The influence of service and product quality towards customer satisfaction : A case study at Kentucky Fried Chicken Manado

By Visio P. M. Pilat 080613171

THESIS Sam Ratulangi University, Faculty of Ecomomics International Business Administration 2011

CHAPTER 1 INTRODUCTION

1.1

Research Background
Many researcher and academician has been known the importance of customers in business. According to Zairi (2000), Customers are the purpose of what we do and rather than them depending on us, we very much depend on them. The customer is not the source of a problem, we shouldnt perhaps make a wish that customers should go away because our future and our security will be put in jeopardy. Because of that statement, that is the reason why organization and company today are focusing on customer satisfaction. Customer satisfaction is the aim of a company to survive. Company should keep and maintain their customer satisfaction in order to keep them buy the companys product. Keeping previous customers in general, is more

profitable than changed new customer because the cost to get the new one can be 5 times more than the cost of keeping the previous ones (Kotler et al, 2000). That statement means that keeping the loyal customer is like keeping the existence of the company. To get the customer satisfaction, marketer should apply their marketing strategies.

There are so many fast food restaurant that we can find in Indonesia. The more player in one scope of business, the more the competition between the companies. Because of that, the company should make an effort to keep and improve their customers satisfaction in order to survive in that business.

Kotler (2000) defined satisfaction as: a persons feeling of pleasure or disappointment resulting from comparing a products perceived performance (or outcome) in relation to his or her expectation. Thats the task of company to make their customer satisfy with their product. Friendly employees, courteous employees, knowledgeable

employees, helpful employees, product quality, billing timeliness, competitive pricing, service quality, goods value, billing clarity, and quick service are the factors that affect customer satisfaction according to Hokanson (1995). This is shown on Figure 1 below.

Friendly Employees

Quick service

Courteous employees

Billing clarity Good value

Overall customer Satisfaction

Knowledgeable employee

Product Quality

Service quality

Billing timelines

Competitive pricing

Figure 1 Factors that Affect Customer Satisfaction

Kotler (2004) said that the customer satisfaction is the level of someone feeling to the services satisfaction after comparing the yield (output) and the expectation. The level of satisfaction is a function of differences between services quality feel and the expectation. If the services quality is under expectation, the customer will be disappointed. If it matched with the expectation, customer will be satisfied. Meanwhile, if it over the expectation, the customer will be very satisfied. In restaurant business, many kinds of menu offered with many kinds of design interior. Besides the menu and the place, the quality of human resources is a term of service and in processing is an important aspect. Most of restaurant owner are not focus on the importance of quality of foods and the service. But in some go public franchise restaurants, such as Kentucky Fried Chicken (KFC), Mc Donald and many others, the quality of food is standardized and always controlled, so the product has good quality. In that case, the service has an important role in selling the product. In Indonesia, there are many fast food restaurants that have many customers. One of the biggest fast food restaurants in Manado is KFC at Mega Mall. The main product of KFC is fried chicken. This restaurant is located at the centre of Manado city and integrated with Mega Mall shopping centre. KFC as a franchise has done many promotions trough television to keep their customer loyalty and their existence in the global competition. Services are done trough tangibility, reliability, responsiveness, assurance and empathy. Therefore, the researcher wants to know the effect of marketing mix (Product, Price, Place and promotion or 4P) and services of Kentucky Fried Chicken Restaurant to the customer satisfaction.

Nowadays, the change of customers lifestyle makes consumer of food to think critically. They want the good and perfect services. It because the value added of service in restaurant can increase the revenue (Sukarto, 2011). Walker and Lunberg (2005), said that the food quality is important for the customers especially when they choose a restaurant. The customers reason to go to the restaurant is hungry. But nowadays, customer also needs entertainment and looking for the restaurant that gives pleasure environment. Many food service providers have a perception that people only go to eating outlets for the food. There is an assumption that the primary reason people go to restaurants is for the meal. Therefore, as long as customers get the food they want, they are satisfied. However, this view may not hold true for those full service restaurant visitors whose main purpose is to transact business or to enjoy the company of cherished others (friends, family, spouse, etc.)

Service quality determines a customers satisfaction. However, the determinants of service quality are complicated with the dynamic business environment, Pun, K.F., and Ho, K.Y. ( 2001). Service quality is influence by expectation, process quality and output quality; in other words the standards of service is defined by customers who have experienced that service and used their experience and feelings to form a judgment. Chen, F.P., Chen, C.K.N., and Chen, K.S. (2001). According to Nicholls, J.A.F., Gilbert, G.R., and Roslow, S. (1998), Service satisfaction is a function of consumers experience and reaction to a providers behavior during the service encounter; it is a function of the service setting.

1.2

Research Problem
Based on the research background tha explained before on point 1.1, there are two problem that need to be researched, they are : 1. Does Service quality of KFC influence the customer satisfaction? 2. Does Product quality of KFC influene the customer satisfaction?

1.3

Research Limitation
As shown on Figure 1 above, there are many factors that affect the customer satisfaction of a product. Friendly employees, courteous employees, knowledgeable employees, helpful employees, product quality, billing

timeliness, competitive pricing, service quality, goods value, billing clarity, and quick service are the factors that affect customer satisfaction according to Hokanson (1995). In this case, researcher only use two factors that affect to customer satisfaction to be examined, there are product quality and service quality. Researcher is limiting the variables to examine into these two factors.

1.4

Research Objective
The objective of this research is to examine the influence of service and product quality toward customer satisfaction; a study case at Kentucky Fried Chicken Manado.

1.5

Research Usefullness
The usefullness of this research are this research could be used on science development in order to develop the study about marketing, as the

reference to KFC if they want to increase their customer satisfaction by improving service and product quality, as the reference to researcher if someday researcher want to run a business.

CHAPTER II LITERATURE REVIEW

2.1

Theoritical Background
2.1.1 Marketing Management Marketing management as the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value. Kotler and Keller
(2006). Marketing management not only talk about science, but also talk about the art of how a marketers will persuade the prospects to buy their product by using marketing strategy, such as improving the 4ps factors of marketing mix.

2.1.2 Marketing Strategy

Marketing strategy is a set of objectives, policies, and rules that guides

overtime the firms marketing effort-its level, mix, and allocation- partly independently and partly in response to changing environmental and competitive condition (Kotler, 1980). By using the marketing strategy,
marketers could set the plan to attract prospect in order to influence them to buy the company products. One of the common strategy that used by marketers is the marketing mix.

2.1.3 Marketing Mix Marketing mix is one of the key concepts in modern marketing theory. Marketing mix is the set of controllable variables and their level that the firm

uses to influence the target market. McCarthy popularized a four-factor classification called the four Ps: product, place, promotion and price. Frey proposed that all marketing-decision variables could be divided into two factors: (1) the offering (product, packaging, brand, price, and service), and (2) methods and tools (distribution, channels, personal selling, advertising, sales promotion, and publicity) Kotler (1980).
On marketing mix, there are product, place, promotion, and price that include on the 4ps tools that could be used by marketers. These tools are used to improve the customer satisfaction in order to survive on the business field.

Customer satisfaction is the level of someone feeling to the services satisfaction after comparing the yield (output) and the expectation. The level of satisfaction is a function of differences between services quality feel and the expectation. If the services quality is under expectation, the customer will be disappointed. If it matched with the expectation, customer will be satisfied. Meanwhile, if it over the expectation, the customer will be very satisfied. Kotler
(2004).

2.1.4 Customer Satisfaction

The level of customer satisfaction may be influenced by various attributes from internal and external factors. Customer satisfaction may be identified as internal and external customer satisfaction of an organization. From the literature review, researchers on external customer satisfaction have been identified. However, there seems to also be dissatisfaction of internal customer satisfaction from organizations point of view.

To improve the customer satisfaction, marketers should know the factors that influence the customer satisfaction. Two of the factors are service and product quality. Quality is the totality of features and characteristics of a

product or service that bear on its ability to satisfy stated or implied needs.
Kotler (2000).

2.1.5 Service Quality

Service quality according to Zeithaml and Bitner in Tjiptono (1996), is

divided into five dimensions, there are: (1) Tangible, there are physically facilities, employee equipment, and communication facilities. (2) Reliability, there are the ability to give the services promised immediately, accurately and satisfactorily. (3) Responsiveness, there are the wants of staff to help the customer and give the services. (4) Assurance, there are information, ability, polite, and the employee belong the trustees, safely form the danger, risk or the doubts. (5) Empathy, there are the easiness in doing relations, good communications, personal attention, and understanding the customer needs.
A related theory to customer satisfaction that has been adapted by Bartlett and Han (2007) in customer satisfaction is the service quality model by Parasuraman, Ziethaml & Berry (1991). This model indicates that there are five dimensions included in this model are tangible, reliability, responsiveness, empathy and assurance. The tangible include the physical appearance of the facilities, equipment, personnel and materials used to communicate with customers.

Evaluation of Service Quality (SQ)

Transaction Satisfaction Evaluation of Product Quality (PQ) (TSAT)

Price
Figure 2 Transaction-Specific Model Service quality is influenced by expectation, process quality and output quality; in other words the standards of service is defined by customers who have experienced that service and used their experience and feelings to form a judgment. A related theory to customer satisfaction that has been adapted by Bartlett and Han (2007) in customer satisfaction is the SERVQUAL model by Parasuraman, Zeithaml & Berry (1991). This model indicates that there are five dimensions used in measuring customer service quality. The dimensions included in this model are tangibles, reliability, responsiveness, empathy and assurance. The tangibles include the physical appearance of the facilities, equipment, personnel and materials used to communicate with customers [14]. Elements within the tangibles dimension are cleanliness, space, atmosphere, appearance of server and location. Measuring element of responsibility and reliability are speed, willingness to respond, accuracy and dependability. The

dimension of assurance and empathy may be measured using elements of knowledge, trained professional, communications and caring.

In order to achieve a quality service organization, commitment from employees and support from all levels of management is necessary. Therefore, it is important for managers who provide goods or services constantly to keep track of information about the companys well being as far as meeting its customers needs are concerned. Service companies are trying to find ways to improve and provide Superior quality service to satisfy their customers. He also mentioned that satisfying customers is an ultimate goal for every company, as customers are the greatest resources, both short-term and long term survival of the company.

2.2

Research Review
Before researcher made this research, another researcher already did a similar research that entitled as Influence of Service and Product Quality towards Customer Satisfaction: A Case Study at the Staff Cafeteria in the Hotel Industry. The main objectives of this study were to identify attributes that influence customer satisfaction and determine their relationships with customer satisfaction. The variables included in this research are place/ambience, food quality and service quality as independent variables and customer satisfaction as the dependent variable. From the findings, there were positive significant relationship between place/ambience (r=0.563**, p=0.000) and service quality (r=0.544**, p=0.000) with customer satisfaction. However, although relationship between food quality and customer satisfaction was significant, it was in the negative direction (r=0.268**, p=0.001). New findings were discovered after conducting this research

and previous research findings were strengthened by the results of this research. Future researchers could concentrate on determining attributes that influence customer satisfaction when cost/price is not a factor and reasons for place/ambience is currently becoming the leading factor in determining customer satisfaction. New findings were discovered after conducting this research and previous research findings were strengthened by the results of this research. Future researchers could concentrate on determining attributes that influence customer satisfaction when cost/price is not a factor and reasons for place/ambience is currently becoming the leading factor in determining customer satisfaction.

2.3

Relationship Between Variables

The level of customer satisfaction influenced by various attributes from internal and external factors. Customer satisfaction may be identified as internal and external customer satisfaction of an organization. From the literature review, researchers on external customer satisfaction have been identified. However, there seems to also be dissatisfaction of internal customer satisfaction from organizations point of view. Service quality determines a customers satisfaction. However, the determinants of service quality are complicated with the dynamic business environment. Product quality is one of the factors that influence people to buy a product. People usually tend to satisfy with a product with a good quality rather than a product with low quality.

2.4

Hypothesis
Service quality influence significantly toward customer satisfaction of KFC Manado Product quality influence significantly toward customer satisfaction of KFC Manado

CHAPTER III RESEARCH METHOD

3.1 Data and Source of Data

This research using two kind of data, which are primary data and secondary data. 3.1.1 Primary Data
Researcher got the primary data by using questionnaire. The result form questionnaire is the primary data that used to calculate with the analysis.

Questionnaires are distributed to respondents so they can respond directly on the questionnaire. There were two sections in the questioner in the questioner that should be filled in by the respondents. The first section asked about respondents identities and the second section asked about things that related with the variables. 3.1.2 Secondary Data Secondary data is another data that needed in order to finish the research besides the primary data. Secondary data could be the company profile, organizational structure, and financial statement of the research object.

KFC Company Profile PT. Fastfood Indonesia, Tbk. Founded by Gelael Business Group in 1978, and registered as a public company since 1994. The Company started with the opening of business warabala first KFC restaurant in October 1979 on the Road Melawai, Jakarta.The success of the restaurant QSR (Quick Service Restaurant) The first is then followed by the opening of KFC restaurants in other major cities in Indonesia. As the sole franchise holder of KFC until today, the Company is constantly building the KFC brand, and armed with the success of the Company for 26 years, KFC has been a fast-food brand of the most dominant, and is widely known as fast-food restaurant chain in the country. At this time the Company has 237 restaurants, including a catering unit mobi, in more than 50 major cities in Indonesia, employing approximately 9280 employees with total sales of more than Rp1, 028 trillion at the end of 2005.

The Company is a public company listed on the Jakarta Stock Exchange listed companies with a majority shareholding of 79.2% by PT. Gelael Primary (43.6%) and PT. Megah Eraraharja (35.6%), and the remaining shares amounting to 20.8% by the Public (20%), and cooperatives (0.8%). PT. Gelael Primary is Business Group Gelael as the founder of KFC in Indonesia, while the PT. Majestic Eraraharja is a subsidiary of the Salim Group joined the Company as a majority shareholder in 1990.

The Company obtained a franchise from KFC Yum! Brands Inc.., Restaurant companies that have systems of the world's largest units. Yum! Brands Inc.. (Formerly known as Tricon Global Restaurants) is the franchisor's trademark KFC, Pizza Hut, Taco Bell, A & W and Long John Silvers. Name of Yum! chosen because it symbolizes the company hopes to deliver satisfaction 'Yum!' in the face of its customers worldwide.With five trademarks that operates under the auspices of the same company, Yum!would be the best in providing a variety of choices to consumers, and it certainly will take the lead in multi-branding effort. KFC, as global leader in the category of fast food restaurants serving chicken products and other products associated with chicken meat, in particular, is owned by Kentucky Fried Chicken International Holdings, Inc.., In Louisville, Kentucky (one of the trademarks Yum! Brands Inc. .).

The Company's flagship product, Colonel's Original Recipe and Hot & Crispy Chicken, remains the most delicious fried chicken according to various surveys of consumers in Indonesia. It is understandable if highquality KFC's flagship product is acceptable both in Indonesia, a country with the consumption of chicken meat is much higher than other types of meat. In addition to presenting their products, KFC also meet the tastes of local consumers by offering a menu of options such as cakes, Rice, and Sweet Corn Salad, as well as other products like Crispy Strips, Twister, and Spaghetti, which was very well received by our markets. To give added value to consumers, the combination of efficient and high

quality menu as KFC Attack and Super Heat always offered. Brand development through the introduction of new products, advanced products, and promotional packages, cheap (in permanent or time limited) contributed greatly to the growth of KFC KFC brand and increase competitive differentiation.

To monitor the Company's market position and performance as a whole, a survey called the Brand Image Tracking Study (BITS) regularly held since 1998. The survey is conducted each quarter and is managed by a company survey to determine consumer perceptions and brand image of its peers in the fast food industry. This study revealed that KFC was consistently at the highest and most prominent position in the minds of consumers to 'Top of Mind Awareness' compared with other major brands. In addition, the Company also conducted a study Customer Experience Monitoring (CEM) to find out how the consumer experience of services and facilities KFC, and CHAMPSCHECK studies to assess the quality of services and facilities available at KFC. Company Award 2005 Chamber of Commerce awarded in the field of Tourism for the restaurant category. Letter of Appreciation was awarded by the Chamber of Commerce & Industry of the Jakarta administration for companies in the category of hotel, restaurant & entertainment that contributes significantly to the local government revenue, and also of great concern in preserving and protecting the environment.

The Company wholeheartedly with the commitment to maintain the vision of leadership in the fast-food restaurant business, by continuing to give satisfaction "Yum!" To consumers. Support of our shareholders, management expertise, loyalty and dedication of employees, as well as the continuity of consumer visits, can help achieve this vision. The Company believes that by creating and building a strong culture where everyone in the Company makes a difference, shaping consumer opinion & sales mania, giving the brand a competitive differentiation, establishing the continuity of relations with the community, as well as maintaining the consistency of success that has been achieved, it will eventually make KFC a brand's most popular all over Indonesia, and a good company and solid.

3.2 Population and Sampling Method 3.2.1 Population Population refers to the entire group of people, events, or things of interest that the researcher wishes to investigate. The population of this research is Manado citizens as the customer of Kentucky Fried Chicken as much 30 respondents. 3.2.2 Sample Because the population is less than 100 respondent, researcher no need to use sample.

3.3 Data Collecting Method Data that used in this research are collected by using questionnaire that spread to the respondents, in this case the customers of Kentucky Fried Chicken in Manado as much 30 respondents. 3.4 Analyze This research used Multiple Regression Analysis as the Analyzing Method. Multiple regression is a statistical technique that allows us to predict someones score on one variable on the basis of their scores on several other variables. An example might help. Suppose we were interested in predicting how much an individual enjoys their job. Variables such as salary, extent of academicqualifications, age, sex, number of years in full-time employment and socioeconomic status might all contribute towards job satisfaction. If we collected data on all of these variables, perhaps by surveying a few hundred members of the public, we would be able to see how many and which of these variables gave rise to the most accurate prediction of job satisfaction. We might find that job satisfaction is most accurately predicted by type of occupation, salary and years in full-time employment, with the other variables not helping us to predict job satisfaction. When using multiple regression in psychology, many researchers use the term independent variables to identify those variables that they think will influence some other dependent variable. We prefer to use the term predictor variables for those variables that may be useful in predicting the scores on another variable that we call the criterion

variable. Thus, in our example above, type of occupation, salary and years in full-time employment would emerge as significant predictor variables, which allow us to estimate the criterion variable how satisfied someone is likely to be with their job. As we have pointed out before, human behaviour is inherently noisy and therefore it is not possible to produce totally accurate predictions, but multiple regression allows us to identify a set of predictor variables which together provide a useful estimate of a participants likely score on a criterion variable.

3.5 Operational Definition and Variable Measurement To measure the data that would be researched, researcher using marketing mix as the indicator. Indicator 1. Product Product in general is Good, idea, method, information, object, service, etc., that is the end result of a process and serves as a need or want satisfier. It is usually a bundle of tangible and intangible attributes (benefits, features, functions, uses) that a seller offers to a buyer for purchase. Sub indicator that used in this research, are: Product quality: The ability of a product to perform its function, it includes the products overall durability, reliability, precision, ease of operation and repair, and other valued attributes. For Fast food business, product quality can be measure from the ingredients that used, the taste of the food, the

Services: Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. In this criteria involve the measurement of services given by the fast food business to assist customer ease and convenience.

2. Price Market value, or agreed exchange value, that will purchase a definite quantity, weight, or other measure of a good or service. As the consideration given in exchange for transfer of ownership, price forms the essential basis of commercial transactions. It may be fixed by a contract (such as sale of goods contract), left to be determined by an agreed upon formula at a future date, or discovered or negotiated during the course of dealings between the parties involved.

CHAPTER IV RESULTS AND DISCUSSIONS

4.1

Result and Discussion

4.1.1 Output Variable Entered/Removed and Model Summary

Regression
Variables Entered/Removed Variables Model 1 Entered Service Quality, Product Quality a. All requested variables entered. b. Dependent Variable: Customer Satisfaction . Variables Removed Method Enter
b

Model Summary Adjusted R Model 1 R ,534

a

Std. Error of the Estimate

R Square ,285

Square ,255

,506

a. Predictors: (Constant), Service Quality, Product Quality

INTERPRETATION: At Variable Entered/Removed showed that none of the variables that be taken out from the equation. Model Summary, R= 0,534 and R x R = R Square = 0,285, showed that 0,285 or 28,5 percent of Customer Satisfaction affected by Service Quality and Product Quality, and the rest affected by other factors.

4.1.2 Output ANOVA and coefficients

ANOVA Model 1 Regression Residual Total Sum of Squares 4,795 12,025 16,820 df

Mean Square 2 47 49 2,397 ,256

F 9,370

Sig. ,000
a

a. Predictors: (Constant), Service Quality, Product Quality b. Dependent Variable: Customer Satisfaction

Coefficients

Standardized Unstandardized Coefficients Model 1 (Constant) Product Quality Service Quality B -1,938 ,632 ,864 Std. Error 1,277 ,283 ,289 ,285 ,383 Coefficients Beta t -1,518 2,232 2,993 Sig. ,136 ,030 ,004

a. Dependent Variable: Customer Satisfaction

INTERPRETATION: At ANOVA, value of F = 9,370 with p = 0,000. Because p < 0,05; so the regression can be used to predict the Customer Satisfaction, or as together Independent variable; Service Quality and Product Quality affect the Customer Satisfaction at the level of 95% of believe. At Coefficients: o Value of B Constant = -1,938 tells that if the Service Quality and Product Quality are ignored, the Customer Satisfaction will be -1,938

o Value of B Product Quality = 0,632 tells that every increasing in product quality will increase the Customer Satisfaction as much as 0,632 o Value of B Service Quality = 0,864 tells that every increasing in service quality will increase the Customer Satisfaction as much as 0,864. o From the value of B constant , B Product Quality, and B Service Quality, can make an regression equation: Y= a + b1X1+b2X2 = -1,938 + 0,632 X1 + 0,864 X2 Explanation : Y= Customer Satisfaction X1= Product Quality a= Constant X2= Service Quality

o Based of the decision making to know the coefficient affected of each variable: BASED ON VALUE OF t hitung If t hitung < t tabel ( + and ignored), so Ho accepted, or there is no signicicant influence from a independent variable to dependent variable In other hand, If t hitung > t tabel, so Ho rejected, or there is significant influence from a independent variable to dependent variable Table viewed with db( derajat bebas) = N k, N = number of sample (N=50) and K = number of variable (K=3), so db = 50 3 = 47

t tabel (db=47 level of confidence 95% (/2 = 0,05/2 = 0,025)) = 2,143

t hitung X1 = 2,232. Because t hitung > t tabel, so Ho rejected or Product Quality influence significantly to Customer Satisfaction

t hitung X2 = 2,993. Because t hitung > t tabel, so Ho rejected or Service Quality influece significantly to Customer Satisfaction

BASED ON VALUE OF PROBABILITY X1: p = 0,030. Because p<0,05; so Ho rejected or Product Quality is influence significantly to Customer Satisfaction of KFC X2: p = 0,004. Because p<0,05; so Ho rejected or Service Quality is influence significantly to Customer Satisfaction of KFC. 4.1.3 Output Correlation

Correlations Product Quality Product Quality Pearson Correlation Sig. (2-tailed) N Service Quality Pearson Correlation Sig. (2-tailed) N 50 ,263 ,065 50 50 1 Service Quality ,263 ,065 50 1

INTERPRETATION: At pearson correlation there are number 0,263 that showing the correlation have value of r = 0,263. Because the correlation between Product Quality and Service Quality have value of r < 0,6; so that correlation can be concluded as not-strong correlation.

CHAPTER V Conclusion and Recommendation

5.1 Conclusion Based on the result of Multiple Regression analysis that analyze about The influence of service and product quality towards customer satisfaction: A case study at Kentucky Fried Chicken Manado writer find that Product Quality and Service Quality are influence significantly to Customer Satisfaction of KFC. So, If KFC wants to increase their Customers Satisfaction they should increase the Product and Service quality first. Because every change in Service or Product Quality of KFC, will significantly influence their Customer Satisfaction. 5.2 Recommendation In order to Increase the Customer Satisfaction, writer recommend to KFC management to find a way to increase Product and Service Quality first. For example: Adding new menu or give some innovation to the menu of KFC, Give more training to the employees to increase their service ability so that they can serve the customers better.