Binus Library



CHAPTER 2

THEORETICAL FOUNDATION

1.

1 Theoretical Foundation

1 Customer Loyalty

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.

2 Service Quality

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.

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.

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.

3 Brand Equity

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.

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.

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.

4 Marketing Mix Strategy

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 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.

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 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 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.

5 Relationship between Service Quality, Brand Equity, and Marketing Mix Strategy

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 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).

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.

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 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.

6 Credit Cards

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

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.

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.

2 Theoretical Framework

Figure 2.1 Theoretical Framework

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.

-----------------------

8

PT. BANK RAKYAT INDONESIA

Credit Card

Visa

Customer Loyalty

Brand Equity (X2)

- Brand Awareness

- Brand Loyalty

- Brand Association

- Perceived Quality

Marketing Mix Strategy (X3)

- Product

- Price

- Place

- Promotion

- People

- Process

- Technology

Service Quality (X1)

- Empathy

- Tangibility

- Reliability

- Responsiveness

- Assurance

Factor Analysis

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download