Posted by André Nosalsky :: October 24, 2007 @ 10:49 am

In previous posts on the Lending Club blog, there have been warnings of things to watch out for when shopping online, such as phishing, and suggestions for ways to compare before buying to save money. In this post I want to look at three tips that will help you make better decisions when shopping online.

Lee and Associates1 conducted a study to see how people can avoid lemons when shopping online. They found that you should take into consideration three criteria to determine if it is safe to shop online on any particular site.

1. Unconditional Money Back Guarantee – The researchers found that merchants who wanted your business for a long time offered an unconditional money back guarantee, at least for a short time after a purchase.

Imagine searching for the new Apple iPod and upon finding what you think is a discount, you see that the site has either “All Sales Final” or “No Refunds” or even “25% restocking fee” as part of the order check-out information. All of these phrases should raise red flags in your mind, and if you see them you should think about going to a different online store.

2. Branding – Branding is the name of a shortcut in your mind that companies spend millions in developing. But branding also has its benefits for consumers. With branding, the company is investing in a long-term relationship with you. It is not focused on a one-time transaction.

For example, if you were shopping for an MP3 player and didn’t know much about them, it would make sense to go with one of the more “branded” ones, such as Microsoft Zune or Apple iPod. This way, although you might spend a little bit more, you will also know that millions of people already decided on the same brand.

3. Privacy Statement – Researchers in this study found that a Privacy Policy communicates a significant amount of trustworthiness. It should not be only thing you consider when shopping at a site, however, because it is more difficult to judge if a company is following that policy.

Based on this research, none of these criteria should used alone for making a purchase decision. However, we here at Lending Club suggest combining them to help you navigate online stores and avoid falling victim to any malicious merchants.

1Lee, B.-C., Ang, L., & Dubelaar, C. (2005). Lemons on the Web: A signaling approach to the problem of trust in Internet commerce. Journal of Economic Psychology. 26(5), 607-623.