Download 2.3 Hypotheses

CHAPTER II
LITERATURE REVIEW
2.1
Grand Theory of Marketing
Although many people think marketing is advertising or selling, marketing
actually encompasses many more activities. Pride and Ferrel (2011:4) defines
marketing as the process of creating, distributing, promoting, and pricing goods,
services, and ideas to facilitate sastisfying exchange relationships with customers and
develop to maintain favorable relationships with stakeholders in a dynamic
environment.
The definition is consistent with American Marketing Association (2011)
which defines marketing as “the activity, set of institutions, and processes for
creating, communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large.
As the purchasers of the products that organizations develop, promote, and
distribute, customers are the focal point of all marketing activities. The essence of
marketing is to develop satisfying exchange relationships from which both customers
and marketers benefit (Pride and Ferrel, 2011:5). Organizations must define their
products not according to what they produce, but according to how they satsify
customers.
Marketing mixes are combinations of marketing tools that marketing
managers orchestrate to satisfy customers and company objectives, which is usually
associaed with the four Ps: product, price, promotion, and place (Sandhusen,
2008:4).

The product, ini marketing terms, is defined as anything, tangible or
intangible, offered for attention, acquisition, use, or consumption that is
capable of satisfying needs. Included can be objects, people, places, services,
and ideas.

The price that customers pay for a product influences the product's image and
likelihood of purchase. It is the only revenue-generating element of the
marketing mix and the easiest to change.
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
Promotion programs, designed to persuade customers to buy the product,
include personal selling, advertising (paid messages carried by the media),
and sales promotion (marketing activities designed to stimulate customer
purchasing and dealer effectiveness.

Place refers to where the product is made available to market members,
which covers channel of distribution (wholesalers, retailers) and physical
distribution (transportation, warehousing, and inventory control facilities).
Marketing is also depicted as providing consumers with access to the
products and services that they need, at the right place, correct time and appropriate
price points, whilst communicating product information in ways that interested and
amused the customer (Hopkins, 1997 in Ellis et al., 2010:6).
So, marketing is the way companies interact with consumers to create
relationships that are beneficial to both parties. Businesses use marketing to identify
their audience before advertising to them.
Based on the explanation above, the marketing process can be summarized
into the following five stages:
Understand the
marketplace and
customer needs and
wants
Design a customerdriven marketing
strategy
Capture value from
customers to create
profits and customer
equity
Figure 2.1 The Marketing Process
Source: Kotler dan Armstrong (2012:29)
Construct an
integrated marketing
program
Build profitable
relationships and
create customer
delight
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2.2
Theoretical Base
In this sub-chapter, the researcher will present a theoretical review of various
sources related to the variables studied, which are experiential value, customer
satisfaction, and brand loyalty.
2.2.1
Experiential Value
Experiential is derived from the word experience. Experience is practical
knowledge, skill, or practice derived from direct observation of or participation in
events or in a particular activity (Merriam-Webster Online Dictionary, 2013).
Prahalad and Ramaswamy, 2004 (Wang and Lin, 2010) emphasized experiential as a
new basis of value and modern market value is created by the mutual interaction of
consumers and business.
Value is a fair return or equivalent in goods, services, or money for
something exhanged (Merriam-Webster Online Dictionary, 2009). Soman and
Marandi (2010) defined value as what the customer gets in exchange for what
customer gives. Value is subjective and it is created based on the exchange of
experience that incurred in the process of transaction or individual perceptions (Lee
and Overby, 2004 in Farshad et al., 2012). Peter and Olson (2010:77) said that
satisfying a value usually elicits positive affect (happiness, joy, satisfaction), whereas
blocking a value produces negative affect (frustration, anger, disappointment).
Farshad et al. (2012) stated that experiential value can be created via
consumption experience. Current marketing literature highlights the importance of
the service experience, suggesting that service providers must not only create a
theatrical environment (providing fun, excitement, and entertainment), but also must
encourage customers to participate in the service experience (Mathwick, Malhotra,
and Rigdon, 2001 in Line, 2012).
Math wick et al., 2001 (Wang and Lin, 2010) stated that the recognition of
experiential value comes from people's direct usage or long distance appraisal on
service and products. Holbrook, 2000 (Fasrhad et al., 2012) proposed to incorporate
three elements, such as extrinsic/ intrinsic value, active value/ reactive value, selforiented value/ other oriented value in the traditional concept of experiential value.
So, experiential value is a better quality of consumption experience that match the
customers expectation.
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2.2.1.1 Dimensions of Experiential Value
Park and Cha (2011) adopts four dimensions of the experiential value as main
factors to influence dining satisfaction and preference at restaurants. These three are
perceived food quality, aesthetics, and playfulness:
a) Food quality is defined as its own features distinguishable from other types of
foods. Example: tasty, healthy.
b) Service excellence refers to generalized consumer appreciation of a service
provider who has demonstrated expertise and provides a dependable service
performance. Example: willingness to help, knowledge of servers about the menu.
c) Aesthetics reflects a reaction to the harmony and unity of visual elements and
display in restaurants. Example: interior design, ambience.
d) Playfulness is clarified as an inner experience pursuing an intrinsic enjoyment to
escape from routine by engaging activities. Example: enjoyment in dining,
escaping from routines.
2.2.2 Customer Satisfaction
Satisfaction is derived from the Latin satis (enough) and facere (to do or
make). Satisfaction is the consumer’s response to the evaluation of the perceived
discrepancy between prior expectations and the actual performance of the product as
perceived after its consumption (Oliver, 2010:6). Satisfying products and services
have the capacity to provide what is sought to the point of being enough (Oliver,
2010:6).
Zifko-Baliga, 1998 (Grigoroudis and Siskos, 2010, p4) said that satisfaction
is a standard for how well the customers can predict the performance level at which a
product or a service will satisfy them. Grigoroudis and Siskos (2010:4) concludes
that satisfaction is a standard of how the offered total product or service fulfils
customer expectations.
Achieving customer satisfaction is a major goal of marketing efforts. These
efforts lead to purchase and/or consumption and in turn result in post-purchase
phenomena such as attitude change, repeat purchase, and brand loyalty (Soonhwan et
al., 2010).
Customer satisfaction directly influences their post purchase behavior, such
as praising, complaining, increasing/ decreasing loyalty, attitude and brand switching
(Liu, 2008:41). If consumers are satisfied with a product, service, or brand, they will
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be more likely to continue to purchase it and tell others about their favorable
experiences with it. It they are dissatisfied, they will be more likely switch products
or brands and complain to manufacturers, retailers, and other consumers (Peter and
Olson, 2010:387). Woodside, Frey, & Daly, 1989 (Wang and Lin, 2010) illustrated
that customer satisfaction is an attitude after consumption and shows the degree of
customers' likes or dislikes after experience.
Companies with satisfied customers have a good opportunity to convert them
into loyal customers who purchases from those firms over an extended time period
(Evans and Lindsay, 1996 in Faizan et al., 2011). A single unsatisfied customer can
send away more business from your organization than 10 highly satisfied customers
(Faizan et al., 2011). The more you focus on customer satisfaction and retention, the
more long-term business you will get.
So, customer satisfaction is happened when the customers expectation meet
the service performance by the company. It is very important in order to keep the
customers coming back and recommend to others about the particular company and
brand.
There are six comparison standards from customers which may lead to
different satisfaction judgements (Woodruff and Gardial, 1996 in Grigoroudis and
Siskos, 2010:43), which are:
a) Expectations: they represent how the customer believes the product/service would
perform.
b) Ideals: they represent how the customer wishes the product/service would
perform.
c) Competitors: the performance of competitors in the same product/service category
may be adopted by customers as a standard for comparison
d) Other product categories: products or services in completely different categories
may also provide comparison standards for customers.
e) Marketer promises: they refer to promises that were made by the salesperson, the
product/service advertisement, the company spokesperson, or some other form of
corporate communication.
f) Industry norm: they are related to a “model” or average performance level
developped by customers with considerable experience in a product category
(across companies and brands) or acess to industry standards.
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2.2.2.1 Benefits of Customer Satisfaction
Hill, Roche, and Allen (2007:19) pointed out four benefits of customer
satisfaction for the companies, which are:
a) Customer Lifetime Value
Customer retention is more profitable than customer acquisition because the
value of customers typically increases overtime. This is due to the following factors:
1. Acquisition: the cost of acquiring customers occurs almost exclusively in
their first year with the company (before and as they become customers).
2. Base profit: is constant, but often will not begin to offset acquisition costs
until the second year or later.
3. Revenue growth: as customers stay, and provided they are satisfied, they
tend to buy more of a company’s products/services as their awareness of
the product portfolio grows.
4. Cost savings: long term customers cost less to service, since they are more
familiar with the organisation’s procedures and more likely to get what
they expect.
5. Referrals: highly satisfied customers will recommend companies to their
friends. Referral customers eliminate most of the cost of acquisition, and
they also tend to be better customers because they are like existing
customers.
6. Price premium: long-term customers who are very satisfied will alsi be
prepared to pay a price premium since they trust the supplier to provide a
product/service that is good value for them.
b) Links with employee satisfaction
Employee satisfaction typically produces higher levels of customer
satisfaction, since more satisfied employees are more highly motivated to give
good service. Otherwise, higher customer satisfaction also produces higher
employee satisfaction, since employees prefer working with companies that have
high levels of customer satisfaction and low levels of problems and complaints.
More satisfied employees stay longer, keeping valuable expertise and customer
relationships within the organization.
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c) Sales and profit
Aggregate data from the American Customer Satisfaction Index (2007)
demonstrated a very strong link between customers’ satisfaction with individual
companies and their propensity to spend more with them in the future.
d) Shareholder value
Based on the ACSI database, a 1% increase in customer satisfaction drives a
3.8% increase in stock market value. Satisfied customers reward companies with,
among other things, their repeat business, which has a huge effect on cummulative
profits (Professor Fornell, 2007 in Hill, Roche, and Allen, 2007).
2.2.2.2 Gaps in Reaching Customer Satisfaction
In achieving customer satisfaction, there are five gaps which can be the
causes of customer dissatisfaction (Hill, 1996 in Grigoroudis and Siskos, 2010:5),
which are:
a) Promotional gap: the inability of the business organization to fulfill expectations
created in the minds of customers mainly by marketing communications.
b) Understanding gap: the gap occured due to the inaccurate understanding of
customer needs and priorities by the managers of the organization.
c) Procedural gap: the gap occured due to the translation of customer expectations
into appropriate operating procedures and systems with the business organization.
d) Behavioral gap: the difference between customer expectations and organization’s
performance, focusing on how procedures adequately cover service delivery
requirements.
e) Perception gap: the difference between customer performance perceptions and
reality.
2.2.2.3 Dimensions of Customer Satisfaction
There are different theories for understanding customer needs and arriving at
specific factors for measuring customer satisfaction. One widely used framework for
measuring customer satisfaction is Servqual (Zeithaml, Parasuraman and Berry, 1980
in Bhardwaj, 2010). SERVQUAL was first conceptualized by Parasuraman et al.,
which proposed that quality and satisfaction are determined by the same attributes
(Daniel and Berinyuy, 2010). The SERVQUAL survey is used all over the world in
various cultures and industries and is widely regarded as a reliable method of
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measuring service quality, which in turn leads to a measurement of customer
satisfaction (Harr, 2008).
Many researchers have realized the interrelated values of service quality and
customer satisfaction. Service quality is the key to measure users' satisfaction (Pitt et
al., 1995 in Supranata and Iskandar, 2013). Dabholkar et al., 1996 (Supranata and
Iskandar, 2013) reported that the service quality divisions are related to overall
customer satisfaction. Taylor and Baker, 1994 and Rust and Olivier, 1994 (Supranata
and Iskandar, 2013) identified that service quality is one major attribute of
satisfaction. According to Sureshchandar et al., 2002 (Daniel and Berinyuy, 2010),
customer satisfaction should be seen as a multi dimensional construct just as service
quality meaning it can occur at multi levels in an organisation and that it should be
operationalized along the same factors on which service quality is operationalized.
The method is also known as the RATER model, because it prescribes
measuring satisfaction in these five dimensions:
a)
Reliability: a company’s ability to perform the promised service dependably and
accurately. For the food and beverage industry, reliability can be interpreted to
mean fresh food delivered at the correct temperature and accurately the first time
(Harr, 2008). Reliability contains availability of menu variant, serving time, the
serving conformity with the menu ordered, menu pricing, and the amenities in
payment (Supranata and Iskandar, 2013).
b)
Assurance: the knowledge, competence and courtesy of employees and their
ability to convey trust and confidence. The trust and confidence may be
represented in the personnel who links the customer to the organization (Zeithaml
et al., 2006 in Harr, 2008). Assurance contains waiters’ hospitality in serving the
customers, waiters’ politeness, waiter’s knowledge about the ingredients of the
food, waiter’s ability to recommend food from the menu and waiter’s knowledge
about restaurant facilities (Supranata and Iskandar, 2013).
c)
Tangibles: physical appearance of facilities, equipment, staff and written materials
that impress the customers. It translates to the restaurant’s decoration, the
appearance of the dinner set, and uniform of the staff, the appearance of the menu
book, the environmental hygiene at the restaurant (Harr, 2008).
d)
Empathy: the level of caring, individualized attention, access, communication and
understanding that the customers perceive. Empathy in the context of food and
beverage industry can be demonstrated through showing concern in times of
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service failure and providing service recovery or going out of the way to meet a
customer’s special requirements, for instance, providing vegetarian food (Harr,
2008).
e)
Responsiveness: the willingness displayed to help clients and provide prompt
service. This dimension is concerned with dealing with the customer’s requests,
questions and complaints promptly and attentively (Harr, 2008). A firm is known
to be responsive when it communicates to its customers how long it would take to
get answers or have their problems dealt with.
2.2.3
Brand Loyalty
Brand loyalty is an intrinsic commitment to repeatedly purchase a particular
brand (Peter and Olson, 2010:390). Brand loyalty is defined as a deeply held
commitment to rebuy or repatronize a preferred product/service consistently in the
future, thereby causing repetitive same-brand or same brand-set purchasing, despite
situational influences and marketing efforts having the potential to cause switching
behavior" (Oliver, 1999:34 in Hong, Joby, Janda and Muthaly, 2011)
Hong, Joby, Janda and Muthaly (2011) defined brand loyalty as a behavioral
response expressed by a composite measure with respect to a preferred product or
service in the future. High brand loyalty is an asset that lends itself to extension, high
market share, high return on investment and ultimately high brand equity (Kabiraj
and Shanmugan, 2011).
Loyal customers often cost less to the firm because they know the products
and services and require less information. They even serve as part-time employees up
to some extent. Therefore, loyal customers not only need less information themselves
about product and service offerings but also serve as an information source for
prospective customers of the firm (Faizan et al., 2011).
Customer loyalty is so important because loyal customers bring many
benefits to a firm. According to Reichheld, 1996 (Kabiraj and Shanmugan, 2011), the
various advantages of customerloyalty include a continuous stream of profit,
reduction of marketing costs, growth of per-customer revenue, decrease in operating
costs, increase in referral, increase in price premium and switching barriers among
loyal customers who will not easily surrender to competitors' promotion efforts.
Brand loyalty occurs because the consumer perceives that the brand offers the
right product features, image or level of quality at the right price. Piotr, 2004 (Lee,
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Hsiao and Yang, 2010) indicated loyal customers shows 3 characteristics in the
following. (1) They spend more money in purchasing products or service of a
company. (2) They encourage others to purchase products or service of a company.
(3) They believe it is valuable to purchase products or service of a company.
Therefore, brand loyalty is the customers’ commitment to a company and brand that
will lead to re-purchase action.
2.2.3.1 Categories in Brand Loyalty
Peter and Olson (2010:92) have identified four market segments with
different levels of intrinsic self-relevance for a product category and brand. Those
with the strongest feelings are:
a) Brand loyalists: have strong effective ties to one favorite brand that they regularly
buy. They perceive that the product category in general provides personally
relevant consequences. Their intrinsic self-relevance includes positive means-end
knowledge abouth both the brand and the product category, and leads them to
experience high levels of involvement during decision making. They strive to buy
the “best” brand for their needs.
b) Routine brand buyers: have low intrinsic self-relevance for the product category,
but they do have a favorite brand that they buy regularly (little brand switching).
For the most part, their intrinsic self-relevance with a brand is not based on
knowledge about the means-end consequences of product attributes. Instead, these
consumers are interested in other types of consequences associated with regular
brand purchase. Such beliefs can lead to consistent purchase, but these consumers
are not so interested in getting the “best” brand; only the satisfied consumers will
do.
The other two segments have weaker levels of intrinsic self-relevance for a
particular brand, which are:
c) Information seekers: have positive means-end knowledge about the product
category, but no particular brand stands out as superior. These consumers usea lot
of information to find a “good” brand. Over time, they tend to buy a variety of
brands in the product category.
d) Brand switchers: have low intrinsic self-relevance for both the brand and the
product category. They do not see that the brand or product category provides
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important consequences, and they have no interest in buying “the best”. They
have no special relationship with either the product category or specific brands.
Such consumers tend to respond to environmental factors such as price deals or
other short-term promotions that act as situational sources of involvement.
Chaudhuri and Holbrook, 2001 (Lee, Hsiao and Yang, 2010) revealed
customer loyalty is established by attitude loyalty and behavior loyalty.
a) Attitude loyalty relates to consumers' psychological commitment to repurchasing
the brand, which comprises of:
-
Loyalty in attitude: willingness to do re-purchase. In restaurant, loyalty in
attitude means willingness to do repeat dining for a specific restaurant.
-
The tolerance to price: intention to repurchase the brand in the case of price
increase. To apply in restaurant research, it means allows increased premium
price.
b) Behavior loyalty is concerned with the action of repurchase, which comprises of:
-
Continuous purchase: intention to repurchase the brand within a similar
buying context and willing to conduct cross purchase (purchase other products
of the brand). Continous purchase in restaurant means using the restaurant as
the first choice compared to other restaurants.
-
Recommendation behavior: intention to recommend the brand. This
dimension in restaurant research means recommending the restaurant to
others.
2.2.4
Theoretical Framework
The independent variable in the research is experiential value, which affects
the dependent variable brand loyalty, through mediating variable customer
satisfaction. Based on explanations above, the relationships between research
variables are in the following:
a) Relationship Between Experiential Value and Customer Satisfaction
Woodruff et al., 1993 (Wang and Lin, 2010) proposed that customers, in
viewing product experiential, have intertwined value and satisfaction. Wang and Lin
(2010) said that satisfaction is a value obtained from a product used under a specific
environment. It is an immediate response and customers would think satisfaction in
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different value levels, (such as benefit and purpose level). Thus, the degree of
customers' satisfaction may vary with different value level of products. If business
managers can find factors that affect customers' satisfaction toward products or
services, business may change customers' experiential when using products or
services and let customers obtain maximum satisfaction. The creation of a better
experiential value can actually affect customers in generating positive satisfaction
(Wang and Lin, 2010).
b) Relationship Between Customer Satisfaction and Brand Loyalty
Kabiraj and Shamugan (2011) proposed that if consumers have been satisfied
with the promoted brand, their satisfaction is reinforcing and leads to an increase in
the probability of choosing the brand again. Harvard (Hill, Roche, and Allen,
2007:19) concluded that loyal customers behaviors explain differences in companies’
financial performance more than any other factor. Customer satisfaction should be
the primary objective of an organization to enhance customer loyalty (Faizan et al.,
2011). To reap full benefits of customer loyalty, companies need to make customers
highly satisfied (Hill, Roche, and Allen, 2007:26).
c) Relationship Between Experiential Value and Brand Loyalty
Wall & Berry, 2004 (Nae, Sang and Lynn, 2011) pointed out the restaurant
experience includes much more than simply eating what the customer wants; all
events and activities before and after dining can generate total experience for diners.
Therefore, when considering a multilayered experience in a table-service restaurant,
it is necessary to explore customers’ experiential values to improve our
understanding of customer experience in the consumption setting.
Experiential
Value
Brand
Loyalty
Customer
Satisfaction
Figure 2.2 Theoretical Framework
Source: Researcher (2013)
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2.3
Hypotheses
Hypotheses that will be examined to achieve the objectives of the research
comprises of four hypotheses, which will be explained below.
 Testing if variable experiential value (X) contributes significantly to variable
customer satisfaction (Y) in Boka Buka Restaurant.
Hypothesis 1:
Ho: Variable experiential value (X) doesn’t contribute significantly to variable
customer satisfaction (Y) in Boka Buka Restaurant.
Ha: Variable experiential value (X) contributes significantly to variable customer
satisfaction (Y) in Boka Buka Restaurant.
 Testing if variable experiential value (X) and customer satisfaction (Y) contribute
significantly to variable brand loyalty (Z) individually and simultaneously in Boka
Buka Restaurant.
Hypothesis 2:
Ho: Variable experiential value (X) and customer satisfaction (Y)
don’t
contribute significantly to variable brand loyalty (Z) individually and
simultaneously in Boka Buka Restaurant.
Ha: Variable experiential value (X) and customer satisfaction (Y) contribute
significantly to variable brand loyalty (Z) individually and simultaneously in Boka
Buka Restaurant.
 Testing if variable customer satisfaction (Y) mediates between variable
experiential value (X) and brand loyalty (Z) in Boka Buka Restaurant.
Hypothesis 3:
Ho: Variable customer satisfaction (Y) doesn't mediate between variable
experiential value (X) and brand loyalty (Z) in Boka Buka Restaurant.
Ha: Variable customer satisfaction (Y) mediates between variable experiential
value (X) and brand loyalty (Z) in Boka Buka Restaurant.