“Factors affecting Customer Satisfaction in Indian E-Commerce Industry”

A TERM PAPER SUBMITTED IN PARTIAL FULFILLMENT

FOR THE REQUIREMENT OF THE
TWO YEAR (FULL-TIME)
POST-GRADUATE DIPLOMA IN MANAGEMENT
(Research & Business Analytics)
(2018 – 2020)

BY
Aditya Goyal (411 / 2018)
Rishab Rawat (434 / 2018)

UNDER THE GUIDANCE OF

Dr. Shivani Bali

LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT, DELHI

January, 2020
`

Factors affecting Customer Satisfaction in Indian E-Commerce Industry

Abstract: In India, the latest budding sector is the E-Commerce sector. E-Commerce is on a
rapid verge of replacing the traditional building blocks of the industry. To survive and thrive
in this competitive industry it is important for companies to recognize and categorize their
essential customers and warrant the desired level of satisfaction. In both online and offline
businesses there has been an increase in the importance of customer retention as well as
satisfaction in the last 10 years. The key objective of this study is to learn and find out the
factors affecting the consumers’ satisfaction while shopping online in India amongst the
young adult generation of ages between 18 to 35. For the same, website design & usability,
product & information quality, safety & security, offers & promotions and order fulfillment
were identified and taken as the precursor for consumers’ satisfaction.
A survey was conducted for 101 respondents who had any experience of online shopping.
Factor analysis is used to club the underlying factors into the different independent variables
so that other models could be used. Multiple linear regression is used to see the impact of
different attributes on customer satisfaction and verify the overall fit of the model.
Keywords: Customer Satisfaction, Website Design & Usability, Product & Information
Quality, Safety & Security, Offers & Promotions, Order Fulfillment.

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INTRODUCTION
In the past decade, online shopping when compared to the traditional style of shopping has
signified a more economic and suitable approach to shopping and thus, has experienced an
exponential growth. With low cost of computer installation and increasing base of internet
users, there is an obvious boost of the e-commerce industry in India and many global
companies are eyeing on the industry and India is starting to appear as one of the key
international markets. The number of internet users in our country has seen an annual growth
of 18% as of March 2019 and a 40%overall penetration was observed. The population of
urban India is one of the main driving forces of the online shopping industry.
Consumers will purchase more at an online retail shop if they are satisfied by it and since
online customer retention serves as a means of gaining competitive advantage, in recent years
consumer satisfaction and retention has attracted significant amount of attention by the
industry players. Customer satisfaction and retention is also very important because it help in
retaining the loyalty of consumers and, attract potential consumers. Therefore, it is very
crucial to understand and comprehend the factors that determine customer satisfaction.
According to Kotler, Satisfaction is the consequence of the customer’s experience throughout
the several stages of purchasing. Due to the absence of physical contact, the experience of
customers while shopping online is exclusively based on the information provided by the
online stores. Thus, the information, along with service quality and the overall system might
impact customers’ satisfaction during the consumers’ buying decisions and info-search date.
There are a few important factors that determine satisfaction and therefore, the e-commerce
businesses should be well revised with the antecedents of customer satisfaction in the
industry.
This study aims to study the factors that influence customer satisfaction in the e-commerce
industry. The findings of the study can help sellers make better and informed decisions on
their online marketing and help utilize the resources to improve the factors that may directly
affect or maybe even increase the overall customer satisfaction as well as help in retaining
customer loyalty. Moreover, the online sellers could avoid spending huge amounts of money
on the features that do not lead to customer loyalty and satisfaction, promoting a long-term
business growth.

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CURRENT SCENARIO OF E-COMMERCE INDUSTRY IN INDIA

The definition of E-Commerce is the electronic process by which individuals or organizations

make a transaction, such as buy, sell, transfer, or exchange products, services and/or
information. In a nutshell, e- commerce effectively erases the necessity of huge investments
or outlays on physical infrastructure to develop a global presence, which has led to a
revolution in the way business is conducted around the world.

E-commerce is the reason there is a transformation in the way business is being done today in
India. According to IBEF, it is expected that the Indian e-commerce market will grow to US$
200 Billion by 2026 and the revenue will increase from US$ 39 Billion in 2017 to US$ 120
Billion in 2020, at an annual growth rate of 51% making India the fastest growing market for
the e-commerce sector.

The growth of the industry is mainly attributed to the penetration of smartphones and the
increased use of the internet among the Indian citizens and this digital revolution will likely
increase the internet user base of India to about 830 million in 2021 transforming the way
India does business.

By providing means of technology, financing and training to the micro, small and medium
enterprises (MSME) the e-commerce industry has directly impacted them along with other
industries as well. By 2034 India is expected to become the second largest e- commerce
market in the world surpassing the US.

Innovations aided by technology like digital payments, customer engagement driven by

analytics, hyper-local logistics and digital marketing are expected to back the growth of the
sector, which may further increase employment, revenue from exports and deliver customers
better and improved products in the long run.

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LITERATURE REVIEW
Customer satisfaction is commonly viewed as a result of comparison between the
consumption expectation and experience, factors like “transaction process” and
“customization” which lead customer satisfaction has unique aspects of “content reliability”,
“availability”, and “perceived price level of mobile Internet (m-Internet)” (Choi, J., Seol, H.,
Lee, S., Cho, H and Park, 2008).
Online customer retention has attracted considerable attention in recent years, partly because
it serves as a means of gaining competitive advantage & customer is key to it. The e-
commerce managers should develop not only good information system features, that is,
information quality, system quality, and service quality, but also marketing features, that is,
product quality, delivery quality, and perceived price, which can influence user satisfaction
positively(Chun-Chun Lin, Hsueh-Ying Wu, Yong Fu Chang. 2011).
Satisfying the customer’s demands depends on the balance between customers’ expectations
and customers’ experiences attached to the products and services. When a customer is
satisfied with a particular internet store, he or she is more likely to shop there again Thus,
concepts of customer satisfaction coupled with customer retention have become increasingly
important to online and off-line businesses. It is important to understand the factors that drive
consumers’ satisfaction and their choice of the online channels (Noura Said Al-Jahwari, M.
Firdouse Rahman Khan, Ghanya Khamies, Al Kalbani, Shima Said Al Khansouri, 2018).
Trust and security are the chief beliefs customers look for when they use online shopping
apps. Customers believe that web shops have rich and relevant product information that can
satisfy their need. The more a website is cut to a particular customer’s needs, the more likely
it will have customers returning again and again Important dimensions of customer
satisfaction of online shopping are website design, reliability, product variety and delivery
performances which influence consumers’ satisfaction of online shopping (Syed Shah Alam,
Norjaya Mohd. Yasin, 2010).
After thoroughly going through the above literature review, the questionnaire was prepared in
line with the variables identified and the data was collected from the respondent

CUSTOMER SATISFACTION IN E-COMMERCE INDUSTRY AND ITS

IMPORTANCE
Customer Satisfaction has two concepts which depend on whether it focuses on output or the
process. Focus on output shows that customer satisfaction is generally an output caused by

4
consumer experience. This cognitive state which the consumer feels one has been
compensated for the price that has been paid. A specific purchase or the purchase experience
combined with sentiments the consumer had towards the experience prior to the actual point
of purchase. Focusing on the process, consumer experience was better than expectation at
least or the choice corresponded with advanced sentiment. These definitions emphasize that
the evaluation is a very important factor on the basis of customer satisfaction. To put in
simple words, the degree to which a customer is satisfied by the goods or services of a
company determines how satisfied the customer is. This also goes a long way in determining
how much repeat business a firm can generate. Customer Satisfaction is a typical Key
Performance Indicator in the business world. In the present scenario, ensuring loyal customer
is the buzzword for all the business firms. In a competitive business world, it quite often is
the key differentiator. Within the firm too, customer satisfaction helps to provide direction to
the company. It helps the employees in aligning their actions and process in order to ensure
that they achieve the requirements of their customer. In order to achieve this, it is essential
that they have identifiable and measurable factors on which they can work upon. It is in this
context that our research attains a greater significance.
As discussed earlier e-commerce industry has been growing at lightning pace. In order that
the firms remain competitive in the growing market, it is essential that they stamp their
footprint in the market. This can only be achieved if they provide an experience to their
customer that leave them satisfied and wanting more of it. It has been widely observed that
customer loyalty and firm’s profitability are intertwined. A slight increase in the number of
customers retained shows a manifold increase in the profits of the firm
Ensuring customer satisfaction in the e-commerce market space is a challenging task. It can
only be achieved if the organizations are able to identify measurable factors. We in our
research have identified five main factors and have further split up those factors into sub-
factors. Extensive Literature survey has showed that few of the factors that contribute to the
customer satisfaction are as listed below.

1. Applications or Website Experiences

2. Quality and Reliability
3. Trust Factors
4. Promotional Attractions
5. Delivery Factors

5
RESEARCH METHODOLOGY
The proposed study adopted a primary line of enquiry. The specific survey method to be used
in this study is the questionnaire survey; a questionnaire is used for data collection. For this
research, the sampling method selected is convenience sampling. Tools used for analysis
included IBM SPSS & MS Excel.
Dependent Variable considered is the satisfaction achieved
Techniques used are as follows:
A. Factor Analysis

Factor analysis is an important tool for investigating variable relationships for twisted
concepts such as socio-economic status, dietary patterns, or psychological scales.
It lets researchers investigate concepts that are not easily measured directly by collapsing a
large number of variables into a few understandable underlying factors.
B. Multiple Linear Regression

Multiple linear regression (MLR), also known simply as multiple regression, is a statistical
technique that uses several explanatory variables to predict the outcome of a response
variable. The goal of multiple linear regression is to model the linear relationship between the
independent variables and dependent variable.
These Techniques are used to show the fashion in which the external variables (i.e. Website
usability & design, Product & Information quality, etc) interact with customer satisfaction.
SPSS is used for the same.

6
 ANALYSIS AND FINDINGS.

1. Factor Analysis

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .814

Bartlett's Test of Sphericity Approx. Chi-Square 1583.905

df 300
Sig. .000
The KMO test results implied that the sample adequacy is correct as the value obtained is
above the cut-off value of 0.7.

For Bartlett’s Test-

H0- Variables form an identity correlation coefficient matrix.

H1- Variables do not form an identity correlation coefficient matrix.

Bartlett’s test shows us that the null hypothesis of obtaining an identity correlation coefficient
matrix will be rejected since the p-value here is 0.000, which is below the value of 0.05
(obtained from confidence interval). We can therefore go ahead with the rest of the analysis.

Total Variance Explained

Extraction Sums of Rotation Sums of
Initial Eigenvalues Squared Loadings Squared Loadings
% of % of % of
Compone Tota Varianc Cumulati Tota Varianc Cumulati Tota Varianc Cumulati
nt l e ve % l e ve % l e ve %
1 8.35 33.419 33.419 8.35 33.419 33.419 3.63 14.545 14.545
5 5 6

7
2 3.73 14.934 48.353 3.73 14.934 48.353 3.61 14.472 29.016
4 4 8
3 1.97 7.896 56.249 1.97 7.896 56.249 3.41 13.659 42.675
4 4 5
4 1.41 5.677 61.926 1.41 5.677 61.926 3.04 12.178 54.853
9 9 4
5 1.24 4.972 66.898 1.24 4.972 66.898 3.01 12.045 66.898
3 3 1
6 .984 3.937 70.835
7 .913 3.652 74.488
8 .794 3.175 77.662
9 .768 3.072 80.734
10 .716 2.863 83.596
11 .566 2.266 85.862
12 .479 1.918 87.780
13 .393 1.572 89.352
14 .343 1.374 90.726
15 .320 1.279 92.004
16 .302 1.207 93.211
17 .287 1.148 94.360
18 .262 1.049 95.408
19 .229 .916 96.325
20 .203 .811 97.135
21 .197 .790 97.925
22 .168 .674 98.599
23 .143 .573 99.172
24 .111 .442 99.614
25 .096 .386 100.000
Extraction Method: Principal Component Analysis.
The table above tells us that almost 67% of the total variance is accounted for by the 5
factors. Since any value above 60% is considered adequate, our values found here suffice
correctly.

8
 Rotated Component Matrixa
Component
1 2 3 4 5
I prefer uncluttered .616
screens while surfing.
Simple search paths .832
help to browse in a
much easier way.
Information architecture .679
plays an important role.
While surfing, site .803
speed is an important
feature.
I prefer fast information .747
presentations.
Quality of products was .651
ensured during the
purchase online.
The information .867
available online is
reliable.
Diversified products are .749
available with price
& quality on e-
commerce websites.
Information obtained is .766
consistent with the
quality of the product.

9
Product quality & .653
service guarantee during
online purchases
influence comfort
& satisfaction.
I feel secure providing .616
personal information on
e-commerce websites.
Payment process can be .784
relied upon on e-
commerce websites.
i trust e-commerce .787
websites as they do
online trade responsibly.
Return of goods & .561
receiving payment
process is guaranteed on
e-commerce websites.
Adequate security .534
measures are taken by
e-commerce websites to
prevent frauds.
Discount coupons .654
offered during online
purchases encourage me
to purchase more.
Various offers available .669
in online shopping are
genuine and reliable.
Online shopping offers .708
outweigh the offers
available in the
traditional shopping.

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 Service Guarantee is .601
assured during online
shopping.
Online shopping got me .705
the lowest price without
compromising quality.
Online shopping .599
delivery & package
were flexible &
responsible.
I am satisfied with the .727
package and delivery
process as it is tangible.
I prefer online shopping .763
as I received the product
without any damage.
I got my product .749
delivered in time as per
the service assurance.
The delivery process .704
does not compromise
with the price and the
quality.

The above rotated component matrix (as per varimax) clearly shows us how the variables
aligned themselves among the 5 components (namely factors). The components that
contribute towards the dependent variable (Satisfaction Achieved) are named as follows:

a) Applications or Website Experiences

b) Quality and Reliability
c) Trust Factors
d) Promotional Attractions
e) Delivery Factors

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2. Multiple Linear Regression

We use multiple regression, with the method being Step-wise. Below are our results from the
regression: -

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 5.400 .087 62.312 .000
REGR factor score 2 .499 .087 .499 5.730 .000
for analysis 1
2 (Constant) 5.400 .081 66.685 .000
REGR factor score 2 .499 .081 .499 6.132 .000
for analysis 1
REGR factor score 4 .319 .081 .319 3.922 .000
for analysis 1
3 (Constant) 5.400 .075 71.704 .000
REGR factor score 2 .499 .076 .499 6.594 .000
for analysis 1
REGR factor score 4 .319 .076 .319 4.217 .000
for analysis 1
REGR factor score 5 .306 .076 .306 4.038 .000
for analysis 1
4 (Constant) 5.400 .071 76.128 .000
REGR factor score 2 .499 .071 .499 7.001 .000
for analysis 1
REGR factor score 4 .319 .071 .319 4.478 .000
for analysis 1
REGR factor score 5 .306 .071 .306 4.287 .000
for analysis 1

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 REGR factor score 1 .260 .071 .260 3.652 .000
for analysis 1
5 (Constant) 5.400 .069 78.493 .000
REGR factor score 2 .499 .069 .499 7.218 .000
for analysis 1
REGR factor score 4 .319 .069 .319 4.617 .000
for analysis 1
REGR factor score 5 .306 .069 .306 4.420 .000
for analysis 1
REGR factor score 1 .260 .069 .260 3.766 .000
for analysis 1
REGR factor score 3 .184 .069 .184 2.656 .009
for analysis 1

Significance values for all components are below 0.05, meaning that all components are
relevant in our regression model. We can see here that all the components formed with the
help of factor analysis have been incorporated with the help of stepwise regression.

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 24.906 1 24.906 32.834 .000b
Residual 75.094 99 .759
Total 100.000 100
2 Regression 35.095 2 17.547 26.494 .000c
Residual 64.905 98 .662
Total 100.000 100
3 Regression 44.435 3 14.812 25.857 .000d
Residual 55.565 97 .573
Total 100.000 100
4 Regression 51.215 4 12.804 25.195 .000e
Residual 48.785 96 .508
Total 100.000 100

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5 Regression 54.588 5 10.918 22.839 .000f
Residual 45.412 95 .478
Total 100.000 100

The above table shows how each of the models behave on ANOVA & also gives us the F-
statistic for each of them in step wise regression model.

Model Summaryf
Adjusted R Std. Error of Durbin-
Model R R Square Square the Estimate Watson
1 .499a .249 .241 .87094
2 .592b .351 .338 .81382
3 .667c .444 .427 .75686
4 .716d .512 .492 .71287
5 .739e .546 .522 .69139 2.095

The Adjusted-R^2 value achieved in the ultimate model is 0.522, meaning that 52.2% of the
values of the dependent component are explained by the values of the independent
components.

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LIMITATIONS

Although this study provides meaningful results, it has multiple limitations. Firstly, the model
was tested in a sample consisting mainly of students from New Delhi. Also, the sample size
is comparatively small i.e. 100 respondents, which further adds to the first point mentioned
here. Thus, it cannot be assumed that the sample is representative of the City’s population.
Past research has shown that culture plays a fundamental role when it comes to consumer
behaviours. Future research should replicate this study and test this conceptual model in
different countries as well as other cultures to prove the theory used behind using this is
sound.

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CONCLUSION

Due to technological innovation, the traditional mode of purchase has become inadequate for
a lot of individuals. People now prefer simpler modes for acquiring brands and reaching out
to stores, and it can be proclaimed that the Internet has fundamentally & irreversibly changed
the consumers’ ideas on factors like convenience, speed, price, and product and service
information.

Due to this, vendors have found a new approach to create value for customers and build
relationships with them. This study helped us in revealing the scale on which the following
variables - Applications or Website Experiences, Quality and Reliability, Trust Factors,
Promotional Attractions and Delivery Factors affect the dependent variable customer
satisfaction. The model developed for this study was tested using the factor analysis. Factor
analysis generated results that demonstrated a high level of reliability and validity between
variables. The model explained that 67% of the variation relates to the dependent variable
customer satisfaction. Further, the regression model gave us an adjusted r-square value of
0.522.
The results of this study confirmed that Applications or Website Experiences, Quality and
Reliability, Trust Factors, Promotional Attractions and Delivery Factors presented significant
predictors of customer satisfaction. These variables have a significant positive effect on
customer satisfaction. This paper should contribute to a better overall understanding of the
determinants that affect customer satisfaction, so customers would keep purchasing products
online. Similarly, the paper also provides guidelines to online stores for better definitions of
their marketing strategies.

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RECOMMENDATIONS

The following are the recommendations based on the analysis & findings:

• Transaction security & data safety are of prime importance to the consumers.
Strengthening of these factors by improving the technological systems is key to
establishing a trusting environment.
• Retailers should be very careful about the annoying aspects of online shopping such as
Slow site speed, long delays in completing orders, mistakes in shipping & delivery as
well as the hassles of returning goods/ getting refunds. Optimising these factors can help
retailers gain customer loyalty.
• There should be easier product return policies so that customers can seamlessly enjoy the
online shopping experience.

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