COLLEGE OF BUSINESS

(BPMG 3093 )
AIR TRANSPORT MANAGEMENT
GROUP A RESEARCH PAPER : HOW MUCH MORE THE STUDENTS ARE WILLING TO PAY FOR A HIGHER LEVEL OF SERVICE? : AN AIR TRANSPORT STUDY PREPARED FOR :

DR. ROHAFIZ BT. SABAR

PREPARED BY : 1.

RAFIZAH BINTI MANSOR

127428 204301 204429

2. IBNU AFFAN BIN JAAFAR 3. .FATIN `AQILAH BINTI SALLEHUDIN

SUBMITTED DATE:

21st OCTOBER 2012

CHAPTER 1
1.1 Introduction : Olson ( 1977) said two important factors that influence buying behavior, are `price' and `quality of service'. Price is the cost of making the purchase .But, quality of service refers to how well a customer is being served, including the extent to which the server helps the customer, the manner of the server, and so on. Usually, a low price, while contributing positively to product/service selection, contributes negatively to quality of service expectations. Hence, a trade-off exists between price and service quality .For example, we can see quality versus service included Air Asia versus Mas in air transport. (Granovetter, 1985; Macneil, 1980) said that the trade-off between price and service quality can be explained using exchange theory. Exchange, which is the basic concept of marketing, can be used to model the desire to obtain a level of service quality a consumer desires from a service provider by paying a higher price in return. In fact, the exchange can be viewed as a value-creating process, leaving both parties better off. A few studies have hinted that there is an exchange relationship between price and quality. For example, Lapierre et al.(1999) found that total satisfaction depends on both quality and total price. Boronico (1999) also found that both quality of service and price provided impact on demand for services rendered. Achieving a competitive advantage based on providing outstanding service quality (Headley and Choi, 1992; Lewis, 1989) is a common strategy used by restaurant marketers. However, maximizing consumers' perception of service quality while at same time minimizing costs is often difficult. So far, no research has been done looking into the exact nature of the trade-off relationship between price and level of service. To provide a first insight into this area, this research was undertaken to investigate the relative importance of price and service in the context of restaurant selection, and to determine how much more consumers are willing to pay for a higher level of service.

1.2 Scope of study : In this study we gathered statistics about the price and service quality of airlines in Malaysia. And student`s opinion on their willingness to pay for higher service. 1.3 Problem Statement : Each year, students will face a dilemma which they need to choose price or quality in deciding the best choice for them to fly home. Some airlines company, provided a good service but higher price, on the other hand, another airlines company, provide poor service but in lower price. This study, will find out the suitable price that student feel comfortable with at better service. 1.4 Research questions : We are going to do survey on several UUM students especially from Sarawak, Sabah and Indonesia instead of refer to journal, books and also internet to find information about our research. 1.5 Objective : 1.5.1 1.5.2 1.5.3 To find student`s definition of quality and service in airlines industry. To identify which factor between price and quality that students prefer. To find out student`s ideal price and quality service in airlines industry.

1.6 Research outcomes : 1.6.1 1.6.2 1.7 Limitation : We did take into consideration of 1.7.1 1.7.2 1.7.3 time management access to resources lack of budget.

1.8 Significance of study : 1.8.1 1.8.2 Set up a benchmarking price for quality and service of Airline Company for student. Understand and help to increase the student satisfaction towards air transport.

CHAPTER 2: LITERATURE REVIEW 2.1 Introduction Journals, academic books and published articles were accumulating to examine the theories and previous empirical studies which are connected to this study. This chapter consists of, background of the study, relationship between current problems and research variables, review on theoretical framework and chapter conclusion for chapter 2. 2.2 Background of the study 2.2.1 Customer Satisfaction and Willingness to Pay Customer satisfaction has increase in gaining attention in business to measure product or service performance. Customer satisfaction can easily be defined as customer`s evaluation of their purchases and consumption experience with a product or service to meet the customer`s needs. (Chen, Chang, Hsu, & Yang, 2011) In Marketing literature terms, consumer satisfaction can be regard as the discrepancy between a customers expectations and perceptions (Oliver, 1997, as cited in VzquezCasielles, Surez-lvarez and Ro-Lanza, 2009). Consumers are pleased when the brand or products ostensive performance is the same level or surpass consumers expectations. In contrast, consumers are displeased when there is a huge negative gap between ostensive performance and expectation. Generally, customers form emotional attachment to brands that give them satisfactions (Thomson et al., 2005). Numerous research studies have come to the conclusion that consumer satisfaction is an important factor determinant of consumers willingness to pay for a brand. According to Homburg, Koschate and Hoyer (2005) and VzquezCasielles et al. (2009), consumer satisfaction has a strong positive impact on willingness to pay and this positive relationship follows a nonlinear and increasing returns-to-scale function when willingness to pay is plotted against consumer satisfaction. This positive relationship between consumer satisfaction and willingness to pay is confirmed by Seiders, Voss, Grewal and Godfrey (2005), whereby they indicate that this positive relationship is theoretically consistent with attachment theory. Thus, some research studies argues that managers should put more focus on how consumers feel about their brand or product as consumer satisfaction leads to customer loyalty and willingness to pay (Vzquez-Casielles et al., 2009;Yu and Dean, 2001).

Hence, customer emotional response, positive feeling, good personal experience will determine the satisfaction of the service delivered. Hence, emphasis the important relationship of customer (student) satisfaction and willingness to pay. 2.2.2 Service Quality and willingness to pay Service quality is generally derived by comparing service expectations with actual performance perceptions (Zeithaml, Parasuraman and Berry, 1990). According to SERVQUAL, service quality has five dimensions 1) reliability, 2) responsiveness, 3) assurance, 4) empathy, and 5) tangibles (Zeithaml et al., 1990). Findings from various studies show that service quality and consumers commitment are key determinants in developing consumer loyalty (Achrol and Mentzer, 1995, as cited in Fullerton, 2005; Zeithaml, Parasuraman and Berry, 1996; Zeithaml, 2000). Good service contributes to development of consumer satisfaction and consumer loyalty. On top of that, consumer loyalty brought about by good service quality will further lead to consumer retention as well as willingness to pay premium prices (Zeithaml, 2000). This is supported by Srinivasan, Anderson and Ponnavolu (2002) and Zeithaml et al. (1996), which indicated that service quality contributes to willingness to pay and word-of-mouth promotion. The customers are the ones who judge the quality of service and assess service quality by comparing what they are expected with what they perceive to receive. Instead of money, the customer rely on what they have to spent to judge the quality of service process delivered by the firm. According to Pham (2011), improving service quality is a conventional way for service firms to gain competitive advantage over their rivals. Hence, by improving service quality lead to improving customer satisfaction which in turn gaining competitive advantages In his paper Measuring and Monitoring Service Quality at Malaysia Airlines Abdullah (1995) points out that the approach of service quality study by Malaysian Airlines are in-flight surveys, survey audits, market studies, complaint and compliment monitoring, positioning research and employee research. Abd. Rahim et al. (2006; 2005), and Abd. Rahim and Ilias (2005) in their study of service quality in higher learning institution stressed that an excellent service quality ensures a yield of highly satisfied and loyal customers (students). When customers are satisfied, they are more likely to return or to promote to somebody else to those who helped them, while dissatisfied customers are more likely to go elsewhere. 2.3 Relationship between current problems and research variables 2.5.1 Relationship between tangible features and customer satisfaction According to Zeithamal, Parasuraman and Berry (1990), tangible features consist of the appearance of physical facilities, equipment, personnel and communication material, thereby comprise of some of the most important aspects of servicescape. Servicescape is used to describe the physical surrounding of a service company which includes the

exterior and interior design as well as ambient conditions (Bitner,1992: Wakefield & Blodgett, 1996). Therefore, it is important for the operators to make sure that the tangible and visible aspects of the airlines are attractive, clean and comfortable (Bruna & Morales, 2008). 2.5.2 Relationship between schedule and customer satisfaction According to Hansman (2005), there are few problems associated with the weather or even the excessive traffic demand that will cause the flight schedule to be delayed. Sometimes flight delay is mostly due to the overall flight system in a non linear fashion. The flight can still be measured to be on time if the schedule contains sufficient slack (Ater, 2007). 2.5.3 Relationship between ground staff and customer satisfaction According to Sun and Chiou (2011), the job scope of airlines ground staff can be divided Into check-in, ticket information counters, flight control center, lost and found, customs immigration-quaratine, boarding gate, transit weight balance, and load control in the main working space of ground staff. 2.5.4 Relationship between online services and customer satisfaction Online service can be defined as services that are delivered over the internet. Important data and information may be assessed through online service. Even the internet itself is considered by some to be online service (Pietroluongo,2012). According to Star Online (2011), due to the rise of Internet penetration, online shopping through internet is a trend in Malaysia. Online shopping beats jostling with the crowd and easier to compare prices and comparable product online which leads to better cost saving (Leong & Lee, 2009).

CHAPTER 3 : Methodology Eileen & Jennifer(2011).Special issue of Tourism &Hospitality .Malaysian low cost airlines: Key Influencing factors on customers Repeat Purchase Intention, 12 ,35-43 Introduction : The objectives of the paper are twofold a) to identify key service attributes that lead to customer satisfaction b) to explore if customer satisfaction and/or price influencing the repeat purchase of low cost air travel. Research design : Data collection : Data collection was conducted in the month of august and September 2009.The researcher approached information at random at the Low Cost Carrier Terminal,the hub for Air Asia and Air Asia X and the Skypark Terminal, the hub for firely. Population and sample : The sampling method employed for this study was purposive sampling.On the account of the study is aimed to discover Malaysian satisfaction and repeat purchase towards their home grown low cost airlines ,the informants were also chosen based on their race and marital status.Informants made up of the three major races in Malaysia including Malays , Chinese and Indians.They include those who are single ,married with no children , married with school-going children and married with college-going children.Informed consent was obtained before the researcher made an interview appointment with the respective informants. Research instrument : Each interview session was between one to one and a half hour.After the interview ,the informant was asked to recommend people whom they have travelled with before on the low cost airlines for the next interview session.Semistructured interviews with the informants were carried out until there was new theme derived from data analysis.The total number of informants interviewed was 20. Data analysis method : Interviews conducted were transcribed verbatim .Data was analysed based on the research objectives and research questions. Phenomenological approach and thematic analysis is used to analyse the data for this study.Data is categorized according to themes and sub-themes that emerged during data analysis.The themes are categories of responses were link to theoretical constructs-price , satisfaction and repeat purchase. Chapter conclusion: