BAB II
CHAPTER 2
THEORETICAL BASIS
A. Theoretical Review
1. Consumer Behavior Models
a. Howard - Sheth Model (1969)
There are three degrees of learning in the model: extended issue
solving, limited problem solving, and routineized behavior. Consumers
engage in extensive problem solving (EPS) when their knowledge and
opinions about brands are restricted and they actively seek information
about a variety of other brands. There is a limited amount of problem
solving (LPS) that occurs when the consumer’s knowledge and
perceptions about brands are only partly formed. Consumers engage in
routine response behavior (RRB) when they are inclined to make a
purchase at a certain brand because of their knowledge and views
about the brand and its alternatives.
b. Bettman’s Information Processing Model of Consumer Choice (1979)
This approach introduces the idea of consumer process
information. The concept underlines that consumers' information
processing ability is limited and they seldom perform comprehensive
investigation of available options. Consumers are more likely to use
basic decision-making methods, according to this model (heuristics).
The consumer will be able to make an informed decision based on all
of the available options, as a result of this.
c. Kotler’s Black Box Model (2004)
Three major components of the model are: environment, buyer’s
black box, and buyer responses. Environment in this model consists of
stimuli provided by the firm as well as external stimuli. Marketing
stimuli includes elements of marketing mix. External stimuli refer to
factors in the broader marketing environment that indirectly influence
consumers (i.e., economic, technological, social, cultural). Buyer’s
Black Box represents the buyer’s characteristics and internal decision
making process of the buyer, who may not fully understand all factors
influencing their choices. Within the black box, the customer considers
past experiences, beliefs, desires, and objectives when making a
buying decision. It includes personal preferences and attitudes toward
the product-market fit and the value creation process. Lastly, the black
box model has a component of buyer’s responses. After purchase, the
buyer’s responses can be influenced by the product’s performance.
The Black Box Model of Consumer Behavior offers valuable
insights into how consumers make purchasing decisions. While it may
be challenging to pinpoint exactly why someone makes a specific
purchase.
2. Purchase Decisions
According to Kotler and Keller (2016) consumer behavior refers to
buying behavior of individual end consumers and households who buy
goods and services for personal consumption. All the final consumers
combined make up the consumer market. According to Widiarsa and
Sulistyawati (2018), purchasing decisions can be defined as a continuous
process, which refers to the consistency of wise actions taken to bring
satisfaction in needs. The indicators of purchasing decisions according to
Kotler and Keller in Sriratnasari (2017), Dewi and Sudiksa (2019), Aaker
(2008) are as follows:
a. Needs: individuals begin to recognize the problem or need so that a
decision arises to make a purchase.
b. Public: decision making in which individuals have been interested in
seeking more information through mass media.
c. Benefit: purchasing decision-making process in which individuals
have previously used information to evaluate its benefits.
d. Recommended purchase: before deciding to buy individuals get advice
and recommendations from others.
e. Stability to buy: a strong desire in the minds of consumers to buy.
3. Marketing Mix
To achieve desired results or goals, companies need strategy. One of the
areas which companies need to focus on is marketing. Businesses need
marketing for various reasons. To name a few, it needs marketing to increase
sales, to build and maintain reputation, to create brand awareness, and many
more. According to McCarthy (1960), a set of marketing tools that the firm
uses to pursue its marketing objectives in the market is called marketing mix.
Marketing mix consists of the 4Ps, those are: products, price, place, and
promotion.
Product represents product or service designed to satisfy customer needs
and wants. Price represents how much the cost for producing the product or
delivering the service and how much consumers are willing to pay for it. Place
represents the area to where the product or service is distributed. Lastly,
promotion represents activities and mediums to communicate the product or
service to the consumers.
4. Marketing Communications
Developing a good product or service, pricing it attractively, and making it
accessible to consumers are not enough to create sales. Companies need to
communicate their products or services to the stakeholders (i.e., consumers,
government, and general public). Every contact with stakeholders that the
company makes leaves an impression that can affect stakeholders’ views of the
company. Thus, it is important to have an integrated marketing communication
mix to deliver an aligned message across channels to the stakeholders.
According to Kotler (2022), there are eight steps to develop an effective
marketing communication program, as follow:
a. Identifying the Target Audience
Analyzing the target audience is crucial for knowing the audience's
perception of the company, deciding what to say, when to say, where
to say, and to whom to say. Perception is an important part of a
company because people’s attitudes and actions towards the company
is affected by how the company is perceived or usually called an
image. Although it is possible to change a company 's image, it takes
time and extra patience because the image persists long after the
company has changed.
b. Determining the Communication Objectives
The objective of a company communication effort is usually to get
a certain response from their audiences, those are: cognitive, affective,
and behavioral response. The company wants to deliver messages to
customers, to change their mind or perception, and get them to act (i.e.,
purchase company products or use company service).
c. Designing the Message
In designing the message, the company must pay attention to
message content, structure, format, and source. Message content is
what the message is about. Message structure and format is related to
how the message is delivered. Meanwhile, the message source is who
is delivering the message.
d. Selecting Communication Channels
Once the company has decided on the message, they need to
choose appropriate communication channels to deliver their message
to achieve their objectives. In general, there are two types of
communication channels. Those are: personal and nonpersonal.
Personal communication channels are direct, usually customized, and
personal, either face to face or through communication medium, such
as: phone and email. Meanwhile, nonpersonal communication
channels are the opposite of personal communication, those are
communication of the company to the general public usually to shape
public perception of the company.
e. Establishing the Marketing Communication Budget
Deciding how much a company wants to spend on marketing
communication should go hand in hand with selecting communication
channels. There are four common methods on establishing budget:
affordable method, percentage-of-sales method, competitive-parity
method and objective-and-task method. Affordable method is a budget
based on what the company can afford. Percentage-of-sales method is
a budget based on sales percentage, for example: 30% of sales, etc.
Competitive-parity method is a budget set based on how much budget
competitors set. Lastly, the objective-and-task method is first achieved
by defining specific objectives, then determining tasks which must be
performed to achieve these objectives, and afterwards, estimating the
budget for these tasks.
f. Developing and Managing the Marketing Communication Mix
Having established the budget, the company must allocate the
budget efficiently and effectively to several marketing channels.
g. Measuring Results
After implementing the marketing plan, companies should measure
the impact of their marketing communication throughout channels, i.e.,
whether the audience receives the message and the company’s
objectives are achieved.
h. Measuring the Integrated Marketing Communications Process
Companies use multiple marketing channels to deliver their
message to the audiences, thus companies need to measure the
effectiveness and efficiency of their marketing communication effort
across the channels.
5. Promotional Tools
Kotler (2022) classifies marketing communication tools into five
categories, those are: advertising, sales promotion, public relations, personal
selling, and direct marketing. Each promotional tool has its own characteristics.
Advertising is visual, written, or auditory communication of product or service
to consumers through printed, digital, or other medium. It can reach broad
consumers and it is used to build product image, brand awareness, and trigger
quick sales. Depending on the medium, advertising can be costly or low cost.
Some examples of advertisement medium are TV commercials, audiovisual
materials, YouTube ads, billboards, brochures, magazines, and websites
banners.
Second, sales promotion is free product or service offered and price
reduction given to consumers by the company. It offers three distinctive
benefits, those are: communication, incentive, and invitation. It incentivizes
consumers to make transactions immediately. Sales promotion is used to boost
sales in the short run. Some examples of sales promotion are discount coupons,
rebates, trade shows, sweepstakes, premiums, and gifts.
Third, public relation is a deliberate, planned, and sustained effort to
establish and maintain mutual understanding between the company and public.
It is used to maintain product image and relationship with the general public. It
is used to build a company's credibility in the eyes of the public. Some tools
can be used in public relations, such as: publication, events, news, speeches,
public-service activities, identity media, and many more.
Fourth, personal selling is a direct and personal approach to communicate
with consumers in person. It is characterized by personal confrontation or
immediate and interactive relationship between the consumer and the company
through its representative. The relationship built by the company is personal
and usually being cultivated in the long run. Some examples of personal selling
are sales presentation, sales meeting, incentive programs, and fairs and trade
shows.
Lastly, direct marketing is personal and customized communication with
consumers via any communication channel. The message is delivered to
consumers personally through mediums, such as: direct mail, telemarketing,
and internet marketing. The difference between the fourth and fifth marketing
tools than the other three is, it is more personal and customized. Companies
need to target who they want to deliver the message to.
6. Sales Promotion
According to Blattberg and Neslin (1990), sales promotion consists of a
diverse collection of incentive tools, mostly short term, designed to stimulate
trial, or quicker or greater purchase, of particular products or services by
consumers or the trade. Sales promotion can be classified into three types,
those are: consumer promotion, trade promotion, and business and sales force
promotion. Consumer promotion is promotion given to the end buyer or
consumer (i.e., cash refund, samples, coupons). Trade promotion is promotion
given to retailers (i.e., price off, advertising and display allowances, free
goods). Meanwhile, business and sales force promotion is promotion activities
done by the company directly (i.e., trade shows and conventions, contests for
sales reps, specialty advertising).
Whereas advertising offers a reason to buy, sales promotion offers an
incentive to buy. Both marketing tools should be used hand in hand. The use
of sales promotion is proven to be more effective when it is used together with
advertising. However, based on recent trends, businesses spend more
marketing budget on the use of sales promotion than advertising. Before, the
percentage of sales promotion from the total marketing budget was around
40%, now it is around 65% - 75%.
There might be several reasons why more and more companies use sales
promotion than advertising as a marketing tool. One of the reasons is sales and
product managers are under greater pressure to increase current sales amidst
competition from other brands. If the competitors use sales promotion, the
company must be under greater pressure to use sales promotion. Especially if
the consumers see their products or services are similar to one another.
Furthermore, the use of advertising is at rising costs and at risk for media
clutter and legal restraints.
Sales promotion can be used to attract new buyers, to reward loyal buyers,
and to increase repurchase rate of occasional buyers. New buyers can be
categorized into three types, those are: users of another brand in the same
category, users from other categories, or brand switchers. Sales promotion
particularly tends to attract brand switchers. Brand switchers are primarily
looking for good deals and very rarely turned into loyal buyers. In a market
where products and services are similar, sales promotion doesn’t seem to alter
market share permanently. In contrast, sales promotion will alter market share
permanently in a market where products and services have great dissimilarity.
The challenge for business is to use sales promotion to balance short term
and long term objectives. When used excessively, sales promotion might
devalue products or services in consumer’s minds, decrease brand loyalty,
increase consumer price sensitivity, and a myopic business goals. However,
some companies argue that sales promotion is helpful in adjusting short-term
variations of supply and demand, help companies to test how high their list
price is, and promote consumer awareness of prices, thus, it will gives
consumer satisfaction when they feel like a smart shopper.
Although sales promotion yields faster and more measurable responses
compared to advertising, it tends to not create long term buyers in mature
markets. Those loyal brand buyers tend to stick to their brands, that means,
they don’t react to sales promotion. In terms of building brand loyalty and
image, advertising seems to be more effective than sales promotion. However,
for start up companies and small-share competitors, sales promotion is an
effective marketing tool because they can’t match the advertising spending of
big market players. Sales promotion often used by start-up and small shared
competitors to expand their market.
Sales promotion is short term and temporary, but when it is used properly,
it can act as a brand builder. To do that, companies need to make sure that the
promotion is justified, for example: sales promotion on a company's special
occasion or celebration (i.e., store opening). Secondly, companies should tie
the promotion to a brand’s image (i.e., company anniversary). Lastly,
companies should see sales promotion as a communication tool that can
reinforce their brand images, instead of merely a sales booster.
According to Kotler (2022), there are some major decisions in applying
sales promotion, as follow:
a. Establishing Objectives
Objectives of sales promotion vary with the target markets. For
consumers, the objectives are to encourage purchase, trigger trials, and
expand the market. For retailers, the objectives are to persuade them to
carry more inventory and to attract new retailers. For the sales force,
the objectives are to encourage and support them. It is expected that
sales promotion will lead to consumer purchase decisions and in turn,
will increase company sales number.
According to Alma (2013), the purchase decision is a consumer
decision that is influenced by the financial economy, technology,
politics, culture, product, price, location, promotion, physical evidence,
people, and process. Other than those factors, consumers might also
consider the quality of the products or services. Consumers process all
the information they receive and draw conclusions in the form of
responses of what products or services to buy. Sometimes, the decision
is not always rational. Consumer decisions might be influenced by
psychological factors, such as: familiarity of products, alignment with
personal values and cultures, lifestyle, social class, emotions, and
influence from family members.
b. Selecting Consumer Promotion Tools
There are several consumer promotion tools that companies can
use. Each tool has different characteristics, as follow:
Consumer Promotion Tools Characteristics
Samples Free of charges products or
services given to consumer
Coupons Certificates which stated an
amount of saving consumers can
use for purchase
Cash refund offers (rebates) Price reduction after purchase.
Consumer sends proof of
purchase and company refunds
some of the purchase amount
Price packs (cents-off deals) Amount of saving written on the
package or label of a products
Premiums (gifts) Merchandise offered at low or no
cost to the consumers
Prizes (contests, sweepstakes, Offer consumers cash, trips,
games) merchandise from winning a
contest, sweepstakes, or games.
Sweepstakes is asking consumers
to submit their names for
drawings.
Patronage awards Values in cash or points given to
reward patronage of a certain
seller
Free trials Inviting consumers to try
products or services for free
Product warranties Promises from company that
product will work as specified or
company will fix or refund the
consumer if the product doesn’t
work as specified within a
certain period of time
Tie-in promotions Two or more companies give
coupons, refunds, or discounts on
bundling purchases
Cross promotions Advertising one company by
other non-competing company
Point-of-purchase (POP) displays Displays and demonstration done
and demonstrations by the company
Table 2.1 Consumer Promotion Tools
c. Selecting Trade Promotion Tools
There are several trade promotional tools that companies can use.
Each tool has different characteristics, as follow:
Trade Promotion Tools Characteristics
Price-off (off-invoice or off-list) A price reduction to encourage
retailers to purchase more
quantity or purchase products
outside of what they usually
carry
Allowance A certain amount of
compensation given to retailers
for advertising or displaying
company’s product or brand
Free goods Free products offered to retailers
who buy certain quantity or types
of company’s product
Table 2.2 Trade Promotion Tools
d. Selecting Business and Sales Force Promotion Tools
There are several business and sales force promotion tools that
companies can use. Each tool has different characteristics, as follow:
Business and Sales Force Force Characteristics
Promotion Tools
Trade shows and conventions Events organized by industry
association or organization that
show displays and demonstration
by the company to consumers
Sales contests Prizes offered to sales force or
retailers who has the highest
sales amount
Specialty advertising Merchandise which has a
company’s identity (i.e., name,
logo, address) or message to be
given to prospects or customers
as freebies (i.e., calendars, mugs,
tote bags)
Table 2.3 Business and Sales Force Promotion Tools
e. Developing the Program
The company needs to consider several things when designing a
sales promotion program, such as: the size of the incentives, the
conditions of sales promotion eligibility, the duration of sales
promotion period, the area of distribution, and the timing of sales
promotion (i.e., annually, one-time, special occasions).
f. Pretesting the Program
The company needs to see if the promotion program is effective or
not, usually they can test the promotion program in a limited area or
group of consumers before implementing it to a wider market. Pre
testing is beneficial to prevent companies from losing their resources
(i.e., money, time) due to ineffective promotional programs.
g. Implementing and Evaluating the Program
Once the program is finished, the company needs to measure the
effectiveness and efficiency of the program by looking at sales data,
surveys, and experiments.
Furthermore, according to Kotler and Keller (2016), some indicators of
sales promotion are as follows:
a. Promotion quality is a measure of how well sales promotions are
carried out to improve consumer purchasing decisions.
b. Promotion quantity is the value or number of sales promotions
given to consumers to attract consumer’s interest in trying the
product.
c. Promotion time is the length of promotion carried out by the
company in an effort to introduce the product to the public.
d. Accuracy and suitability of promotion objectives, is a necessary
factor to achieve the company’s desired target.
7. Brand Image or Consumer Perception of the Brand
According to Kotler (2012), brand image is a vision and belief that is
buried in the minds of consumers, as a reflection of associations that are
held in consumers’ memories. Brand image is a representation of the
overall perception of the brand and is formed from information and
experience of the brand (Temaja and Yasa, 2019). According to Venessa
and Arifin (2017), brand image is an association or belief that exists in the
minds of consumers to be different from other brands such as labeling,
letter designs or special colors. Brand image indicators according to Keller
in Kartono and Warmika (2018), Lubis (2016) are as follows:
a. Easy to recognize: in addition to the logo, a brand is known through
the message and the way in which the product is packaged and
presented to consumers which is called a trade dress.
b. Good reputation: for companies, image means the public’s perception
of the company’s identity. This perception is based on what the public
knows or thinks about the company in question.
c. Always remembered: the brand elements chosen should be easy to
remember, and to mention/pronounce.
B. Review of Relevant Research
This research is based on prior research done on the same topic. Ritonga,
Astuti, and Sunarti (2019) examines the influence of perceived ease of use,
discount, and perceived usefulness on intention to use Grab application and its
impact on purchase decision of Grab services. The Authors were examining the
relation between application’s perceived ease of use, perceived usefulness, and
discount, and how it affects people’s intention to use the application and users'
purchase decision on Grab application. Perceived ease of use and perceived
usefulness are variables on the Technology Acceptance Model (TAM). The
middle range theory is marketing theory through variable discount. The
research was conducted specifically for undergraduate students in the year
2017 and 2018, in the business administration study program, Faculty of
Administrative Sciences, University of Brawijaya, Malang. The research shows
that perceived ease of use, discount, and perceived usefulness have a
significant effect on the users’ intention to use the Grab application.
Furthermore, the research also finds that perceived ease of use, discount, and
intention to use the application has a significant effect on purchasing decisions.
Meanwhile, perceived usefulness has no significant influence on purchasing
decisions. Based on the Authors’ analysis, this happens because, for students,
perceived usefulness is not a priority for students, as low prices is their priority.
Statistically, intention of use and purchase decision are influenced by other
variables by 16%. Thus it is expected that future research includes other
variables.
Nurhayati, Silitonga, and Purba (2023) examining the effect of advertising
and sales promotion on consumer purchase decisions on TikTok shops. It uses
questionnaires to collect primary data from respondents and also, literature
study. The population of the study is people in Medan city who use TikTok
shops. From the study, it found that promotional variables used with indicators
of reach, quality, quantity, time, and target accuracy have a positive and
significant effect on purchasing interest. Furthermore, perceived convenience
variables with indicators of easy to learn, easy to use, clear and understandable,
and ease of making transactions, has a positive and significant impact on
consumer buying interes. The research shows that advertising has a positive but
not significant impact on consumer purchasing decisions and sales promotions
have a positive and significant impact on consumer purchasing decisions. This
shows that advertising still cannot be considered as a dominant factor
influencing consumer purchasing decisions.
Massora, Amos, and Papalangi (2022) examines the effect of price
discount promotion to impulsive purchase decisions on the Grab application.
The population of the study was undergraduate students of the management
study program at Atma Jaya Makassar University. Impulsive buying in this
study means an action taken by Atma Jaya Makassar students to buy food
through the Grab Food application which is carried out because several
indicators include spontaneity, the presence of power or motivation to act
immediately, a sudden desire to buy followed by emotion, and disregard for
consequences, the desire to buy that cannot be rejected and without the
intention to buy which is formed before entering the application. From the
research, it is found that the price discount promotion variable on the Grab
application has a positive and significant effect on impulsive buying decisions.
The research further found that the price discount variable on the Grab
application has an influence of only 42% on purchasing decisions, while the
remaining 58% is influenced by other variables not examined in the study.
Arsta and Respati (2021) examines the effect of sales promotion on
purchase decisions mediated by brand image on Tokopedia users in Bali. Brand
image is a vision and belief that is buried in the minds of consumers, as
reflection of associations that are held in consumers’ memories. Brand image is
a representation of the overall perception of the brand and is formed from
information and experience of the brand. The research was conducted by
collecting primary data from questionnaires on users of Tokopedia marketplace
in Bali. The result of the study is that sales promotion has a positive and
significant effect on purchasing decisions and brand image. Furthermore, brand
image has a positive and significant effect on purchasing decisions and
significantly mediates the relationship between sales promotion and purchasing
decision. This means that the better the sales promotion, the better the brand
image and will improve consumer decisions in purchasing these products.
Lastly, Wardani, Hariyana, and Salsabila (2021) examines the effect of
discounts and promotions on purchase decisions in relation to sales of
Simplicity clothing brand in Plaza Surabaya store. What the research means by
promotion here is the same as advertising. Different from the result of other
studies, this study found that discount variables have a significant negative
effect on purchase decisions. It means that discounts are considered in making
purchase decisions. However, many consumers think that discounted simplicity
products are not attractive both in terms of clothing models and prices. They
still consider the discounted products to be expensive even after the discount.
Furthermore, the consumers think that the discounted products do not have
good quality and are already out of season. Meanwhile, the promotion variable
has a significant positive effect on purchase decisions because it is carried out
at the right timing.
Different from previous research, current research will only focus on how
discounts will affect consumer purchase decisions and consumer perception of
the brand. This research won’t include other variables, such as: impulsive
purchase decisions and sales promotion or advertising. It won’t be using
Technology Acceptance Model (TAM) as the mediation theory, thus it won’t
be using variables perceived ease of use and perceived usefulness, and how it
relates to users intention to use the application. This research will purely see
sales promotion from a marketing view. Furthermore, this research will have a
broader scope than previous research, not only undergraduate students but
Grab users in general to represent the real population of Grab users.
C. Conceptual Framework
This research will examine how price discount (X1) and service quality
(X2) affects consumer purchase decisions (Y1).
Picture 2.1 Conceptual Framework
D. Hypothesis
Price cuts can create a sense of urgency for consumers to make a purchase
immediately, because they feel they are getting the benefit of a lower price.
This increases purchase intention, especially for products that are considered
attractive or in demand. However, the effects of price discounts can vary
depending on the product context and consumer loyalty to the brand. In some
cases, consumers may perceive price cuts as a sign of lower quality, which can
affect their perception of the brand or product. Research by Wahyudi (2017)
shows that price discounts have a significant effect on purchasing decisions
for Azwa Perfume consumers in Pekanbaru. In addition, research by Sabilla
and Santoso (2018) revealed that price discounts have a positive and
significant effect on purchasing decisions for Alfamart Dharmawangsa
consumers in Surabaya. Another study by Risma and Sukmawati (2023) found
that price discounts have a positive and significant effect on purchasing
decisions for Shopee application users in North Aceh. However, Sinaga et al.
(2023) in their research at the Irian Medan Supermarket found that price
discounts have a positive but insignificant effect on purchasing decisions,
while in-store displays have a significant effect.
H1: Price Discount has an influence on Purchase Decision..
Quality service can enhance customer experience, which in turn
strengthens customer relationships with the company. Service quality
dimensions such as reliability, responsiveness, assurance, empathy, and
tangibles contribute directly to consumers’ positive perceptions of the
company. Conversely, poor service quality can lead to customer
dissatisfaction, which risks increasing churn rates and harming the company’s
reputation. Therefore, companies need to focus on improving service quality
to retain and attract new customers. Research by Wahyuni (2023) shows that