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CHAPTER 1

INTRODUCTION

1.1 Background

This thesis project will elaborate in details about a study conducted by the author in

Jakarta, Indonesia, titled: “An Analysis on Customers’ Level of Experience toward

Satisfaction, Image and Loyalty in People Based Service Industry, in Particular Hair

Salon Industry in Jakarta”. The research was adapted from a study done by Thomas A.

Brunner, Markus Stocklin and Klaus Opwis in 2008 toward a service industry,

specifically for a European night-train Company. Investigation was conducted to

analyze the effect of customers’ level of experience toward their satisfaction, image and

loyalty behavior.

Through the study, author aimed to find out about the inter relationship between

satisfaction, image, loyalty and level of experience. Furthermore, the author desired to

comprehend the factors behind customer behavior, preferences and purchasing decision

toward hair salon industry in Jakarta.

1.1.1 Previous study

The study conducted by Brunner and partners in Europe was intended to propose an

integrative model of satisfaction, image and loyalty and to analyze the impact of the

experience within this model. While public mostly focusing their effort in satisfaction,

image and loyalty while studying about customer behavior, the team identified an

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important missing variable in the study which is level of experience. A research

was conducted on a service industry as a part of a comprehensive marketing research

questionnaire. Then with 941 self-administered questionnaires from a European night-

train Company used to propose the hypotheses using structural equation modeling

approach.

The findings showed that customer’s level of experience had a decisive role in

determining their loyalty behavior. New customers with low level of experience paid

more attention to satisfaction rather than image, while image was an essential factor for

the experienced ones. The result of this study created new perspective in determining the

role of experience level. It is important for the service industry participants to be able to

identify their customer’s level of experience toward the service itself since they might

have varied expectation. As further implications, managers might want to develop

different retention programs modified to the level of customers’ experience.

1.1.2 Current Setting

Current study is majorly oriented to the previous study of Brunner, Stocklin and Opwis

in terms of objective and hypothesis, but there are several adaptations applied to adjust

to Indonesia situation and condition. Adaptations applied are in the area of research

scope, questionnaire and data analysis method.

CityNightLine is a sister company DB Autozug which specialized in motorail services

registered in Zurich, Europe with high focus on delivering customer satisfaction and

comfort. While in Indonesia, PT Kereta Api Indonesia is the only public train company

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which has been a government owned corporation (BUMN1) until 2007. There are some

issues related to BUMN companies such as monopoly, unhealthy competition and

corrupted management. As the two companies has different company performance,

vision, mission and orientation, author see that PT KAI is not a suitable setting for the

study. Next, author tried to find an interesting topic yet reachable service industry with

high orientation on customers’ satisfaction, image and loyalty that can meet the objective

of the study which resulted in hair salon industry.

There are some major factors that indicate hair salon industry as the most appropriate

research scope to meet the objectives of this study:

- Train industry is not suitable to be replicated: monopoly train service in

Indonesia, with no competitor, customers have no comparison on satisfaction,

image and loyalty which can caused bias on their opinion toward the service.

- To implement the research on people based services. (Thomas,1978

categorized service types into equipment-based service with low people

involvement and people based services with high level of people contact)

- Appropriate characteristics of the hair salon industry:

o Low switching cost hence easy to measure loyalty.

o Frequent demand therefore easy to measure experience level and

cumulative satisfaction.

1 Badan Usaha Milik Negara is a government-owned corporation with partial or full ownership by country of Indonesia with the objective to provide product or service for the civilization (Jamal, Sukanto, & Sukiwaty)

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o Most of hair salon do not differentiate customer based on their

experience level, for this reason will contribute new insights to the

industry.

As the research setting is changed, the questionnaire also needs to be modified in order

to match with the highlight of the study. Changes also applied in the area of data analysis

method from the advance technique such as structural equation modeling of AMOS 5 to

several simpler applicable methods.

1.1.3 Beauty Salon Industry

In many developed countries such as United States, Japan and Korea beauty salon are

mostly owned and targeted for people from middle to upper class and seen as a high

prestige service business. Although the business has specific scope of target market, the

business has been growing rapidly recently. Availability of beauty salon stations is

rising, service offered is getting more and more vary, target market are getting wider and

reaching more customers in the suburbs with lower price offered. This rapid growth in

the industry is believed as contribution from the thriving economy, Baby Boomers’

aging crisis, and the commercialized awareness of organic benefits which resulted in the

higher demand of the beauty care (Fetto, 2000, p.31; Sanabria, 2001, p.26-31).

Statistics from TNS Data for Schwarzkopf Professional confirm that nearly 20 million

people visited a salon at least once in the last 12 months (Know Your Customer, 2009).

Hair styling accounts for almost three quarters of salon services and revenues, driving

demand for styling products, devices and appliances in the retail market.

The professional beauty and wellness market is worth billions of dollars in sales,

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generates strong cash flows and enjoys high profit margins. It also indicates future trends

in a US$250bn global personal care and cosmetics industry (“Professional Beauty and

Wellness Market,” n.d.).

Beauty salon has always been associated with women, but in the recent days, the

industry demand has enlarged its target market to both women and men. Molaro (2001)

stated that a majority (63%) of medium-to-large-size salons owners and managers

indicated that the number of men using their salons has increased. Men are requesting

hair, skin, nail, and body treatments, and 41 percent of them purchase retail products at a

salon.

Aside from its prospective growth, beauty salon is mostly related with satisfaction,

image and loyalty. Stewart Payne, the owner of Taylor Salon stated that they heavily

rely on customers’ word of mouth promotion. According to Men Mean Business (2010)

to a salon industry image is everything, while Gonzales (2010) in his articles of

“Building Customer Loyalty to Your Business by Developing a Powerful Communiction

Strategy” agree that bond between customer and stylists is what differentiate one salon

from another and it is a powerful strategy to build customer loyalty.

1.1.4 Hair Salon Industry in Indonesia

According to Wirausaha dan Keuangan (2009), In Indonesia itself, the growth of beauty

salon especially hair salon has shown its massive and promising growth for the last five

years. Although hair styling and make up services only categorized as tertiary sector of

the economy, but market demand is high. The target market is expanding not only for the

middle to high class people women, but also to middle to low class people, men and

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kids. Number of hair salon outlets, in the shopping centre, business centre, hotels and

apartments has been growing aggressively. Indeed, most of these outlets are always

crowded by customers especially during weekends.

In order to fulfill the aggressive demand in various market levels, hair salons in

Indonesia often apply discrimination pricing strategy2 depends on its location and

customer characteristics. For example, Johnny Andrean Salon set higher price with more

stylish and convenience salon ambience in several premium shopping centre such as

Plaza Senayan and Senayan City while in other lower class shopping centre such as

Blok-M Plaza and Ambassador Mal, Johnny Andrean Salon offer very affordable price.

Ady Laksmana, a salon owner even said that in the middle of the industry development,

the demand even surpasses the human resource capacity. He also stated that the demand

of salon professional workers are keeping coming from many hair salons while there are

lack of qualified and trained workers in the industry (Bisnis Bali Online, 2010).

In response to the high demand of qualified salon workers, several beauty salons such as

My Salon, Johny Andrean, Yopie Salon and Rudy Hadisuwarno have successfully

identified the opportunity to launch beauty training schools. These schools have the

objective to train human resources in order to be able to deliver remarkable services to

customers. Thus, with the sufficient human resources, salon owners can do business

expansion in order to fulfill market demand toward the industry.

2 Price discrimination occurs whenever price differences for the same product or service sold by a single seller (Monroe, 2003)

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1.2 Scope

Because of its high reliability toward the variables of satisfaction, image and loyalty hair

salon is considered as the proper research setting for the study. Author also finds it is

remarkably interesting to do in depth study toward this thriving booming trend in

Indonesia’s service industry.

The research was conducted in the area of Jakarta, Indonesia, since Jakarta is one of the

big cities with the highest growth rate of hair salon industry in Indonesia (Chaerunnisa,

2008). Questionnaires distributed are designed to provide better understanding regarding

to customer behavior, preferences and expectations toward hair salon. Satisfaction,

image, loyalty and experience level are the major variables used to measure the

behavior.

The salons chosen as research samples are salons with premium prices which are

targeted for upper middle class people and located in shopping centre. According to

Morrisey (2005), price sensitivity would vary with income level. Hence, premium priced

salon is chosen because such salon customers are expected to deliver more reliable and

accurate opinion about image, satisfaction and loyalty because they tend to chase

quality, image and satisfaction. In comparison, budget priced salon’s customers have

high price sensitivity level and more price-oriented while high end salon’s customers

have very low price sensitivity level.

Most of hair salon in Jakarta chose shopping centre because it will attract more

customers and more reachable by customers. In fact, this convenience benefit of the

location enables hair salon brand to grow and expand their brand (Chaerunnisa, 2008).

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In order to determine the research scope in the premium priced salon industry, author

held a 15 minutes focus group discussion3 session. The respondents are 6 upper middle

class people4 from NISP Bank who are asked to recall several premium hair salon brands

in shopping centre Jakarta. Focus group discussion then resulted in three most

recognized hair salon brands which then chosen as the research scope area. 300

questionnaires then distributed to top three hair salons in Jakarta which are Johnny

Andrean Premium, Irwan team, Toni&Guy located at EX Plaza Indonesia, Grand

Indonesia, Plaza Senayan and Senayan City.

Johnny Andrean is local salon and bridal industry founded in 1978 by Mr. Johnny

Andrean himself. Nowadays, with the vision of delivering best service with valuable

price, the salon has been a market leader in salon industry in Indonesia with almost 170

salon outlets in more than 15 cities in Indonesia (Johnny Andrean.com).

Irwan Team Hairdesign is a local salon owned by Mr. Irwan Rovani Dove with high

orientation on delivering superior service. Irwan Team is in cooperation with a luxury

worldwide hair care brand, Kerastase, establishing the first Kerastase Institue in

Indonesia. Irwan Team even won “the best salon in the world 2005 according to

Kerastase International” (Irwan Team.com).

Toni & Guy is one of the most powerful hairdressing brands in the world. It is an UK

based hair care business founded in 1963 and run by Toni Mascolo. It runs franchise

3 Focus group is a panel of people (6-10) which used to exchange ideas, feelings, and experiences on a specific topic (Cooper & Schindler, 2006)

4 In the United States, the upper middle class is defined as consisting mostly of white collarprofessionals who not only have above-average personal incomes and advanced educational degrees (Thompson & Hickey, 2007)

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salons worldwide with more than 400 salons in the organization and also has its own UK

magazine and in-salon television station, manufactures many hair care and hair iron

products (Toni&Guy.com, Wikipedia.org, 2010).

Briefly, the targeted respondents were Johnny Andrean, Irwan Team and Toni&Guy

Salon customers with vary level of experience. The respondents were asked to complete

the questionnaires regarding to its experience toward the hair salon.

1.3 Research Problem

According to the previous journal, satisfaction and image are thought to have high

influence in determining many forms of customer loyalty. Importance of customer

loyalty is considered being fundamentally important for companies, thus there are

numerous studies already conducted in order to examine satisfaction, image and loyalty

while very few of them have considered to add experience as the variable of the

research.

In Indonesia, hardly any of hair salons have developed particular customer services

based on their experience level. Hair salons do not have customer’s personal database

and transaction records, thus new and experienced customers are treated similarly. In

fact, according to Kotelnikov; new and experienced customers need different customer

approach strategies. New customers require acquiring customer strategy while

experienced customers can be approached using customer retention program such as

membership programs and after sales satisfaction and complaint surveys.

This research was conducted in order to continue the effort of the previous study in

filling the gap of the consumer behavior studies. There will be studies on integrative

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model of satisfaction, image and loyalty as well as analyses on the impact of experience

within the constructs.

Furthermore, the previous journal proposed the importance of distinguishing customers’

satisfaction measurement in two ways, transaction-specific and cumulative. Hence,

customer satisfaction section in the questionnaire is divided into two parts of specific

and cumulative satisfaction.

Two intentions above are expected to be able to make contributions to the existing

understanding of consumer behavior.

1.4 Purpose of Study

Based on the existed research paper done by Brunner, Stocklin and Opwis, the author

wants to apply the investigation in Indonesian market. Customer satisfaction and image

are very important in order to build customer loyalty. But, few companies realized how

customer’s level of experience can affect their behavior, as the level of experience vary,

customer’s expectation towards the service offered will also be differed. Through this

study, the author wanted to be able to reveal the role of customers’ level of experience

toward satisfaction, image and loyalty by gathering data on customers’ point of view and

preference that will affect their purchasing and repurchase behavior.

The aims of this study are:

- Facilitate hair salon owner in achieving deeper understanding toward factors that

will affect customer’s repurchase behavior.

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- Provide benefits to hair salon in exploring model of satisfaction, image and

loyalty and to analyze the impact of experience.

- Give insights to hair salon in clarifying the role of experience factor in predicting

customer loyalty.

- As an investigation the differ characteristics between new customers from

experienced ones.

- Providing knowledge of the importance distinguishing specific-transaction

satisfaction and cumulative satisfaction.

1.5 Structures

This thesis is divided into five chapters, which consist of the following:

Chapter one: Introduction

This chapter will provide background, insights about previous study and hair

salon industry in Indonesia as well as research scope, research problem and

purpose of the study.

Chapter two: Theoretical Foundation

Theoretical foundation of the research scope used by the author in analyzing

problems and doing the study in the research

Chapter Three: Research Methodology

The third chapter discusses methodology, the study, questionnaire and the

sampling method used for the study that have been modified from the previous

study to the current setting

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Chapter four: Findings

The findings consist of the result and analysis of the statistical data gathered

from the respondents’ questionnaires.

Chapter five: Conclusion

Chapter five concludes the whole research and finding, comes along with the

insights, recommendation and suggestion for future improvements.