An Analysis of Factors that Influence Customer Satisfaction and Loyalty In Local Coffee Shops PDF

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Research on Local Coffee Shops in Indonesia...

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International Journal of Advanced Science and Technology Vol. 29, No. 6, (2020), pp. 5440 - 5457

An Analysis of Factors that Influence Customer Satisfaction and Loyalty In Local Coffee Shops Luly Anggraini¹, Suci Nurhayati², Zherend Theresa Kezia³, Willy Gunadi4* ¹,²,³,4 Business Management, Management Department, Binus Business School Master Program, Bina Nusantara University, Jakarta, Indonesia 11480 E-mail: [email protected] Abstract The purpose of this research is to analyze the influence of the atmosphere, service quality, product quality, price on customer satisfaction, and customer satisfaction on customer loyalty at local coffee shops that embrace the culture of third-wave coffee shops. Data was collected through online questionnaires given to people who came to local coffee shops at least 3 times in the last 3 months. Out of 172 people who filled in the questionnaires, 114 people met the criteria as respondents. A data analysis was conducted using a Partial Least Squares - Structural Equation Model (PLS-SEM). The results of this research indicate that the atmosphere, service quality, and product quality have a positive influence on customer satisfaction. Also, customer satisfaction has a positive influence on customer loyalty. This research has value for organizations that want to maintain customer satisfaction and loyalty for their coffee shop management. Keywords - local coffee shop, customer loyalty, customer satisfaction, atmosphere, service quality, product quality, price I. INTRODUCTION Coffee is a drink that is liked in almost every country in the world, including Indonesia. The culture of consuming coffee is usually carried out by the community in coffee shops which with the times are more commonly referred to as coffee shops (Solikatun et al., 2015). Coffee shops have now become a necessity for modern society, because they are central and strategic locations for social interactions and provide a place for people to meet, discuss, write, read, or just spend time with or without their friends. Coffee shop visitors range from professionals and executives to adolescents (Susanty & Kenny, 2015). People's habit of filling their time by spending money to drink coffee makes this activity a lifestyle (Solikatun et al., 2015). The business of the coffee industry in Indonesia is growing rapidly in the last 10 years, not only demanded by foreign markets but also by local markets (Rahayu & Purwanegara, 2017). The value of coffee shops’ growth in Indonesia in 2011 exceeded 15% with Starbucks in the first position as an international coffee shop brand and Excelso Cafe in the second position as a local coffee shop brand. AEKI (Association of Indonesian Coffee Exporters) stated that local coffee consumption in Indonesia will continue to increase along with the increasing number of coffee shops in Indonesia, which Indonesia itself is the 4th largest coffee producer in the world (Rahayu & Purwanegara, 2017). Based on that, intense competition has arisen between local coffee producers to produce coffee with the best flavor and to provide value to customers. Besides Excelso Cafe, Filosofi Kopi is also a local coffee shop that is able to compete in the market by offering thematic coffee house concepts (Utami & Kamilia, 2017). Increased competition also requires businesses to be customer-oriented, meaning that customer satisfaction and loyalty are the main goal (Mohamud et al., 2017). Because customers are satisfied, by themselves they will recommend the product to other customers, which is commonly referred to as word of mouth, and will also buy the product again (Adji & Semuel, 2014). This is a form of customer loyalty which is the core goal of every company because, with 5440 ISSN: 2005-4238 IJAST Copyright ⓒ 2020 SERSC

International Journal of Advanced Science and Technology Vol. 29, No. 6, (2020), pp. 5440 - 5457

customer loyalty, it is certain that the company will get a profit so that it can maintain the existence of the business being run (Rachmawati, 2014). Previous research on the factors in coffee shops or restaurants that affect customer satisfaction was conducted by Mohamud et al. (2017), Lee et al. (2018), Saraswati et al. (2014), and Adji and Semuel (2014). They had an orientation towards foreign coff ee shops such as Starbucks that examined several variables such as atmosphere, employee attitude, IT service, coffee quality, service quality, and product quality. Few research has been done on local coffee shops. One of the existing studies is a study by Susanty and Keny (2015) at Excelso, examining customer-based brand equity factors consisting of the variables of physical quality, staff behavior, ideal self-congruence, brand identification, and lifestyle congruence. Meanwhile, the current local coffee shop business is booming in both large and small cities (Afriyanti & Rasmikayati, 2018). Local coffee shops carry the image of flavor and use local coffee beans. The prices offered by foreign coffee shops are higher than the prices at local coffee shops. This makes local coffee shops more demanded by millennials because most millennial generations have low purchasing power. Millennial consumers tend to choose low prices but still be able to show their existence by drinking coffee as a lifestyle trend (Ulita, 2019). For example, at the end of 2016, more than 20 local coffee shops sprung up in Bandung, which carry the value and culture of a ‘third wave coffee shop’. Third wave coffee itself is defined as coffee that will tell the story to the customer in more de tail, so that each coffee can have a different taste because of the coffee beans and the method used to brew the coffee. Third wave coffee shops have developed as a place where not only consumers come to drink coffee but also to accommodate activities that will grow as a place to socialize (Putranto & Hudrasyah, 2017). Several factors affect customer satisfaction, including atmosphere, service quality, product quality, and price. A comfortable atmosphere causes many customers to prefer to dine in a cafe or coffee shop rather than at home (Valentine, 2014). The comfortable feeling from this environment tends to produce satisfaction for the customers (Lee et al., 2018). Besides the atmosphere, service quality also needs to be considered to attract consumer buying interest. When service quality in accordance with customer expectations is created, satisfaction is also created so that customers will continue to buy the products offered (Sembiring et al., 2014). In order for a restaurant to remain a customer choice, restaurants must be able to make customers feel satisfied by paying attention to the quality of the product in terms of the functions and appearance of the products offered (Sembiring et al., 2014). In addition to the three previous factors, price is also known as an important factor that produces comparative advantages between companies to achieve customer satisfaction. When a product has a lower price and produces the same or almost the same value or quality as a product that has a higher price, the customer is more likely to be satisfied and buy a cheaper product (Phuong-Nguyen-Ngoc-Duy & Ta-Minh-Hoang, 2017). Therefore, this study aims to analyze the factors that influence customer satisfaction such as atmosphere, service quality, product quality, and price at local coffee shops that carry the culture of third wave coffee shops scattered throughout Jakarta and South Tangerang that are visited by various groups of people from professionals to students. In addition, this research will also study the relationship between customer satisfaction and customer loyalty at local coffee shops. II.

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

Development of Coffee Coffee evolved in certain periods, known as the first wave, second wave, and third wave coffee. There are differences among these types of coffee according to Putranto and Hudrasyah (2017). The first one is first wave coffee; in this wave, coffee has begun to be consumed by many people either at home or at the office. The type of coffee consumed is still practical and fast such as sachets or instant coffee. The first wave is referred to as 5441 ISSN: 2005-4238 IJAST Copyright ⓒ 2020 SERSC

International Journal of Advanced Science and Technology Vol. 29, No. 6, (2020), pp. 5440 - 5457

coffee for consumption. The second one is second wave coffee. In the 1960s, people began to want coffee that is distinctive and can be enjoyed. In this wave, coffee is not only for consumption but the experience and process of coffee itself are of interest. Coffee shops have also sprung up in big cities, because drinking coffee in coffee shops has become a lifestyle of the wider community. Last is the third wave coffee. In this wave, coffee connoisseurs have begun to be interested in where the coffee originates, how the coffee is grown, how it is harvested, who sells it, who roasts it, and how the coffee is brewed. If previously the first wave only attracts customers to consume as much coffee as possible by relying on practicality and convenience, the second wave has started to prioritize the quality of the coffee. Then the third wave has emerged with the highest quality coffee beans (specialty coffee) and begun know the terms of after taste, bitterness, sweetness, aroma, and manual brew. Each coffee has its own taste and uniqueness. Regarding local Indonesian coffee, the taste of coffee varies in each region. This taste difference refers to the origin where the coffee plant is planted. Therefore, Indonesia has many tastes of coffee like Java taste, Bali Kintamani, Sumatera Mandailing, Toraja Kalosi, Aceh Gayo, and Papua Wamena (Gumulya & Helmi, 2017). Besides having diverse coffee characteristics, Indonesia also has its own uniqueness in drinking coffee that has become a culture. Indonesian coffee basically has a special touch called “Kopi Tubruk”. It is coffee powder which is directly brewed using hot water, but in certain areas there are also many coffee connoisseurs who give their coffee a special touch. Atmosphere Lee et al. (2018) analyzed the attributes that can reflect the characteristics of a coffee shop. One of the attributes is the atmosphere that is defined to provide comfort, familiarity, and feeling comfortable to spend time and feel relaxed while in the coffee shop. This is also in line with Putri et al. (2014), who stated that atmosphere refers to the design of the environment through the visualization of the arrangement, lighting, color, music, and scent to stimulate responses and perceptions as well as the emotional feelings of the customers, which ultimately creates a relaxed feeling that can directly influence their purchasing behavior. Store atmosphere is an atmosphere created to provide comfort and pleasure for consumers to make purchases in a retail setting. With a good atmosphere, consumers will enjoy the entire buying process offered, so consumers will feel at home and want to linger in the store. Service Quality There are five physical dimensions and service performances that can be used to measure service quality, which are tangibility, reliability, responsiveness, assurance, and empathy. The first one is tangibility. It is in the form of the physical appearance of the existing facilities, such as the buildings and room layout, room comfort, availability of parking lots, equipment cleanliness, employee neatness, as well as communication and employee appearance. The second one is reliability. It is the ability to provide the promised service reliably and accurately. From the perspective of a restaurant service business, a reliable service is when an employee is able to provide services as promised and help solve problems faced by consumers quickly. The third one is responsiveness. It is the availability of employees to help consumers and provide fast and responsive services that include alacrity in serving customers, the speed of handling transactions, and the handling of consumer complaints. The fourth one is assurance. It includes employee knowledge of products appropriately, the quality of hospitality, attention and courtesy in providing services, skills in providing information, the ability to provide security, and the growth of the value of consumer trust. The fifth one is empathy. It is the personal care and attention given to the customers. The services provided by employees must be able to show their concern for customers, such as the ease of being contacted, the ability of employees to communicate with consumers, and an effort to understand the wants and needs of consumers (Putro et al., 2014). 5442 ISSN: 2005-4238 IJAST Copyright ⓒ 2020 SERSC

International Journal of Advanced Science and Technology Vol. 29, No. 6, (2020), pp. 5440 - 5457

Product Quality According to Putro et al. (2014), products are everything that producers offer to own, pay attention to, ask for, look for, buy, use, or consume by customers as a fulfillment of their needs. Product quality is one important part that must be considered by the company in order to survive and remain as the choice of customers. A previous research by Lee et al. (2018) stated that there are indicators for coffee quality such as the taste of coffee is great, coffee has a good smell, and the aroma of coffee is pleasant. This opinion is complemented by Iskandar et al. (2015), who claimed that product quality has a fitting aroma, flavor consistent freshness, tasty combination, and a variety of menus. Price The price set by a company for a product or service should consider several factors as found by Shartykarini et al. (2016). The first one is whether the price is affordable or not. The first aspect that needs attention from business actors is the issue of affordability. The selling price of a product or service must be reachable by consumers who are their target market. The second one is conformity between the price and quality or taste, where the price must be proportional to the quality. Therefore, business actors must adjust the prices of their products to the quality they have. The third one is the amount of value exchanged by customers to get the benefits of using a product or service. The fourth one is price competition, where business actors must be able to determine the prices of products or services appropriately so they are able to compete with the existing competitors. Customer Satisfaction According to Lee et al. (2018), to analyze customer satisfaction, there are four main attributes that can reflect the characteristics of the coffee shop, which are atmosphere, employee attitude, IT service, and taste. Supported by the opinion of Susanty and Kenny (2015), "An organization's staff or employees are important factors in shaping customers' perceptions and satisfaction." This means that employees who work in an organization, or in this study it can be said to be the coffee shop waiters, are an important factor in changing consumer perceptions and customer satisfaction. So from the overall explanation of customer satisfaction, it can be interpreted that customer satisfaction is the level of one's feelings after comparing all the results felt with what is expected. Customers will experience various levels of satisfaction if the performance of a product or service is in accordance with their expectations. Customer Loyalty According to Saraswati (2014), customer loyalty is a reliable benchmark for predicting sales growth. The concept of customer loyalty is more related to behavior than attitude. Behavior is when a customer makes a purchase, while attitude is a feeling that is shown by the customer after using a product. Therefore, loyal customers will exhibit repeated buying behavior from time to time. Loyal customers have a very important role for a company because customer loyalty can increase profits and maintain the existence of a company. Characteristics of loyal customers include customers who will regularly repurchase products, refer products to others, and show immunity to attractiveness from other competitors. Putro et al. (2014) also stated that loyal customers have the characteristics of making repeated purchases regularly, recommending products to others, and showing immunity against competitors’ offers. Hypothesis Development An atmosphere is very influential in creating consumer satisfaction (Listiono & Sugiarto, 2015). According to Miswanto and Angelia (2017), a pleasant atmosphere can influence customer satisfaction. In the research, they showed that atmosphere has a significant positive effect on customer satisfaction. A pleasant atmosphere can support the 5443 ISSN: 2005-4238 IJAST Copyright ⓒ 2020 SERSC

International Journal of Advanced Science and Technology Vol. 29, No. 6, (2020), pp. 5440 - 5457

creation of customer satisfaction, because customers also pay attention to store cleanliness, layout, and lighting. A condition like this is in accordance with the hypothesis that to satisfy consumers, owners or business actors must pay attention to the operation of the physical environment such as making an attractive interior design and decorations like providing comfortable chairs, good quality furniture, appropriate waiters’ appearance, pleasant music, lighting, and good layout regulations. H1: Atmosphere has a positive effect on customer satisfaction. According to Phuong-Nguyen-Ngoc-Duy and Ta-Minh-Hoang (2017), in general, service quality is what the customers want or expect for a product and service. Most researchers stated that there is a positive relationship between service quality and customer satisfaction. The higher the quality of service received by the customers, the higher their satisfaction is. This statement is in line with a statement by Pereira et al. (2016) that service quality has a positive and significant effect on customer satisfaction, which means that increasing the service quality will have an impact on increasing customer satisfaction. It is also said that the consistency of product quality or service quality can contribute to the success of a company or business actors that is viewed from the perspective of customer satisfaction. In addition to research by Pasharibu et al. (2018), it is explained that there is a positive influence between service quality on customer satisfaction. The better the quality of the service is, the higher the customer satisfaction received. From all those opinions, it can be confirmed that there is a close relationship between service quality and customer satisfaction. H2: Service quality has a positive effect on customer satisfaction. According to Putro et al. (2014), product quality has a positive and significant effect on customer satisfaction, which is when the desires and expectations of consumers when they are at a restaurant are fulfilled. So it can be concluded if the product quality is improved, customer satisfaction will also be increased. According to Kusuma et al. (2014), either big or small businesses will obtain loyal customers if they get satisfaction from the products offered. A previous study conducted by Lee et al. (2018) shows that food and beverage quality is the most important element in a food service business. The results of this study indicate a significant positive relationship between satisfaction and the quality of the products offered. The product referred to in this study is coffee. Therefore, good coffee quality will positively influence customer satisfaction at a local coffee shop. H3: Product quality has a positive effect on customer satisfaction. Pasharibu et al. (2018) explained the relationship between price and customer satisfaction. Price becomes a customer’s consideration in purchasing a product if the product purchased is in accordance with the customer’s expectations. Then the customer will feel satisfied. Satisfaction is the level of feeling that customers feel after comparing what they receive with previous expectations. Price is the value to be paid for services and the benefits that have been received by customers. Therefore, price becomes the customers’ considerations in making purchasing decisions. It is in line with the opinion of Phuong-Nguyen-Ngoc-Duy and Ta-Minh-Hoang (2017) that prices are always considered as one of the most important fa...