation (brand image) (Tirole, 1988) As a result, signal clarity and consistency are vital to signal credibility because customers may believe that only quality service providers would send clear and credible signals to their consumers H2 Signal consistency has a positive effect on signal credibility H3 Signal consistency has a positive effect on signal clarity H4 Signal clarity has a positive effect on signal credibility A service provider should invest in its service brand to demonstrate that the firm commits to the brand, and to assure that its service claims are to be delivered (Erdem & Swait, 1998) Brand investment motivates customers to believe that the firm is willing and able to provide them the expected service leading to a higher level of WTP Further, high investment in the brand enables the service provider to send clear and consistent signals to its customers with an expectation of a return in higher credibility perceived by customers Consequently, investment in a brand enhances the clarity, consistency, and credibility of the brand signal H5 H6 H7 H8 Brand Brand Brand Brand investment investment investment investment has has has has a a a a positive positive positive positive effect effect effect effect on on on on signal clarity signal consistency signal credibility WTP Method 3.1 Sample and measure A sample of 297 consumers in Ho Chi Minh City, the major business center in Vietnam, was surveyed to test the measurement and theoretical models Two key online-shopping service providers in Vietnam – Lazada and Home Shopping Vietnam – were selected for the study and faceto-face interviews, the most effective means of collecting survey data in Vietnam, was employed Note that this study aimed to investigate non-current customers of these two service providers, therefore, a screening question was used to select respondents who were not their current customers The sample comprised 102 (34.3%) female customers and 195 (65.7%) male customers In terms of brand, 50 (50.5%) customers were interviewed with the Lazada questionnaire and 147 (49.5%) were interviewed with the Home Shopping Vietnam questionnaire Constructs examined were brand investment, signal clarity, consistency, credibility and WTP The measures of these constructs were borrowed from the scales developed by Erdem and Swait (1998) Brand investments, signal clarity, and WTP were measured by three items each Signal consistency and brand 294 credibility were measured by four items each All items were measured by a 7-point Likert scale, anchored by 1:strongly disagree and 7: strongly agree Note that the questionnaire was initially prepared in English and then translated into Vietnamese by an academic who is fluent in both languages To confirm the equivalence of meanings between the two versions of the questionnaire (English and Vietnamese), a back translation was also conducted by another bilingual academic This procedure was undertaken because English is not well understood by most Vietnamese consumers Note also that the order of the questionnaire items was randomly distributed to reduce the agreement tendency bias (Chang, van Witteloostuijn, & Eden, 2010) Data analysis and results 4.1 Measurement validation To value the measures of the constructs under study, confirmatory factor analysis (CFA) with maximum likelihood estimation was employed The maximum likelihood estimation method was used because all the univariate kurtoses and skewnesses were within the range of [-1, 1] (Muthen & Kaplan, 1985) The CFA results of the final measurement model indicate that the model received an acceptable fit to the data: 2(261.31)/df(106) = 2.47, GFI = 0.911, CFI = 0.942, and RMSEA = 0.070 All item loadings on the factors were significant and sufficient (  ≥ 0.55) Composite reliability (CR) and average variance extracted (AVE) of all constructs were acceptable (CR ≥ 0.67, AVE ≥ 0.58) These findings support the requirements for unidimensionality and within-method convergent validity (Steenkamp & van Trijp, 1991) In addition, the correlation of any pair of constructs was less than the root square of average variance extracted of each construct in the pair, supporting between-construct discriminant validity (Fornell & Larcker, 1981) 4.2 Common method bias To control the possibility of common method bias due to the use of cross-sectional data collected from a single respondent (customers), this study used a number of procedures as follows As noted previously, in the design phase, the order of the questionnaire items was randomly distributed In the analysis phase, two statistical tests were conducted A CFA Harman’s single factor model test (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003) was first conducted, and then, an unmeasured latent variable test (allowing the unmeasured latent variable to load on each item in the trait model; Markel & Frone, 1998) followed The CFA Harman test shows that the one-factor model received a very poor fit to data [2(966.09)/df(116) = 8.33, GFI = 0.715, CFI = 0.685, and RMSEA = 0.157], compared to the trait factor model [2(261.31)/df(106) = 2.47, GFI = 0.911, CFI = 0.942, and RMSEA = 0.070] Further, the unmeasured latent variable test reveals that all CFA loadings of items measuring the constructs were not statistical significant and that these item-loadings were almost identical to those reported in the saturated CFA model The results of these two statistical tests indicate that if the common method variance existed, it did not make results of this study biased Note that no improper solutions were found in any results of the CFA tests (Heywood cases, i.e., negative variances, were absent; all standardized residuals were less than |2.58|) 4.3 Testing the net effect with SEM SEM was employed to investigate the net effects of the three signal characteristics (clarity, consistency and credibility) and brand investment on WIP The results produced by SEM show that the theoretical model received an acceptable fit to the data [2(262.98)/df(108) = 2.44, GFI = 0.910, CFI = 0.942, and RMSEA = 0.070] and that no improper solutions were found in the results of the SEM test (Heywood cases, i.e., negative variances, were absent; all standardized residuals were less than |2.58|) Table demonstrates the unstandardized and standardized estimates of the structural coefficients 295 Table Regression weights Hypothesis H1 H2 H3 H4 H5 H6 H7 H8 Path Signal credibilit Signal consisten Signal consisten Signal clarity → Brand investme Brand investme Brand investme Brand investme Note: B: unstandardized estimate; SE: standard error; β: standardized estimate; t: t-value; p: p-value The SEM results (Table 1) indicate that signal credibility positively influences WTP (p < 0.001), supporting hypothesis H1 Signal consistency enhances both signal credibility and signal clarity (p < 0.001), which in turn underlies signal credibility (p < 0.001), thus supporting hypotheses H2, H3 and H4 Finally, brand investment has a positive effect on all three signal characteristics (clarity, consistency and credibility; p < 0.01) and on WTP (p < 0.05), thus supporting hypotheses H5, H6, H7 and H6 4.4 Discovering in-degree necessary conditions with NCA NCA were employed to discover the level of necessity of (1) brand investment and signal credibility for the occurrence of WTP, and of (2) brand investment, signal clarity and consistency for the occurrence of signal credibility NCA is an analysis method that supports researchers in identifying the degree of a necessary (but not sufficient) condition for an outcome To examine the level of a necessary condition, NCA determines the ceiling line, the line that separates the area with observations from the area without observations Two common techniques used for determining ceiling lines are the ceiling envelopment technique (a piecewise linear line) with free disposal hull (CE-FDH) and the ceiling regression (a straight line) with free disposal hull (CR-FDH) because they are more flexible techniques (Dul, 2016a) Note that composite measures of the constructs examined were used in NCA because they were unidimensional (Gerbing & Anderson, 1988) The NCA results produced by the NCA package (Dul, 2016b) included the bottleneck table (Tables and 3), and the CE-FDH and CR-FDH ceiling lines for each condition (predictor) Table shows the level of necessity of two conditions (brand investment and signal credibility) for WTP For example, to reach 90% of WTP, it is necessary that brand investment should be at least 23.5% if using the CEFDH ceiling line, and at least 20.8% if using CR-FDH ceiling line Table demonstrates the level of necessity of three conditions (brand investment, signal clarity and consistency) for signal credibility For the occurrence of WTP, brand investment receives the highest effect size: d (CE-FDH) = 0.052 and d(RE-FDH) = 0.046 (Table 2) For the occurrence of signal credibility, signal consistency receives the highest effect size: d(CE-FDH) = 0.207 and d(RE-FDH) = 0.181 (Table 3) Table Bottleneck table: Required minimum levels of brand investment and signal credibility for different desired levels of WTP WTP (%) 10 20 30 40 50 60 70 80 90 100 Effect size (d) Note: CE-FDH: Ceiling Envelopment with Free Disposal Hull; CR-FDH: Ceiling Regression with Free Disposal Hull; d: effect size; NN: Not necessary Table Bottleneck table: Required minimum levels of brand investment, signal clarity and consistency for different desired levels of signal credibility Signal credibility (%) 10 20 30 40 50 60 70 80 90 100 Effect size (d) Note: CE-FDH: Ceiling Envelopment with Free Disposal Hull; CR-FDH: Ceiling Regression with Free Disposal Hull; d: effect size; NN: Not necessary Discussion and implications Of particular interest of this study is to explore the role of marketing signals in customers’ willingness to purchase a service brand The results produced by SEM show that brand investment together with signal credibility positively affects WTP Signal clarity and consistency have a positive impact on signal credibility; signal consistency underlies signal clarity Finally, brand investment plays it role in all three signal characteristics – clarity, consistency and credibility The findings confirm the net effects of signal characteristics and brand investment on WTP The results from NCA demonstrate that brand investment and signal credibility have different levels of necessity for the occurrence of WTP Signal clarity, consistency and brand investment also exhibit varying levels of necessity for the occurrence of signal credibility The findings of this study offer a number of implications for theory, research and practice In terms of theory and research, the current study applies a signaling framework to investigate customers’ willingness to purchase a service brand, an area which has largely been ignored in prior research The empirical evidence confirms that, together with cognitive psychology, signaling theory is an appropriate framework for research on service brands in general and WTP in particular Thus, this study provides an alternative theoretical framework for investigating WTP under the condition of asymmetric information The results from the two methods of data analysis (SEM and NCA) reveal that brand investment together with signal credibility play important roles in WTP Also, brand investment, signal clarity and consistency help enhance the credibility of a marketing signal perceived by customers 297 Over the past several years, several studies have investigated the impact of signal characteristics on WTP and other outcomes (e.g., Erdem & Swait, 1998; Nguyen et al., 2014; Tho, 2017) However, such studies focus solely on the net effects This study is among the first to examine the level of necessity of these conditions (predictors) for an outcome The study, therefore, may support researchers in better understanding the complexity of relationships between study variables, especially, the degree of necessary conditions for an outcome Accordingly, the study sheds light on a new way of research on signaling in services, especially in transitioning markets such as Vietnam SEM assists researchers in discovering the net effect of these predictors of both WTP and signal credibility, and NCA discovers their degrees of necessity Thus, NCA and SEM findings are complementary to each other and this signals researchers to think of the use of both methods of data analysis in their studies In practice, the results give an important implication to service marketers When a market is characterized by information asymmetry, a service firm should send clear, consistent and credible signals to stimulate customers’ WTP Further, the service firm should invest in its service brand in order to fulfill what is promised This will benefit the firm in terms of profits and reputation (brand image) if it sends truthful signals However, it is crucial to understand that a credible signal has a bonding component and the firm will incur a cost (loss of brand image) if the signal is false More importantly, the firm should pay attention not only to the net effect but also to the level of necessity of the conditions that underlie signal credibility and WTP The study findings indicate that these conditions have varying levels of necessity Firms, especially those in transitioning markets like Vietnamese firms whose resources are limited compared to firms in advanced economies, should specify the target level of outcomes (credibility and WTP) and then identify the level of necessity of their conditions for each target outcome Conclusions, limitations and future research directions In conclusion, the service market is characterized by a combination of high pre-purchase information scarcity and high post-purchase information clarity, and signaling theory is an appropriate framework for the study of such a market Service marketers can employ marketing signals to inform their customers about the quality of their service brands (Connelly et al., 2011; Kirmani and Rao, 2000; Wells et al., 2011) This is because customers have difficulties in evaluating the quality of service before their actual purchase Accordingly, service marketers should send clear, consistent and credible signals to convince their customers about the quality of their service brands This study has a number of limitations First, the study focuses only on on-line shopping services Signaling frameworks can be applied in a variety of services Future research should employ signaling theory to investigate different types of services in order to establish key similarities and differences between services Further, this study investigates the role of brand investment and signal characteristics in WTP Future research should 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How website quality influences perceptions of product quality and purchase intentions MIS Quarterly, 35(2), 373-396 299 ... attitude toward the brand, leading to the willingness to purchase the brand In other words, when prepurchase information is scarce, brand credibility is an essential factor that determines the... credibility, in customers’ willingness to purchase (WTP) a service brand Specifically, the study first uses SEM to investigate the net effect of brand investment and signal credibility on WTP and of brand... should invest in its service brand to demonstrate that the firm commits to the brand, and to assure that its service claims are to be delivered (Erdem & Swait, 1998) Brand investment motivates customers