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Journal Economic, Business, and Accountancy Volume 13, No.

1, April 2010, page 1-8


Acreditation No. 110/DIKTI/Kep/2009

THE INFLUENCE OF SATISFACTION TOWARD LOYALTY AND BUSINESS


BUILDING OF MULTILEVEL MARKETING SALESPERSON
IN ORIFLAME SURABAYA

Mei Retno A
Nuruni Ika
Universitas Pembangunan Nasional Veteran
E-mail:
Jl.

ABSTRACT
It is a fact that any product categorized as a daily need and therefore, it is considered the
first product in the customer’s hand. The key to such a condition is by increasing the custom-
ers’ loyalty to the product. To do so, multi-level-marketing (MLM) can be implemented in a
business. This research attempts to see the influence of the variables such as communication
satisfaction, marginal satisfaction, and product satisfaction, Loyalty to salesperson, Product
Loyalty, and Business Builder toward the customers’ loyalty to the product. The author uses
semantic scale differential as variable scale. The respondents as the subjects studied are the
active members of Oriflame multilevel marketing company which have joined the company for
at least 1 (one) year. There are 112 members taken as the sample and it uses Sstructural Equa-
tion Mmodeling (SEM) to analyze the data. It was found that the product satisfaction factor
have positive influence toward the loyalty to product, the loyalty to product has also positive
influence toward the loyalty to salesman and the business builders. Next hypothesis say they
marginal satisfaction has positive influence toward the loyalty to product, marginal satisfac-
tion has positive influence toward the loyalty to salesman, and communication satisfaction
factor has positive influence toward the loyalty to salesman all are not accepted.
Key words: Communication Satisfaction, Marginal Satisfaction, Product Satisfaction, Loy-
alty to Salesperson, Product Loyalty, Business Builders.
INTRODUCTION cide to buy a certain product. For example,
It is important to be able to determine the cus- after the customer gain the trust and commit-
tomers’ needs and wants, as well as delivering ment to such a product, they would commit to
satisfaction to them. Such activities are con- future repurchase of such product or service
sidered the key to success in a business, es- (Gundlach & Mentzer 1995). Pritchard &
pecially for achieving the company goals. In Howard (1999) also pointed out that the cus-
other words, a company should continuously tomer loyalty emerged as a result of customer
attempt to maintain the production for fulfill- commitment. Loyalty, in terms of "business
ing the customers’ needs and wants. In order building" in MLM, is an effort to recruit new
that this effort can be fulfilled, it is also im- members known as down line who would buy
portant to take into account some factors such and then resell products offered by the com-
as the customer’s sex, age, and also group pany or manufacturer (Dick & Basu 1994).
preferences. One of the promising business Thus, customer loyalty to salesperson will
advertisements comes from Multi Level Mar- bring some benefits.
keting (MLM), in which, this type of business ORIFLAME is a Swedish cosmetics
opens provides the company with opportu- company that is currently running its business
nity to achieve unlimited gain or profit. through MLM system. The main attraction of
It is the fact that there is always a process their business proposition is unlimited income
of evaluation before the customers finally de- or gain. In that case, direct profit is obtained

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from price differences between catalog price son would eventually affect positively toward
(non-member price) which MLM member the company (Beatty et al. 1996; Grember and
must charge to their customer and distributor Brown, 1996; Maeintosh and Locksin 1997).
price (member price) which MLM members In another occasion, Morgan & Hunt
shall pay for the product. This direct profit can (1994), for instance, revealed that the behav-
go up as high as 23%. Other benefit gained ior of relationship existed between a company
from the calculation of total products that a and its partner, that is determined by trust and
member could sell. Monthly sales will be cal- commitment, will lead to positive relationship
culated in the invoice as Business Point (BP). of the intention to repurchase (remain loyal).
The more BP a member can collect – which In 2004, ORIFLAME Surabaya owned ac-
mean bigger sales – the bigger our income a tive members of 5851 members; in 2005 it
member will gain. Yet, multiple gains are ob- increased up to 6274 members or by 6.74%;
tained when members are able to recruit other and in 2006 it fell to 6023 members or fallen
members as their down line, based on their by 4.17%. The decline in 2006 was due to the
down lines’ sales performance. inability of the up-line members to convince
Besides the description above, ORI- and recruit prospective new members. Most
FLAME, as an MLM company, possesses prospective members were also reluctant to
its own limitations concerning selling activi- buy ORIFLAME products due to the relative-
ties and advertising. Therefore, in its strate- ly high price. As a result, the company suffers
gy, ORIFLAME hand those over to fleets of from decline in sales performance due to re-
Salesperson (sales associates) and its custom- duced marketers/distributors/sales force.
ers. For that reason, it is essential to ensure ORIFLAME Surabaya is present on the
customers’ loyalty to salesperson and prod- demand of quality products at affordable pric-
uct as both are important factors in market- es by the society. This company provides new
ing. Direct Selling-Multi Level Marketing colors in its beauty and cosmetics products. It
Company, like ORIFLAME, does not adver- is in the effort to satisfy the customer in or-
tise their products on the market and none of der to gain customers loyalty to the brand or
its products is sold in retail or convenience product through loyalty to ORIFLAME sales-
stores. In such a way, it delivers the conse- person firsthand. Ultimately, they will be able
quences of Salesperson (up line) to take ma- to build their own business, or often called by
jor part in introducing products to market, as many MLM companies as Business Builders.
well as maintaining customer loyalty in the THEORETICAL VIEWS AND
products or services offered. HYPOTHESIS
From the perspective of relationship mar- Multi Level Marketing (MLM)
keting, customers can build relationships with Multi Level Marketing is a way that compa-
the company especially either by its branch nies market or distribute or sell their products
store or salesperson as an individual. This in- by building and developing a fleet of market-
dicates to whom loyalty is given or expressed ers or distributors or direct sellers working in-
(Beatty et al., 1996; Berry and Gresham 1986). dependently (independent), without company
This concept of relationship marketing is usu- or manufacturer interference. Sales target is
ally used in retail business. The researchers completely determined by independent dis-
found that inter-personal relationships play tributors and direct sales network that is de-
a bigger role than the retailing context. Cus- veloped. On the other hand, returns obtained
tomers would prefer personal service and as in discounts, or commissions or incentives
closer relationship with salespersons (Beatty is determined by the manufacturer based on
et al. 1996). In addition, according to other stages according to the number of sales value
proponents it is stated that loyalty to salesper- (volume or business point-point) obtained

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Journal Economic, Business, and Accountancy Volume 13, No.1, April 2010, page 1-8
Acreditation No. 110/DIKTI/Kep/2009

that is agreed by each independent distributor Relationship Satisfaction and Loyalty to


since they are registering for membership. Salesperson
It is explained that the MLM system short- Being trusted, competent, honest and moral
en the conventional sales distribution line. It salespersons can satisfy the customers as in
does not require a single distributor, agent or interpersonal relationship. It is due to the fact
wholesalers. Instead, the products are directly that loyalty to the salesperson is the custom-
distributed through independent distributors ers’ commitment and desire to continue repur-
who served as a retailer or direct seller to the chasing especially through the salesperson.
customer. In this way, marketing and distribu- Relationship satisfaction between customers
tion costs can be reallocated to independent and their salespersons is a mean of social re-
distributors with a tiered system depending lationships which can provide an opportunity
on the achievement of sales targets. The ac- for salespersons in approaching their custom-
tual advantage in MLM system is possible to ers. Such social relationships could provide
obtain through the large volume of distribu- informal circumstances that support the shar-
tion network. Each member who sponsors ing of information, interpersonal closeness
other people will have the opportunity to ex- and better understanding of both customer’s
tend profit because of growing networks. and salespersons’ needs (Doney & Cannon,
1997). Ven (1994) also stated that the cooper-
Direct Selling ation that is built by social relationship tend to
ORIFLAME is one of the Multi Level Mar- develop more quickly and efficiently. Accord-
keting companies that market their products ing to him, customers that are satisfied with
by using the Direct Selling system. Accord- such relationship tend to decrease the desire
ing to Fe DSA, Direct Selling is characterized of ending the relationship and reduce dispute
as marketing activities that involve contacts with other members. Based on such argument
between the buyer and the salesperson at lo- the hypothesis is stated as the following.
cations outside retail stores. On the contrary, H1: Relationship satisfaction positively influ-
Washington DC’s Association of Trade and ences toward loyalty to salesperson.
Industry defines Direct Selling as a method of
Marginal Satisfaction and Loyalty to Sales-
distribution of consumer goods and services person
through personal contact (seller to buyer) that It is relatively difficult to prove how relation-
is not occurred in one/certain-fixed business ship satisfaction can affect the sales. Margin
location, yet preferably at home (Direct Sell- satisfaction, however, (Ruekert & Churchill,
ing Foundation, 1992). Finally, this definition 1984) could show the customers’ views on
was developed to the emphasis on consumer profits or benefits from having a relationship
market and is now a strategy in distribution with MLM salesperson. These benefits could
methods. In this concept, there are two impor- be the discount product prices or commission,
tant elements regarding Direct Selling, such known as Business Point (BP). Salespersons
as the face-to-face selling and flexible retail- (up-line) in MLM usually help their down-
ing location. lines to connect to the company, encourag-
Based on the arguments above, it can be ing them by motivation and positive attitude,
understood that Direct Selling is not a mere providing product knowledge training, telling
private communication between individuals, how to recruit new distributors, and sharing
but it is also a mean of communication be- about the way how to sell as well as the steps
tween two individuals who are potentially to to success in the business.
sell and to purchase by exchanging informa- Research conducted by Bitner, booms
tion, with probability to the result to the trans- & Tetreault (1990) supported the notion that
action deal and profit (sales/purchases). margin satisfaction is the financial gain ob-

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tained at the time of purchase, in which trust H4: Product satisfaction positively influences
to salesperson will have a major role since the toward product loyalty.
salespersons are supposed to deliver to con- Loyalty to Salesperson and Product Loyalty
sumers the information they required. Thus, Inter-personal relationship of trust be-
honesty in communication and helping-hand tween buyer and seller effects on loyalty to
behavior of salesperson would have positive salesperson (Crosby, Evans and Cowles,
impact on customer satisfaction with margin 1990); and it is a result of commitment and
and product. Thus, the hypothesis is as the desire to continue repurchasing, especially
following. with the salesperson. This relationship can
H2: Marginal satisfaction positively influ- be developed from the benefit of total shop-
ences toward loyalty to salesperson. ping experience into visiting (Swan and No-
Marginal Satisfaction and Product Loyalty lan, 1985). Loyalty to the company including
Salespersons that are able to explain the qual- to salesperson (commitment) reflects an im-
ity of products and benefits of purchasing the portant relationship between loyal behavior
products to customer will lead them to be and repeat purchase/repurchasing (Betty et
loyal to buying the products. Customers who al, 1998, Jacoby and Kyner 1973); they also
are satisfied by goods or service will also cre- defined an existence of strong commitment to
ate their loyalty. In addition, customer loyalty future repurchasing. Berry and Parasuraman
will trigger the customers to repurchase the (1991) argued that the buy-more action is an
products or services that they are satisfied evidence of customer loyalty. The hypothesis
with (Anderson, Fornel and Lehman, 1994). is as fiollows.
Therefore, it is assumed that satisfaction has H5: Loyalty to salesperson positively influ-
an effect on the product loyalty. Based on ences toward product loyalty.
such argument, the hypothesis is as follows. Loyalty to Salesperson and Business
H3: Marginal satisfaction positively influ- Builder
ences toward product loyalty. The higher customer loyalty to salesperson,
Product Satisfaction and Product Loyalty the higher repurchase they will do as in the
According to Anderson, Fornell and Lehman form of Business Builders. It is in line with
(1994), if customers were satisfied by the the statement by Constance Gustake (1998)
goods or services provided, they will have that the life and death of MLM business de-
loyalty. With the increased customer loyalty, pends on the network of distributors and the
the customers tend to repurchase the products consistent purchase of products. In MLM
or services. Fornell et al (2001) added that the business context, the loyalty is shown by ac-
customer will perceive higher product satis- tively selling or buying products and the ef-
faction if their feeling towards the products or fort to recruit new distributors or members. In
services exceeds their expectations. By doing this condition, the trust on salesperson would
so, they will remain loyal to the same product also influence the customers’ desire to remain
with the repurchase action. In that case, cus- loyal and therefore, they decide to repurchase
tomer satisfaction of certain products or ser- (Kennedy-2001, Doney and Cannon-1997).
vices provided will create customer loyalty, Thus, when we want to increase the repur-
thus the company needs to focus on customer chase and maintain customer loyalty, it is nec-
satisfaction to encourage them to repurchase essary to improve reliability and trustworthy
the products or services. By doing so, it will of the salespersons involved.
create loyalty to product (brand) or service According to Holden (1990) and Kennedy
which also can deliver much benefit to the (2001), the effect of having trust on the com-
company. So, it can be hypothesized as the pany and salesperson is loyalty. Trust could
following. also maintain a continual relationship in a

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Journal Economic, Business, and Accountancy Volume 13, No.1, April 2010, page 1-8
Acreditation No. 110/DIKTI/Kep/2009

marketing relationship between them. Final- ness of customers to re-consume or reuse the
ly, having gained the trust from the custom- products that have been consumed earlier. In
ers, the company can maintain the customers this study, the measurement is based on the
to repurchase. In that way, the repurchasing is customers’ behavior to recommend consum-
measured by the willingness of customers to ing products or services to other customers.
re-consume or reuse the products they have This Business Builders indicator is measured
consumed previously (Kennedy, 200; Duncan by the behavior to recommend products to
and Cannon, 1997). In that condition, it is as- others, provide training program for their
sumed that the customers’ trust affects their down line and to perform consistent products
desire to remain loyal and to repurchase, thus repurchases. Based on the arguments above,
to improve and maintain customer loyalty, the hypothesis can be asserted as the follow-
it is necessary to improve reliability of the ing.
salesperson. H7: Product Loyalty positively influences
H6: Loyalty to Salesperson positively influ- Business Builders.
ences toward Business Builders. Based on the description above, a conceptual
Product Loyalty and Business Builders framework and hypotheses in this study can
Repurchase is defined as the desire to re- be drawn as the following.
consume the products or services that have RESEARCH METHODS
bought. The customers who have higher trust Population and Sample
on a company and salesperson will lead cus- The population in this study is the active mem-
tomers to repurchase the products than those bers of ORIFLAME for ≥ 1 year membership
who have low trust (Kennedy, 2001). For that in Surabaya. This study uses primary data
reason, loyalty is defined as a strong com- which were collected by using questionnaire.
mitment to consistently buy or repurchase The questionnaire was distributed to the re-
products or services in the future. Customer spondents to see their perceptions toward the
loyalty is proved by the act of buying more question items as depicted in the construct.
(Berry and Parasuraman, 1991). These 112 active members are taken as the
The relationship between customer trust sample by applying purposive sampling tech-
and the act to repurchases can be shown by nique.
the indication that the customers could depend
themselves upon company’s integrity (Doney, Analysis Technique
1997). According to Ganesan (1994), trust is The data gathered from questionnaires were
an essential element in maintaining long-term analyzed by creating SEM model (Structural
relationship. Customer trust toward a compa- Equation Modeling) with One-Step Approach
ny enabled them to continue the relationship to Structural Equation Modeling (SEM).
(Doney and Cannon, 1997). RESULTS
Repurchase is measured by the willing- The following Causality Test is the magnitude

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of regression coefficients for each factor. repurchase such products in the future. In ad-
As observed from the probability of caus-dition, the perceived customer satisfaction in
al direction, the results of the tested hypoth-certain products or services will create cus-
eses are as the following. tomer loyalty. Thus, it is necessary for the
company to create satisfaction by producing
1. Product Satisfaction factor positively influ-
ences Product Loyalty factor, is accepted. high-quality products that will result in repur-
2. Marginal Satisfaction factor positively in-chases.
fluences Product Loyalty factor, is not ac-The Influence of Marginal Satisfaction to-
cepted. ward Product Loyalty
3. Product Loyalty Factor positively influ- In reference to the test results, it is acknowl-
ences Loyalty to Salesperson factor, is ac-edged that the marginal satisfaction variable
cepted. did not prove to have a positive and signifi-
4. Marginal Satisfaction factor positively in-cant influence toward product loyalty. This is
fluences Loyalty to Salesperson factor, is because of low marginal profits obtained by
not accepted. salesperson indicated by low commissions,
5. Relationship Satisfaction factor positivelylow discount as well as low business point
calculation. Therefore, marginal satisfaction
influences Loyalty to Salesperson factor, is
not accepted. factor is unable to affect their loyalty to the
6. Loyalty to Salesperson factor positively product, or other product loyalty is merely af-
fected by high-quality products indicated by
influences Business Building factor, is not
repurchase action.
accepted.
The Influence of Product Loyalty toward
7. Product Loyalty factor positively influenc-
Loyalty to Salesperson
es Building Business factor, is accepted.
Based on the test results, it is acknowledged
REVIEWS that product loyalty variable is proved to have
The Influence of Product Satisfaction to- a positive and significant influence toward
ward Product Loyalty loyalty to salesperson. Product Loyalty is a
In connection with the test results, it is ac- strong commitment of customers to consis-
knowledged that product satisfaction vari- tently buy or repurchases preferred products
able has a positive and significant influence in the future. Customers that are satisfied with
toward product loyalty. In this case, product certain products will tend to continue using or
satisfaction is the customers’ demand of qual- consuming such products. This customer loy-
ified product as expected from Oriflame. The alty triggers them to buy the product again.
increased customer satisfaction on products It also can make the company become more
or services provided will trigger customers to profitable because by having experience with
Table 3
Causality Test Result

Source: Processed data

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Journal Economic, Business, and Accountancy Volume 13, No.1, April 2010, page 1-8
Acreditation No. 110/DIKTI/Kep/2009

a trustworthy salesperson, the customers relationship of Oriflame salesperson and cus-


would comfortably repurchase or try other tomers concerning future repurchase that is
products. not only affected by sales activity and recruit-
The Influence of Marginal Satisfaction to- ment of new distributors by Oriflame upline,
ward Loyalty to Salesperson but also by customer satisfaction when using
In connection with the test results, it is ac- Oriflame products.
knowledged that marginal satisfaction vari- The Influence of Product Loyalty toward
able did not prove to have a positive and Business Building
significant influence toward loyalty to sales- In reference to the test results, it is also ac-
person. This is due to the attitude or behavior knowledged that product loyalty variable has
of the customer who would feel the benefit a positive and significant influence toward
when using the products not because of the business builders, in which the product loy-
relationship with the salesperson, but because alty reflects a strong commitment from the
of the experiences of others who testify using consumer to consistently conduct buying
the product. Consequently, it affects the per- again or repurchasing the preferred products.
sonal relationship of trust between consumers This strong commitment to repurchasing will
and Oriflame salesperson in the future repur- affect product sales activities and recruitment
chase. of new distributors conducted by Oriflame
The Influence of Relationship Satisfaction upline.
toward Loyalty to Salesperson CONCLUSION
In relation to the test results, it is acknowledged Based on the results above, it can be conclud-
that the relationship satisfaction variable did ed as the following.
not prove to have a positive and significant 1. It is accepted that Product Satisfaction fac-
influence toward loyalty to salesperson. This tor positively influences Product Loyalty
is due to the customers’ behaviors that tend factor.
not to believe what is informed by sales per- 2. It is not accepted that Marginal Satisfac-
son about the benefits when using Oriflame tion factor positively influences to Product
products, or due to the poor selling ability of Loyalty factor.
the salesperson that could not persuade them 3. It is accepted that Product Loyalty factor
as well as the lack of creating a good-quality positively influences Loyalty to Salesper-
of relationship between the salesperson and son factor.
customer. These can negatively impact on 4. It is not accepted that Satisfaction Mar-
the relationship between salesperson and cus- ginal factor positively influences Loyalty
tomer, which may result in the displacement to salesperson factor.
of salesperson or even a turn over to another 5. It is not accepted that Communication Sat-
brand product. isfaction factor positively influences Loy-
The Influence of Loyalty to Salesperson to- alty to salesperson factor.
ward Business Builders 6. It is not accepted that Loyalty to Salesper-
Based on the test results, it is acknowledged son factor positively influences Business
that loyalty to salesperson did not prove to Builders factor.
have a positive and significant influence to- 7. It is accepted that Product Loyalty factor
ward business builders. Loyalty to salesper- positively influences Business Builders
son derived from the personal relationship factor.
of trust between seller and buyer, while the IMPLICATION
business builder is the number of industrial Since loyalty to salesperson is proved to be
builders as an activity in selling products and an essential factor for handling the custom-
recruiting new distributors. This is due to the ers, it is required that salesperson should do

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better improvement in handling and manag- Number 2


ing the relationship with customers, especial- Ferdinand, Augusty, 2000, Structural Equa-
ly related to product knowledge. In addition, tion Modeling dalam Penelitian Mana-
salesperson that is considered a beauty con- jemen, Badan Penerbit Universitas Di-
sultant is also required to be able to provide ponegoro
suggestions for the customers to choose the Griffin, Jill, 1995, Customer Loyalty: How to
right product as it will lead to satisfaction and Keep It, A Division Of Simon & Schus-
eventually their willingness to repurchase. ter, Inc., United States of America
LIMITATIONS Gustake, Constane, 1998, Multi Level Invest-
As consideration for the next study, it is sug- ing, Sales and Marketing Success, Sep-
gested to use other variables or additional vari- tember
ables that have not been taken into account in Hair, J.F. et. Al 1998, Multivariate Data Anal-
this study which could relate to salesperson ysis, Fifth Edition, Prentice-Hall Inter-
performance. national, Inc., New Jersey
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