CHAPTER 1 INTRODUCTION

1 CHAPTER 1 INTRODUCTION 1.1 Journal background This study is based on the original journal by Paurav Shukla (2009) titled The impact of contextual factors, brand loyalty and brand switching on purchase decisions. The current research is entitled The impact of contextual factors, brand loyalty and brand switching on purchase decisions of skin care products. Shukla investigated on the relationship between contextual factors and behavioral intentions on purchasing decisions. There are three important issues covered in the first mentioned journal. The first point is explaining about the contextual factors effect on behavioral intentions, which is brand loyalty and brand switching. The second point is elaborating on the effect of choice criteria on behavioral intentions. The final issue covers the consequence of contextual factors and behavioral intentions on purchase decision. Shukla s study uses young adults from the age of eighteen to twenty four (18-24) for his respondents. 1.2 Research Background Cosmetics and toiletries industry, which are also known as Beauty and Personal Care (BPC), has become one of the fastest growing industries in the world. This statement is also supported by a study on the European cosmetics industry, which states that cosmetics industry is expected to keep growing in the next decade, particularly in Asia, which has many developing countries (Global, 2007). A similar trend is also observed in a report published by Nielsen (2007), a company specializing in global data gathering to provide data for marketing and consumer information. Nielsen stated that seventy nine percent (79%) of global populations buy beauty products as can be seen in Figure 1.1. Sales on beauty products are

2 particularly high in Latin America (Latam) region reaching eighty five percent (85%) and are followed by Asia Pacific with eighty two percent (82%). Figure 1.1 Cosmetics regional sales Source: Nielsen, 2007 The growth of BPC is encouraged by the increasing publics awareness of the importance to take care of their skin to protect theirs from harmful environments, such as UV rays. The latter can cause brown spots and melanoma, a serious type of skin cancer, which grows due to too much ultraviolet exposure (Global, 2007). Apart from health reason, being appearance conscious is recognized as a factor in the rising BPC. Good looks as well as being well groomed are believed to support career advancement because looking good makes people look competent thus mark up one s earnings (Hakim, 2011). A similar research conducted by Duke University reveals that there is a connection between looks and career benefits such as higher salary and position. Higher firms CEOs are rated more competent due to their good looks and therefore earn better salary than their smaller firms CEOs counterparts (William, 2012). Hence, it can be said that there is a connection between social benefits and physical attractiveness.

3 1.3 Cosmetics Industry in Indonesia The growth of cosmetic industry in Indonesia is also parallel to other corresponding Asian countries. From 2011 to 2012, there has been a 12.9 percent increase in its sales, making Indonesia a fat market for international cosmetic industries (Yuniar, 2012). One big cosmetic industry, L Oreal, which is the parent brand for among other L Oreal Professional, Yves Saint Laurent and The Body Shop recognized the rising opportunity and decided to relocate their current factory to a bigger plant in West Java s Jababeka Industrial. The move is made so that L Oreal can fulfill Indonesia s high domestic demand in BPC market. Thirty percent (30%) of the factory s output is planned to provide the local market while the remaining seventy percent (70%) will supply other South East Asian countries demands (Obor, 2012). Such demand in Indonesia is caused by the increase of the country s middle class consumers. From 2012 to 2020, it is estimated that the expansion of middle class consumers in Sulawesi alone will reach 109% making it a population of nine million. In Sumatera, the increasing consumer population will reach 100% or thirty four million people. A similar though not so outstanding growth will also be observed in the greater Jakarta area with an estimation of sixty nine percent (69%) or thirty million people (Wiraspati, 2013). With their emerging wealth, these middle class economies will increase regional and national consumer spending because the population will no longer dwell on basic purchases but has extended their consumption on secondary needs; buying comfort and convenience product as well as services, such as BPCs. 1.4 Skin Care Industry in Indonesia Skin care products are not new for Indonesian women. Traditionally, Javanese princesses and gentiles who are noted for their smooth and light complexion have used herbs and spices to keep their youth looks. These herbs are found in their surrounding nature taking the form of leaves, fruits, roots, flowers or barks and are concocted to be either consumed or applied topical (Negoro, n.d). A mixture of turmeric, rice powder and Pandanus leaves applied topically can be used

4 as exfoliating products. Another topical herb often applied is a mixture of yam and licorice used to whiten the skin. Simple mixtures of boiled curcuma and honey or just plain boiled ginger are believed to freshened body odor (Riswan, 2002). Some of these traditional ways are still practiced by Indonesian society though some prefer the modern, less time-consuming method such as buying BPCs. Among the many BPCs picked up by Indonesian consumers, skin care products rank the first. PT Unilever Indonesia which is a subsidiary of Lever Brothers and has been for sometimes one of the top consumer goods company operating in Indonesia claims that it supplies sixty five percent (65%) of Indonesia s local skin care demand. It targets an increase of more than 1.5 times its market between 2013 and 2016. The same analogous is seen in Figure 1.2, which showed consumer goods pick up report done by Barbalova in 2011 for Euromonitor International. Figure 1.2: Customer Cosmetic Pick up Source: Barbalova, 2011 In figure 1.2, it can be seen that skin care occupies the first rank on customers choice on BPCs followed by hair care. Other items of BPCs are not as high as the first two in their spending worth.

5 The high demand in skin care products is originated from the Dutch colonial history of nearly three and a half century that beauty is equal to being white or clean. The young Dutch women with their pale Caucasian complexion looked contrast and stunning compared to the original brown skin of Indonesian ladies. These Dutch ladies occupy the upper class of the society and so do the Javanese princesses with their olive skin complexion; supporting the idea that pale skin is equal to sophistication and womanly. Therefore pale and clean skin is considered to be the standard for beauty, even until now (Kuswandini, 2009). From all the skin care products demanded, whitening series take up the first place followed by anti aging treatment. Ponds, Citra and Olay are three top brand choices for such products. For its whitening series, Ponds is able to control 34.2% of the total market share (Marketeers, 2012) followed by Citra with 7.8% and Olay 6.2%. For anti aging cream, Ponds lead the market by 43.0%, followed by Olay 14.2% and Oriflame with 5.8% sales share. 1.5 The Importance of Using Skin Care The skin is the largest organ in our body and is also as important as other organs such as liver or kidney. One of skin s functions is to protect the internal organs, stabilize body temperature, and remove hazardous toxins in the body. Skin can be easily harmed by many factors such as unhealthy life style and ultraviolet (UV) rays exposure. Although unhealthy lifestyle such as smoking, drinking and improper diet is detected to affect unhealthy skin, ultraviolet rays create worse damage. Ultraviolet (UV) can damage our skin by penetrating the skin s epidermis and mutate the skin s cellular DNA. UV rays are also the primary cause of wrinkles, fine lines, age spot and skin blemishes. People who like to tan their skin and sun bathe are risking their skin to this damage. According to the Stanford Cancer Center, there is a bigger possibility of skin harmed by UV rays to acquire skin cancer. The UV rays injured the collage and elastin; the tissues that support the outer layer of the skin (Diggs, 2011:1). Once the UV rays have broken and stretched the skin cell s DNA, the skin will no longer able to destrecth. Simply said, once the skin is torn, it will need a

6 longer time to nurse back to its original state (Cancer Research UK, 2013). The damage by UV rays will not show effect directly but will show in the later age. Having established that UV rays harm the skin, protecting it from direct sun exposure all year round is the reasonable action to prevent skin cancer. One way to do so is to wear body lotion sunscreen with SPF 15 or higher and is applied everyday for maximum protection. Apart from protecting the skin from sun exposure, using skin care products such as moisturizers or cleanser on regular basis will indirectly improve one s skin quality which leads to better appearance (Diggs, 2011). 1.6 The Importance of the Study The author finds that cosmetics industry globally and in Indonesia are growing very well, especially in skin care products segment as stated above. What it means is that people are starting to realize the important to have healthy skin. Coupled with the cultural beauty beliefs that having white and clean complexion is beautiful, the demands of skin care products are on the rise. With the increase of buying power in Indonesia as previously stated this study tries to find out what makes women buy skin care products; in other words, what factors influence young adult women to purchase skin care products. This research is hoped to provide useful result for beauty product in general for Indonesian market. 1.7 Problem Statement Based on the previous research, this study is aimed at analyzing the influencing factors of purchase intentions on skin care products. Therefore, the author wants to observe: 1. The contextual factors on consumers purchase decisions of skin care products. 2. The influence of contextual factors to behavioral intentions, which comprises of brand loyalty and brand switching in the skin care markets, and to understand consumer purchase decisions.

7 1.8 Scope This thesis examines three variables that are connected to each other. They are: 1) the contextual factors, 2) The behavioral intentions, which are segmented into two parts a) brand loyalty and b) brand switching, and 3) The purchase decisions towards skin care products. The scope of this research will be limited to Indonesia s market only and will explore the factors that are connected with contextual factors and behavioral intentions on purchasing skin care. The author decided to conduct the survey in Jakarta, as it is seen to represent a well balance skin care product trend in Indonesia. The survey will involve 150 female users in the age range of 18-24. The author decided to target young adults market respondent because the previous study stated that young adult markets consumption and purchasing decisions are increasing each year. These young adults are labeled to be easily adapting to new things and they are faster in following new trends. With the changing lifestyle and growing buying power in following new trends, young adults market has the power to increase or change consumption in market (Shuklav, P., 2009). The questionnaire is concentrated in universities as most college students are in their 18-24 years of age. The questionnaire will be conducted in two ways. The first method is using paper based, which is a face-to-face questionnaire, and the respondents are asked to answer the questions printed on paper. The second way is to ask respondents to fill in the questionnaire via online. The reasons why both methods are taken are to guarantee that the survey can achieve one hundred fifty (150) respondents effectively and efficiently. One hundred (100) questionnaires will be done by paper based and the other 50 questionnaires will be done online with the help of social media web such as Facebook and Twitter as the intermediate.

8 1.9 Research Questions This study is trying to fulfill the study objectives by answering the following questions in similar way due to previous original journal. RQ1. Does contextual factors have a significant impact on the degree of brand loyalty? RQ2. Does contextual factors have a significant impact on the degree of brand switching? RQ3. Does contextual factors have significant impact on purchase decisions? RQ4. Does brand loyalty criteria have significant impact on purchase decisions? RQ5. Does brand switching criteria have significant impact on purchase decisions? 1.10 Aims and Benefits The aims of this research are: 1. This research aims to explore the purchase intentions of skin care products that are influenced by behavioral intentions that focus on loyalty and switching decision and contextual factors. 2. This research aims to be research information for cosmetics industry that focuses on the trigger factors of purchase intentions. 3. This research is conducted because of the author s interest in beauty products especially skin care. It aims to give deeper understanding about skin care purchase intentions and a satisfaction to the author. The benefits of this research: 1. For cosmetics industry in Indonesia: this research provides information about factors that trigger the purchase intentions of skin care products that are influenced by contextual factors, brand loyalty and brand switching.

9 2. For marketers in cosmetic industry: this research can be a guidance to make better marketing strategy to attract more consumers and retain loyal consumer. 3. For general reader: this research can give insights for readers about cosmetics industry growth and factors that make consumer purchase skin care products. 4. For consumers: this research can be useful information to broaden their knowledge on cosmetics and skincare industry. 1.11 Structure This research is divided into 5 parts: Chapter 1: Introduction This chapter explains about the background about this research. It consists of journal background, topic background, research background, scope of study, and aims of benefits of doing this research. Chapter 2: Theoretical Foundation This chapter defines relevant theories that supported this research and also support the solutions of the problems. Chapter 3: Research Methodology This chapter describes the original research overview, research objectives that consist of research questions, hypotheses, scope of research, research design, data collection method, sampling plan, and data analysis method that were used in this research. Chapter 4: Results and Analysis This chapter discussed about the survey results and analyzed further with analysis method based on chapter 3.

10 Chapter 5: Conclusion and Recommendation. This chapter explains about the conclusion of the research and the important things that the author finds in the research. Also it includes further research recommendation.