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CHAPTER II

THEORETICAL FRAMEWORK

2.1. Internet and E-Commerce

Today, internet is not something new and exclusive. Most people are familiar

with the words of the internet, either just listen or know, even as the user. According

to Laudon & Traver, the definition of Internet is an interconnected network of

thousands of networks and millions of computers (sometimes called host computers

or just hosts) that linking businesses, educational institutions, government agencies,

and individuals (Laudon & Traver, 2014, p. 98). In simple words, the definition of

Internet is a worldwide network of computer networks built on common standards.

Today’s Internet has evolved the last 50 or so years. The history of the Internet can be

segmented into three phases as can we see in Figure 2.1.

Innovation Institutionalization Commercialization

1961 - 1974 1975 - 1995 1995 - Now

Figure 2.1 Stages in The Development of The Internet.

Source: (Laudon & Traver, 2014, p. 100)

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We also can say that Internet as big infrastructure that connect mainframe

computer and their users. People in the world can connect each other by using the

Internet. As the author mentioned before, the development and growth of the Internet

and its underlying technology has already influence of human life with services such

as e-mail, apps, newsgroup, shopping, research, instant messaging, music, videos, and

news. Those services are making the Internet identical with term of online because

people can access those services throughout 24 hours. No matter if the rest of world

asleep or even the sales office closed. Similar in tourism industry, all of traveling

activities become easier than before.

E-commerce is the use of the Internet, the Web, and apps to transact business.

More formally, digitally enabled commercial transactions between and among

organizations and individuals (Laudon & Traver, 2014, p. 50). In its development, as

we can see in Figure 2.1, the Internet entered the commercialization stages since 1995

until now. There are eight unique features of e-commerce technology that both

challenge traditional business thinking and explain why we have so much interest in

e-commerce. They are ubiquity, global reach, universal standards, richness,

interactivity, information density, personalization/customization, and social

technology (Laudon & Traver, 2014, p. 50).

A brief explanation about each of the dimensions of e-commerce technology

as following:

1. Ubiquity

Ubiquity is a synonym for omnipresence. In other words, ubiquity can be

interpreted as everywhere. In traditional/conventional travel agent business, we

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need a physical office we visit in order to transact. A physical sales office has

limitation in coverage area, hours of operation, and human resources. E-

commerce by its ubiquity, a travel agent is available just about everywhere, at all

times.

2. Global Reach

E-commerce technology allows commercial transactions to cross cultural,

regional, and national boundaries far more conveniently and cost-effectively than

in traditional commerce. Thus, an online travel agent got the opportunities to

reach out travelers who will travel to Indonesia from international market.

3. Universal Standards

Standards, means the technical standards of the Internet for conducting e-

commerce that shared by all nations around the world. With e-commerce

technologies, it is possible to easily find many of the suppliers, prices or other

information, such as, hotel/hostel availability with promo price.

4. Richness

It refers to richness of information to the complexity and content of a message.

The Internet has the potential for offering considerably more information

richness than traditional media such as printing presses, radio, and television

because it is interactive and can adjust the message to individual users. Travel

agent can put all of its products through online on its website.

5. Interactivity

It means technology allows for two-ways communication between merchant and

consumer and among consumers. This e-commerce feature allowed online travel
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agent to interact with its customer about the product, price, discount/promo, or

term and condition. Also, the technology allow consumer to share the

information of online travel agent to other consumers, such as sharing by social

media.

6. Information Density

Information density is the total amount and quality of information available to all

market participants, consumers, and merchant alike. E-commerce technologies

reduce information collection, storage, processing, and also communication cost.

At the same time, these technologies greatly increase the currency, accuracy, and

usefulness of information.

7. Personalization/Customization

E-commerce technologies permit personalization. Merchants can target their

marketing messages to specific individuals by adjusting the message to a

person’s name, interest, and past purchases. The e-commerce technologies also

permit customization. It means to change the delivered products or services

based on a user’s preferences or prior behavior.

8. Social Technology

In a way quite different from all previous technologies, e-commerce technologies

have evolved to be much more social by allowing users to create and share

content with a worldwide community.

Those unique dimensions of e-commerce technologies suggest many

possibilities for marketing and selling – a powerful set of interactive, personalized,

and rich messages are available for delivery to segmented, targeted audiences. E-
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commerce technologies also make it possible for merchants to know much more

about consumers and to be able to use this information more effectively than was ever

true in the past.

As early as 1999, fledgling internet travel companies such as Priceline,

Expedia, and Travelocity were already transforming the travel industry. They

connected consumer to flight tickets from hundred airlines, hotel rooms from about

8,000 hotels worldwide, rental cars, as well as cruises and vacation package.

Tiket.com (Figure 1.4) is one of online travel agent in Indonesia that provides

complete products and services for consumer by e-commerce.

There are several different types of e-commerce. They are Business-to-

Consumer (B2C) E-commerce, Business-to-Business (B2B) E-commerce, Consumer-

to-Consumer (C2C) E-commerce, Social E-commerce, Mobile E-commerce (M-

commerce), and Local E-commerce (Laudon & Traver, 2014, p. 59). Online travel

agent position mostly in B2C (business-to-consumer) but as the development of

mobile devices, online travel agent also leads to mobile e-commerce, such as ticket

booking and online banking from mobile devices applications.

Hannes Werthner and Francesco Ricci on their journal about “E-commerce

and Tourism” mentioned online transaction in the travel and tourism industry are

continuously increasing despite tough economic problems (Werthner & Ricci, 2004).

Tourism and Travel industry is the leading application in the B2C (business-to-

consumer) arena. Whereas other industries are displaying a stronger hold to

traditional processes, the tourism industry is witnessing an acceptance of e-commerce

to the extent that the entire industry structure is changing.

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2.2. Consumer Behavior

According to Solomon, the field of consumer behavior covers a lot of ground:

it is the study of the processes involved when individuals or group selected, purchase,

use or dispose of products, services, ideas, or experiences to satisfy needs and desires.

The needs and desires we satisfy range from hunger and thirst to love, status and even

spiritual fulfillment (Solomon, 2012, p. 31). Another definition explained that

consumer behavior reflects the totally of consumer’s decisions with respect to the

acquisition, consumption, and disposition of goods, services, activities, experiences,

people and ideas by (human) decision-making units (over time) (Hoyer & Maclnnis,

2010).

Consumer behavior is a process. Process refers to the exchange, an integral

part of marketing. The exchange is a transaction in which two or more organizations

or people give and receive something of value. Although exchange theory remains an

important part of consumer behavior, the expanded view emphasizes the entire

consumption process, which includes the issues that influence the consumer before,

during and after a purchase.

The following are the stage of consumption process which is consists of each

consumer’s perspective and marketer’s perspective as we can see in Figure 2.2

(Solomon, 2012, p. 32).

1. Pre-Purchase Stage

In consumer’s perspective, the pre-purchase stage is about how does consumer

decide that they need a product. In the pre-purchase stage, a need will triggers
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consumers to start the best sources of information and learn more about

alternative choices. Meanwhile, marketer’s perspective talks about how are

consumer attitudes toward products formed and/or changed. And whether

consumers’ cues use to infer which products are superior to others.

2. Purchase Stage

In customer’s perspective, the purchase stage is talking about whether acquiring

a product a stressful or pleasant experience and what does the purchase say about

the consumer. In marketer’s perspective, the purchase is about how the

situational factors, such as time pressure or store displays, affect the consumer’s

purchase decision.

3. Post-Purchase Stage

In consumer’s perspective, the post-purchase stage is about how the products

provide pleasure or perform its intended function. How is the product eventually

disposed of, and what are the environmental consequences of this act. While in

marketer’s perspective is talking about what determines whether a consumer will

be satisfied with a product and whether he/she will buy it again. Does this person

tell others about his/her experience with the product and influence their purchase

decisions?
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Figure 2.2 Stages in the Consumption Process.

Source: (Solomon, 2012, p. 32)

2.2.1. Consumer Buying Process

Based on (Kotler & Keller, 2011, p. 188), consumer typically passes through

five stages of buying decision process which well known as the Five-Stage Model.

They consist as follow:

1. Problem Recognition

The buying process starts when the buyer recognizes a problem or need triggered

by internal or external stimuli.

2. Information Search

Information seeking activities to learn about a product or services by looking for

reading material, phoning friends, going online, and visiting stores. Major
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information sources can be divided into four consumer groups. They are

personal, commercial, public, and experiential.

3. Evaluation of Alternatives

Consumer is not immediately making a purchase decision but influences what

he/she does beliefs and attitudes. A belief is a descriptive thought that a person

holds about something and attitudes is a person’s enduring favorable or

unfavorable evaluations, emotional feelings, and action tendencies toward some

object or idea.

4. Purchase Decision

In purchase decision, consumer makes three types of purchases, they are: trial

purchase, repeat purchase, and long-term purchase.

5. Post-purchase Behavior

After the purchase stage decision, the consumer might experience dissonance

from noticing certain disquieting features of hearing favorable things about other

brands and will be alert to information that supports his or her decision. In post-

purchase, there are three behaviors that marketers have to concern. First, Post-

purchase Satisfaction, satisfaction is a function of the closeness between

expectations and the product’s perceived performance. Second, Post-purchase

Action, a satisfied consumer is more likely to purchase the product again and will

also tend to say good things about the brand to others. Third, Post-purchase Uses

and Disposal, a key driver of sales is product consumption rate ( (Solomon, 2012,

p. 194). The more quickly buyers consume a product, the sooner they may be

back in market to repurchase it.

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Within tourism industry, attitude formation separated into different stage

between information search stage and evaluation of alternatives stage. These six

different stages will lead the tourist to form an attitude about certain destinations

(Robinson, 2012, p. 34). According to above Solomon’s stage of consumption

process, the problem recognition stage, the information stage, and the evaluation of

alternatives stage are pre-purchase behavior.

2.2.2. Online Consumer Behavior

The stages of the consumer buying process are basically the same whether the

consumer is offline or online. The difference is the way of marketing communication

only to supporting the process (Laudon & Traver, 2014, p. 374).

Awareness –
MARKET Evaluation of Post-purchase –
Need Search Purchase
COMMUNICATION Alternatives Loyalty
Recognition
Mass media Catalog Reference groups Promotions Warranties
TV Print ads Opinion leaders Direct mail Service calls
Radio Mass media Mass media Mass media Parts and repair
Offline
Print Media Sales people Product raters Print media Consumer
Communication
Social Networks Product raters Store visits groups
Store visits Social Networks Social networks
Social Networks

Targeted banner Search engines Search engines Online Communities of

ads Online catalogs Online catalogs promotions consumption
Online
Interstitials Site visits Site visits Lotteries Newsletters
Communication
Targeted event Targeted email Product review Discounts Customer email
promotions Social network Users evaluations Targeted email Online updates
Social Networks Social network Flash sales Social networks

Figure 2.3 Consumer Decision Process and Supporting Communications.

Source: (Laudon & Traver, 2014, p. 374)

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Figure 2.3 above shows the consumer buying process and the types of offline

and online marketing communication that support the process and seek to influence

the consumer before, during, and after purchase decision.

In the online model, consumer behavior focus on user characteristics, product

characteristics, and web sites features, along with traditional factors such as brand

strength and specific market communications (advertising) and the influence of both

online and offline social networks as we can see in Figure 2.4 (Laudon & Traver,

2014, p. 375).

Figure 2.4 A Model of Online Consumer Behavior.

Source: (Laudon & Traver, 2014, p. 375)

In Figure 2.4 above, we can see that Web site features, along with consumer

skills, product characteristics, attitudes towards online purchasing, and perceptions

about control over the Web environment come to the fore. Web site features include
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response time in download, navigability, and confidence in a Web site’s security.

Consumer skill refers to the knowledge that consumers have about how to conduct

online transactions. For example, not all people who has credit card can settle plane

ticket payment online. Product characteristic refers to the fact that some products can

be easily described, packaged, and shipped over the Internet. Combined with the

traditional factors, such as brand, advertising, and firm capabilities, these factors lead

to specific attitudes about purchasing at a Web site and a sense that the consumer can

control his/her environment on the Web site. Clickstream behavior refers to the

transaction log that consumers establish as they move about the Web, from search

engine to a variety sites, then to single site, then to a single page, and then, finally, to

a decision purchase.

2.3. Consumer Perception

An individual perception is very influence how people acting and behaving

towards products/services. Perception makes people has their own description about

products/services which is different with others. According to Solomon, the definition

of perception is the process by which people select, organize, and interpret sensations.

These sensations refers to the immediate response of our sensory receptors (eyes,

ears, nose, mouth, fingers, skin) to basic stimuli such as light, color, sound, odor and

texture (Solomon, 2012, p. 70).

Another theory, define Perception as how consumer views and interprets to all

information input in daily life. Every information input will be processed by the
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consumer selectively to choose the most important and relevant input then organize

and interpret the information input that gives an object that has subjective truth

(personal) and has particular meaning can be perceived. The information input can be

words, music or songs or advertisement (Hasan, 2013, p. 174).

According to Hoyer & Maclnnis, perception occurs when stimuli are registered

by one of our five senses: vision, hearing, taste, smell and touch (Hoyer & Maclnnis,

2010, p. 80). For example, when demonstration happened in Bangkok last January

2014, there were so many tourists from Indonesia that changed their route to

Singapore or Malaysia to avoid bad things happen. However, there were many

travelers still went to Thailand despite the inconducive situation.

The customers in this research are internet users specific to people who has

accessed online travel agent where products/services sell through a website. Based on

prior research (Rudiyanto, 2011), the perceived value of e-service on tourism

business is the utility of e-service. It means the quality of a travel website is a

stimulus of customer perceived value, because of there is no real product/service and

it’s difficult for customer to distinguish the quality of products, quality services, and

quality of websites.

In the process, online customer will give time, cognitive, and experience to

interact with the website. In his research, the quality of product, quality services, and

quality of websites are interrelated each other.

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2.4. Brand

A brand is a product or service whose dimensions differentiate it in some way

from other products or services designed to satisfy the same need. The differences

may be functional, rational, or tangible and intangible – related to product

performance of the brand (Kotler & Keller, 2011, p. 263). The basic branding

concepts from ( (Keegan & Green, 2013, p. 313), said that a brand is a complex

bundle of images and experiences in the customer’s mind. From this definition,

brands perform two functions. First, a brand represents a promise about a particular

product. Second, brands enable customers to better organize their shopping

experience.

2.5. Website

One of consumer buying process steps in Five-Stage model is information

search which is a step where consumer is looking for information about what they

want to be satisfied by reading material, phoning friend, visiting store, and going

online (Kotler & Keller, 2011, p. 188). Website is one of tools for information

seeking activities.

Website is documents that created in a programming language called HTML

that contain text, graphics, audio, video, and others (Laudon & Traver, 2014, p. 99).

As the development of traveling activities in Indonesia, the use of Internet among

frequent travelers and potential travelers is increasing. Frequent travelers have a

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higher tendency to use the Internet for planning activities, searching for maps and

directions and looking for places to stay. Potential travelers use the Internet to find

out information about any countries, cities, theme parks or beaches in a click. They

do not have to engage in any interactions with a sales person or be limited by the

different time zone. Thus, usable website becomes important part of an online travel

agent.

2.5.1 Website Usability

The synonyms of usability are ergonomics, ease of use, user-friendliness,

accessibility, convenience, or serviceability. So, usable website is website which is

easy to use, have simple navigation features, provide useful information and enable

users to seek further clarification from the website provider for issues they have.

According to prior journal research (Dahlan & Shuib, 2011, p. 143) a website

usability evaluation is classified into four focused. The first focused on website

functionalities (e.g. design, hypertext link, response time, and search engines) and

content. The second focused is how the authors (online travel agent itself) consider

the information quality, systems quality, services quality, and attractiveness are

essential to the website. This is supported by prior research that mentioned the quality

of product, quality services, and quality of websites are interrelated each other

(Rudiyanto, 2011). The third focused highlighted service quality as a fundamental

aspect of the overall quality of website. And the last focus on perceptual opinions
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from customers on their experience. A high usability website should enable users to

move around the website and move from one page to another.

2.5.1 Online Travel Website

Figure 2.5 below illustrate four different kinds of e-commerce presence map.

There are websites, e-mail, social media, and offline media. For each of these types

there are different platforms that you will need to address.

Figure 2.5 E-Commerce Presence Map.

Source: (Laudon & Traver, 2014, p. 178)

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The conventional travel agent can applied all these types of e-commerce

presence step by step. But, in this section will be focused on website only. The first

basic thing in order to build online travel website are:

1. Domain Name

Domain name is IP address expressed in natural language. This can be the travel

company identity or a brand name that related to the online travel agent, e.g.

www.yourtravelname.com. In Indonesia, there are many providers who sell

domain and hosting with affordable price, e.g. www.idwebhost.com, or

www.rumahweb.com

2. Hosting Services

Hosting is a storage where our data online located. Two types of hosting are free

and paid. Generally, free hosting was provided by free blog service provider,

such as www.blogger.com, www.wordpress.com, and others. But, Author advice

to take self-hosting because free hosting has term and limitation.

3. Content Management System (CMS)

A content management system (CMS) is a database software program specially

designed to manage structured and unstructured data and objects in a website

environment (Laudon & Traver, 2014, p. 186). WordPress is a blogging tool with

a sophisticated content management system.

4. Search Engine Optimization (SEO)

Search engine optimization (SEO) is techniques to improve the ranking of web

pages generated by search engine algorithm.

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2.6. Pricing

Price is an important factors that affecting customer satisfaction. Pricing

directly affects the profits of a firm. Consumer will compare the price and the product

to assess whether it is worth with the value. When products and services are priced

too high, many customers will refuse to purchase them. Not only will the firm cede

market share to its competitors, but it will relegate itself as irrelevant to many

potential customers (Smith, 2012, p. 3). But, when products and services are priced

too low, the firm will lose an important opportunity to earn profits. In traditional firm,

the price of traditional goods is usually based on fixed and variable cost.