CHAPTER I INTRODUCTION This research is the replication from the previous journal title Does Brand Trust Matter to Brand Equity? by Elena Delgado Ballester and Jose LuasManuera Aleman. However, this research will be focus on the factors affecting brand equity of instant noodles industry in Indonesia. Brand equity is defined as intangible benefits and values received from a well-known brand, such as increase of customers purchase intentions and preference toward the brand ( Yasin, Noor and Mohamad, 2007). Factors which influences brand equity according to the original research are: overall satisfaction, brand trust and brand loyalty. So, when customers feel satisfied with a brand, they will trust the brand and become loyal customers which therefore increase the brand equity. Therefore this research will analyze the significance of those factors affecting the brand equity of instant noodles. 1.1 Background ( Overview of Instant Noodle Worldwide) As the growing of modernization era, there is also changing in customers behavior which becomes more time conscious and usually in fast paced environment as their new habit. In addition, customers have lesser time and busier activities rather than before, even women have higher education and increasing working mother in the world nowadays. Based on the Bureau of Labor Statistics, in average there are 65 % working mother in US in 2010 (www.bls.gov, 2011). As the changing of customers behavior, customers also have different demand and expectation for the products that they use.
2 Customers need more efficiency and practice products to support their activities, especially it is supported by the rising of technology development which makes easier to actualize the product. Therefore many companies created innovative products which are easy and quick in usages. The switching behaviors of customers also happen to their preference of food consumption. Customer mostly demanding for instant food and ready to eat products which is not required high cooking skill and could be served in a shorter time rather than home - cooked food which required cooking skill and longtime process. Especially for busy people, who do not have time to cook and have very limited time to eat, instant foods are really helpful to support their activities. In USA, there is a significance consumption of instant food with a total of 767 pounds per capita compared to the fresh food with total 602 pounds per capita in 2009 ( Goodwin, 2010). Instant food defined as the pre-cooked food which allows customers to have shorter time for cooking preparation which is around 3-5 minutes time ( www.wisegeek.com, n.d ). There are several categorize of instant food products ( www.wisegeek.com, n.d ), the first category is wheat and other carbohydrate related products which is packaged in the dry and air control packaging to keep the quality and only required milk or hot water to serve it, for example: noodles, potatoes, oatmeal, porridges, cereals, soup, etc. The next category of instant food is a frozen lunch or dinner, which is a complete meal like homecooked food contains of carbohydrates, meats, and vegetables and only need microwave to heat it. The other types of instant food are canned food (sardines, corned beef, etc) and instant side dish (chicken nuggets, chicken wings, etc), and instant spices.
3 The growing of instant food influenced by these factors ( Usha, 2007) : - The growing of industrial societies and metropolitan cities: the growing of metropolitan cities created a busy lifestyle, which therefore increase the needs of instant food. - Domestic maids decrease: Due to the industrialization, people are more attracted to work as labors rather than maids, especially in the developed and western countries, good maids are hard to be found. Therefore, housewives especially working- moms prefer to use instant food to save their time and energy - Instant foods are very convenience for customers ( less time and energy, easy to use), many varieties that suitable with people s taste and preferences, and very economical because the price of instant food is very cheap compared to the cost of preparing a home- cooked food and also restaurants food. - The increase of working mother and family s income decrease the role of housewives in the family and women are no longer having much time to cook therefore they take instant food as the solution. - People are changing their standard of living and influenced by western culture, thus people become changing their preference to instant food rather than traditional food. - The increasing of instant food advertising in the media (TV, magazine, billboard) created awareness to the products. It is also supported by the survey in India, based on the result 86% of households prefer to have instant food for their family because there are increasing of dual income (
4 working- moms), standard of living, convenience, and western countries influences (Bureau, 2011). The consumption of instant noodles in the world is growing rapidly, which is influencing the growing of instant noodles producers in the world. In the global market, the instant noodle industry leads by Nissin from Japan with 12.2 % global market share and followed by Master Kong from Taiwan with 8.7 % market share. Below is the name of the leading instant noodles producers in global market and detail information about their market share (Fitra and Monalisa, 2011). Table 1.1 : The Global Leading Instant Noodle s Producers Source: Fitra S. And Monalisa. (2011). Indofood Kuasai 1,9 % Pasar Mie InstanDunia. Indonesia Finance Today.Retreivedfrom http://www.indonesiafinancetoday.com/read/15419/indofood-kuasai-19- Pasar-Mi-Instan-Dunia In the world, the consumption of instant noodles in the world is expected to reach 139.2 billion packs in 2015 which shows that there is still high and increasing demand of instant noodles in the world (www.prweb.com, 2011) compared to the total global consumption of instant noodle in the world which is 95.4 billion in 2010
5 (www.instantnoodles.org, n.d ). The country which has high consumption and most potential market of instant noodles is China with 42.3 % and followed by Indonesia by 14.4 % ( Fitra and Monalisa, 2011). 1.2 Background ( Overview of Instant Noodle in Indonesia ) In Indonesia, the market for instant noodles industry is really big and potential. Indonesian people are currently affected by modernization and western culture, for instance women in Indonesia are no longer being a traditional housewives who do not have careers, but nowadays there are many educated women and career women in Indonesia, it is proved by the significance statistics of working women in Indonesia (age 25-45) by 65 % of total 135 million women in 2012 ( Samantha, 2012). There is also shifting food consumption, from the traditional food such as rice to instant foods, which is proved by the growing of instant foods in Indonesia especially instant noodles.the demand of instant noodle in Indonesia also high, which is shown that Indonesia stated as the second highest consumers of instant noodle in the world in 2010 ( Fitra and Monalisa, 2011). The demand of instant noodles in Indonesia keep increasing time by time, which is shown by the increasing sales of Indomie as the biggest instant noodles producer in Indonesia by 4.2 % in 2011 compare last year ( Fitra and Monalisa, 2011). The consumption of instant noodles in Indonesia is estimated in 2011 at 63 packs per capita every year ( Saksono, Monalisa and Sanusi, 2011). The biggest consumption of instant noodle in Indonesia is in rest of urban area by 46 %, metropolitan area by 29 %, and rural area by 25 %. The highest growth of instant noodle s consumption is in metropolitan area by 4.5 %.
6 Figure 1.1 : Composition of Instant Noodle s Consumption in Indonesian Society Source: Saksono H., Monalisa and Sanusi. 2011. Produksi Mie InstanTumbuh Rata- Rata 12 %. Indonesia Finance Today. Retrieved from http://www.indonesiafinancetoday.com/read/4799/produksi-mi-instan- Tumbuh-Rata-Rata-12 The instant noodles industry in Indonesia firstly began in 1968 with the establishment of PT. Lima Satu which further in 1977 changed their name into PT. Supermie Indonesia that similar with the brand of their product which is Supermie. After that, there were more companies came to the industry and introduced their brands such as Indomie and Sarimi. Moreover, the domination of Indomie began when PT. Indofood SuksesMakmur in 1990s take over the shares of PT. JangkarJati Group and PT. SarimiAsli Jaya. Therefore, since that time, PT IndomieSuksesMakmur has three instant noodle s brands: Supermie, Sarimi, and Indomie. ( Petra Christian University, n.d)
7 The domination of Indomie as the instant noodle brand in Indonesia is really big. When people in Indonesia are talking about instant noodles, they will directly refer to the brand Indomie. Until 2002, PT. Indofood SuksesMakmur, especially Indomie dominated the instant noodles industry in Indonesia by 90 % and the rest of the market share competed by small players in the market, however with new strong competitor came to the market in 2003 which is Mie Sedap by PT. Wings Food, the market share of Indomie became slightly decreased. ( Nuryanto, 2010). In 2010, market share of Indomiebecame only 60 %, whereas 20% market share owned by Mie Sedap and the rest owned by small players in the industry (Munjin, 2010). From the market share data of the instant noodle industry in 2011, PT. Indofood SuksesMakmur lead the market by 66. 3 %, followed by Wings Food 25. 5 % and other small players by 8.2 % ( MandiriIndustri Update, 2011). In 2010, Based on the Top Brand Award 2012, the most popular brand in Indonesia is still Indomie with the total top brand index of 77.5 %, followed by Mie Sedap by 15.7 %. (www.topbrandaward.com, 2012) Figure 1.2: Top Brand Index 2012 Source: Top Brand Award 2012. Retrieved from http://www.topbrand-award.com/top-brandsurvey/survey-result/result-2012/
8 Figure 1.3: Market Share of Instant Noodle Industry in Indonesia Source: GAPMMI (GabunganPengusahaMakanandanMinumanSeluruh Indonesia) frommandiriindustri Update, Volume 8, 2011 retreived from www.bankmandiri.co.id/indonesia/eriviewpdf/lgyl56546643.pdf The increasing demand of instant noodles in Indonesia affects the growth of the industry in Indonesia. To fulfill the increase of instant noodles demand, the production of instant noodles in Indonesia also grew in average by 12 % every year (2004-2010), from 974,000 tons in 2004 to become 1.96 million tons in 2010. Figure 1.4 : Production Growth of Instant Noodle In Indonesia Source: Saksono H., Monalisa and Sanusi. 2011. Produksi Mie InstanTumbuh Rata- Rata 12 %. Indonesia Finance Today. Retrieved from http://www.indonesiafinancetoday.com/read/4799/produksi-mi-instan- Tumbuh-Rata-Rata-12
9 However, instant noodle s industry is not always having a favorable issue. Instant noodles has some controversies, especially regarding to human health because of their chemical ingredients ( MSG, preservatives, etc) which is considered bad to be consumed continuously. Such as in 2010, Indomie was banned to be sold in Taiwan because of the excessive use of preservatives found in the product (Baskoro,Sagita and Wardhani, 2010). However, that issue did not significantly affects the consumption of instant noodles, especially Indomie in Indonesia. It was proved that the sales of Indomie still stable in the market and not affected by that issue (Sawabi, 2010). Instead, the volume sales of Indofood s instant noodles which is dominated by Indomie(indocashregister.com, 2010) increased to be 11.45 billion packs in 2010 from 11.03 billion packs in 2009 (www.indofood.com, 2010). Therefore, it is shown that although there was bad issue about Indomie, the consumer still trust the brand and not affected by the issue. So, it is important in the instant noodle s industry to build brand trust to their consumers. 1.3 Research Problems This research is a replication of as study of a previous research conducted by Elena Delgado- Ballester and Jose Luis Manuera- Aleman with titled: Does Brand Trust matter to brand equity? from The Journal of Product and Brand Management, 2005 which ranked B. The previous research done by Elena et al aimed to research about factors which influences brand equity of beers and shampoos as the products. This research also addresses the same issue about identify factors that affecting the brand equity. However, the author will use different products category which is instant
10 noodles in Indonesia. The author will conduct research about instant noodles, because instant noodle is a very general product category which has been consumed and experienced by many people from different demographic and geographic segmentations. Moreover, the author want to examine the reasons and factors why there is a strong brand which leads the instant noodles industry such as Indomie and why the other small players in the industry of instant noodles are hardly beat Indomie. The author also wants to identify the reasons why customers choose a brand of instant noodle rather than other brands in the market for their food consumption. Last, the author want to identify the role of brand trust in the development of brand equity of instant noodle s products. 1.4 Research Questions RQ1: What factors affect the development of brand equity in instant noodle products? RQ2: Does brand trust has influence to brand equity in instant noodle products? 1.5 Scope of the study The scope of the study will be narrowed to Jakarta and Tangerang areas. The survey for this research will be using questionnaires as the tool and will be distributed to the 150 respondents in Jakarta. Because instant noodle is a very common food which all people has been experienced, so there is no limitation toward the demographics factors of the respondents. The list of instant noodle s brands that will be used in this research are based on the top brand award 2012 because it shown the popularity of the brand in the industry.
11 1.6 Aim and Benefits By conducting this research, the author aims to achieve these objectives: - Discovered factors which influences brand equity by testing the theoretical model using these variables ( overall satisfaction, brand trust, and brand loyalty) - To examine the importance of brand trust in the development of brand equity. By achieving those objectives, this research will provide benefits for the industry: - Companies in the industry could know how to develop brand equity of their products, which will further provides them some competitive advantages (e.g: price flexibility of customers, greater market share, customers become more prefer toward the brand, etc) - This research could be helpful for the companies to restructure and improving their marketing strategies to become stronger brand and more competitive in the market, also have greater brand equity.
12 1.7 Structure CHAPTER 1: INTRODUCTION Consist of background of instant noodles industry in worldwide and specifically in Indonesia. Also discuss about the research problems, scope of the study, research questions, and aims and benefits of the research CHAPTER 2: THEORETICAL FOUNDATION This chapter recognizes fundamental theories, definitions, and relevant findings that are valuable to the research CHAPTER 3: RESEARCH METHODOLOGY This chapter analyzes the methodology used in the original study and point outs the adjustments made by the author when conducting the research, the questionnaire and the sampling method. CHAPTER 4: RESULT AND ANALYSIS This chapter comprised the result of the survey which was evaluated using linear regression by SPSS CHAPTER 5: CONCLUSION AND RECOMMENDATION This final chapter summarizes the findings of the research and highlights useful suggestions for practitioners.