CHAPTER I INTRODUCTION

1.1 Object Overview Lazada is a Southeast Asian e-commerce company founded by Rocket and Pierre Poignant in 2012. In 2014, operates their sites in , , the , , and . Lazada sells various products such as furniture, credit, clothing, gadgets, etcetera. Now Lazada has 8,000 employees. In November 2014, the Temasek group from Singapore made an investment of USD 250 million and in April 2016 the announced its intention to acquire Lazada by paying Lazada's new shares (stocks) for USD 500 million and issuing another USD 500 million to buy Lazada shares owned by other investors. The reason Alibaba issued the money was based on the consideration that the South and East Asian markets had a fast growth in the middle-market and it was estimated around 190 million in that region had an average expenditure on expenditures of USD 16-100 per day and was expected to grow to 400 million people in 2020. In June 2017, Alibaba group increased the investment in Lazada by USD 1 billion, by that the shareholding of Lazada is increasing from 51% to 83%, then Alibaba Group add more investment to USD 2 billion in March 2018 and replacing Lazada's CEO with Lucy Peng. In December 2018 Peng was replaced by Pierre Poignant again.

1.2 Background In today's digital era, the internet has become one of human daily needs. It is because the internet makes everything easier for humans to do transaction, communicate, do business, and perhaps its development will help many other things. Internet is accessible for everyone. In 2017, internet users in Indonesia reached more than half of the population.

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The Association of Indonesian Internet Service Providers (APJII) presented the results of a survey on Penetration & Behavior of Indonesian Internet Users in 2017. Based on the survey results that have collaboration with the Teknopreneur, it was stated that internet user penetration in Indonesia increased to 143.26 million people or 54.68 percent of 262 million citizens of Indonesia. Previously, based on a survey conducted by APJII in 2016, the number of Indonesian internet users reached 132.7 million. Then in May 2019, the number of internet users in Indonesia increased again to 171.17 million people or around 64.8% of the total Indonesian population of 264 million people (Pratomo, 2019). The growth of internet users in Indonesia can provide an indication of changes in consumer behavior patterns in Indonesia where the majority of people now spend more time using gadgets to do various activities from searching for information to other activities like shopping. This is what realizes businesses to use e-commerce as a place to sell their products, including in Indonesia. Doing research on e-commerce sector in Indonesia would be interesting because based on McKinsey's prediction it can be seen that e-commerce growth in Indonesia can increase up to eight times from total of USD 8 billion in 2017 to USD 55-65 billion in 2020 (Fuad, 2019), even among a number of other countries Indonesia is the first country with the fastest e-commerce growth as can be seen as follows:

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Figure 1.1 Top Ten Country with the Fastest E-Commerce Growth Source: Kata Data (2018)

Based on Figure 1.1 above, it can be seen that Indonesia has the fastest e-commerce growth, in 2018 it grew by 78% compared to the previous year. According to a British research institute, the Merchant Machine, the average money spent by Indonesians on online shopping sites is US $ 228 per person or around Rp. 3.19 million per person. One company that utilizes e-commerce as a business activity is Lazada. However, every business certainly has challenges. The first challenge is competitors, both with several large-scale e-commerce companies and with other individuals who easily utilize social media such as , Facebook and Instagram as a marketplace. Some e-commerce companies that are competing with Lazada can be seen as follows:

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Figure 1.2 Top 9 the Biggest E-Commerce’s Company in Indonesia Sources: Pikiran Rakyat (2018)

Based on Figure 1.2, it can be seen that Lazada is in position 1 with the most visitors per month and got ranked on Facebook. However, when it compared with other indicators, Lazada does not occupy the first position, such as first rank in the App Store is occupied by , first rank in Playstore is topped by Shopee, Twitter first rank is by Blibli, and Instagram first rank is by Shopee. Even the level of visitors per month that Lazada has is quite close to Tokopedia. This statistic can provide an illustration of intense competition between e-commerce businesses in Indonesia. Intense competition occurs because the e-commerce companies are trying to fight over the same market. The impact of the competition can be seen from the decline in Lazada's profits in the last few months according to a report in March 2019. The average decrease was 4%. In addition, the value of GMV (Growth Merchandise Value) was also reported decreased. GMV is a measure to asses that a product is being able to sell. The decline in sales and the value of GMV is inversely proportional to the performance of Alibaba (the Lazada controlling group) that the sales is increasing 51%.

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This sales decrease could indicate a decrease in the customer's desire to repurchase Lazada’s products. According to Ashfaq, et. al (2019:2) it is mentioned the definition of the desire to repurchase is an assessment of individuals to repurchase products from the same company. Based on this theory it can be said, if the level of customers desire to repurchase on Lazada is high, then Lazada sales will also increasing, but on the Lazada report it is stated that there is a decrease both in revenue and in its GMV. The decline in sales can occur from a decrease in customer satisfaction as a result of research conducted by Ashfaq, et. al (2019) and Oghuma, et. al (2016). Satisfaction can occur when a customer has bought the product before, then compares the expectations and actual performance provided by the product. If a product not provides customers minimum expectation, dissatisfaction will be indicated by the increased of complaints. Complaints can give a negative experience to customers in shopping on e-commerce and make the value of the company go down so that customers will look for other alternatives by shopping on competitors company that can ultimately make the company's sales go down. The level of complaints in general to e-commerce in 2017 increase 46% compared to the previous year in 2016. Lazada is an e-commerce company with the biggest problem finding. According to the Indonesian Consumers Foundation (YLKI), level of complaints of each Indonesia’s e- commerce are as follows:

Table 1.1 E-Commerce Level Complaints Company Complaints Lazada 642 Akulaku 14 Tokopedia 11 Bukalapak 9 Shopee 7

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Company Complaints JD.ID 4 Elevenia 3 Source: Indonesian Consumers Foundation (2017) Based on table above, compared with other e-commerce companies it can be seen that the number of complaints that Lazada has is very far above other competitors and that phenomenon above can indicate that there is a problem of customer satisfaction with Lazada, so it can be related to the findings of a decrease in customer repurchases with an indication of a decrease in sales and Growth Merchandise Value of Lazada. Customer satisfaction is a comparison between expectations and the actual quality of a product. When buying a product, customer will have a minimum set of expectations regarding the benefits obtained. Customer expectations are divided into two parts, desired expectation and adequate expectation (William, Appiah, and Botchway, 2016:3). When customer decides to buy a product, customer will have hope to get the product along with good service, it is called desired expectation. While adequate expectation is a lower expectation or tolerance given by the customer to the minimum benefits he is able to receive. Comparison between expectations and actual performance (expectation-confirmation) of this model which ultimately results the value of a product. Expectation-confirmation models in e-commerce companies talk about whether the application is useful or not, website interface, and the most important is to provide convenience (Oghuma, et. Al, 2016). Businesses that adjust to technological developments will have the advantage that with the presence of the internet, it can facilitate customers in conducting transactions with e-commerce parties without have to meet face to face with the company. In addition, with internet technology it is considered more convenient and more efficient so that companies run in e- commerce sector must pay attention to these factors so that customers will

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have loyalty and have a high desire to repurchase the products that company’s provide. However, there are plenty of problems that reflect the lower confirmation values compared to expectations. These indications can be seen from the inconvenience of customers when shopping, poor service quality and complaints related to slow delivery time of goods that customer buy (1%), the process of refund is slow and sometimes the fund is not given (17%), product defects (6%), customer service is slow response (44 %), unsuitable goods (9%), the goods sometimes not received by the customer (36%), unsatisfied services (2%), and the system that harms customers or insecurity within data system (20%) (Audriene, 2018). Based on these indications, author has interest in giving the title of the research "FACTORS INFLUENCING CONTINUANCE INTENTION IN SHOPPING ONLINE (Case Study of Lazada)" 1.3 Problem Statement Based on Pikiran Rakyat, it is known that Lazada have plenty competitors. In some indicators Lazada is not in the first position, it is shows that there is a high competition in the e-commerce industry in Indonesia. This distinction made Lazada's profit decrease by 4% and decrease value of GMV based on Alibaba's quarterly report in May 2019. Lazada's performance was inversely proportional to the company's performance which the revenue is increasing 51%. Indonesian Consumers Foundation (YLKI) stated that Lazada was on the first position in complaints with a total of 642 complaints in 2017. This number increased compared to 2016 and was went higher compared to other competitors. The proportion of the complaint content is about the inconvenience of customers when do shopping, poor service quality and complaints related to the slow delivery time of goods that customer buy (1%), the process of refund is slow and sometimes the fund is not given (17%), product’s defects (6%), the customer service is slow respond (44%), unsuitable goods (9%), the goods sometimes not received by the customer

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(36%), unsatisfied services (2%), and the systems that harms customers (20%) so it can related to the findings of a decrease in customer repurchases with an indication of a decrease in sales and Growth Merchandise Value of Lazada.

1.4 Research Questions Based on the background and problem statement described above, it could determine research questions as follows: 1. How the description of expectation-confirmation, perceived usability, perceived security, satisfaction, and continuance intention of Lazada’s customer? 2. How much does the variable of service quality affect customer satisfaction on Lazada? 3. How much does the variable of service quality affect confirmation on Lazada? 4. How much does the variable of customer satisfaction affect customer continuance intention on Lazada? 5. How much does the variable of confirmation affect customer satisfaction on Lazada? 6. How much does the influence of confirmation towards perceived usefulness on Lazada? 7. How much does the influence of confirmation towards enjoyment on Lazada? 8. How much does the influence of confirmation towards user interface on Lazada? 9. How much does the influence of confirmation towards perceived security on Lazada? 10. How much does the influence of perceived usefulness towards customer satisfaction on Lazada? 11. How much does the influence of perceived usefulness towards customer continuance intention on Lazada?

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12. How much does the influence of enjoyment towards customer satisfaction on Lazada? 13. How much does the influence of enjoyment towards customer continuance intention on Lazada? 14. How much does the influence of user interface towards customer satisfaction on Lazada? 15. How much does the influence of perceived security towards customer satisfaction on Lazada?

1.5 Research Objectives The objectives of this research are: 1. For describe of expectation-confirmation, perceived usability, perceived security, satisfaction, and continuance intention of Lazada’s customer. 2. For testing how much does the variable of service quality affect customer satisfaction on Lazada. 3. For testing how much does the variable of service quality affect confirmation on Lazada. 4. For testing how much does the variable of customer satisfaction affect customer continuance intention on Lazada. 5. For testing how much does the variable of confirmation affect customer satisfaction on Lazada. 6. For testing how much does the influence of confirmation towards perceived usefulness on Lazada. 7. For testing how much does the influence of confirmation towards enjoyment on Lazada. 8. For testing how much does the influence of confirmation towards user interface on Lazada. 9. For testing how much does the influence of confirmation towards perceived security on Lazada.

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10. For testing how much does the influence of perceived usefulness towards customer satisfaction on Lazada. 11. For testing how much does the influence of perceived usefulness towards customer continuance intention on Lazada. 12. For testing how much does the influence of enjoyment towards customer satisfaction on Lazada. 13. For testing how much does the influence of enjoyment towards customer continuance intention on Lazada. 14. For testing how much does the influence of user interface towards customer satisfaction on Lazada. 15. For testing how much does the influence of perceived security towards customer satisfaction on Lazada.

1.6 Systematics of Writing This research consists of five chapters which will be broken down into several sub-chapters to provide a clearer picture of the research that the author conducted. The explanation of the elaboration of each chapter are as follows:

1. Chapter I Introduction This chapter is consists of object overview, background, problem statement, research question, research objectives and systematics writing.

2. Chapter II Theoretical Background This chapter present theoretical framework and research literature that are related to this research also the previous research, hypothesis, and scope of study.

3. Chapter III Research Methodology This chapter contains systematic research methods and techniques to produce data analysis so that problems on this research can be answered and resolved.

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4. Chapter IV Research Result and Study This chapter consist the object of research and the results of analysis of data that has been collected and processed by the author.

5. Chapter V Conclusion and Recommendation This chapter contains research conclusions and recommendation.

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