THE IMPACT OF INNOVATION AND PRICE ON PERCEIVED QUALITY AND

CUSTOMER LOYALTY IN WESTERN STEAK RESTAURANTS

IN BANDUNG CITY

Indah Permata Yanda 1 NPM-120820210504

Elvina Noviawanti 2 NPM-120820210508
Master of Management Program, Faculty of Economics and Business,
University of Padjadjaran, Bandung, Indonesia

ABSTRACT

The growth of the culinary business during the Covid 19 pandemic has led to increased competition among fellow
culinary businesses, including Western steak restaurants. So this requires steak restaurant business people to be
able to maximize their performance by highlighting excellence, both in terms of product characteristics and
company value to customers, in order to be able to create customer loyalty for the sake of business continuity in the
future. In achieving customer loyalty, a company needs to shape the perception of quality through product
innovation and pricing activities. Therefore this research was conducted to know and analyze the effect of product
and price innovation on perceived quality and consumer loyalty at western steak restaurants in Bandung City from
the consumer's point of view. The research method used is associative and verification research using a quantitative
approach through Structural Equation Modeling (SEM) analysis with Partial Least Squares (PLS). The data in this
study were obtained through a survey by distributing online questionnaires using a purposive sampling method.
This questionnaire addresses 272 respondents who are customers of Western steak restaurants in Bandung.

Keywords: Product Inovation, Price, Perceived Quality, Customer Loyalty

INTRODUCTION 2021, the culinary sector was able to contribute

During the Covid-19 pandemic, the as the most significant contributor to regional
culinary industry survived and even experienced income in Bandung. This contribution was
growth while other business sectors experienced followed by the development of the culinary
a decrease. The culinary industry grew by industry, which was marked by the number of
3.68% in the second quarter of 2022. This new restaurant or café businesses that had
increase was quite significant if compared to the sprung up. The following is industry
second quarter of 2021, which was 2.95% so contribution data and culinary business
that the food and beverage industry was able to development in the city of Bandung from 2018-
become the industry sub-sector with the largest 2021, namely:
contribution in Indonesia, namely 38.38% of Tabel 1. Regional Revenue Tourism Sector
Contribution Data
non-oil and gas industry GDP (Kementerian
No Industry Total
Perindustrian, 2022).
The same thing happened in Bandung, 1. Hotel Rp162.718.874.448

where during the pandemic in Indonesia in 2. Restoran dan Cafe Rp206.523.571.376

 2

to create repeat purchases and build customer

3. Hiburan Rp10.755.528.059
loyalty.
Total Rp379.997.973.883
Based on a survey conducted by Michael
E. Gerber stated that out of 100 culinary
Tabel 2. Growth of Restaurants & Cafes in
Bandung City businesses that were established, only 4% were
Year Total Restaurant able to survive within ten years, while 25% of
2018 782 businesses failed in the first year, and the rest
failed the following year (Utami, 2020). So with
2019 899
the high competition in the restaurant business,
2020 1.339
companies must establish consumer loyalty to
2021 1.234
measure a company's performance from a
consumer perspective. Customer loyalty is
Based on the data above, the number of
essential for determining a company's success
restaurants in Bandung has increased
(Kim et al., 2021). So that in this intense
competition between one culinary business and
competition, companies must be able to offer
another. This competition is also felt by foreign
novelty or innovation to their products, as well
restaurants in the city of Bandung, especially
as set the right price to influence consumers
restaurants that serve Western food, such as
psychologically to address consumer quality
steak. Food products with foreign flavors must
perceptions which are increasingly critical at
compete with well-known local food products
this time. Good product quality will shape the
that tend to suit the tastes of the people in
perception of good quality in consumers so that
Bandung. In addition, there are social changes in
this can create repeat purchases and then, over
today's society, causing changes in new styles of
time, be able to increase the company's sales
consuming food, where consumers become
turnover (Pappu & Quester, 2016b). According
more selective in choosing a product. Likewise,
to Edison and Restuti (2014), product innovation
steak is a food with a high level of selectivity,
and pricing can influence intrinsically perceived
both in terms of product quality, price, product
quality.
safety level, and the service provided by the
Product innovation aims to make
restaurant. So this requires steak restaurant
improvements and developments so that the
business people to maximize their performance
products produced can add usability and
by highlighting excellence in product
attractiveness and increase consumer
characteristics and company value to customers
satisfaction (Gunday et al., 2011). Product
so that the business has characteristics or
innovation can be in the form of product dish
differences from other businesses. This is done
display design, creating a restaurant atmosphere
in order to attract the attention of new customers
that provides comfort for visitors, making room
and retain existing customers in order to be able
arrangements or attractive interior designs, and

creating a friendly impression through services
performed by restaurant employees. This is done
solely to obtain a positive impression of the
company's value creation compared to
competitors.
Then pricing can affect a company's
competitive ability to obtain customer
perceptions (Sagala, 2019). According to
Sweeney (1998), in purchasing activities,
consumers do not only think about the quality of
the product but also think about the worthiness
of the product's price (Edison & Restuti, 2014).
Price feasibility perceived by consumers is a
form of comparative price assessment (Monroe,
2012). In addition, consumers also use price as
an indicator of the quality of a product (Monroe,
2012). In several studies on price signaling
theory, it shows that when consumers are faced
with products that have low prices, these
consumers will assume that low prices indicate a
product has low quality as well (Lee, Moonkyu
& Lou, 2011), and vice versa where high prices
are assumed to be high product quality (Sari,
2019).
Therefore, given the importance of product
innovation and pricing in shaping perceptions of
quality and its impact on customer loyalty to a
product, this is the motivation for conducting
this research. This research aims to determine
and analyze the effect of product and price
innovation on perceived quality and consumer
loyalty at Western steak restaurants in Bandung
City based on the consumer's point of view. The
implications of the results of this study are
expected to be a reference or motivation for
culinary business people, especially western
3
steak restaurants in the city of Bandung, in
innovating products in the businesses they run
and being able to understand essential factors
that can influence consumer loyalty.
LITERATURE REVIEW
Customer loyalty
Customer loyalty is a customer's
commitment to repurchase the goods/services of
the same brand they like (Taufik et al., 2022).
According to Durianto (2011), customer loyalty is
consumer loyalty in buying one brand product,
even though many alternative products may have
advantages over these products. Customer loyalty
is an important asset for determining the success
of a company (Kim et al., 2021). With customer
loyalty, the company can minimize the negative
effects of similar competitor product attacks, both
in terms of product quality competition and
competition in gaining consumer perception
(Tarumingkeng, 2019).
Six stages or levels in customer loyalty
according to Griffin (2005), namely: (1) Suspects;
(2) Prospects; (3) Customers; (4) Clients; (5)
Advocates; (6) Partners. Two main perspectives in
defining and measuring customer loyalty, namely
Behavioral Perspective and Attitude Perspective
(Tjiptono, 2004). According to Griffin in Jill
(2001) there are four indicators in measuring
consumer loyalty, namely Repetition, Purchase
across product lines, Retention, and
Recommendation (Jill, 2001).
Perceived Quality
According to Durianto (2011), Perceived
Quality is a consumer's view of the superiority

and quality of goods or services as a whole that is
related to what is expected of these consumers
(Tarumingkeng, 2019). In addition, according to
Kotler and Keller (2016), perceived quality is a
customer's perception or view of product quality
as a whole or the superiority of a product
compared to alternative products or previously
expected goals (Keller, 2016).
Perceived quality is one of the key
dimensions of the added value of a product for
consumers (Wasil, 2018). Products with a good
quality will shape the perception of good quality
in consumers so that this can create repeat
purchases and then be able to increase the
company's sales turnover (Pappu & Quester,
2016b). Consumers usually assess the quality of a
product based on extrinsic factors (presentation,
color, size, aroma, menu variety, freshness, and
taste) and intrinsic factors (price, brand image,
marketing model, and innovations offered by a
product).
According to Garvin, there are seven
indicators that influence the perception of quality
for consumers, namely performance, service,
durability, confidentiality, product features and
characteristics, specification conformity, and
aesthetics and quality impressions. Furthermore,
according to Durianto, Perceived quality can be
divided into three concepts, namely objective
quality, product-based quality, and manufacturing
quality (Wasil, 2018).
Innovation
In general, innovation is an idea or method
used by someone to produce something new
(Widjaja & Winarso, 2019). In addition, according
4
to Rosenfeld, innovation can be interpreted as a
change in knowledge of new products, processes,
and services, as well as actions regarding the use
of something new (Widjaja & Winarso, 2019). To
maintain a business, the company must make
changes by increasing creativity and innovation
(Ahmed et al., 2022). Innovation is needed to
understand consumer needs and desires to achieve
satisfaction, trust, and customer loyalty (Keller,
2016).
According to Kotler and Bes (2004), there
are several main dimensions in developing new
products based on market assumptions, namely (1)
modulation based, (2) Size-based, (3) Packaging-
based, (4) Product design-based, (5) variety-based,
and (5) effort-based. Furthermore, the indicators
for product innovation are Line extensions, Me
too - product, New to the world product (Widjaja
& Winarso, 2019).
Price
According to Philip Kotler (2007), price is
the amount of value or amount of money for an
item or service to benefit from the use or
consumption of an item or service (Sari, 2019). A
company sets the right price to get maximum
profit, optimal sales growth, and excellence in
product quality to maintain the company's
sustainability (Ekawati, 2020).
According to Fandy Tjiptono, price has
two roles as the key dimension in decision-
making: (1) Price as an allocation dimension,
which is the role of price influencing consumers in
considering the suitability between the value
obtained and the purchasing power of the
consumer itself. (2) Price as an information

dimension, which is the role of price as a provider
of information or knowledge to consumers about
several intrinsic factors of the products, such as
quality (Sari, 2019).
Setting the price is usually influenced by
several factors, such as positioning of services,
organizational goals, nature of competition,
service life cycle, demand elasticity,
structure, resources used, current economic
conditions, and service capacity (Payne, 2000).
Furthermore, the strategy used in price adaptation
includes Geographical Prices, Price Discounts and
Allowances, Promotional Pricing, Discriminatory
Pricing, and Product Mix Pricing.
According to Kotler, indicators
consumer perception of price are: (1) Product
affordability, (2) Compatibility of price with
quality, (3) Price competitiveness, and (4) Price
suitability with benefits. Meanwhile,
perceptions according to Herawaty, namely: (1)
Customers pay a fair price, (2) Pricing provisions,
(3) Reasonable price policy, (4) Price changes
according to ethics, and (5) Prices are acceptable
to customers.
The Effect of Perceived Quality on Customer
loyalty
In creating and maintaining customer
loyalty, companies need to know the needs and
desires of consumers (Edison & Restuti, 2014).
The company's ability to meet consumer
expectations for a product can build quality
perceptions in consumers' minds of a brand
(Tarumingkeng, 2019). Good product quality will
create a good quality perception in consumers so
that repeat purchases will occur and be able to
5
increase the company's sales turnover (Pappu &
Quester, 2016a).
Based on research by Peter Jefferson
Tarumingeng, perceived quality has a significant
positive impact on customer loyalty. In addition,
Hery Sustiyono stated that perceived quality and
customer satisfaction simultaneously have a
cost positive and significant impact on brand loyalty
(Sulistiyono & Koeshartono, 2017).
The Effect of Product Innovation on Perceived
Quality
In understanding various needs and desires
of consumers, companies need innovation to meet
consumer expectations. Currently, besides
of
offering taste, the culinary business also provides
innovation in all of its businesses, especially in
product innovation to create a perception of
quality among consumers(Pappu & Quester,
price
2016a).
Based on Chia-Lin Hsu's research (2019),
innovation in the form of product design acts as a
force that drives the acquisition of positive
perceptions from consumers toward brands. Pappu
and Quester (2016) stated that innovation
functions as a signal and conveys quality-related
information, so that consumer perceptions of
innovation positively influence their quality
perceptions.
The Effect of Price on Perceived Quality
Setting the price can affect a company's
competitive ability to create customer perceptions
(Sagala, 2019). Price feasibility perceived by
consumers is a form of comparative price
assessment, which means that in assessing
whether a price is acceptable or not, the customer
 6

must compare it with the reference price obtained effect on Loyalty. Then food quality and service
from the price of a competitor's product. In quality also have a positive and significant
addition, consumers also use price as an indicator mediating effect on the effect of Brand
of the quality of a product (Monroe, 2012). Innovativeness on Loyalty (Kim et al., 2021).
Several studies on price signaling theory Furthermore, Aryoni and Achyar Eildine (2019)
show a positive relationship or impact between stated that product innovation affects customer
discounted or normal prices on the quality of a loyalty.
product (DelVecchio & Puligadda, 2012). Nurvica
The Effect of Price on Customer Loyalty
Sari (2019) states that price labeling affects the
Price is one of the elements that influence
perception of product quality, where consumers
consumers in determining product choices, and
think that high prices describe high product
that price is also related to consumer buying
quality as well. However, Devon DelVecchio
decisions (Edison & Restuti, 2014). Setting proper
(2012) said not all low prices have a negative
prices needs to be the main focus for companies
impact on products, setting low prices in the form
because prices will affect the amount of consumer
of discounts can actually have a positive impact
demand for the products offered (Ekawati, 2020).
on customer perceptions, but must be regulated in
The appropriate price is not always low or
such a way by company management so as not to
high, but according to the perceived value of the
harm the company's image.
consumer. According to Made Caesar Surya
The Effect of Product Innovation on Customer (2020), if the products offered by the company are
Loyalty in accordance with customer expectations will
In this modern era, companies are not only create customer satisfaction and loyalty. Research
dealing with competitors, but also dealing with by Ekawati (2020) proves that price has a major
consumer behavior that is always changing effect on customer loyalty. Then Enos Karowa's
(Sarijani, 2014), so companies cannot survive research (2018) also proves that there is a positive
without efforts to develop their products (Sagala, influence between price and consumer
2019). Innovation is an economic and social repurchasing behavior.
success caused by the new methods or a
combination of pre-existing methods to transform
the value and prices offered to consumers
(Widjaja & Winarso, 2019).
Research by Sarach Diba Hidayat (2011)
shows that creativity and innovation have a
simultaneous effect on customer loyalty. Eojina
Figure 1. Research Framework
Kim (2021) proves that Brand Innovativeness
(brand innovation) has a positive and significant
 7

Based on the phenomena and research City. The types of questions used in this study are
objectives, the hypothesis in this study is as closed and structured questions using the Likert
follows: scale method. The population in this study are
H1:There is an effect of product innovation and consumers at western steak restaurants in
price on quality perceptions simultaneously Bandung City with the following list.
H2: There is an effect of product innovation on Table 3. Western steak restaurant
in Bandung city
perceived quality partially
No Western Steak Restaurant
H3: There is an effect of price on perceived
1 Chiba Cafe
quality partially
H4: There is an effect of product innovation and 2 Bilbao

price on customer loyalty simultaneously 3 Brasserie

H5: There is an effect of product innovation on 4 OZT Café & Steak House
customer loyalty partially 5 Karnivor Restaurants
H6: There is an effect of price on customer
6 Glosis Restaurant
loyalty partially
7 Jumbo Eatery
H7: There is an effect of perceived quality on
8 Suis Butcher Steak House
customer loyalty at western steak restaurants
H8: There is an effect of product innovation and 9 Justus Steak House

price on customer loyalty through perceived 10 Doublesteak

quality 11 Waroeng Steak and Shake

12 Fatcow
METHODS
13 Javan Steak & Pasta
This study was to determine the effect of
14 Marble Hot Stone Griller Steak
product and price innovation on perceived quality
15 Abuba Steak
and customer loyalty at western steak restaurants
in Bandung City. The independent variables in
Furthermore, the determination of the
this study are product innovation and price, while
sample using a purposive sampling technique
the intervening variable is perceived quality, and
using several required criteria as follows:
the dependent variable is customer loyalty. This
1) Respondents are consumers of 15
study uses associative and verification research
predetermined western steak restaurants,
methods using a quantitative approach through
2) Have visited the restaurant/café at least
Structural Equation Modeling (SEM) analysis
more than one time,
with Partial Least Squares (PLS).
3) The minimum age of the respondent is 13
Data in this study were obtained through a
years old,
survey by distributing online questionnaires to
customers of western steak restaurants in Bandung
 8

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