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CHAPTER 2

THEORITICAL FOUNDATION

2.1. E-Business

The term e-business refers to all business activities conducted on the internet by an

individual firm or industry (Canzer, 2006).

The ease of access to e-business businesses through the internet coupled with their 24x7

availability, the global exposure and related legal risks associated with the absence of

territorial boundaries as well as business hour limitations provide a strong possibility

that customers from around the world will visit sites. It is also important to recognize

that brand names and branding strategies are much more important in e-business

(Westermeier & Plave, 2004). E-business companies need to recognize the importance

of a trust relationship with their customers because trust has emerged as a critical

success factor (Westermeier & Plave, 2004).

As part of the e-business supporting factors, e-marketing present as the transformation of

marketing strategy with the increases of efficiency and effectiveness in traditional

marketing functions that occur by the advanced of technology (Strauss, El-Ansary, &

Frost, 2006). Furthermore, the effectiveness of the advanced marketing strategy could be

strengthened by the following facts.

Mix Magazine (Luthfie, 2008) states the number of people who subscribe for internet

provider has already more than the number of people who subscribe for newspaper and

most of internet users in Indonesia stay in front of computer for at least two hours. Those

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facts reflect how powerful internet as a marketing tool. In addition, e-marketing can be

considered as a “Low Budget High Impact Marketing” strategy (Luthfie, 2008).

2.1.1. E-Business in Indonesia

Indonesians e-commerce activities in 2009, as recorded in Table 2.1.1.1., are dominated

by computer software and clothing apparel. This shows a high rate of business

transactions related to clothing apparel industry in Indonesia.

Table 2.1.1.1. Indonesia’s E-Commerce Activities in 2009

Source: Oliver, R. (2010). ADMA Digital Marketing Yearbook 2010. Retrieved November 2, 2010, from

http://asiadigitalmarketingyearbook.com/

For consumers, a website seen not only as a place of purchase, but it is also a store, a

brochure and a sales person that expected to serve quickly and perform well (Petrovic).

One of the main emerging characteristics of online users is the growing lack of patience

(Figure 2.1.1.2.) (Lindstrom, 2001). Lack of patience is mostly happen when a consumer

doing a product research, feature and price comparison. The figure shows that most of

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the consumers state that they are willing to wait only up to five seconds for a page to

load.

Figure 2.1.1.1. Amount of time consumers are willing to wait for a page to load.

Source: http://analogik.com/article_analysis_of_consumer_behaviour_online.asp

From the time efficiency point of view, Zingale and Arndt (2001) discuss the importance

of private time. A sales person can interrupt a customer in a physical store while they are

doing their initial research. The quality of presentation and information breakdown from

the sales person can affect consumer attitude towards the product and buying confidence

(Petrovic).

Meanwhile in Indonesia, the sales person characteristic is tend to be friendlier compared

to those in the outside country. Welcome greetings, giving information about the

products’ price, looking for the clothes size needed by the customers, asking about the

customers’ preference to help the customers find what they are looking for, are some of

the common service given by the clothing stores in Indonesia. This is particularly

12

 

harmful if occurring prior to the stage when the customer is ready to buy or even ask any

meaningful questions because removing consumers from their ‘safety zone' can delay or

cancel the purchase (Petrovic).

Therefore in this case, online store surely has the advantage in Indonesia market; since

the absence of sales person allows website visitors to research products information in

their own time and pace, with no external pressure or time restrictions.

Table 2.1.1.2. Indonesia’s Internet Users 2009

Source: Oliver, R. (2010). ADMA Digital Marketing Yearbook 2010. Retrieved November 2, 2010, from http://asiadigitalmarketingyearbook.com/

13

 

Most of the internet users in Indonesia are on age group of 15 – 24 years old with middle

class and above income. Table 2.1.1.2 shows the segment of Indonesia’s internet users

based on gender, age, income, and expense.

Majority of Indonesians go online is considered as high. Referring to Table 2.1.1.3.,

mostly Indonesians spend one hour-less than two hours with frequency of few times a

week.

Table 2.1.1.3. How Frequently Indonesians go Online and How Long Indonesians Spend Online

Source: Oliver, R. (2010). ADMA Digital Marketing Yearbook 2010. Retrieved November 2, 2010, from

http://asiadigitalmarketingyearbook.com/

Indonesia can be categorized as in the growth stage of e-business because if we

compared to the average spending percentage of Asia Pacific Region (see Figure

2.1.1.2), its biggest chart is spending less than 5%. Another survey conducted in March

2010 by Nielsen Indonesia found that 68% of Indonesia’s online population had shopped

14

 

on the Internet at least once, an increase from 63% in the 4th quarter of last year and up

from a mere 3% in 2008. The increase is mainly caused by the improvement in the level

of comfort when buying online and an increasing sense of security (coolfounders.com).

About 24% of the country’s online population now spends more than 10% of their

monthly shopping budget online.

Figure 2.1.1.2. Online Shopping Spending Percentage of Total Monthly Spending

Source: Global Trends in Online Shopping. (2010, June). Retrieved November 3, 2010, from

http://www.slideshare.net/dinomondon/q12010-onlineshoppingtrendsreport

15

 

2.2. Retail industry

According to Levy, Michael, Weitz, & Barton (2009), “retailing is a set of business

activities that adds value to the products and services sold to consumers for their

personal or family use” and thus “a retailer is a business that sells products and/or

services to consumers for personal or family use.”

In Indonesia before 1960s, there was the episode of traditional retailers and there was

also the period when modern retail was introduced marked by the opening of the first

department store SARINAH in JL. MH Thamrin (Central Jakarta) (Tambunan).

The 1970s-1980s was the first expansion era of modern retail with the emergence of

many supermarkets, department stores and groceries such as Matahari, Hero, Golden

Truly, Pasar Raya dan Ramayana; it was also the era of development of drug stores

(Tambunan).

Shopping malls were limited to Sarinah, Ratu Plaza, Gajah Mada Plaza, Blok M and

Pasar Baru in the early 1980s. Since then, major shopping malls have been constructed

all over town. The growing middle class has been flocking to the shopping malls in

recent years to buy an ever growing variety of consumer goods. Foreign department

chains such as Metro (Singapore), Sogo (Japan) and Marks & Spencer's (UK) have

tested the waters by opening outlets in prestigious malls.

According to Tambunan, the 1990s was the second expansion era of modern retail or the

era of development of Convenience Store (C-Store), High Class Department Store,

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Branded Boutique (high fashion) and Cash and Carry. The development of C-store was

marked by the rapid growth of Indomaret dan AMPM. The development of High Class

department Store and High Fashion Outlet was marked by the entrance of SOGO, Metro,

Seibu,Yaohan, Mark & Spencer and various other high fashion outlets (Tambunan). The

development of Cash and Carry was marked by the establishment of Makro, followed by

local retailers with the same form such as GORO, Indogrosir and Alfa (Tambunan).

Most malls have a good retail mix with several anchor department stores, small clothing

boutiques, stationery/book stores, framers, toy stores, household furnishings and even

car dealers. Since then, malls are not only a place to shop, but increasingly, a recreation

site with clean, air-conditioned environment.

AC Nielsen deliver the number of retail outlets in Indonesia, which was estimated to be

1.75 million, is the second-biggest in the Asia Pacific after China with 3.2 million.

Based on a study by MasterCard International in early 2004, Indonesia was forecast to

top the year-on-year retail sales growth for the first semester with 16.9% to China's

12.75%.

The evaluation of the retail industry development in Indonesia shows that the industry

has been developed in a 10 year-cycle. However, this cycle tends to shorten due to many

factors, such as the rapid increase of income per capita, global trade and financial

liberalization, and technological progress (Tambunan).

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Figure 2.2.1. Percentage Growth of Modern Retail by Region, May 2002-April 2003

 

Source: AC Nielsen

Jakarta, where the country’s wealth is concentrated, is the region where the modern

retailers enjoyed the highest share in total national retail trade and in growth. Moreover,

modern retail’s consumers in Jakarta are not only the city’s residents but also from the

city’s surrounding growing districts like Bogor, Tangerang, Bekasi and Depok. These

facts makes the number of modern retail outlets (supermarkets, warehouse clubs,

hypermarkets, wholesale, convenience stores, etc.) increased about 36%, 19.5%,

148.3%, and 64.7% from 1999-2003 (AC Nielsen, 2004). Big retailers continue to

expand and competition among the major retailers remains fierce.

 

In today’s fierce competition of retail industry, having a creative marketing strategy is

very important; not only in terms of the products advertising and promotion, but also in

terms of the company distribution channels. Having multi-channel retailer certainly

gives some beneficial impact for the company, such as the ability to overcome

limitations of existing format, expand the market, provide more cost-efficient services,

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establish well-known brand name, and develop customer database that could help

company congesting insights in customer shopping behavior. By using a combination of

channels, retailer can exploit the unique benefits provided by each channel and provide a

possibility for customers to buy what they want, whenever and wherever they want

(Levy, Michael, Weitz, & Barton, 2009).

Figure 2.2.2. Benefits Provided by Different Channels

Source: Levy, Michael, Weitz, & Barton, A. (2009). Retailing Management (7th ed.). McGraw-Hill.

2.2.1. Clothing (As Part of Retail Industry)

This business requires social ability of meeting people, skill in the art of maintaining

customers, strong prediction for choosing the clothes that people will actually buy, and a

possession of huge dose of fashion sense (Mendoza). The industry is very challenging,

and quoting from Mendoza, “clothing industry is very competitive, and studies show

that 80 percent of retail clothing businesses fail within the first five years.”

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It is because most retail stores, particularly small businesses, perish because of poor

management, tough competition from department and discount stores and poor

evaluation of fashion trends. The business may appear glamorous, but the person must

be willing to work long hours and be able to adapt to every little change in the market.

2.2.2. Clothing industry in Indonesia (Offline and Online)

As part of retail products, the below figure 2.2.2.1 shows clothing as a good prospect to

be sell online.

Figure 2.2.2.1.Product/Services that Customers Intend to Buy in the Next 6 Months

Source: Global Trends in Online Shopping. (2010, June). Retrieved November 3, 2010, from

http://www.slideshare.net/dinomondon/q12010-onlineshoppingtrendsreport

20

 

When buying products and services online, consumers are facing two fundamental

differences: abstain of physical presence and a lot of product information as the

compensation (Kurnia & Schubert, 2006). In other words, a physical product has been

replaced by product information. Table 2.2.2.1 shows that looking for product info and

general surfing apparently become the major activity done by the internet users in

Indonesia.

Table 2.2.2.1. What Indonesians did Online in 2009

Source: Oliver, R. (2010). ADMA Digital Marketing Yearbook 2010. Retrieved November 2, 2010, from http://asiadigitalmarketingyearbook.com/

21

 

According to Table 2.2.2.2., Facebook has become the number one social network in

Asia Pacific Region and number two in Indonesia, defeating windows live profile and

friendster that ever become a big hit in 2007.

Table 2.2.2.2. Asia Pacific’s Top Social Networks in 2009 and Indonesia’s Top 10 Sites of 2009

Source: Oliver, R. (2010). ADMA Digital Marketing Yearbook 2010. Retrieved November 2, 2010, from

http://asiadigitalmarketingyearbook.com/

22

 

Apparently, many shoppers find are using social sites, such as Facebook, to purchase

products (see Table 2.2.2.3.). “More than half of everyone who shops online uses

Facebook, and of those online shoppers who engage in social media, more than 80% use

Facebook.” (Why Online Retailers Must Be On Facebook, 2010)

Table 2.2.2.3. Shoppers Who Use Social Sites

Source: Why Online Retailers Must Be On Facebook. (2010, February 9). Retrieved November 3, 2010,

from Social Media Optimization: http://social-media-optimization.com/2010/02/why-online-

retailers-must-be-on-facebook/

Table 2.2.2.4. shows the number of Facebook users in Indonesia. Indonesia is recorded

as the second largest country of Facebook users after United States and having 5.50% of

the Global audience according to checkfacebook.com.

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Table 2.2.2.4. Ten Largest Country of Facebook Users

Source: Gonzalez, N. (2010, November 2). Total Users. Retrieved November 3, 2010, from

CheckFacebook: http://www.checkfacebook.com/

This phenomenon provides opportunities to the retailers in reaching greater market area.

Referring to Badan Pusat Statistik data in Table 1.1.1., the number of retail outlets in

Indonesia is continuously decreasing from 2006. The reason might be caused of todays

increasing number of online shops.

2.3. Consumer Behavior

Having a clear understanding of the consumer behavior from the targeted market will

surely improve marketing strategy. Understanding consumer behavior is about

understanding consumer psychological. It is about how consumers extract and react into

certain information, the way consumers perceived a picture and what consumers have in

mind while experiencing a product or services. One of the ‘official’ definitions of

consumer behavior is:

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"The study of individuals, groups, or organizations and the processes they use to

select, secure, use, and dispose of products, services, experiences, or ideas to

satisfy needs and the impacts that these processes have on the consumer and

society." (Hawkins, 2009)

According to the recent research on consumer behavior of the Internet users (Cotte,

Chowdhury, Ratneshwar, & Ricci, 2006), there are four kinds of consumer groups with

different intentions and motivations:

Exploration

Entertainment

Shopping

Information

Music Videos, Lyrics - Daily updated collection of music videos and lyrics.

Online consumers are time conscious and are often willing to gamble with their money

rather than time as it is impossible to recover lost time, where a moderate financial loss

can be compensated (Koiso-Kanttila, 2005). Consumers will appreciate businesses,

which value for customer's time by employing technology, tools, information and

customer service. Online consumers, value integrated timesaving features. (Petrovic)

The lifestyle of online customers has lead business industry to create such creative

marketing strategy that could impulse the customers to have an interesting euphoria and

ambition of getting trending products or services; e.g. limited edition of clothes, bags,

shoes, and even some concert tickets.

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2.3.1. Consumer Decision Making Process

In more routine purchases, customers often skip or reverse some of the stages in the

below model (see figure 2.3.1.1.). For example, a student buying a favorite hamburger

would recognize the need (hunger) and go right to the purchase decision, skipping

information search and evaluation. (buyer behaviour - decision-making process)

However, the model forces the marketer to consider the whole buying process rather

than just the purchase decision. The model implies the stages that customers pass in

every purchase and it is so valuable when it comes to understanding any purchase that

requires some thought and deliberation. (buyer behaviour - decision-making process)

Figure 2.3.1.1. The five stage of decision making process

Source: http://tutor2u.net/business/marketing/buying_decision_process.asp (Consumer Behavior)

According to the model, buying process starts with need recognition. At this stage, the

buyer recognizes a problem or need (e.g. I am hungry, we need a new sofa, I have a

headache) or responds to a marketing stimulus (e.g. you pass Starbucks and are attracted

by the aroma of coffee and chocolate muffins). (buyer behaviour - decision-making

process)

An “aroused” customer then needs to decide how much information (if any) is required.

If the need is strong and there is a product or service that meets the need close to hand,

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then a purchase decision is likely to be made there. If not, then the process of

information search begins. (buyer behaviour - decision-making process)

A customer can obtain information from several sources (buyer behaviour - decision-

making process):

• Personal sources: family, friends, neighbors etc

• Commercial sources: advertising; salespeople; packaging; point-of-sale displays

• Public sources: newspapers, radio, television

• Experiential sources: handling, examining, using the product

The purpose and effects of these sources of information will differ by product and by

customer. Therefore the challenge for marketing division is to recognize which

information sources are most influential in their target markets. As for the evaluation

stage, it is the customer who must choose between the alternative brands, products and

services. (buyer behaviour - decision-making process)

2.3.2. Shopping Orientation

Shopping orientation itself has the definition of consumer’s general attitudes about

shopping (Brown et al., 2003). Several researchers have documented that consumers’

shopping orientation has an impact on their patronage behavior, including also their

store choice (Bellinger and Korgaonkar, 1980; Korgaonkar et al., 1985; Lumpkin, 1985).

Shoppers can generally be distinguished into two types, which are economic

(conventional) shoppers and recreational shoppers (Hansen & Jensen, 2009). It is

shopping orientation research typically concludes. Economic shoppers usually dislike

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shopping and approach retail stores from a time- and money-saving point of view,

because they are “problem solvers”. While recreational shoppers enjoy shopping so that

approach retail environments of which prioritize the emotional aspects of shopping

(Bellinger and Korgaonkar, 1980; Hirschman and Holbrook, 1982).

Since recognizing shopping is not ‘just shopping’, researchers have done several

experiments and investigation orientation with various shopping context – groceries,

non-food (predominantly clothing), and gifts (Dholakia, 1999). Dholakia (1999) found

out that consumers generally enjoy shopping for clothes rather than for groceries.

Furthermore from different time frame, Tatzel (1982), Shim and Kotsiopulos (1993) and

Moye and Kincade (2003) found out that there are various shopping orientation factors,

which cause significant differences among clothing shoppers.

Nowadays, since the WWW (World Wide Web) era started, researchers have done

investigation on the shopping orientation towards the consumers’ intentions to purchase

online, resulting mixed results. According to Donthu and Garcia (1999) and Rohm and

Swaminathan (2004) online shoppers were likely convenience seekers. However, Brown

et al. (2003) concludes that no significant relationship between shopping orientation and

online purchase intentions. Brown et al. (2003) to be more detail said that it is more to

the genders and product types which can be predictors of online purchase intentions.

Since shopping orientation differs across product types, the conceptual model from

previous research on shopping orientation towards shopping for clothes resulted three

dimensions of shopping orientation (e.g. Tatzel, 1982; Shim and Kotsiopulos, 1993;

Moye and Kincade, 2003).

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2.3.2.1 Need for Advice from Personnel

Store personnel advice has contribution for online shopping, as researchers (Tatzel,

1982; Shim and Kotsiopulos,1993; Moye and Kincade, 2003) discovered that there are

several type of clothing shoppers based on their need for advice from store personnel.

Some clothing shoppers (especially females) felt confident in their ability to choose the

perfect clothing for themselves, while other need more reassurance and guidance when

shopping. The author followed the original study expectation that lack of confident from

clothing shoppers will affect to the less motivated of clothing shoppers to purchase

clothing online (Hansen & Jensen, 2009). Therefore, the hypotheses are:

H1. Need for personnel advice is negatively related to online clothing purchases.

H2. Need for personnel advice is positively related to difficulty in selecting items.

2.3.2.2 Shopping for fun

Bloch et al. (1986) stated that clothing is a product that has the potential for fun-related

thing to search among the consumers. This statement is furthermore supported by Babin

et al. (1994) and Scarpi (2006). Different research by Dennis et al. (2002) showed that

many consumers prefer offline to be more enjoyable than online shopping. Based on

those researches, the author propose that the fun-factor in clothing shopping affecting

the behavior of the consumers, where online shopping will be less enjoyable for

consumers who perceiving shopping for fun.

Thus:

H3. Shopping for fun will be positively related to less fun.

H4. Shopping for fun will be negatively related to online clothing purchases.

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2.3.2.3. Quick shopping

Time-saving is one of the role that affecting consumers behavior in acquiring

information and choice, the research supported that statement is even since Jacob et al.

(1976). Consumers who prioritize time-saving will accomplish the shopping as quickly

as possible and will prefer store which can provide quick shopping. Research by Kim

and Kim (2004) showed that many consumers agree that online shopping for clothing is

more efficient and quick to be finished. Therefore the author suggests:

H5. Quick shopping will be positively related to online clothing purchases.

2.3.3. Barriers to online clothing purchases

Researches by Grewal et al (2004) and other more researchers show that many various

factors inhibit the intention of consumers’ to do online purchasing. The author however,

decided to include two of the “barriers” into author’s conceptual model, as it is used by

Hansen and Jansen (2009). First, because there are some relevancies to online clothing

purchases and the author expect there are direct effects from the both factors to

consumers’ shopping orientation. The barriers chosen include difficulty in selecting

items and less fun.

2.3.3.1 Difficulty in selecting items

Clothing is often characterized as “feel-and-touch product” which requires high sensory

evaluation and/or test to decide the quality (Kim and Kim, 2004). Consumers are

obviously less able to taste such opportunity compared to traditional stores. Furthermore,

consumers who need advice from personnel (see H2) will more difficult to find items

30

 

online rather than offline, this difficulty experience on consumers will then affecting

consumers’ fun for shopping. Thus, the author proposed hypothesizes:

H6. Difficulty in selecting items will be negatively related to online clothing purchases.

H7. Difficulty in selecting items will be positively related to less fun.

2.3.3.2 Less fun

Another barrier for consumers doing the online shopping is the less fun of online

shopping. Consumers with “shopping for fun” orientation may not give up the hedonic

experiences when buying offline and perceiving online shopping is less fun (see H3).

Thus:

H8. Less fun will be negatively related to online clothing purchases.

2.3.4. Price Conscious

One factor that affecting consumers’ decision-making process is price consciousness;

awareness of best value, or in short, buying at lower price available (Sproles & Kendall,

1986). The author examined and able to take conclusion that consumers, especially in

Indonesia are tend to do shopping when there’s sale on clothing, and have little concern

for new designs, shown in many occasion in midnight sale done by big malls for

example. Furthermore, Bucklin et al. (1998) found out that price influences consumer

choice and frequency of purchase very much. Therefore in this study, the author put

price conscious as an additional point to be analyzed of how far price could present as a

persuasive factor affecting purchase clothes online

 

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2.3.5. Trust

Based on a study of eCommerce Trust by Cheskin, “Trust is crucial because it affects a

number of factors essential to online transactions.” There are levels of developing trust

of websites, which is shown by the below figure 2.3.5.1.

Figure 2.3.5.1. Model of eCommerce Trust

Source: Cheskin Research and Studio Archetype/Sapient. (1999). eCommerce Trust Study. Cheskin

Research.

The above figure shows that the eCommerce trust start from the ‘Unaware’ stage where

people do not know about the brand. The stage continue to the second phase which is

‘Build Trust’ as the formal level of eCommerce trust; in this stage, people already aware

about your brand existence through browsing, searching and comparing. When they do

browsing, searching and comparing, people will consider / validate / assess your brand,

probably register or even transact if they already grab a mind confirmation during

browsing. Until the purchase threshold, the trust level is still in the formal level and

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entering the phase of ‘Confirm Trust’. The brand should perform well consistently in

order to serve the confirm trust. After probably several transact, people are slowly but

sure entering the informal stage of trust, which is a behavior called habit. Once the

consumers reach this phase, all the brand need to do is just ‘Maintain Trust’.

Cheskin Research (1999) suggested there are six types of forms that determine the users

to take a chance trusting a web, from chaos (distrust) condition. Those forms are:

1. Seals of Approval — Symbols, like VeriSign and Visa, created by “security brands”

are symbol of security validity to reassure consumer the website is safe.

2. Brand — The power of Corporation, which can assuring consumers based on

reputation and visitor’s possible previous experience in delivering specific attributes and

credibility.

3. Navigation — The ease to find items which visitors need.

4. Fulfillment — Indicates clearly orders are taken and processed and providing

information to find recourse if problems exist.

5. Presentation — Design attributes that show the quality and professionalism.

6. Technology — State of art will show professionalism even if it’s not so user-friendly.

While according to ADMA (2010), 92 percent of Indonesians’ trust in advertising

channels is through recommendations from people they know. Therefore, it will be

analyzed in this study, whether the most trustable advertising channel in Indonesia

online clothing industry present the same channel.

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Table 2.3.5.1. Indonesian’s Trust in Advertising Channel

Source: ADMA. (2010). ADMA Digital Marketing Yearbook 2010. Retrieved November 2, 2010, from

http://asiadigitalmarketingyearbook.com/

2.3.6. The Role of Gender and Purchase Situation

As described previously, previous research shown that gender differences affecting the

clothing shopping orientation and online purchasing (Noble et al., 2006). Based on the

researches used, we can expect females to be more fun-related in clothing shopping and

more confident in selecting right clothes. While in contrast we can see males as

consumers who prefer quick shopping and less confident in selecting clothes without

guidance from store personnel.

Shopping for a gift or for oneself will affect the purchase decision and store choice,

early studies (e.g. Clarke and Belk, 1979;Lastovicka, 1979; Mattson, 1982) has proven

that. The relation to this study is that we can expect that shoppers who buying clothes for

themselves expressing a less fun-related shopping orientation and therefore tend to do

quick shopping, also expecting for clothing shopping for others will require help from

store personnel.