CHAPTER 1

INTRODUCTION

1.1 Research Object

1.1.1 Online Retail Business in Indonesia

In Indonesia, the number of internet user is increasing rapidly over time.

Affordable personal computer and sophisticated mobile device are spreading like
wildfire, everyone want to join the digital era. Indonesian internet user growth can
be seen in the following chart.

Figure 1.1: Indonesian Internet User Growth

Source: Google / World Bank

In terms of Internet usage, Indonesia is the country with the thirteenth largest
Internet users in the world. Survey result from Internet World Stats in the second
quarter of 2014, Indonesia has the number of Internet user by 71.2 million people
and ranks as the country with the fourth largest Internet users in Asia. This can be
seen from the following Figure 1.2.

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 Figure 1.2: Asian Top 10
Source: Internet World Stats

Furthermore, as surveyed by Badan Pusat Statistik (BPS) and Asosiasi

Penyelenggara Jasa Internet (APJII) Indonesia, the percentage of Indonesian
internet users that are using the internet to buy goods and services were 45.07% or
less than half the total population of Indonesian Internet Users. The potential is
large. It can be seen in the following figure 1.1.

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 Figure 1.3: Internet Uses in Indonesia
Source: BPS & APJII as quoted from harianti.com

These numbers are going to rise, according to recent research conducted BMI
or Brand and Marketing in 2014 suggested that online shop user number is predicted
to rise up to 57% in 2015. Online shopping transaction in 2014 was well over 21
trillion rupiahs, averaging at Rp825 thousand per person per year. The transaction
value is expected to grow to Rp50 trillion in 2015, a very bright forecast for online
shopping industry. As the number of internet user in Indonesia is always rising (150
million as DEPKOMINFO predicted for 2015) make this “a sweet opportunity for
online market” said BMI chief; Yoanita Shinta Devi. (source:
ekonomi.metrotvnews.com). These growth come as no surprise as Indonesian
Gross National Income is also growing, as shown in figure 1.4

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 Figure 1.4: GNI per capita
Source: Google/World Bank

Indonesia has seemingly holds bright future for online retail business. With
all the figures and researches implying a positive growth, there is virtually no catch
for online shopping in Indonesia thrive. Some researches however said that online
retail still has its problems, one of them is trust.

1.1.2. Lazada.co.id

Lazada.co.id is a part of Lazada Group. Founded back in February 2012, it

has become Southeast Asia’s fastest growing online department store, with
operations in Indonesia, Malaysia, Singapore, Philippines, Thailand, Vietnam and
Hong Kong. Lazada offers a large selection of the world's most popular brands.
(Source: lazada.com)

Figure 1.5: Lazada Logo

Source: lazada.co.id

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 Lazada as the leader of Indonesian online retailer giving their customers the
privilege to purchase any product related to electronic equipment, home decoration,
even health and beauty products by only logging in to their website.
Pre-order feature is also available in Lazada, customers will have access to
get the latest product they want. Lazada often cut their price and make offerings
that are interesting to the customers. Any product sold on lazada is accompanied
with sufficient information so that the customers are well informed about the
products.
Lazada deliver their products directly to customers’ doorstep supported by
a reliable and fast courier services. Lazada receive payment via Credit Card, Inter-
Bank Transfer and Cash-on-Delivery, Ensuring safe and easy payment.
Lazada categorizes its products in several categories: Electronic, Book,
Smartphone, Computer, Home appliances, Toys & Kids Equipment, Healthcare &
Cosmetics, Bags & Luggage, and Musical Instrument. Lazada provides every
product the customers need in each category. In the electronic category for example,
Lazada offers a wide range of smartphone, Television, Video Player and an
abundance of accessories to complement customers’ electronic devices.
(Source: www.lazada.co.id/about)

Lazada is a part of Rocket Internet GmbH. Rocket Internet is one of the

world's largest e-commerce focused venture capital firms and startup
incubators founded in 2007 by the Samwer brothers. The founders gained visibility
through successful investments in Groupon, eBay, Facebook, Linkedin, Zynga, etc.
(either through early direct investment or through taken over target companies).
(www.wired.co.uk)

Lazada is the biggest Business-to-Consumer (B2C) eCommerce platform in

Indonesia. Lazada traffic rank has risen from rank 31 in 2014 to rank 12 in 2015,
implying a significant rise in visitor count. Not only traffic, Managing Director
Magnus Ekbom said to the press that Lazada Indonesia sees more than 250,000
visitors per day to its site. As for the overall growth in sales, Lazada claims it’s
achieving 20 percent monthly growth and expects to make US$6 to 7 billion in sales

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over the next few years. Currently Indonesian sales make up 30 percent of Lazada’s
regional revenue. It means that Indonesian customer could generate up to US$ 210
million in sales long before this decade ends. From the facts given, the researcher
would like to take lazada as a case study on online brand trust.

(Source: techinasia.com)

1.2 Research Background

Two thirds of Indonesian consumers agree that online shopping is fun, but
online shopping only account for just 0.1% of all retail expenditures in Indonesia
according to recent UBS report. Market research firm Nielsen conduct a research
that suggest 80% of Indonesian are often look at products online before purchasing
them in a physical store, this is much more than the global average of 60%. While
online, Indonesian shoppers also like to read reviews before deciding a purchase.
(Source: techinasia.com)

The problem with Indonesian shoppers are that they hardly trust online shops
in keeping their credit card information. Let alone giving the shop their credit card
info, these window shoppers don’t even have credit cards.
As of September 2014, there are about 8 million credit card owners in
Indonesia, with a total of 15.8 million cards. While that number is already bigger
than the population of neighbouring country Singapore, eight million is just a mere
3.2 percent of Indonesia’s total population.
According to MasterCard’s report last year, the bank penetration in Indonesia
is 20 percent, while the country’s debit card penetration is 11 percent.
As mentioned earlier, another reason consumers aren’t buying online is
distrust. According to Nielsen, 60% of consumers in Indonesia do not trust online
shops very much, they hesitate in giving vital data such as credit card information
online. More distrust than in any other Southeast Asian country except the
Philippines.

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 Getting more consumers to put faith in online purchasing is something
ecommerce companies hope to do, since it would allow them to tap a young
population that is tech savvy and increasingly affluent.
“Indonesia represents one of the biggest growth opportunities for e-commerce
in the Asia-Pacific,” said Matthew Driver, president of Southeast Asia for
MasterCard. Mr. Driver said a successful ecommerce industry needs strong delivery
infrastructure and widespread trust in payment systems. “Many Indonesians prefer
to pay cash for goods purchased over the Internet so they can be assured that they
get what they ordered,” he said.
(Source: Wall Street Journal – Indonesia Real Time)

Another research conducted by Menkominfo suggested that trust issues

accounted for 30.5% of all factors regarding customer worries (respondents select
2 or 3 factors, 30.5% of them selected the factors that are related to trust). The
factors concerning trusts in this case are: Not trusting the shop, concerns about
privacy and security, and not trusting the internet as a place to shop. The data can
be seen in the following figure 1.5.

Figure 1.6: Factors that drive Indonesian consumers away

Source: Menkominfo

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 Trust is such a substantial matter in online shopping, because buyer is not in
the same location as the seller, people can be easily tricked and cannot really do
anything about it. Building trust is a requirement to ensure that the relationship
between buyer and seller remain satisfactory. Trust ensure that seller got sales and
buyer got what they want.
The researcher is interested in trust in online retail is because according to
previous research, trust is the major barrier that keeping people from trying to
purchase goods online. Trust is also the foundation of relationship between buyer
and seller, trust will make buyer more loyal, seller have better reputation, and the
seller will be more respectable.
Online retailers in Indonesia consists of several brands such as; lazada,
rakuten, blibli, and bhinneka. All of those retailers are nearly the same, therefore
trust factors can be generalized for all, despite some potential variations between
each brand. Consumers’ perceived trust toward each brands are relatives, but there
must be a trend on which factor plays the biggest role on trust. However, for a more
focused and consistent research, researcher has chosen lazada as an object of study
for this research.
There are several factors that lead to trust, according to Alam & Yasin (2010)
there are six factors contributed to trust in the online shopping context, they are;
Security, Perceived Risk, Word of Mouth, Online Experience, Quality of
Information, and Shop/brand Reputation.
It is now very common for the online retailers have adapted various payment
method to provide convenience for consumers. Cash on Delivery and Bank Transfer
are some of them, hence consumers do not need to use their credit or debit card if
they have trust issues. But there is more to it, some of the factors affecting trust
needs to be investigated further to find out which one is the most influential and
hopefully gaining insight from the result.
Based on the explanation above, the author would like to conduct research
with title: “FACTORS THAT INFLUENCE ONLINE RETAIL BRAND
TRUST (CASE STUDY LAZADA INDONESIA)”

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1.3 Problem Formulation
The growth of internet users in Indonesia is growing rapidly, more and
more people have the access to the internet. Economy grows and people are
getting busy yet more consumptive, this creates a great opportunity for online
retails to thrive.
Several previous researches have proven that trust is still a major issue that
is holding back the online retail growth in Indonesia. The level of trust may differ
from one retail store brand to another. Alam and Yasin (2010) has noted some of
the crucial factors or antecedents of retail brand trust, these are; security and
privacy, perceived risk, word of mouth, good online experience and brand
reputation. Some of these factors might have significant influence to retail brand
trust of lazada.

1.4 Research Question

Variables used in this research are the factors that influence Online Brand
Trust. These factors are security, perceived risk, word of mouth, online
experience, quality of information, and brand reputation. Online Brand
Trust was assumed to be affected by the variables above, so the research
questions are formulated as follows:
1. How did security, perceived risk, word of mouth, online experience,
quality of information, and brand reputation perceived by customers?
2. How was online brand trust perceived by the customers?
3. How much did security, perceived risk, word of mouth, online
experience, quality of information and brand reputation affect online
brand trust?

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1.5 Research Objective

The objective of this research is to find an insight about potential factors

that drive people toward shopping online especially concerning consumer trust.
1. To measure customers’ perception on security and privacy, word of
mouth, online experience, quality of information, brand reputation, and
online brand trust of lazada.
2. To determine the influence of security and privacy, word of mouth,
online experience, quality of information, and brand reputation, online
brand trust toward online retail brand trust.

1.6 Research Purposes

1.6.1 Academic:
The purpose of this research is to find out what are the factors driving people
to shop online regarding to consumer trust toward the shops. In this research, the
factors are going to be compared and tested to determine which one is the most
influential.
1.6.2 For the industry:
By knowing the most influential factors toward customer trust, hopefully
the online shopping industry will improve what’s lacking and eventually gain
customers’ trust.

1.7 Writing Systematic

The writing structure is written to provide a general overview of about this
research. Further explanation of the structure will be explained below:

CHAPTER I : INTRODUCTION
This chapter Consist of general overview of the research objects, research
background, problem formulation, research purposes, research benefits, and writing
systematics.

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CHAPTER II : LITERATURE REVIEW
This chapter consists of literature review which related to the problem. It
includes a description of the theoretical basis that is used as the basis analysis of the
research, previous research and framework.

CHAPTER III : RESEARCH METHODOLOGY

This chapter contains of the approaches, the methods, and techniques used to
collect and analyse data in order to answer or explain the research problem.

CHAPTER IV : RESULT AND DISCUSSION

This chapter consists of characteristic of respondent, final result of this
research and analysis of the data process that has been obtained.

CHAPTER V : CONCLUSIONS AND RECOMMENDATIONS

The final chapter comprises of the conclusions of the whole research data and
analysis that will be used as a guideline practical for the company and
recommendation for further research in this field.

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