An investigation of customer value and patronage in retailing vending machine sector in VietNam

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UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ---------------------------------- NGO TRONG TRUNG AN INVESTIGATION OF CUSTOMER VALUE AND PATRONAGE IN RETAILING VENDING MACHINE SECTOR IN VIETNAM MASTER OF BUSINESS (Honours) Ho Chi Minh City – Year 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ---------------------------------- NGO TRONG TRUNG AN INVESTIGATION OF CUSTOMER VALUE AND PATRONAGE IN RETAILING VENDING MACHINE SECTOR IN VIETNAM ID: 22120143 MASTER OF BUSINESS (Honours) SUPERVISOR: LE NHAT HANH, PhD Ho Chi Minh City – Year 2014 ACKNOWLEDGEMENT I would like to thank my supervisor, Dr. Hanh Nguyen for her encouragement and guidance throughout the process of conducting this thesis. I would also like to thank other members of my advisor committee, Dr. Tho Nguyen, Dr. Nguyen, Dr. Quan, Dr. Phong, and Dr. Thao for helping me to understand the process and theoretical foundations of the research. Many others also deserve my gratitude. Among them, Mr. Doanh, Mr. Tuan, Ms. Kim Yen, Master Mai Thien Tam, Ms. Nguyet Anh, Mr. Huy, Master Nguyen Thi Nguyet and Master Nguyen Huy Khai, helped me to obtain final questionnaire being suitable in the context of Vietnam. My colleagues, friends and all of respondents supported to conduct the questionnaire at the best reliability. Finally, I would like to express my gratitude to my family for their love and support, and they are always there when I need them. Without their emotional and financial support, this study would not be completed. i ABSTRACT Although Vending machine was predicted would become one of the most important non-store marketing channels, many retailers using vending machine have a difficult time in developing business in Vietnam. If vending machine-retailers want to attract more and more shoppers, they need to know what evaluative criteria consumers use when selecting a vending machine-retailer. The past researches demonstrated that Customer value and Retail patronage could enhance retail performance. This study investigated the relationship between Customer value and Retailing vending machine patronage, and examines the relationships of antecedents including Customization, Functionality and Perceived Risk with Customer Value. By utilizing literature review, a research model was proposed to identify the relationships above. Additionally, a convenient sample of 247 respondents in Ho Chi Minh City was surveyed to test the theoretical model. Structure Equation Modeling (SEM) was used to analyzed the data. The final result indicated that Customization and Functionality are positively related to Customer value, but perceived risk was not supported. Customer value is positively related to retailing vending machine patronage. ii TABLE OF CONTENTS ACKNOWLEDGEMENT ...................................................................................................................................i ABSTRACT ....................................................................................................................................................... ii TABLE OF CONTENTS .................................................................................................................................. iii LIST OF TABLES ............................................................................................................................................. v LIST OF FIGURES ........................................................................................................................................... vi CHAPTER 1: INTRODUCTION ...................................................................................................................... 1 1.1 Research background............................................................................................................................... 1 1.2 Research Problem .................................................................................................................................... 2 1.3 Research Objective .................................................................................................................................. 3 1.4 Significance of the Study......................................................................................................................... 3 1.5 Research methodology and scope............................................................................................................ 3 1.6 The structure of the study ........................................................................................................................ 4 CHAPTER 2: LITERATURE REVIEW AND HYPOTHESES....................................................................... 6 2.1 Vending machine ..................................................................................................................................... 6 2.2 Customer value ........................................................................................................................................ 7 2.3 Customization and Functionality ............................................................................................................. 8 2.4 Perceived risk .......................................................................................................................................... 9 2.5 Customer value and retail patronage ..................................................................................................... 10 2.6 Research model ..................................................................................................................................... 11 CHAPTER 3: METHODOLOGY ................................................................................................................... 13 3.1 Research process ................................................................................................................................... 13 3.1.1 Qualitative research ....................................................................................................................... 13 3.1.2 Quantitative research ..................................................................................................................... 13 3.2 Research design ..................................................................................................................................... 17 3.3 Measurements of constructs .................................................................................................................. 18 3.4 Data analysis method ............................................................................................................................. 21 3.4.1 Descriptive Statistics ...................................................................................................................... 21 3.4.1.1 Test of Skewness ..................................................................................................................... 22 3.4.1.2 Test of Kurtosis ....................................................................................................................... 22 3.4.2 Confirmatory factors Analysis (CFA)............................................................................................. 22 3.4.2.1 Reliability testing..................................................................................................................... 22 3.4.2.2 Convergent validity ................................................................................................................. 22 iii 3.4.2.3 Discriminant validity ............................................................................................................... 23 3.4.3 Structure Equation Modeling (SEM) .............................................................................................. 23 3.4.4 Bootstrap ........................................................................................................................................ 23 CHAPTER 4: DATA ANALYSIS AND RESULTS ...................................................................................... 25 4.1 Sample characteristic ............................................................................................................................. 25 4.2 Descriptive statistics .............................................................................................................................. 26 4.3 Confirmatory Factor Analysis (CFA) .................................................................................................... 28 4.4 Structural Equation Modeling (SEM).................................................................................................... 38 4.5 Bootstrap analysis .................................................................................................................................. 40 4.6 Explanation for finding result of hypotheses ......................................................................................... 41 CHAPTER 5: CONCLUSION, IMPLICATIONS AND LIMITATION ........................................................ 46 5.1 Conclusion ............................................................................................................................................. 46 5.2 Implications ........................................................................................................................................... 47 5.3 Limitation .............................................................................................................................................. 48 REFERENCES ................................................................................................................................................ 50 APPENDIX ..................................................................................................................................................... 58 iv LIST OF TABLES Table 3.1: The result of collected data ............................................................................................................ 15 Table 3.2: Measurement scales........................................................................................................................ 19 Table 4.1: Sample Characteristic ..................................................................................................................... 26 Table 4.2: The result of Skewness and Kurtosis testing .................................................................................. 27 Table 4.3: Correlations of components............................................................................................................ 32 Table 4.4: The result of correlation test ........................................................................................................... 32 Table 4.5: Summary of measurement validation ............................................................................................. 34 Table 4.6: Correlation of Constructs ............................................................................................................... 36 Table 4.7: Chi-square difference test ............................................................................................................... 37 Table 4.8: Hypotheses Unstandardized Structural Paths ................................................................................. 40 Table 4.9: Summary of hypotheses testing result ............................................................................................ 40 Table 4.10: The result of bootstrap analysis .................................................................................................... 41 v LIST OF FIGURES Figure 1: Conceptual Model ............................................................................................................................ 12 Figure 3: CFA of first-order constructs ........................................................................................................... 29 Figure 4: CFA of second-order construct ........................................................................................................ 31 Figure 5: CFA final ......................................................................................................................................... 33 Figure 6: Customer value versus retailing vending machine patronage .......................................................... 37 Figure 7: SEM model ...................................................................................................................................... 39 Figure 8: Structural results (Standardized estimates) ...................................................................................... 44 vi CHAPTER 1: INTRODUCTION 1.1 Research background More than three decades ago, Quelch and Takeuchi (1981) predicted that vending machine would become one of the most important non-store marketing channels. Reality, their prediction has surely materialized. Most of countries all over the world used vending machine as retail business. There are more than seven millions vending machines in operation in U.S (Leaner 2002), Japan has become a vending-machine-country and Vietnam also has the first vending machines in 2000s. Vending machine offers consumer a variety of products including food, snack, beverages, newspaper, cosmetic, CDs, cigarettes and so on. Lee (2013) argued that as more people has joined workforce during the past several decades and their busy social life increasingly places more value on time and convenience, vending machine had become an indispensable part of many people daily’s lives. In Vietnam, vending machine was deployed in early 2000s when the Vietnam’s Government issued the coins and experts believe that they will be potential market in the future (Kieu Giang, 2004). However, vending machine sector developed slowly during past time. There were many investors failed in applying Vending machine for retail business. The first main reason can explain for this is technology. Most of vending machine at that time integrated used-coin technology, but Vietnam people do not have habit keeping the coin available or do not like to use coin in transaction. This leads used-coin vending machine to be inconvenient for customer to reach and purchase by vending machine; secondly, retailers using vending machines cannot find the suitable locations to install vending machine, especially two biggest cities in Vietnam: Ho Chi Minh City and Hanoi City for sidewalk and public areas are quite narrow. As a result, vending machine cannot operate at the best; finally, most of the companies invested vending machine sector at that time, were small and not enough ability to invest new modern vending machines, while the companies having enough potential did not want to joint into this industry to push the vending machine sector in Vietnam (Hong Phuc, 2005). 1 Fortunately, the business environment has changed in recent years leading to many good signs from vending machine sector. First of all, technology is improved, current vending machine can accept both the cash and coin, even consumer can use credit card to purchase some product sold by vending machine. This makes vending machine to be more convenient for customer. On the other hand, some big brand names in Vietnam: Pepsi, Coca Cola, begin to use vending machine to sell their product at public areas such as hospital, park, railway station, bus station and airport. All above things have prompted vending machine sector grow quicker and quicker. Based on those, author will conduct a study to investigate about relevant knowledge of vending machine sector in Vietnam. 1.2 Research Problem Given the ever increasing presence and the pervasiveness of vending machines in lives of consumers, it is surprising that there have been to date no studies in marketing and consumer behavior literature that shed light on consumers’ usage behavior with vending machines services in Vietnam. Furthermore, most research has focused on purchase intention, which is customer acquisition oriented, little research has examined consumers’ patronage behavior, which is customer retention oriented. However, customer retention is more important than customer acquisition, and building customer value is the key to retaining customers (Weinstein, 2002). On the other hand, Customer value has emerged as a crucial instrument for analyzing service quality, customer satisfaction, and consumer behavior (Yieh, Chen, and Wei, 2012). It is not only the antecedent of attitude, intention, and behavior (Gounaris et al. 2007; Parasuraman and Grewal 2000; Yang and Peterson 2004) but also a critical factor influencing customer retention and purchase intention (Chang and Wildt, 1994). In addition, customer value is a strategic weapon in attracting and retaining customers and has become one of the most significant factors in the success in service providers (Gale 1994; Parasuraman 1997). Therefore, many previous studies examine relationship between Customer value and consumer’s purchasing intention or satisfaction, but little of studies research about influence of Customer value on Patronage behavior. 2 Thus, in order to fulfill this gap, an investigation of Customer Value and Patronage behavior in retailing vending machine sector is examined, and in an effort to indentify the key factors impacting on customer value in vending machine sector in Vietnam, this study considers the concepts of Functionality, Customization, and Perceived Risk as antecedents of Customer value. 1.3 Research Objective To examine customer value in vending machine situation, it is necessary to focus on identifying key factors affected customer value in using vending machine. These factors are perceived risk, functionality and customization. Each of these can either positively or negatively influence customer value in vending machine sector. Knowledge about the effect of customer value on consumers’ vending machine patronage behavior provides helpful implications to marketers in executing marketing and business strategy and customer relationship management. Therefore, the overall purpose of this current study is to examine how customer value affects consumers’ retailing vending machine patronage in Vietnam. Particularly, this study investigates: 1. The impact of Customization of vending machine on Customer Value 2. The impact of Functionality of vending machine on Customer Value 3. The impact of Perceived Risk of using vending machine on Customer Value 4. The impact of Customer value on retailing vending machine patronage 1.4 Significance of the Study The study will provide helpful implications for marketers in executing marketing and business strategy in Vending machine sector in particular and in retail business in general. 1.5 Research methodology and scope The research conducted on consumer in Ho Chi Minh City is one of the biggest cities in Vietnam, where it centralizes all trading activities, people can reach new technologies in business activities soonest, and the author can collect data from people from different provinces and social levels in our country. The main purpose of this research is perceived customer value of consumer in using vending machine. Therefore, it’s necessary to only focus on the respondents had used the 3 vending machine for purchasing prior. There are three kinds of vending machine which respondents can use in Ho Chi Minh are Vending massage chair, vending soft drink machine, and vending exchange coin machine. Thus, only respondents had used one of threes kinds of vending machine mentioned above, are chosen to conduct the questionnaires for main survey. The Author applies data analysis tool including Microsoft Excel and SPSS, to handle the collected data and to conduct the research. The Author also uses Amos 22 software to run Confirmation Factor Analysis (CFA) and Structural Equation Modeling (SEM), and to check relationships between exogenous variables and endogenous variables in the proposed research model. 1.6 The structure of the study This paper is structured into five chapters. Specifically, the contents of each chapter will be presented as follow: Chapter 1: Introduction In this part, research background, research problem, research objective, significant of study, research scope and methodology, and structure of study will be presented subsequently. Chapter 2: Literature review and Hypotheses In this chapter, the definitions of each concept and an extensive literature review will be presented. Then hypotheses are also developed throughout the previous literatures and finally, the research model will be proposed. Chapter 3: Research Methodology This chapter mentions about the research design, measurement of constructs, illustrate the process of conducting the research, and then, data analysis method is also presented to lay the foundation of chapter 4. Chapter 4: Data Analysis and Result This chapter includes Sample characteristic, descriptive statistic, CFA, SEM and discussion of result. Chapter 5: Conclusion 4 This chapter includes conclusion, Implications and limitation. 5 CHAPTER 2: LITERATURE REVIEW AND HYPOTHESES In this chapter, author presented an extensive literature review, proposed hypothesis and research model. An literature review focused on knowledge of vending machine, theory related to customer value, retail patronage and relationship of constructs be mentioned by others researches. Then, hypotheses were also argued and developed particularly by previous studies to build a research model in this chapter. 2.1 Vending machine According to Meuter et al (2000), Self-service Technology (SST) was the innovative channel of marketplace transactions that was completely different from traditional channel. Particularly, interpersonal contact was not required between customer and service providers, customer have to perform entire service by themselves without direct support of employees (Bitner et al., 2002). The types of SSTs deployed by service providers include self-service gas stations, launderettes, and vending machines (Bateson, 1985);self- health diagnosis, ATMs, Online Banking and buffet restaurant (Meuter et al., 2000); and in this study, author only focus on one of types of SSTs is vending machine. Vending machine is a machine which dispenses items such as snacks, beverages, alcohol, cigarettes, consumer products, after the customer insert the currency or credit card into the machine. For marketers, vending machine supported to increase the reach and intensity of their retail distributor network. They usually were placed outdoors and in unattended environments such as large retail stores, hospital, gasoline station, offices, railway station, airport, shopping malls (Lee, 2003). For customer, vending machines offered the convenience, time saving benefit and 24-hours availability and reasonably fresh and ready to serve products (Quelch and Tekeuchi, 1981). As mentioned above, Vending machine was one of types of SSTs; it therefore inherited adequately SSTs’ characteristics in the past researches. For instance, a self-service model predicting customer acceptance of SST was proposed by Globerson and Maggard (1991) that based on seven factors: convenience, time saving, self-control, money saved, self-image, perceived risk and self-fulfillment; Meuter et al (2000) also proposed ease of use, the ability to avoid interference from service people, time saving, convenience, and 6 financial saving as the factors impacting the adoption of SST, and ease of use was the most important factor; service quality of SSTs included seven dimensions: Functionality, Convenience, Enjoyment, Privacy, Assurance, Design, and Customization, in where, Functionality represents responsiveness, reliability and ease of use of SSTs, and Customization referred to extent of an SST can be altered to meet individual customer preferences and transaction histories (Lin and Hsieh, 2011). On the other hand, Ho and Ko (2008) proved that SST characteristics have positive effect on Customer Value. Therefore, based on the literature regarding to Vending machine, the current study examines perceived risk, functionality and customization to determine customer value of vending machine sector. 2.2 Customer value The concept of value has been applied in various fields of study, such as economics, social science, accounting, finance, strategy, product management, information system, and marketing (Huber et al., 2001; Ulaga and Chacour, 2001). Customers acknowledged service value through desired purpose or goal achieved (Overby, 2005). Thus, in-depth understanding of customer value construct was highly important. The concept of customer value was often perceived as an ambiguous and multifaceted word (Parasuraman, 1997). Many authors had acknowledged the difficulties involved in defining customer value (e.g. Piercy and Morgan, 1997; Woodruff, 1997). Therefore, many definition of customer value were proposed by many authors. For instance, Holbrook (1994) defined customer value as “an interactive relativistic preference experience” (p.5), and Woodruff (1997) expanded the concept of customer value as “a customer’s perceived preference for and evaluation of those product attributes, attribute performance, and consequences arising from use that facilitate (or block) achieving the customer’s goal and purposes in use situation”(p.142). Customer value was also defined by Chen and Dubinsky (2003) as “a consumer’s perception of the net benefits gained in exchange for the cost incurred in obtaining the desired benefits” (p.326). However, there was a general agreement in the literature that customer value was determined by “customers’ perception not by suppliers” assumptions or intentions (Anderson and Narus, 7 1998; Woodruff and Gardial, 1996; Zeithaml, 1988); as Doyle (1989, p.83) put it: value is “not what the producer puts in, but what the customers get out”. Based on those, in this study, author used the common definition of customer value proposed by Hanny and Felix (2009), is as “tradeoff between total perceived benefit and total perceived scarify” (p.480). Sheth et al (1991) argued that customer value was determined by five factors: functional value, epistemic value, social value, emotional value and conditional value. Functional performance, economic utility, and benefit associated with possessing the service express functional value. It is a concept of economic benefits of the trade-off between quality and price and is presumed to be the primary driver of customer choice (Sheth et al., 1991; Sweeney and Soutal, 2001). Customer’s feelings, for instance, love or hate, comfortable or uncomfortable, happy or sad, etc when they experienced an organization’s product or service represent emotional value. Epistemic value is the capacity of services or products to provide novelty or curiosity and satisfy a desire for knowledge (Sheth et al., 1991). Social value is limited to specific social groups (e.g., cultural-ethnic groups). Finally, conditional value relate to special cases, such as an illness or some specific social situation (Sheth et al., 1991; Sweeney and Soutal, 2001). 2.3 Customization and Functionality The term of customization was defined as “Tailoring the product to the special and unique needs of the customer. Each buyer is potentially a unique segment" (Bennett, 1988, p. 51) or "to build, fit, or alter according to individual specifications" (p. 281) by Webster (1973). Customization was one of the important factors which marketers paid more attention to satisfy their each of specific customer segments. Terptra (1981) first brought the idea of product customization to the academician’s attention. He also stated that “the idea of product "appropriateness" was a legitimate one” (p.54). There were many different cultures and traditions all over the world. Each of them had different style of behavior and style leading to each of people’s demand in different cultures was completely different. By this, understanding clearly specific customer’s demand was the key supported marketers to design product or service meeting well for their own customer’s demand. 8 In marketing context, the functionality was defined as “what product does for the buyers and users; utility it offers the user; what he or she can do with it” (Yellow pencil, 2006). Functionality referred to the ability of product or service to facilitate performance and the accomplishment of service customer goal. It also was considered to be particular importance because physical settings of vending machine were purposeful environment that exists to fulfill specific needs of customers. On the other hand, functionality and customization are two of dimensions of service quality construct (Lin & Hsieh, 2011). Service, by providing additional value for customers, leads to increased customer satisfaction, though the relationship between service and satisfaction can be non-linear (Anderson and Mittal, 2000). In addition, service quality is thought to lead to increases in firm profitability and market value through the service–profit chain (Heskett et al. 1994). That’s the main reason why service quality has long been recognized as a key factor for creating customer value. Based on literatures above, the following hypotheses were proposed: H1. Customization of vending machine is positively related to customer value H2. Functionality of vending machine is positively related to customer value 2.4 Perceived risk Risk was defined as term of uncertainly and consequences associated with consumer’s action (Bauer, 1960). Base on this, many studies had adopted this definition to define the construct of perceived risk, such as Cunningham (1967) argued that “perceived risk as a consumer’s perception of the uncertainty and adverse consequences associated with buying a product or service” (p. 91) or Dowling and Staelin (1994) understood that “perceived risk is determined by the distinction between inherent risk and handle risk” (p.121). In general, perceived risk referred that consumer purchase behavior may cause some unexpected results and these results may cause unpleasant experience (Bauer, 1960). Imaging that, customers always had their purchase goal each time when they wanted to buy something (product or service). However, in some cases, customers did not know which purchase decision was the best choice could meet their goal at the best. As a result, it would cause unfavorable results and shape a risk consciousness (Cox, 1967). 9 Perceived risk was a multi-dimension construct including losses and risk factors, which together, explain overall risk related to purchase or use a product or service. The identified dimensions were financial, function, psychological, social, time, and physical (Roselius, 1971). In this study, four dimensions chosen to explain the risk in using vending machine were psychological, social, privacy, and time wasting. Perceived risk was one of the factors to influence customer value. Sweeny, Soutar, and Johnson (1999) said that customer value mean a tradeoff between benefits and sacrifices of product or service from consumer’s point of view. Therefore, customer value was affected by sacrifices and sacrifices equal to perceived risk. On the other hand, many studies proved that perceived risk could reduce the customer value (Agarwal and Teas, 2001; Chen and Dubinsky, 2003). Based on that, the present study proposed the following hypothesis: H3: Perceived risk of vending machine users is negatively related to customer value. 2.5 Customer value and retail patronage Retail patronage behavior was studied in many empirical researches (Lee, H.Y., Fairhurst, A.E., & Lee, M.Y., 2009). Lee et al, (2009) also argued that retail patronage behavior can explain the mechanism of store choice. As a result, it has been a critical issue for academicians and retail managers. However, because of the dynamic nature of patronage behavior, a comprehensive picture of retail patronage behavior is a complicated model. Laaksomen (1993) defines patronage as “all the possible inner features of dynamism around the shopping behavior phenomenon in terms of store choice” (p.9). Thus, retail patronage was focused on the identification of relevant attributes by one key research stream. Firstly, according to Hartley (1980), understanding consumer’s patronage motives can reinforce the basic determinants for consumer buying behavior. Hartley (1980) also defined patronage motives as the reasons why customers choose in many different stores and proposed that “customer considered about patronage factors which indicated the reasons why they shop stores. The patronage factors consist of: Convenience _ Location, hour working, shopping ease; Assortment of merchandise _ Variety or limited; Quality and fashion level of goods _ High quality and fashion; Prices _ Lower price; Service _ Credit Card, delivery, returngoods, and knowledgeable sales staff; Excitement _ promotional effort, use of celebrities 10 and fashion show” (p.77). Secondly, Morgenstein and Strongin (1992) stated that patronage motives as “the reasons why customer choose one place to shop rather than other and include special brand, attractive facilities, personal service, conveniences, goods value, attentive salespeople, and a good store image” (p. 124). Finally, Pan and Zinkhan (2006) categorized a large number of determinants of retail patronage that were frequently examined in prior studies into three factors: product-relevant factors, market-relevant factors, and personal factors. Product-relevant factors is related to function of product and attributes (product quality, assortment, and price); market-relevant factors pertained to service offered by store with respect to convenience, service quality, store image and atmosphere, and salespeople; and personal factors refer to consumer characteristic (e.g . age, gender, income, and so on). According to Lee et al (2009), three groups of determinants including product quality, service quality, and assortment had the strongest influence to consumers’ decision to patronize a particular store. This finding presented clearly the importance of service quality as a key to achieve retail patronage. Furthermore, Yieh & Wei (2012) also stated that customer value was a crucial instrument for analyzing service quality. Therefore, the following hypothesis is suggested: H4. Customer value is positively related to retailing vending machine patronage. 2.6 Research model Based on the literature review and the hypotheses developed, the following research model was proposed 11 Figure 1: Conceptual Model Summary Theoretical background and definitions of each concept in the research model is presented in this chapter. Based on the literature review, the relationships of concepts are argued, thus, functionality, Customization and perceived risk are antecedents impacting customer value, and Customer value influence to retail patronage. There are four hypotheses in research model. 12
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