Service Quality, Relationship Satisfaction, Trust and Loyalty in Business-To-Business Setting

Service Quality, Relationship Satisfaction, Trust and Loyalty in Business-to-Business Setting: The Case of CV Johnson Farm

Atik Aprianingsih, Grace Rosaline Sunanta School of Business and Management - Institut Teknologi Bandung [email protected]; [email protected] Abstract

It is a challenge to retain customers in the increasing intensity of competition. Loyalty has a strong influence to a company’s survivability, including for a Business to Business (B2B) company such as CV Johnson Farm. The purpose of this study is to investigate factors that influence the customer’s loyalty of CV Johnson Farm customers. Respondents for this study are business consumers of CV Johnson Farm. Since the business consumer of the company is only thirty-two, the research uses census. The method that the researcher use is the quantitative method. The questionnaire was a self-administered questionnaire and distributed to all business consumers of CV Johnson Farm. Further, the data were analyzed using multiple linear regression. The result shows that relationship satisfaction and trust are positively and significantly related to loyalty. Thus, to increase the loyalty of CV Johnson Farm business customer, CV Johnson Farm needs improvement in their relationship satisfaction and trust. Key Words: Loyalty, B2B Market, Service Quality, Relationship Satisfaction, Trust Introduction Loyalty is essential for business since a loyal customer may help companies to improve their marketing performance including improving the customer retention rate (Evan, Jamal, & Foxal, 2009). Thus loyalty holds a vital role in business sustainability, both business-to-consumer market, as well as business-to-business (b2b) market. On the b2b setting, factors that may influence business consumer loyalty includes service quality, relationship quality, and trust. Previous research on service quality and loyalty have been conducted in a cosmetic sector (Cecares & Paparoidamis, 2007; Chiou & Droge, 2006). Meanwhile, previous research on relationship satisfaction and loyalty have been conducted in advertising agencies (Caceres and Paparoidamis, 2006), small medium enterprises (Rauyruen, Miller, & Barrett, 2007), manufacturing industry (Čater and Čater, 2010). Furthermore, research on trust and loyalty has been conducted in the aviation industry (Doney, Barry and Abratt, 2007). In terms of geographical areas, previous study on service quality, relationship quality, trust, and loyalty have been conducted in Australia (Rauyruen, et al., 2007), United States (Chiou and Droge, 2006; Doney, et al., 2007), Lille, France (Caceres and Paparoidamis, 2006), Slovenia (Čater and Čater, 2010), and multiple European countries (Caceres and Paparoidamis, 2007) The livestock or poultry sector is one of the primary food provider sector to sustain the food industry's growth. Until now, the poultry sector as an engine of national and regional development plays an essential role in the economy of the community. Poultry sector especially in laying Farms in Indonesia is not only limited to big cities, but it has to remote villages. It raises a very tight competition among farmers. Therefore, ranch owners need to make a strategy to make customer remain loyal and keep choosing their companies in the midst of its competitors. Customer loyalty was also a concern CV Johnson Farm. CV Johnson Farm is the most significant poultry farm company in Bandung. Based on the previous interview with the owner, the daily sales of the egg is fluctuating. Sometimes they have excess stocks, and the egg has to be thrown away because it will be rotten. If all current customers buy the egg regularly, all eggs produced will be absorbed.CV Johnson Farm not only sells their product to customers but also to a supermarket, bakery, food maker, and traditional distributor in Bandung and its surrounding. The objective of this study is to investigate the relationship between service quality, relationship satisfaction, trust with loyalty for CV Johnson Farm.

Literature review Business-to Business Marketing Business to business or B2B marketing transactions occurs whenever goods or services are sold for use other than personal consumption, and all the activities involved in the business process become a marketing business. Almost all products or services Business to Customer (B2C) can also be a B2B product. Most B2B products are bought by companies for use in their factories, producing goods and services for sale. Value-added products can be sold to other businesses or consumers (Bingham & Raffield, 1990). The decision to buy in a B2B market differ compared to a B2c market. In the B2B marketing, the decision-making unit of purchase organization is called its buying center. The buying center includes all members of the organization who play any of five roles in the purchase decision process. Those members include users, influencers, buyers, deciders, and get keepers (Kotler & Amstrong, 2016). The first is the user. Users are defined as organization members who will use the product or service. In many cases, users initiate a purchase proposal and help determine product specifications. The second is Influencer. Influencers often help define specifications and also provide information to evaluate alternatives. Technical personnel is the most important influencers. The third is the buyer. The buyer has the authorized authority to select suppliers and set the terms of purchase. Buyers can help shape product specifications, but their fundamental role is in choosing vendors and negotiations. In more complex purchases, the buyer may include a high level of participating in the negotiations. The future is the determinant. Determinants have formal or informal powers to choose or approve the final supplier. In regular purchases, buyers often become decisive or at least agree. The fifth is the Gatekeeper controlling the flow of information to others. For example, a purchasing agent usually has the authority to prevent salespeople from users or determinants. Other gatekeepers include technical personnel and even private secretaries (Kotler & Amstrong, 2016).

Loyalty Consumer willingness to become the advocate for the company, to recommend the company and to make the company as first consideration for doing business is a reflection of their loyalty (Evan et al., 2004; Lam et al., 2004). Hence, loyalty is critical to company’s sustainability in any market.

Relationship Satisfaction In order to create value for customer, it is important for business to build relationship with its customers (Kotler & Armstrong (2016). Relationship quality is defined as positive affective state resulting from a firm’s appraisal of all aspects of its working relationship with another firm to build the loyalty (Caceres & Paparoidamis (2007). When buyer is satisfy with the seller, they will be more likely to say positive things about the seller, consider a specific seller as its first choice, recommend the seller to the buyer colleagues, and will continue to do business with the seller (Lam, Shankar, Erramili, & Murthy, 2004). Therefore: Hypothesis 1: There is a significant relationship between relationship satisfaction and loyalty.

Service Quality Service quality is defined as consumer perception obtained as a result of comparison between what the consumer think of what the level of service the provider offer and their opinion of the actual performance offered by the service provider (Parasuraman, Zeithaml, & Berry, 1985). When the service provided by the service provider considered good by the buyer, it will increase the buyer loyalty Chiou & Droge (2006). The better the service provided, the higher the loyalty of the customer. Thus, Hypothesis 2: There is a significant relationship between service quality and loyalty.

Trust In relationship exchange, trust is defined as the extent the customer believe that they can rely on the seller statement, oral as well as written, and how the customer feel the extent the seller act for the interest of the customer (Doney and Cannon, 1997). When buyer thinks that they can trust their seller, they may feel that the seller would not take any advantage of any unfavorable circumstances during the exchange relationship and intend to make a long term business relationship (Doney et al., 2007). Hypothesis 3: There is a significant relationship between trust and loyalty.

Methods The research uses a quantitative approach. The target of the population in this study is the business consumer of CV Johnson Farm. There is 32 business consumer of CV Johnson. The sample for this research is 32 respondents. Researcher uses census since the researcher takes all of the population members. The questionnaire is a self-administer questionnaire which has two main parts. Part 1 consists of question about respondent gender, position, type of company, the frequency of buying the egg. Part 2 use Likert scale 1-5 (strongly agree, agree, neutral, disagree, strongly disagree) about service quality, relationship satisfaction, trust, and loyalty. Service quality questions comprise of eight questions from Chiou and Droge (2006) and Lam, Shankar, Erramilli, and Murthy (2004). Relationship satisfaction items include six questions adapted from Lam et al. (2004). Trust questions are adapted from Chiou and Droge (2006) and Sirdeshmuk, Singh, and Sabol (2002). And the last is questions about loyalty ask four questions from Lam et al. (2004). The relationship among independent variables, service quality, relationship quality, and trust with dependent variable, loyalty, will be analyzed using multiple linear regression.

Fındıngs and Discussion All questions in part 2 of the questionnaire have been tested for validity, using the Pearson Correlation. The result is valid, since the data showing the significant 2 tailed lower than 0.5 and the Pearson Correlation should be above 0.3 (Sugiyono, 2004). Table 1 shows the result of validity test for each item tested. Table1. Validity test Variable Sig. (2tailed score) Pearson Correlation Score SQ1 .000 .702 SQ2 .000 .821 SQ3 .000 .785 SQ4 .000 .654 SQ5 .000 .649 SQ6 .000 .808 SQ7 .000 .657 SQ8 .000 .824 RS1 .000 .873 RS2 .000 .866 RS3 .000 .725 RS4 .000 .385 RS5 .000 .908 T1 .000 .938 T2 .000 .824 T3 .000 .924 T4 .000 .929 T5 .000 .921 T6 .000 .895 T7 .000 .807 L1 .000 .837 L2 .000 .880 L3 .000 .805 L4 .000 .598

The reliability is tested based on the Cronbach Alpha value on each variable. The Cronbach Alpha’s criteria for a data to be reliable, 0.00-0.30 is low, 0.30-0.69 is moderate, 0.70-0.89 is high, and 0.90-1.00 is very high. Table 2 shows the Cronbach Alpha’s score for each variable.

Table 2 Reliability Data Variable Cronbach’s Alpha Service Quality 0.874 Relationship Satisfaction 0.824 Trust 0.956 Loyalty 0.765

The first part of the questionnaire is about the respondents profile. Table 3 shows the respondent profile. From the thirty-two respondents, the majority respondents are male. Twenty respondents (66%) out of thirty-two were male, and eleven respondents (34%) out of thirty-two were female. From the thirty-two respondents, the majority respondents are the owners. Twenty four respondents (75%) out of thirty-two were the owners, and eight respondents (25%) out of thirty- two were staff purchasing. It is essential to know the position of the respondent because the decision maker of egg purchasing is based on each position in its company. The type of company that becomes the B2B customers in CV Johnson Farm is divided into four. The first is Supermarket, Bakery, Food maker, and Channel distribution. The majority respondents are channel distribution. Twenty-one respondents (66%) out of thirty-two were the traditional distributor, six respondents (19%) out of thirty-two were bakery shops, four respondents (12%) out of thirty-two were food maker, and one respondent (3%) out of thirty-two were supermarket. There are four options for the frequency of buying the egg. The first is less than three times, the second is 3-10 times, the third is 10-20 times, and the last is more than twenty times. From thirty-two respondents, three respondents (9%) less than three times, thirteen respondents (41%) is 3-10 times, seven respondents (22%) is 11-20 times, and nine respondents (28%) is more than twenty times. It is essential to know whether the company is a regular customer or just an occasional buyer. Table 3 respondent profile Variable Description Number Percentage Gender Male 20 66 Female 22 34 Position Owner 24 75 Purchasing Staff 8 25 Type of Company Traditional retailer 21 66 Food maker 4 12 Bakery shop 6 19 Supermarket 1 3 Egg buying frequency (in a Less than 3 times 3 9 month 3-10 times 13 41 10-21 times 7 22 More than 21 times 9 28

The second part questions about service quality, relationship quality, trust, and loyalty. All variables in the questionnaire were valid and reliable. Table 2 shows the result of descriptive statistics of variables used in this research, service quality, relationship satisfaction, trust, and loyalty.

Table 4. Descriptive Statistic Variable Mean Standard Deviation Service Quality 3.73 0.75 Relationship Quality 3.55 0.80 Trust 3.92 0.83 Loyalty 3.64 0.69

Table 4 shows all variables used in the study. Service quality has a total average score of 3.73 means that the respondents perceive that CV Johnson Farm provides a relatively good service quality. Relationship satisfaction has an overall average score of 3.56 means that the business customer CV Johnson Farm are relatively satisfied with the relationship that they have with CV Johnson Farm. Trust has a total average score of 3.91 means that the respondent trust of CV Johnson Farm is considered to be relatively high. Loyalty has an overall average score of 3.64 means that the respondent is quite loyal to CV Johnson Farm.

Table 5. Regression Analysis for loyalty Loyalty Service Quality -.095 Relationship Quality .611** Trust .316** R2 .874** n=32 ** p< .01.

The multiple regression analysis result is shown in Table 5. The value of R Square is 87.4% or 0.874 which means that the all independents variables, service quality, relationship satisfaction, and trust can explain 76.7% variance loyalty as the dependent variables. While the rest 23.3% are affected by another factor that is not measured in this study. Based on the regression analysis, relationship quality and trust are the only variables that have a positive and significant relationship with loyalty (β= 0.661, Sig= 0.000; β= 0.316, Sig= 0.008). There are three hypotheses for this study. The first hypothesis states that there is a significant relationship between service quality and loyalty. However, the result of regression analysis shows that service quality is not significantly related to loyalty. This finding contradicts Chiou and Droge (2006) and Cecares and Paparodamis (2007), who found that service quality is significantly related to loyalty. It is possible because eggs are a commodity product. Furthermore, most of the business buyer of CV Johnson Farm are traditional retailers, whose success in sales is mainly determined by how cheap they can get their product for resale. Thus, business buyer put more emphasize on price than service offered by the supplier. The second hypothesis states that there is a significant relationship between relationship satisfaction and loyalty. The result of regression analysis shows that relationship satisfaction is significantly related to loyalty. This finding supports Caceres and Paparoidamis (2007), Čater and Čater (2010), and Rauyruen et al. (2007), who found that relationship satisfaction is significantly related to loyalty. The third hypothesis states that there is a significant relationship between trust and loyalty. The result of regression analysis shows that trust is significantly related to loyalty. This finding supports with Doney et al. (2007) who found that trust is significantly related to loyalty.

Conclusions The purpose of this study is to investigate the relationship between service quality, relationship satisfaction, and trust to loyalty. Based coefficient regression result, there are two variables that positively and significantly related to loyalty, namely trust and relationship quality. Based on this finding, it is recommended for CV Johnson Farm to maintain their relationship and trust by providing privilege to the loyal customer in several events. Furthermore, CV Johnson Farm may need to hired people with particular expertise, like relationship manager to improve the relationship quality between CV Johnson Farm and its customer. The company requires personnel who has a quick response in handling their customer. For further research, there is some recommendation that could be done to create a better analysis. To get a more accurate result, it is recommended to do it in mix method by combining qualitative and quantitative study to gain more information about the potential customer’s perspective. And last but not least, other researchers may add other variables such as overall customer satisfaction, product quality, switching cost, customer expertise, and brand equity. References Bingham, F. G. & Raffield III, B. T. (1990). Business-to-Business Marketing Management (1st ed.). United States: Richard D. Irwin, Inc.

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