Executive Summary

Previous research has studied online privacy issues from different perspectives. However, no studies have directly explored the likely effect of privacy disclosures on consumer trust. Our study is designed to fill this gap with the general purpose of examining the impact of privacy disclosures on online shoppers’ trust in an e-tailer. We approach this topic with a two-phase study.

In Study 1, we use a lab experiment to test the likely effect of a privacy policy on consumer trust. Social contract theory (Dunfee, Smith, and Ross 1999) provides a conceptual basis for predictions regarding the overall effect of privacy policies on trust. Social contract theory suggests that consumers will seek out and carefully examine specific privacy protocols before they commit themselves to a transactional relationship; they will not trust a store unless it employs trustworthy privacy practices. Privacy disclosures posted on a Web site may reduce a consumer’s perceptions of privacy-related risk, result in positive experiences with a firm, and increase the customer’s perceptions that the firm can be trusted (Culnan and Armstrong 1999). Therefore, we posit that

H1. The presence of an online privacy policy (as compared to the absence) will generate higher perceptions of trust.

Previous research has shown that general risk levels are related to search behavior. Internet shoppers, especially those who perceive a high risk associated with online transactions, may proactively search for and carefully examine an e-tailer’s privacy practices to alleviate their concerns about the privacy of their information. Therefore, a clearly stated privacy disclosure may be useful in alleviating privacy-related concerns. Therefore, we believe that Web sites with privacy policies will reduce risk perceptions of online shopping and positively influence consumer trust in an e-tailer, particularly when their risk perceptions are high.

H1a. There will be an interaction between online privacy policy and risk such that when the risk is high, consumers will perceive greater trust when the online privacy policy is present (vs. absent). When the risk is low, consumers will perceive no difference in trust regardless of the presence (absence) of online privacy policy.

In Study 2, we explore whether the different formats of privacy disclosures have differential effects on consumer trust. According to information theory and Berlyne’s (1960) theory of stimulus complexity, highly complex messages are not as effective as communications perceived to fall in a range of moderate complexity. When faced with a lengthy privacy policy statement, consumers may not attend to the message in an attempt to preserve their time and avoid an overload of information. We predict that consumers’ responsiveness to succinct, nontechnical privacy disclosures will be more positive than their responses to long, legalistic privacy disclosures. If a concise, nontechnical privacy statement communicates better and improves comprehension, it also should reduce privacy-related concerns more effectively than a lengthy, legalistic document.

H2. A short, straightforward privacy policy will result in more consumer trust in an online store than a long, legalistic policy.

Our results support both hypotheses in Study 1. People who are exposed to the Web site with a privacy statement have higher trust in the store. A Web site with a clearly stated privacy policy communicates a “you can trust us” signal to visitors. When the risk is high, presence (vs. absence) of online privacy policy causes subjects to perceive greater trust. There is, however, no significant difference for low risk condition. Study 2 reinforces our findings from Study 1 by showing that consumer trust in the store is considerably lower when a privacy statement is missing from the site. Online shoppers find short, straightforward privacy statements much easier to read and understand. Although e-shoppers can distinguish various forms of privacy disclosures in terms of complexity (usage of legalese) and comprehensiveness (length), these variations do not affect their trust in the store’s fair information practices in any significant manner.