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Article Excerpt
The use of Internet seal of approval programs has been touted as an alternative to potential legislation concerning consumer-related online privacy practices. Questions have been raised, however, regarding the effectiveness of such programs with respect to maintaining privacy standards and aiding online consumers. The authors examine these issues in a series of three studies, the first of which is an exploratory application of Federal Trade Commission privacy standards to various online privacy policies in an effort to determine the ability of seal of approval program participation to act as a valid cue to a firm's stated privacy practices. The second and third studies are experiments designed to ascertain how online firm participation in Internet seal of approval programs affects consumers. Implications for consumer policy are discussed.
Concern regarding the privacy of personal information has been declared a major obstacle of consumer participation in various online activities (Culnan 1999, 2000; FTC 1998a, 1998b, 2000a; Hoffman, Novak, and Peralta 1999; Miyazaki and Fernandez 2001; Rohm and Milne 1998). Indeed, the U.S. Federal Trade Commission has discussed the potential need for legislation to raise levels of privacy to acceptable standards (FTC 2000), with recent legislative efforts focusing on information disclosure in the form of web site privacy policies (Miyazaki and Fernandez 2000). Unfortunately, such a focus may be misdirected since privacy policies are not contracts and are subject to change at the discretion of the firm and without notice to the consumer. For example, Amazon.com recently underwent a widely publicized modification of their privacy policy, declaring that the company could trade personal data with other companies without the need for customer notification (CNN 2000).
Firms with an Internet presence agree that privacy is a key factor for online success. This was illustrated in a recent survey of Internet marketers, wherein fewer than half (46%) of those surveyed felt that web site self-regulation adequately protects consumers, while 92% believed that consumers would make more online purchases if they felt more confident regarding online privacy (Jarvis 2000). The same survey suggested that a single privacy standard is key to consumer confidence, but that government involvement would harm e-commerce. Congruent with this perspective, a number of companies with an online presence are trying to counter attempts to legislate privacy policies by promoting the value of third-party seals of approval or verification systems designed to temper consumer privacy concerns (Benassi 1999; Industry Standard 1999; Palmer, Bailey, and Faraj 2000). The efficacy of these Internet seals of approval, however, has been questioned by the FTC because of both a lack of adoption by online firms and the failure of seal of approval programs to impact privacy practices. For example, a recent FTC study found that only 8% of heavily-trafficked web sites it surveyed displayed a seal, and almost one-half of sites displaying seals from popular self-regulated seal programs did not meet the standards set for fair information practices (FTC 2000). This is not surprising considering limitations in the enforcing ability of these programs (Caudill and Murphy 2000).
This situation raises questions as to whether Internet seals of approval are effective in (1) raising online firms' privacy-related practices to acceptable levels and (2) influencing consumers' perceptions of such privacy practices. To address these questions, we present the findings of three studies. The first study is a preliminary investigation of whether firm participation in an Internet seal program is a valid indicator of privacy standards. The next two studies evaluate whether the display of Internet seal of approval logos influences consumer judgments of online firms' privacy efforts. We conclude by discussing the policy implications of the findings. But first, we briefly review prior work concerning seals of approval in general and examine the state of seals of approval in the Internet marketplace.
A BRIEF REVIEW OF SEALS OF APPROVAL
Although seals of approval have existed for decades and have been sponsored by a variety of organizations (e.g., Good Housekeeping, American Dental Association, Underwriters Laboratories), the effects of such seals on industry and consumers have received only intermittent attention by academic researchers over the years. Early work by Parkinson (1975) showed that various seals or certifications of approval significantly influenced consumer choice, but were often misperceived as having greater meaning than was justified by the seal-granting institutions. Later work by Laric and Sarel (1981) confirmed the consumer misperceptions and found that such misperceptions were positively related to consumer usage of seals in purchase decision making, in spite of public policy limiting the information content of certain seals of approval. More recent work has suggested that while consumer misperceptions persist regarding what seals of approval represent, these seals have little effect on the believability of ad claims (B eltramini and Stafford 1993). There is also evidence that such third-party information only has effects under certain conditions (Kamins and Marks 1991).
In their conceptual overview of seals of approval in the food industry, Bennett and McCrohan (1993) claim that seals of approval, in theory, may be useful for communicating a threshold of quality to otherwise unknowledgeable consumers, but in practice, may not be in the best interests of consumers. Specifically, Bennett and McCrohan (1993) suggest that the practice of many seal-granting organizations to use such seals as a means to raise revenue may be seen by some consumers and consumer advocates to harm perceptions of impartiality in awarding approval to member firms. More recently, Garella and Peitz (2000) argue that the replacement of seals and certifications by distribution channel intermediaries would result in a more accurate and less costly signaling of product quality. Notwithstanding the issues raised by Bennett and McCrohan (1993) and Garella and Peitz (2000), a number of seals of approval continue to be used in today's marketplace.
It may be argued that the potential need for seals of approval is even greater in the context of the Internet. For example, prior research suggests that consumers perceive a great deal of risk with respect to e-commerce when compared to transactions made at traditional brick and mortar outlets (FTC 1998a; Miyazaki and Fernandez 2001; Rohm and Milne 1998; Sheehan and Hoy 2000). This likely occurs due to several features of online transactions, such as the necessity to provide personal (e.g., name, address, telephone number) and payment (e.g., credit card number) information (Miyazaki and Fernandez 2001). Indeed, while other remote purchasing methods (such as telephone and mail-order shopping) have been shown to elicit relatively high feelings of consumer risk (Cox and Rich 1964; Spence, Engel, and Blackwell 1970), e-commerce likely suffers even further due to its relatively innovative nature and considerable media coverage of security- and privacy-related problems.
In the context of online transactions and privacy concerns, firms can attempt to reduce consumers' perceived risk in several ways (Hoffman et al. 1999; Machrone 1998), one of which is the use of seals of approval from trusted third parties (Palmer et al. 2000; Krishnamurthy 2001). Such third parties can attest to the particular privacy level that a particular online firm is providing. Consumers who see the seal can then be assured that a certain standard of privacy will be met. Finally, a seal of approval can be thought of as a co-branding strategy (Grossman 1997; Park, Yun, Shocker 1996), wherein a web site aligns with a trusted third party in an attempt to gain the trust and/or confidence of potential customers (Krishnamurthy 2001).
Unfortunately, the costs of monitoring participating firms in a seal of approval program are not insignificant. Indeed, the greater the requirements (i.e., the more rigorous the seal program), the higher the costs of both initial approval and ongoing monitoring. As such, although each participating member realizes that it can benefit by associating with the program, some members may not be willing to follow the rigorous requirements of the program, particularly if it is determined that the probability of being discovered and disciplined is relatively low. At the same time, the sponsoring firm, realizing that its credibility is at least partially linked to the number of participating...
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