The Effects of Perceived Risk on the Word-of-Mouth Communication Dyad

Article excerpt

This study examined the effects of perceived risk on the sender and the receiver of word-of-mouth (WOM) communication. Regression analysis of 675 questionnaires administered in Taiwan metropolitan areas confirmed that financial risk and performance risk have significant positive effects on WOM's influencing of the receiver's purchase decision, whereas social risk and psychological risk have significant positive effects on the sender's intention of WOM spread. Product familiarity was identified as a moderator of the relationship between expected performance risk and WOM spread. There was a negative relationship between expected performance risk and WOM spread when people were unfamiliar with the product.

Keywords: word of mouth, advice giving, recommendation, risk, psychological, financial.

Word-of-mouth (WOM) communication has long been considered important in affecting consumers' attitudes and decision-making processes (Wangenheim & Bayón, 2004); moreover, WOM is believed to be more trustworthy than any other influence, mainly because the communicators are independent in the market, and are usually our friends and family, that is, the people we trust (Derbaix & Vanhamme, 2003). As a result, when people face a high-risk buying situation and as the difficulty of the task and the number of information sources increase, they depend heavily on WOM messages. In fact, risk reduction is the most important motive for people to seek WOM communication (Hennig-Thurau & Walsh, 2003). Hence, much research has found that the higher the perceived risk of buying a product the higher the effect of WOM information on the receiver's buying decision (e.g., Murray, 1991).

However, different findings have been observed in research from the sender's perspective. Sheth (1971) argued that people may be more comfortable about spreading WOM messages on low-risk products than on high-risk products, because the friendship will not be at stake if the consequences do not satisfy the receiver. Evidence from empirical research has demonstrated some support for this statement. For example, drawing on the receivers' perspective, McAlistera and Erffmeyer (2003) found the decision to buy insurance products was strongly influenced by WOM; however, from the senders' perspective, Dye (2000) found that insurance is largely immune to WOM communication, and is believed to be independent of WOM information. As WOM activity occurs at least within the dyad of the sender and the receiver, the effect of the WOM message is unclear without clarifying the effects of the perceived risk on dyad members.

This study sought to examine empirically the risk construct for understanding WOM. Specifically, we examined the effect of six risk dimensions on WOM receiver as well as WOM sender. By understanding their relationships, we can better determine the effects of WOM marketing, thus enhancing both our practical and theoretical understanding of WOM communication.

THEORETICAL BACKGROUND

It is believed that much of the confusion surrounding the study of perceived risk can be reduced by recognizing several perceived distributions on each risk dimension rather than on just one (Mitchell, 1999). The perceived risk has been conceptualized as a dual-component (consequences and uncertainty) multidimensional phenomenon. Six dimensions have been identified in the literature (e.g., Murray, 1991; Peter & Tarpey, 1975). They are: (1) performance risk (the consumer's perceived risk that the functional attributes of the product do not satisfy his/her needs); (2) financial risk (the financial loss in case of poor warranty, high maintenance costs, and/or high monthly payments); (3) physical risk (how the purchase may affect the consumer's physical well-being); (4) convenience risk (the possibility that the consumer would have to waste a lot of time and effort getting the product adjusted and repaired); (5) social risk (how the purchase might affect what the consumer's friends and acquaintances think of him/her); and (6) psychological risk (how the purchase may affect what the consumer thinks of himself or herself). …