Download 1.1 Theoretical Foundation

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CHAPTER 2
THEORETICAL FOUNDATION
1.1
1.1.1
Theoretical Foundation
Customer Loyalty
1.1.1.1 Definition of Customer Loyalty
Loyalty is a deeply held commitment to re-buy or subscribe to a product or
service that is continually favored - again in the future, thereby causing purchase of
the same brand or the same type.
Griffin (2005), expresses loyalty by showing purchase behavior that is
defined as non-random purchase revealed from time to time by some decision
making unit.
According to Ou, Shih, and Chen (2011), Customer loyalty is defined as a
reoccurring desire to make a repeated purchase through product / service without
considering the influence of a variety of situations or marketing activities. In
addition, Siddiqi (2011) quoted from Walsh et al. (2005) mentioned that it is better to
look after the existing customer before acquiring new customers. Customer loyalty is
customers’ commitment to shopping at a store (Levy and Weitz, 2009). According to
Lam et al. (2004), customer loyalty is being highly influenced by customer value.
1.1.2
Service Quality
1.1.2.1 Definition of Service Quality
Service Quality is the level of excellence of products that is affected by
performance perception in accordance with the customer expectation. Customers will
survive on the same products / services of a company if the quality of service
provided matches their expectations.
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According to Lupioyadi (2008,p181) define service quality as a factor in
determining the level of success and quality of the company. It is the company's
ability to provide service of premium quality to consumers, and as a strategy to
defend itself and achieve success in the face of competition and rivalry
Service quality is the customer’s perceptions on evaluation of a company’s
service delivery (Lovelock et al, 2009). Therefore, service quality influences
customer satisfaction which is directly related to customer loyalty.
1.1.2.2 Components of Service Quality
Lupioyadi (2008) quoted from a subsequent research by Parasuraman et
al(1998), found five consistent dimensions to evaluate service quality in a company.
These dimensions include:
1. Empathy (Good communications, customers understanding and easy access)
Caring and personalized attention provided by the service provider.
2. Tangibility (Appearance of physical element)
The physical facilities, equipments, communication tools, and appearance of
service provider.
3. Reliability (Dependable and accurate performance)
The ability of service firms to perform the promised service dependably and
accurately.
4. Responsiveness (Promptness and helpfulness)
The willingness to help customers and provide quick service.
5. Assurance (Credibility, competence, courtesy, security)
The knowledge and courtesy of a company’s employees and their ability to
inspire trust and confidence.
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1.1.3
Brand Equity
1.1.3.1 Definition of Brand Equity
Brand equity is the unique impact caused by a brand. It can be defined as the
power that the name of a product can create in the mindset of each customer exposed
to it. That might be positive or negative according tothe techniques in bringing up the
brand.
A powerful brand has high brand equity. According to Philip Kotler and Gary
Armstrong (2010, p260), Brand Equity is the differential effect that knowing the
brand name has on customer response to the product and its marketing. It’s a
measure of the brand’s ability to capture consumer preference and loyalty.
Shamma et al (2011), (adopted from Aaker,1996), Brand equity is a set of
assets (and liabilities) linked to a brand’s name and symbol that adds to (or subtracts
from) the value provided by a product or service to a firm and/or that firms’
customers.
1.1.3.2 Components of Brand Equity
As supported by previous literature of Kotler and Keller (2008, p261) based
on the AAKER Model, Brand Equity has 5 components: perceived quality, brand
loyalty, brand awareness, brand associations, and other proprietary brand assets.
However, the fifth of Aaker’s dimension, other proprietary brand assets, is normally
omitted in brand equity research since it is not directly related to consumer according
to Isabel Buil et al (2008)’s research:
1. Brand Awareness: The ability of a potential buyer to recognize or recall that a
brand is a member of a certain product category. This construct is related to the
strength of a brand’s presence in consumers’ minds and is usually measured
through brand recognition and recall under different circumstances.
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2. Brand Loyalty: The attachment that a customer has to a brand. Brand loyalty can
be conceptualized in several ways, for example based on a behavioral
perspective, which emphasizes repeat purchasing behavior or on an attitudinal
perspective, which includes a commitment in terms of some unique values
associated.
3. Brand Associations: Anything linked to the memory of a brand. These
associations can derive from a wide range of sources and vary according to their
favorability, strength, and uniqueness.
4. Perceived Quality: The consumers’ judgment about a product’s overall
excellence or superiority. It is not the objective quality of the product but
consumers’ subjective evaluations which depend on their perceptions.
1.1.4
Marketing Mix Strategy
1.1.4.1 Definition of Marketing Mix Strategy
Marketing Mix Strategy marketing mix is a business tool used in marketing
and by marketing professionals. The marketing mix is often crucial when
determining a product or brand's offering, and is often synonymous with the four Ps:
price, product, promotion, and place; in service marketing, however, the four Ps have
been expanded to the seven Ps or eight Ps to address the different nature of services.
Based on the literature by Kotler, Armstrong (2010, p.76), Marketing mix
Strategy is a strategy which consists of a set of controllable, tactical marketing tools
that the firm blends to produce the response it wants in the target market. The
marketing mix consists of everything the firm can do to influence the demand for its
product.
According to Patten, Dave et al (2008), Marketing mix strategy is the means
by which a firm defines and supports the competitive position it seeks to occupy in
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the target market.AyedMuala (2012), the provision of better products is not only
accomplished but in addition, the saving of costs and time in developing and
promoting the product is also accomplished.
1.1.4.2 Components of Marketing Mix Strategy
Anitsal et al (2012), Today there are 7Ps of Marketing Mix strategy used in
the service industry. The 7Ps of Marketing Mix Strategy are as follows (Al Muala&
Al Qurneh, 2012):
1. Product: Anything that can be offered to a market for attention, acquisition, use,
or consumption that might satisfy a want or need. As for services, the product
offer in respect of services can be explained based in two components: (1) The
core services which represents the core benefit; (2) The secondary services which
represent both the tangible and augmented product levels.
2. Price: The amount of money charged for a product or service, or the total values
that consumers exchange for the benefits of having or using the product or
service. Due to the intangible nature of services, price becomes a crucial quality
indicator where other information is not lacking or absent. Price is considered as
the most important measurement of repurchase intentions (Oh, 2000;
Parasuraman and Grewal, 2000). In deciding to return to the service provider, the
customers normally think whether or not they received their value for money. It
has been proven therefore, that customers usually buy products on the basis of
pricerather than other attributes (Peter &Donnely, 2007)
3. Place: This factor is defined by Armstrong and Kotler (2006) as asset of
interdependent organizations that caters to the process of making a product
available to the consumers. Hirankitti et al., (2009) considers place as the ease of
access which potential customer associates to a service such as location and
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distribution. The strategy of place needs effective distribution of the firm’s
products among the channels of marketing like wholesalers or retailers (Berman,
1996).
4. Promotion: A decision of how best to relate the product to the target market and
how to persuade them to buy it (Lovelock, Patterson and Walker, 1998). A
communication program is important in marketing strategies because it plays
three vital roles: providing needed information and advice, persuading target
customers of the merits of a specific product, and encouraging them to take
action at specific times (Lovelock and Wright, 2002).Promotion is a selling
technique; to succeed in any marketing program, it should be involved with
communication (promotion). Promotion is very important as it provides
information, advice, and it persuades the target market. It guides and teaches the
customer to take action at a specific time and how they can use the product and
get beneficial result from it.
5. People: the service employees who produce and deliver the service. It has long
been a fact that many services involve personal interactions between customers
and the site's employees, and they strongly influence the customer’s perception of
service quality (Hartline and Ferrell, 1996: Rust, Zahorik and Keiningham,
1996). Personnel are keys to the delivery of service to customers. In addition,
according to Magrath (1986) customers normally link the traits of service to the
firm they work for. Personnel are also considered as the key element in a
customer centered organization as well as a way to differentiate variables with
product, services, channel, and image (Kotler, 2000).
6. Process: Process is generally defined as the implementation of action and
function that increases value for products with low cost and high advantage to
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customer and is more important for service than for goods. According to
Hirankitti et al., (2009) the pace of the process as well as the skill of the service
providers are clearly revealed to the customer and it forms the basis of his or her
satisfaction with the purchase.
7. Physical Evidence: the environment in which the service and any tangible goods
that facilitate the performance and communication of the service are delivered.
This holds great importance because the customer normally judges the quality of
the service provided through it (Rafiq& Ahmed, 1995). In addition, according to
Mittal and Baker (1998), this factor also refers to the environment in which the
services production is in.
1.1.5
Relationship between Service Quality, Brand Equity, and Marketing Mix
Strategy
1.1.5.1 Relationship between Service Quality and Brand Equity
According to Xu and Andrew (2009), the development of brand equity in the
service industry relied heavily on the performance levels of service providers; it
refers to the perception of consumers towards the service quality (Brady & Cronin,
2001). In other words, service quality is considered an essential element of the
consumer-based brand equity in the service sector.
Based on the journal by Ming Tan et al (2012), Service quality has a positive
relationship with brand awareness, especially in the service industry. A study
involving respondents of a bank revealed that service quality is significantly
correlated with brand awareness (Zain, 2007). In addition to that, service quality has
a significant positive effect on perceived brand name value (Malai & Spece, 2010),
and this in turn contributes to company awareness and corporate image (Andreas,
2001). According to Aydin and Ozer (2005), service quality is a function of
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consumers' consumption experiences, and these experiences lead to the formation of
brand image. Hence, consumers' perceptions about service quality directly affect
brand image. Paul, Gary, and Hsiao (2010) supported this fact; their studies revealed
that service quality has a direct and positive effect on brand image. Their research
also suggested that managers can enhance consumers' perceptions of private label
brand image by improving the service quality related to the private label brands.
Service quality is considered an antecedent to customer satisfaction (Cronin &
Taylor, 1992; Rust & Oliver, 1994) and subsequently, customer satisfaction a
determinant of brand loyalty (Aaker, 1996). There is a positive and significant direct
relationship between consumers' perceptions of service quality and their intentions to
re-purchase, as well as willingness to recommend to others (Boulding et al., 1993;
Parasuraman et al., 1988).
1.1.5.2 Relationship between Service Quality and Marketing Mix Strategy
According to Hu (2012), The most well known marketing mix strategy tools
are the 4 Ps model. McCarthy and Perreault (1994) suggested the 4 Ps model that the
marketing mix strategy encompasses fourfactors, such as Product, Price, Promotion,
and Place. Service quality has been recognized as theeffective tool to improve the
customer loyalty. Hu (2011) indicated service quality, brand equity,and marketing
mix strategy have significant and positive relationship to customer loyalty.
However, very few studies have examined the mediator role for brand equity on the
relationshipbetween service quality and customer loyalty. Hsieh and Lee (2007)
indicated the relationshipbetween publication relationship and customer loyalty is
moderated by brand image. The servicequality naturally been regarded as an
approach for managing public relationship.
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1.1.5.3 Relationship between Brand Equity and Marketing Mix Strategy
(Angel F & Manuel J, 2005) There is a causal relationship between marketing
efforts and the dimensions of brand equity. The effects formulated in the hypotheses
that relate the perceived advertising spending with the four brand equity dimensions
were favorable - the marketing efforts for the brand positively affected the perception
of quality, the degree of brand awareness, the loyalty towards it and its image.
Mike Reid, Sandra Luxton, and Felix Mavondo also conducted a journal in
2005 stating a significant relationship between brand equity and marketing mix
strategy based on these supporting theories:
A "chain of IMC productivity" is likely to exist that links performance in marketing
communication management and campaigns with customer and brand equity
outcomes, and parallels the brand value chain concept espoused by Keller and
Lehmann (2003) and Ambler et al. (2002). In a recent article on measuring marketing
productivity, Rust et al. (2004) also developed a framework that links marketing
strategy and tactics to customer, marketplace, and financial benefits for the
organization. From an IMC perspective, Rust et al. (2004) identify the impact of
marketing strategy and tactics (including marketing communication) on customer
attitudes, loyalty, satisfaction, churn, and retention, among others. These
intermediate measures of performance can then be aggregated to the level of
marketing assets and measured through metrics related to brand equity and customer
equity.
One would expect that organizations employing IMC would have a greater capacity
to achieve their stated direct and indirect campaign objectives, including increased
brand awareness, positive brand attitude and preference, brand action intention, and
purchase facilitation (Rossiter and Bellman 2005). The successful attainment of such
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campaign objectives would likely be felt over time through increased customer and
brand equity, measured through associated metrics. Increased customer and brand
equity would likely be felt through improvements in price premiums achieved and
reductions in price elasticity, as well as increased market share and improved
profitability, among other factors (Keller and Lehmann 2003). Overall, one of the
most desirable outcomes of effective IMC is more differentiation leading to more
monopolistic brands (Rust et al. 2004), making the brand less vulnerable to
competition.
1.1.6
Credit Cards
1.1.6.1 2.1.6.1 Definition of Credit Cards
Siamat (2001) mentioned that Credit card is a type of card that can be used as
a means of payment transactions in which goods or services re-settlement or payment
can be made by lump sum or installments with a certain minimum amount.
Meanwhile, according to Bank Indonesia (2004) is a credit card payment
using a card that can be used to make payments on the obligations arising out of an
economic activity, including the purchase transaction and to make a cash withdrawal
or payment obligations where the cardholder met first by the issuer or acquirer, and
cardholder is obliged to make repayment of such payment obligations on time as
agreed either at once or in installments
1.1.6.2 Types of Credit Cards
From the validity areas and of the ways of payment at the time of billing, a
credit card according to Siamat (2001) can be divided into several types, namely:
1. Judging from the validity areas
a. Domestic card, a credit card that can only be used in a country or apply it
locally such as ALFA card, Astra card, Carrefour card.
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b. International card, a credit card that can be used worldwide or internationally
such as VISA, Master Card, American Express card.
2. Judging from the manner of payment
a. Charge card, i.e. credit card type that requires the holder to pay to the issuer
at the same time the number of bills sent by the issuer to the holders of credit
cards by the deadline due date. These cards are only issued by an
international financial institution.
b. Credit card, which is a type of credit card where the cardholder can pay all at
once or installments and bears interest as appropriate credit granted by banks
to their customers. Usually these cards are issued by many bank institutions
through franchise agreements. For example, VISA and Master card.
3. Judging from the credit limit
a. Traditional card, the card has a composition of blue, white and gold, which in
its use by certain credit card limit.
b. Premium cards, cards that have a composition of gold color, which in its use
does not have a credit limit, so the card holder is free to shop for an unlimited
account.
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1.2
Theoretical Framework
PT. BANK RAKYAT INDONESIA
Credit Card
Visa
Customer Loyalty
Service Quality (X1)
-
Empathy
Tangibility
Reliability
Responsiveness
Assurance
Brand Equity (X2)
- Brand Awareness
- Brand Loyalty
Brand
Association
- Perceived Quality
Factor Analysis
Figure 2.1 Theoretical Framework
Marketing Mix
Strategy (X3)
-
Product
Price
Place
Promotion
People
Process
Technology
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1.3
Hypotheses
According to the previous research by Yu-Jia Hu (2011), therefore
hypotheses proposed to this study are as follows:
Hypothesis 1: Service Quality is formed by the dimensions; Empathy, Tangibility,
Reliability, Responsiveness, and Assurance.
Hypothesis 2: Brand Equity is formed by the dimensions; Brand Awareness, Brand
Loyalty, Brand Associations, and Perceived Quality.
Hypothesis 3: Marketing Mix Strategy is formed by the dimensions; Product, Price,
Place, Promotion, People, Process, and Physical Evidence.
Hypothesis 4: There is a significant relationship between Service Quality, Brand
Equity, and Marketing Mix Strategy towards Customer Loyalty in the usage of Visa
Credit Cards.