CHAPTER II LITERATURE REVIEW, THEORETICAL FRAMEWORK, AND HYPOTHESIS

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1 CHAPTER II LITERATURE REVIEW, THEORETICAL FRAMEWORK, AND HYPOTHESIS 2.1 Marketing Definition According to Kotler and keller (2006, p.5), Marketing is identifying and meeting human and social needs. According to Kotler and Armstrong (2010, p.29), Marketing is the process the company make value for customers and build strong relationship with the customer to capture value from customer as feedback. According to Peter and Olson (2010, p.4), Marketing is the appropriate philosophy for conducting business. The marketing suggest an organization should satisfy consumer needs and wants to make profits. From the description above, can show that s marketing is the company activities in identifying and meeting needs from the customer to make strong relationship in order to get return from the customers. 2.2 Marketing Mix According to Kotler and Armstrong (2010, p.76), Marketing mix is the set of marketing tools (Product, Price, Place and Promotion) that firms use to produce the response to the target market. Marketing mix consist of everything the firm can do to influence the demand for the product. Marketing Mix is grouped into four major categories (4P); 1) Product means the goods and services combination the company offers to the target market. 2) Price is the amount of money costumers must pay to obtain the product. 3) Place includes company activities that make the product available to target consumers. 4) Promotion means activities that communicate the merits of the product and persuade target customers to buy it. 9

2 10 Source: Kotler and Armstrong(2010) Figure P s of Marketing Mix 2.3 Product Product Definition According to Kotler and Armstrong(2012, p.248), Product is anything that can be offered to a market attention, acquisition, use, or consumption that might satisfy a want or need. According to Kotler and Armstrong(2012, p.250), Product fall into two board classes based on the types of consumers that use them, there are: 1) Consumer Product: A product bought by final consumers for personal consumption. There are 4 parts of Consumer Product: Convenience goods: A consumer product that customers usually buy frequently, immediately, and with minimal comparison and buying effort. Shopping goods: A consumer product that the customer, in the process of selecting and purchasing, usually compares on such attributes as suitability, quality, price, and style.

3 11 Specialty goods: A consumer product with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. Unsought goods: A consumer product that the consumer either does not know about or knows about but does not normally consider buying. 2) Industrial Product: A product bought by individuals and organizations for further processing or for use in conducting a business. According to Kotler and Armstrong (2003, p.408) There are 5 levels of products: Core benefit: the basic benefits of a product offered to consumers. Basic product: forms the basis of a product that can be perceived by the senses. Expected product: a series of product attributes and the conditions expected by the buyer when purchasing a product. Augmented product: something that distinguishes between the products offered by the business entity with products offered by competitors. Potential product: all arguments and shape changes experienced by a product in the future. According to Kotler and Keller (2006, p.345) products can be classified into 3 groups, there are: 1) Consumable goods are tangible goods that normally consumed in one or a few times of use. 2) Durable goods are tangible goods that normally do not run out after a lot of use 3) Services are activities or benefits offered for sale satisfaction Product Quality According to Kotler and Armstrong(2012, p.254), Product Quality is the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs. According to Bowo, Hoyyi and Mukid(2013), Product quality is a relative measure of a good or service that can give you an idea of how far the level of excellence of a product is able to meet customer desires.

4 12 The quality of products is the understanding that the products offered by sellers have more selling points that are not owned by a competitor product. Therefore, companies are trying to focus on the quality of the product and compare it with the products offered by competing companies Dimension of Product Quality According to Durianto (2004, p.38), the concept of the product, the manufacturer in the product must think through the stages of dimensions, there are: 1) Performance: This dimension is the most basic and related to the primary function of a product. Consumers will be very disappointed when their expectations are not met on this dimension. 2) Reliability: dimensions of performance and reliability cursory look similar but have obvious differences. Shows the probability of reliability over the product fails to perform its functions. 3) Feature: This dimension can be regarded as a secondary aspect. Like the example of electronic products, features - features offered targeted by manufacturers to innovate in an effort to satisfy customers. 4) Durability: a measure of the product cycle, both technically and time. The product called a durable if it has been widely used or has been used for a long time. The first is there durability both technically and durable in time. He are writing. 5) Conformance: This dimension indicates the extent to which a product can match certain standards or specifications. 6) Design: This dimension offers emotional aspect in influencing consumer satisfaction 2.4 Service Service Definition According to Lovelock and Wirtz (2011, p.37) Services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects, or other assets for which purchasers have responsibility.

5 13 According to Kotler and Armstrong (2012, p.248), Service is an activity, benefit, or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything. From the definition above, Service is an activities that offered by a person to another person to give a satisfaction toward them. So, service should be defined in their own right, not in relation to goods Characteristics of Service Although services are products in a general sense, they have special characteristic and marketing needs. The biggest differences come from the fact that services are essentially intangible and that they are created through direct interactions with customers. According to Kotler and Armstrong (2012, p.260), there are 4 characteristics of service: Intangibility: Services cannot be seen, tasted, felt, heard, or smelled before they are bought. Inseparability: Services are produced and consumed at the same time and cannot be separated from their providers. Variability: The quality of services may vary greatly depending on who provides them and when, where, and how. Perishability: Services cannot be stored for later sale or use. Source: Kotler and Armstrong(2012) Figure 2. 2 Characteristics of Service

6 Service Quality According to Lupioyadi (2008, p.181), Service quality is a factor in determining the success and quality of the company where the company's ability to provide quality service to consumers and as a strategy to defend themselves and achieve success in the face of competition. According to Nasution (2004, p.47), Service quality is the expected level of excellence and control over the level of excellence to meet customer desires. From the description above, Service quality is defines as the difference between customer s expectation for service output to the service input and the perception of the service received. Therefore, Customer s expectation serves as a foundation for evaluating service received because when performance exceed expectation, it means that the quality is high and when performance is low it means performance does not meet their expectation Dimensions of Service Quality According to Lovelock and Wirtz (2011, p.406), There are 5 dimensions of service: 1) Tangibles Regard to physical attractiveness, equipment and materials used by the company, as well as employee performance. 2) Reliability In connection with the company's ability to provide accurate service since it first without making any mistakes and deliver services in accordance with the time kept. 3) Responsiveness With regard to the willingness and ability of the employees to help customers and respond to their requests, and informs when services will be provided and then provide services quickly. 4) Assurance The behavior of the employees that are able to foster customer trust towards the company and the company can create a sense of security

7 15 for customers. Assurance also means that employees are always being polite and master every knowledge and skills needed to handle any questions or concerns customers. 5) Empathy Means the companies understand the customer s problem and act in the interests of the customer, and provide personalized attention to its customers and has convenient hours of operation. 2.5 Customer Satisfaction Customer Satisfaction Definition According to Hoyer and MacInnis (2010, p.279), Customer Satisfaction is the feeling that results when consumers make a positive evaluation or feel happy with their decision. According to Peter and Olson (2010, p.387), Customer satisfaction is a critical concept in marketing though and customer research. If customer are satisfied with a product, service, or brand, they will be more likely to continue to purchase it and tell others about their favorable experiences with it. If they are dissatisfied, they will more likely switch products or brands and complain to manufactures, retailers, and other costumers. According to Kotler and Armstrong (2004, p.19), Customer Satisfaction is the extent to which product s perceived performance matches a buyer s expectations. Customer satisfaction depends on the product s perceived performance relative to a buyer s expectations. According to Bowo, Hoyyi and Mukid(2013), customer satisfaction is a post-purchase evaluation of alternatives selected where at least give the results (outcomes) equal or exceed consumer expectations. According to Siddiqi(2011),Customer Satisfaction is one of the most important outcomes in the marketing literature. It serves to link processes culminating purchase and consumption with post purchase phenomena such as attitude change, repeat purchase, and brand loyalty From the explanation above, Customer Satisfaction is the feeling that results when the product s perceived performance meet the customer s expectations. Customer satisfaction is important to business success because

8 16 satisfied customers are willing to pay higher prices, particularly if they buy the product repeatedly. The customers are also more likely to remain customers, be brand loyal, and committed to the product Dimensions of Customer Satisfaction According to Irawan (2003), there are 5 factors that decide the customer satisfaction. The factors are: 1) Product Quality Costumer will feel satisfaction if the evaluation of the product has a good quality. There are some factors that make product quality: Performance Reliability Conformance Durability Feature 2) Service Quality Costumer will feel satisfy if they get the good service and meet their expectations. There are 5 dimensions of service quality: Reliability Responsiveness Assurance Empathy Tangible 3) Emotional Factors The satisfy not come from the product, but from self-esteem or social value that makes customer feel satisfy from a product 4) Price Products that have the good quality with the lower price will give the higher value to the customer 5) Cost and Ease of Get a Product or Service Customers do not need pay more to get the products or service.

9 Customer Loyalty Definition According to Neal, Quester and Hawkins (2004, p.185), Customer Loyalty is where a customer has an emotional feeling to the brand or product and keep purchasing. According to Griffin (2003, p.4), Customer loyalty is non random purchase expressed over time by some decisions making unit. From the description above, Customer loyalty is the psychological and behavior from the customer to be loyal toward the product or service that sell by the company and keep purchasing in the future Characteristics of Customer Loyalty According to Heruwasto and Fatma (2011), there are 3 indicators to see the customer loyalty: 1) Frequency of product use The loyal customer will use the product with the high intensity 2) Repeat purchase The loyal customer will purchase the same product continuously 3) Words of mouth The loyal customer will tell the other people to buy the products. They will make the efficiency to do the promotion of the products Stage of Loyalty According to Griffin (2005) stages of loyalty is divided into the following: 1) Suspect People who might buy your services because it is believed or known suspects thought they would buy but still not quite sure or all who may be buying goods or services of the company but not yet know anything about the company and the goods or services offered. 2) Prospects

10 18 Prospects are people who need your products or services and have the ability to buy. In this prospect, even though they have not made a purchase, they have to know the existence of the company and the goods or services being offered, because someone has recommended goods or services to him 3) Prospects are disqualified Prospects who are disqualified prospect remedy has learned enough to know that they do not need, or do not have the ability to buy products or use services 4) Consumers first Consumers First Instance time is the person who has purchased the product first times. That person could be a customer and a competitor at the same time 5) Consumers repeated Consumers repeatedly are the ones who have purchased a product or use a service that we sell more than two times. They may have purchased a product or service using the same two times or more 6) Clients Clients buy and sell anything that can be used. This guy bought a regular basis, providing a strong and continuing relationship, which makes it immune to the pull of competitors 7) Advocates Like the client, the buyer bought and sold anything that could be used as well buy it on a regular basis. However, the advocates also encourage others to re- purchase, marketing and bring customers 8) The customer or client is lost Someone who had been a customer or client, but has not bought back from at least one normal buying cycle Type of Loyalty According to Griffin (2005), that kind of loyalty is divided into 5, namely : 1) Without Loyalty

11 19 That some customers do not develop loyalty to a particular products or services. Without loyalty relationship is characterized by a low combined with a low level of purchase. In general, firms should avoid these types of buyers because they are not going to be a loyal customer. 2) Weak Loyalty With low involvement and the high repeat purchases generate weak loyalty, these customers buying habit. In other word, non- attitude factors and factors of the situation is the main reason to buy. This kind of loyalty is common in frequently purchased product. 3) Hidden Loyalty The linkage is relatively high and the low level of repeat purchases show hidden loyalty, influence the situation, and not a decisive influence attitudes to make repeat purchases. 4) Premium Loyalty Most types of loyalty can be improved, occurs when there is a high degree of relatedness and the re- purchase rate is also high. This type of loyalty is preferred to all customers in each company. 2.7 The Relationship between Variables According to Aryani and Rosinta(2010), In the journal Pengaruh Kualitas Layanan terhadap Kepuasan Pelanggan dalam Membentuk Loyalitas Pelanggan, showed that the fifth dimensions of service quality proven to influence significantly to the quality of service. The dimensions of the strongest in explaining the quality of service in a row are reliability, responsiveness, assurance, empathy, and tangibility. In addition, the results showed there is a strong and positive influence between variables KFC service quality to customer satisfaction on the Social UI students. This is evident from the results research which shows that 72.9 % of variable customer satisfaction can be explained by variable quality of service, while the rest of 27.1 % influenced by other factors outside of variables quality of service. Results of other studies indicate that there is a strong and positive effect between Service Quality KFC on customer loyalty in students Social UI. This is demonstrated by the 91%

12 20 variables that customer loyalty can be explained by the variable quality of service, while the rest 9% is influenced by other variables outside quality of service. According to Hidayat(2009), In the journal Pengaruh Kualitas Layanan, Kualitas Produk dan Nilai Nasabah Terhadap Kepuasan dan Loyalitas Nasabah Bank Mandiri, Conclusions obtained from this study is an integrated model that contains relationship between service quality and product quality for customers with satisfaction and customer loyalty. The integrated model explained that (1) the quality of service direct effect on customer satisfaction, (2) directly affect product quality on customer satisfaction, (3) does not directly affect the quality of service on customer loyalty with mediated by customer satisfaction, (4) the quality of the product indirect effect on loyalty mediated by customers with customer satisfaction, According to Siddiqi(2011),In the journal Interrelations between Service Quality Attributes, Customer Satisfaction and Customer Loyalty in the Retail Banking Sector in Bangladesh, pointed out that a small increase of customer satisfaction leads customer loyalty dramatically. Customer satisfaction has a large positive correlation with customer loyalty in the Business. The strong positive correlation of customer satisfaction and customer loyalty means that the customers will recommend the product to other people. Loyal customer takes less of the company s time during transactions and less sensitive to price changes. The companies with the highest customer loyalty typically grew revenues at more than twice the rate of their competitors. According to Monalisa and Suryani(2013), In the journal Pengaruh Kualitas Layanan Internet Banking Terhadap Kepuasan Dan Loyalitas Nasabah BANK Dengan Menggunakan Sistem Dinamik, pointed out that Internet banking service quality plays an important role in maintaining and scaling up of bank customers' satisfaction and loyalty. In improving bank customer satisfaction and loyalty, the quality of service Internet banking should be increased so that scenario is needed to view patterns increase in customer satisfaction and loyalty. According to Susanti(2009), In the journal The Influence Of Image And Customers Satisfaction Towards Consumers Loyalty To Traditional Foods In Surabaya, pointed out that Customer satisfaction in a traditional food partially positive and significant effect to customer loyalty in food Traditional in Surabaya.

13 21 The dominant variable consumer loyalty to the traditional food in Surabaya is customer satisfaction 2.8 Theoretical Framework Source: Researcher, 2012 Figure 2. 3 Theoretical Framework 2.9 Hypothesis H1 = Variable Product Quality has a significant effect on Customer Satisfaction in the purchase of raw materials for feed.

14 22 Ho: There is no significant effect between Product Quality to Customer Satisfaction in the purchase of raw materials for feed. Ha: There is significant effect between Product Quality to Customer Satisfaction in the purchase of raw materials for feed. H2 = Variable Service Quality has a significant effect on Customer Satisfaction in the purchase of raw materials for feed. Ho: There is no significant effect between Service Quality to Customer Satisfaction in the purchase of raw materials for feed. Ha: There is significant effect between Service Quality to Customer Satisfaction in the purchase of raw materials for feed. H3 = Variable Customer Satisfaction has a significant effect on Customer Loyalty in the purchase of raw materials for feed. Ho: There is no significant effect between Customer Satisfaction to Customer Loyalty in the purchase of raw materials for feed. Ha: There is significant effect between Customer Satisfaction to Customer Loyalty in the purchase of raw materials for feed. H4 = Variable Product Quality has a significant effect on Customer Loyalty in the purchase of raw materials for feed. Ho: There is no significant effect between Product Quality to Customer Loyalty in the purchase of raw materials for feed. Ha: There is significant effect between Product Quality to Customer Loyalty in the purchase of raw materials for feed. H5 = Variable Service Quality has a significant effect on Customer Loyalty in the purchase of raw materials for feed. Ho: There is no significant effect between Service Quality to Customer Loyalty in the purchase of raw materials for feed.

15 23 Ha: There is significant effect between and Service Quality to Customer Loyalty in the purchase of raw materials for feed.

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