The effect of co-creation through exposure to augmented reality on customer perceived risk, perceived trust and purchase intent

Abstract

In recent years, due to advancements of technology, customers are empowered and better informed about the market (Prahalad & Ramaswamy, 2004b). Companies better understand that the balance of power has shifted and that they are no longer able to create a product and dictate the value of it in isolation from customers (Prahalad & Ramaswamy, 2002). Customers are now deciding what the value for them will be, through the personal benefits that they gain from the purchase. The personalised benefits gained this way are commonly referred to as ‘value-in-use’ (Payne, Storbacka, & Frow, 2008).

Companies today are shifting to a new marketing paradigm of co-creation to understand how to improve their relationship with customers. The paradigm is characterised by the creation of value in coordination with their customers i.e. co-creating value, in order to enhance the customers’ value-creation process (Vargo & Lusch, 2004a). By following such a strategy, customers feel even more empowered to demand a certain type of value facilitator such as a product or service (Fuchs & Schreier, 2011). However, alongside these benefits there are also challenges that companies face when co-creating value.

One such challenge is the requirement for interaction platforms that allow for co-creation to occur (Ballantyne, 2004; Ballantyne & Varey, 2006; Lusch & Vargo, 2014). An interactional platform is a place or ‘space’ where customers and companies can interact with each other. This place can be digital because with current technology, an interactional platform can be a technological device that allows customers to interact with other customers through dialogue or exchange of information (Ballantyne & Varey, 2006, 2008; Schaffers et al., 2011). This challenge paved the way for marketers and business leaders to look for ways to enhance the dialogical and informational interactions through innovation and technology.

Augmented Reality (AR) is a technology that can address the limitations of traditional dialogical and informational platforms such as a phone, face-to-face and internet. AR allows for instant interactive elements to be accessible, enabling customers to see digital information in real time and to interact with this information as it is overlaid on to the physical world.

Despite the benefits of AR, some companies are reluctant to invest in the technology because many them believe that it is a ‘hyped up’ technological innovation that does not have a high rate of return (Woods, 2009). This research proposes that AR can aid in the co-creation process by creating interactions and information to ultimately reduce perceived risk, increase perceived trust and increase purchase intent. This leads to the overall research question of this study: Compared to traditional shopping, what is the effect of co-creation, through exposure to AR, on digitally literate and illiterate customers’ perceived risk, perceived trust and intent of purchasing high and low involvement products in retail stores?

The current research, which was undertaken in a large university in Saudi Arabia, was based on an experiment that was followed up with a quantitative survey. Respondents were divided into four mutually exclusive groups who observed either a high or a low involvement product display poster with either exposure to AR (treatment group) or no exposure to AR (control group). The survey resulted in 237 usable responses (219 after outliers were removed). Validity and reliability were examined and followed up by separate regression analyses, MANCOVA, Pearson correlations and mediation bootstrapping. All these techniques were applied through the IBM SPSS 22 statistical software.

The data analyses revealed that 12 out of the 18 hypotheses tested were supported, four were partly supported and two were not supported. These results showed that co-creation through exposure to AR reduces perceived financial risk for the high-involvement product and reduces the perception of physical risk for the low-involvement product. The results also provided evidence that exposure to AR increases customer perceived trust and purchase intent. The results of this study provide evidence that a) the relationship between exposure to AR and perceived risk, b) the relationship between exposure to AR and perceived trust and c) the relationship between exposure to AR and purchase intent, were all mediated by the co-creation variables of interaction and information. Finally, the findings of this study revealed that the relationship between exposure to AR and purchase intent is mediated by perceived trust and perceived risk.

The current research offers five theoretical and four practical contributions. Theoretically, it provides evidence that exposure to AR increases interactions and information exchange, which, based on the literature discussed in chapter 3, are key co-creation outcomes. The research also provides evidence that exposure to AR reduces perceived risk through the mediators: interactions and information. Additionally, exposure to AR increases perceived trust and increases purchase intent and both of these relationships are mediated by co-creation i.e. interactions and information. Moreover, the results provide evidence that co-creation through exposure to AR increases perceived trust and decreases perceived risk independently of each other and that the two variables i.e. perceived risk and perceived trust, decrease and increase, respectively, due to the impact of co-creation through exposure to AR and not because of each other.

Practically, this research supports the claims made by previous researchers (e.g. Atorough & Donaldson, 2012; Echeverri & Skålén, 2011; Fill, 2009; Gummesson, 1987) who stipulated that interactive platforms need to be developed to aid co-creation. This study also provides a list of interactive and informational elements that can be used to reduce perceived risk, increase perceived trust and increase purchase intent. Additionally, the research provides insights into the ways that an organisation may utilise AR technology within their marketing strategy and gives recommendations on how organisations may measure the return on investment of AR technology.