Factors affecting customer satisfaction and behavioral intention in the fast food industry in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY INTERNATIONAL SCHOOL OF BUSINESS - PHAN THI KIM SUONG FACTORS AFFECTING CUSTOMER SATISFACTION AND BEHAVIORAL INTENTION IN THE FAST FOOD INDUSTRY IN VIETNAM MASTER OF BUSINESS Ho Chi Minh City – Year 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY INTERNATIONAL SCHOOL OF BUSINESS - PHAN THI KIM SUONG FACTORS AFFECTING CUSTOMER SATISFACTION AND BEHAVIORAL INTENTION IN THE FAST FOOD INDUSTRY IN VIETNAM ID: 22120070 SUPERVISORS: PROF NGUYEN DONG PHONG DR NGUYEN PHONG NGUYEN Ho Chi Minh City – Year 2014 Table of Contents Chapter 1: Introduction 1.1: Research background 1.2: Research problem 1.3: Research objectives 1.4: Research scope 1.5: The structure of the proposal Chapter 2: Literature review and hypothesis 2.1: Service quality 2.2: Food quality 10 2.3: Hedonic value 11 2.4: Utilitarian value 12 2.5: Customer satisfaction 12 2.6: Behavioral purchase intention 13 2.7: Hypothesis development 13 2.8: The proposal model 17 Chapter 3: Research Methodology 3.1: Research design 18 3.2: Measurement scale 19 3.3: Data collection 21 3.4: Data analysis method 23 Chapter 4: Data analysis and result 4.1: Description statistic 24 4.2: The reliability test – Cronbach’s alpha 25 4.3: Exploratory factor analysis 31 4.4: Confirmatory factor analysis 36 4.5: The structural equation modelling 41 4.6: Bootstrap 43 Chapter 5: Conclusion, implication and limitation 5.1: Conclusion 45 5.2: Managerial implication 46 5.3: Limitation 48 References 49 Appendix 53 ABSTRACT Fast food industry market is a one of potential market in Vietnam with many famous brand join and expand such as KFC, Lotteria, Jolibee, Mc Donalt, Pizza Hut … More and more players mean more and more competitor How to attract more and more customer is the focus of all players The study will find out four key factors effect to customer satisfaction is service quality, food quality, hedonic value, and utilitarian value The research tests the factors the relationship between customer satisfaction and behavioral purchase intention CHAPTER INTRODUCTION This chapter provides the general pictures of this study This study has two objectives: first, to identify factors affecting customer satisfaction in the fast food industry in Vietnam, secondly, to test the effect of these factors on customer satisfaction and purchasing intention behavior The research background section presents the overall situation of the fast food industry in Vietnam Then the research problem is identified and research objective is determined, which in turns provide a ground for developing the research methodology and setting scope of this study 1.1 RESEARCH BACKGROUND The fast food restaurant caters to people who want to buy food that is fresh and served quickly In American, most fast food restaurant have drive-thru service that allows people to get their food without getting out of their cars The fast food industry started its first step to growth when McDonalds became popular in the late 1940s and early 1950s (What is the Fast food industry, n.d.) Fast food restaurants design menus focus on being able to cook the food quickly and easily They strive for absolute consistency so customers can be assured that everything they buy will always taste the same regardless which location they visit McDonald's has outlets in 126 countries on six continents and operates over 31,000 restaurants worldwide On January 31, 1990, McDonald's opened a restaurant in Moscow and broke opening-day records for customers served The Moscow restaurant is the busiest in the world The largest McDonald's in the world, with 25,000 feet of play tubes, an arcade and play center, is located in Orlando, Florida, USA There are numerous other fast food restaurants located all over the world Burger King has more than 11,100 restaurants in more than 65 countries KFC is located in 25 countries Subway is one of the fastest growing franchises in the world with approximately 39,129 restaurants in 90 countries as of May 2009, the first non-US location opening in December 1984 in Bahrain Wienerwald has spread from Germany into Asia and Africa Pizza Hut is located in 97 countries, with 100 locations in China Taco Bell has 278 restaurants located in 14 countries besides the United States In Thailand, chain restaurants are considered to cater for customer who is willing to pay more for better service In fact, chain restaurants in Thailand often offer a nicer décor, a cleaner environment or even a better service compared with those in the United States (Polyorate & Sophonsiri, 2010) Since the chain restaurant commonly uses service quality to distinguish itself from the competitors, providing a high level of service quality has become an ultimate goal for many chain restaurants (Polyorat & Sophonsiri, 2010) The fast food industry is a large and diverse industry with plenty of opportunities Fast food franchises are responding with new offerings, pricing and strategies to lure consumers back in Consumers want new ways to have a fast and healthy food, so the fast food industry continues to evolve when the economy strengthens, and the fast food franchise profitability is expected to be promising Tenth biggest fast food in the world is Subway, Mc Donalds, Starbuck, KFC, Burger King, Pizza Hut, Dunkin’s Donut, Domino Pizza, Dairy Queen, Papa John’s Most of them join Vietnam market Foods in fast food restaurants are standardized and customer gets familiar meals in every location of one chain For example, customers can enjoy the same taste of pizza in Pizza Hut restaurants in Ho Chi Minh City or Pizza Hut branches in Hanoi Fast food restaurant usually (as KFC, Lotteria ) uses the same format for all restaurants in all regions With over 65% of 90 million people in Vietnam is less than 35 years old, the fast food industry in Vietnam has an annual grow rate of 26% during the economic downturn while other industries experienced a decline in terms of sales According to data provided by Business Monitor International in 2011, Vietnam was ranked 8th in the Asia Pacific region in terms of food and beverage business environment (Vietnam fast food market see bright future, 2013) Vietnam fast food market is rising with many giant names such as Lotteria with 162 restaurants, KFC with 130 restaurants and Jollibee with 30 restaurants Some more chain which has joined the Vietnam fast food market in the recent years includes Pizza Hut, Burger King, Popeyes and McDonald’s It could be seen that young people in Vietnam will help to develop the fast food industry According to foreign players, Vietnam is an emerging market for fastfood development compared with other markets in Asia (Hoang Phi, 2013) Fast food industry in Vietnam get a big boom in 2014 when KFC gains 180 stores in after 17 years join the market while Lotteria has 187 stores in Vietnam after 16 years Pizza Hut opens the 50th restaurant in Vietnam in 2014 IPP group is owner of Burger King, Domino and Popeyes with total 41 stores in nationwide This can be concluded that while Vietnam is potential market for fast food industry, this is the time for player to understand clearly the key factors effect to customers and how to build customer loyalty to be success in Vietnam market to choose the best way to make customer satisfaction 1.2 RESEARCH PROBLEM With the high rate of young adult in Vietnam, 65% as mention above, the fast food industry has experienced a fast growing stage Beside the chance, there are threats of new entrants to the industry which increase the level of industry competition and thus each industry players have to find ways to enhance their competitive advance to stay away from the fierce competition To survive, fast food restaurant needs to follow their market-oriented strategy that focuses on enhancing customer satisfaction and purchasing intention Fast food restaurants have to learn and change their menus to enhance customer satisfaction These stores of Jollibee, numerous corners in Ho Chi Minh City are increasingly frequented by young people, especially children who will insist on having easy-going meals treated by their fond parents To better cater to these customers, many stores have managed to localize ingredients as a way to attract more patrons According to Truong Ham Liem, the marketing manager of Lotteria Vietnam, “Lotteria focuses on developing products and services continuously to serve customers, especially fastfood rice” “We mainly target local teenagers, but it is a fact that in past years our main customers were young people and white-collar workers.” Liem says the fast-food business is thriving in Vietnam regardless of the global economic crisis, adding rice now is an important ingredient in the menu to attract locals Also, Demis Flore, vice president of Jollibee says that the most popular choice at Jollibee’s is rice with chicken, which brings 60% of Jollibee’s total turnover (When fast food is localized, 2009) The two biggest fast chains in Vietnam set a plan to open more and more restaurants in Vietnam KFC own 116 restaurant at the end of 2012 and plan to have 200 restaurants at the end of 2015 In 2011, Lotteria had 100 restaurants in Vietnam and will reach 200 stores in 2016 In the recent years, more and more foreigner fast food player join Vietnam market and expand quickly as Pizza Hut, Jollibee, Burger King, Domino, Popeyes, Mc Donalt’s, Subway …Burger King invests store/160,000 people (Nguyên Hưng, 2012) “A report in 2012 by W&S Group, an online market research group in the Asia Pacific region, with 272 people aged above 16, showed that young people come to fast-food restaurant at least once every three months.” (Vietnam fast-food market sees bright future, 2013) With many famous players of fast food industry in Vietnam, players have to learn how to survive and develop in Vietnam As Vietnam is a potential and challenge market, fast food restaurants in Vietnam have to understand the key factors affecting customer satisfaction and how to build customer loyalty, and how to improve customer purchasing intention and recommending to others because word of mouth are very effective in Vietnam 1.3 RESEARCH OBJECTIVES There are two objectives of the study: Identifying factors affecting customer satisfaction in the fast food restaurant industry in Vietnam The relationship between customer satisfaction and customer purchase intention behavior in the fast food restaurant industry in Vietnam 1.4 RESEARCH SCOPE This study focuses on fast food consumers living in Ho Chi Minh City, the largest economic center of Viet Nam with the population of ten million people This city gathers people from many provinces, and cities in Vietnam Most player choose Firstly, the author builds model and questionnaire based on previous researches Secondly, the author collects data by some ways Thirdly, the researcher uses Cronbatch’s alpha to test scales availability and factors analysis to determine which of fairly large set of items are most answered most similar by the respondents Then, the researcher uses CFA to test the relationship of six construct of factor service quality Finally, the author uses SEM to test the relationship between four factors: service quality, food quality, hedonic value, utilitarian value with customer satisfaction and between customer satisfaction and behavioral purchase intention 1.5 THE STRUCTURE OF THE STUDY The study includes five chapters as following:  Chapter 1: Introduction The chapter includes the following contents: the background of the research, research problems, research objectives, research scopes, and the research structure  Chapter 2: Literature review and hypothesis The chapter presents the fundamental theories and definition of each factors, construct, proposed hypothesis and theoretical modeling In this chapter, the author presents the conceptual model of the study  Chapter 3: research methodology The author presents the research design, research methodology, and the process of conducting the research in this chapter Figure 3: SEM result 41 The data output from SEM testing as table 10 Table 10: data output from SEM - Standardized Regression Weights: (Group number - Default model) Estimate SAS < HV 0.347 SAS < FQ 0.272 SAS < SQ 0.413 SAS < UV 0.33 BI < SAS 0.803 FQ6 < FQ 0.76 FQ5 < FQ 0.805 FQ4 < FQ 0.702 FQ3 < FQ 0.752 FQ2 < FQ 0.727 TAN < SQ 0.272 ASS < SQ 0.697 REL < SQ 0.32 RES < SQ 0.534 REC < SQ 0.202 EMP < SQ 0.236 UV1 < UV 0.71 UV2 < UV 0.929 UV3 < UV 0.659 HV1 < HV 0.85 HV2 < HV 0.88 HV3 < HV 0.726 BI3 < BI 0.732 BI2 < BI 0.817 BI1 < BI 0.775 SAS1 < SAS 0.819 SAS2 < SAS 0.757 Covariance: (Group number - Default model) Estimate S.E FQ < > SQ -0.004 0.024 FQ < > UV -0.036 0.081 FQ < > HV 0.198 0.126 SQ < > UV 0.01 0.019 42 C.R -0.151 -0.445 1.569 0.544 P 0.88 0.657 0.117 0.586 SQ UV < > < > HV HV 0.026 0.108 0.03 0.099 0.875 1.087 0.382 0.277 Squared multiple correlation: estimate SAS: 0.532 BI: 0.645 All the value in standardized regression was higher than 0, it showed that hedonic value, food quality, service quality, utilitarian value had positive relationship with satisfaction, and satisfaction had positive relationship with behavioral intention Service quality (SQ) was the factors effecting strongest to customer satisfaction (SAS) Besides, P-value of HV, FQ, SQ, UV, SAS were 0, it mean hedonic value, food quality, service quality, and utilitarian value effected to customer satisfaction, and customer satisfaction effected to behavioral purchase intention 4.6 BOOTSTRAP: Finally, we used bootstrap to testing our model one more time From SEM model, the author chose view, analysis properties, and bootstrap with 500 bootstrap samples The result as follow: Table 11: boostrap result Parameter SAS SAS SAS SAS BI SE SESE Mean Bias SEBias < - HV 0.055 0.002 0.349 0.002 0.002 < < < < - FQ SQ UV SAS 0.061 0.083 0.07 0.056 0.002 0.003 0.002 0.002 0.271 0.418 0.33 0.801 -0.001 0.005 -0.002 0.003 0.004 0.003 0.003 43 CR (=Bias/SE-Bias) 1.0000 -0.3333 1.2500 0.0000 -0.6667 Critical ratio (C.R) was lower than 2, it mean p value > 5%, the model was accepted (Nguyen, 2009) The result from SEM and bootstrap showed the relationship between service quality, food quality, hedonic value, utilitarian value to customer satisfaction Besides, the positive relationship between customer satisfaction and behavioral purchase intention was proved All hypotheses in the study were supported Summary of hypothesis testing: Table 12: summary of hypothesis testing result No Hypothesis Testing result H1 Service quality has a positive effect on customer satisfaction Supported H2 Food quality has a positive effect on customer satisfaction Supported H3 Hedonic value has a positive effect on customer satisfaction Supported H4 Utilitarian value has a positive effect on customer satisfaction Supported H5 Customer satisfaction has a positive effect on behavioral Supported purchase intention Summary This chapter was the detail of survey, including sample, analysis results of measurement scales, research model, and hypothesis The author used Cronbach’s alpha and EFA (EFA for individual and for all items) to test reliability, and the result are all measurement scales are suitable to measure each construct The result of SEM analysis and bootstrap showed that the model was correct, all hypotheses were positive supported 44 CHAPTER CONCLUSIONS, IMPLICATIONS, AND LIMITATIONS Key results of the thesis are presented in the chapter Based on the result, the implication is proposed The author finds out some limitation of the result 5.1 CONCLUSION: The study has two objectives: identifying factors affecting customer satisfaction in the fast food restaurant industry in Vietnam and the relationship between customer satisfaction and behavior purchasing intention in the fast food restaurant industry in Vietnam Based on theory the authors build five hypotheses and a conceptual model for the research The researcher collects data from consumer in Ho Chi Minh City and use SPSS software to analyze collected data to test reliability, validity of measurement scales, the significant of all items and test the conceptual model of the research The result shows that there are six dimensions included reliability, tangibles, responsiveness, assurance, empathy, recovery support to construct service quality The study reveals that service quality is strong effect to customer satisfaction Service quality explains 17% (0.4132) for customer satisfaction Service quality is key success factor in fast food restaurant industry in Vietnam Service quality has a positive effect on customer satisfaction Besides service quality, as Keivela at al., Namkung and Jang mention, food quality is one key element of the overall restaurant experience and it related to customer satisfaction in fast food restaurant The study reveals that one more factor effect to satisfaction of customer is the food quality of restaurant SEM result suggests that food quality positive effect to customers’ satisfaction (2=0.2722=7%) Customer cares about tasty, healthy, and fresh food Customer not only need delicious food but also need nutritious food 45 Food quality has a positive effect on customer satisfaction Most customers of fast food restaurant are young, so the customers choose a restaurant not only on the service quality, food quality of the restaurant but also on how convenience and pleasant of restaurant Customer would like to have a place to enjoy the delicious meal So, as Ryu et all., 2010 mentioned, hedonic value and utilitarian value make customer satisfy Hedonic value explains 12% (h = 0.347) for customer satisfaction Hedonic value has a positive effect on customer satisfaction Customer evaluates that what customer get from fast food restaurant is equal with customer pay or not Customers concern about not only the value of food but also on timing and convenience of restaurant Utilitarian value can explain 11% (u = 0.330) for customer satisfaction Utilitarian value has a positive effect on customer satisfaction With the result 0.803 and 0.645 from SEM text output, it indicates the relationship between customer satisfaction and behavior intention Both are in the same group in EFA analysis Customer satisfaction can explain 64.5% for customer intention As a result, customers not only back to restaurants, which make customer satisfaction but also introduce it to other The study support for research of Han and Ryu (2007) shows high level of customer satisfaction help increase revisit customer and recommendation intention, positive word of mouth The following hypothesis is strongly supported by the study Customer satisfaction has a positive effect on behavioral purchase intention 5.2 MANAGERIAL IMPLICATION The entire hypotheses are supported in the research Customers focus more in service quality Customer behavioral intention is based on customer satisfaction The result shows that the following factors make customer satisfy when customer chooses a fast food restaurant: 46 - Service quality - Food quality - Hedonic value - Utilitarian value The researcher suggests that fast food restaurants need to be pay attention in six dimension of service quality: reliability, assurance, responsibility, empathy, recovery, and tangible The six constructs presents for service quality in fast food restaurant In order to attract customer, restaurant owner need train staff how to supply good service to customer and make customer satisfy with the restaurant The study shows customer need in the industry Food quality is one key element make customer satisfy Customers care about items in menu, healthy, tasty, and fresh food Temperature of food is one element that customer concern, so the restaurant should serve food at appropriate temperature Besides the service quality and food quality, customers would like to choose a place supply good feeling, fun, and pleasant place to enjoy meal Customers not only have meal for full but also for relax Restaurant need to be concern the accommodation, decoration, music The fast food restaurant industry thinks about a convenient place and supply quick and good service for customer The SEM result shows the strong relationship between customer satisfaction and behavioral purchase intention Customer satisfaction can explain 64.5% for behavioral purchase intention It means customer will intent to purchase when they satisfy In summary, if restaurant owner want to make customer satisfy, they need to focus on the elements: service quality (include reliability, assurance, tangible, recovery, responsibility, and empathy), food quality, hedonic value, and utilitarian value In order to recruit more and more customers, have more and more loyalty customers, the fast food restaurant need to focus 47 on the elements make customer happy The restaurant let customers recognize the value customer pay It makes customers satisfy and build habit to back to restaurant and introduce to other 5.3 LIMITATION: In Vietnam, there is difference in behavioral intention of consumer living in each region (North, Central, and South), so all respondents from the biggest city – Ho Chi Minh City – is not present for all consumers in Vietnam Customers living in each region have their own habit, lifestyle and behavioral so the further study should survey in some more cities The study has not survey in teenagers while teenagers contribute quite high volume for fast food restaurant and they can make decision by themselves The respondents of the study mainly focus on office staffs while a lot of customer of fast food restaurant is teenager For factors service quality, food quality, hedonic value, and utilitarian value explain only 53% for customer satisfaction, so the further research should be find out more factors effect to customer satisfaction When the average income increases day by day, customers is smarter, the customer’s need increases, customers pay attention to more and more factors, not only on four factors as in 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