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 the culinary sector was able to contribute as the

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

The same thing happened in Bandung, 2. Restoran dan Cafe Rp206.523.571.376

where during the pandemic in Indonesia in 2021, 3. Hiburan Rp10.755.528.059
 2

Based on a survey conducted by Michael E.

Total Rp379.997.973.883
Gerber stated that out of 100 culinary businesses
that were established, only 4% were able to
Tabel 2. Growth of Restaurants & Cafes in
survive within ten years, while 25% of businesses
Bandung City
Year Total Restaurant failed in the first year, and the rest failed the
following year (Utami, 2020). So with the high
2018 782
competition in the restaurant business, companies
2019 899
must establish consumer loyalty to measure a
2020 1.339 company's performance from a consumer
2021 1.234 perspective. Customer loyalty is essential for
determining a company's success (Kim et al.,
Based on the data above, the number of 2021). So that in this intense competition,
restaurants in Bandung has increased companies must be able to offer novelty or
competition between one culinary business and innovation to their products, as well as set the
another. This competition is also felt by foreign right price to influence consumers
restaurants in the city of Bandung, especially psychologically to address consumer quality
restaurants that serve Western food, such as perceptions which are increasingly critical at this
steak. Food products with foreign flavors must time. Good product quality will shape the
compete with well-known local food products perception of good quality in consumers so that
that tend to suit the tastes of the people in this can create repeat purchases and then, over
Bandung. In addition, there are social changes in time, be able to increase the company's sales
today's society, causing changes in new styles of turnover (Pappu & Quester, 2016b). According to
consuming food, where consumers become more Edison and Restuti (2014), product innovation
selective in choosing a product. Likewise, steak and pricing can influence intrinsically perceived
is a food with a high level of selectivity, both in quality.
terms of product quality, price, product safety Product innovation aims to make
level, and the service provided by the restaurant. improvements and developments so that the
So this requires steak restaurant business people products produced can add usability and
to maximize their performance by highlighting attractiveness and increase consumer satisfaction
excellence in product characteristics and (Gunday et al., 2011). Product innovation can be
company value to customers so that the business in the form of product dish display design,
has characteristics or differences from other creating a restaurant atmosphere that provides
businesses. This is done in order to attract the comfort for visitors, making room arrangements
attention of new customers and retain existing or attractive interior designs, and creating a
customers in order to be able to create repeat friendly impression through services performed
purchases and build customer loyalty. by restaurant employees. This is done solely to
 3

obtain a positive impression of the company's essential factors that can influence consumer
value creation compared to competitors. loyalty.
Then pricing can affect a company's
competitive ability to obtain customer LITERATURE REVIEW
perceptions (Sagala, 2019). According to Customer loyalty
Sweeney (1998), in purchasing activities, Customer loyalty is a customer's
consumers do not only think about the quality of commitment to repurchase the goods/services of
the product but also think about the worthiness of the same brand they like (Taufik et al., 2022).
the product's price (Edison & Restuti, 2014). According to Durianto (2011), customer loyalty is
Price feasibility perceived by consumers is a consumer loyalty in buying one brand product,
form of comparative price assessment (Monroe, even though many alternative products may have
2012). In addition, consumers also use price as an advantages over these products. Customer loyalty
indicator of the quality of a product (Monroe, is an important asset for determining the success of
2012). In several studies on price signaling a company (Kim et al., 2021). With customer
theory, it shows that when consumers are faced loyalty, the company can minimize the negative
with products that have low prices, these effects of similar competitor product attacks, both
consumers will assume that low prices indicate a in terms of product quality competition and
product has low quality as well (Lee, Moonkyu competition in gaining consumer perception
& Lou, 2011), and vice versa where high prices (Tarumingkeng, 2019).
are assumed to be high product quality (Sari, Six stages or levels in customer loyalty
2019). according to Griffin (2005), namely: (1) Suspects;
Therefore, given the importance of product (2) Prospects; (3) Customers; (4) Clients; (5)
innovation and pricing in shaping perceptions of Advocates; (6) Partners. Two main perspectives in
quality and its impact on customer loyalty to a defining and measuring customer loyalty, namely
product, this is the motivation for conducting this Behavioral Perspective and Attitude Perspective
research. This research aims to determine and (Tjiptono, 2004). According to Griffin in Jill
analyze the effect of product and price innovation (2001) there are four indicators in measuring
on perceived quality and consumer loyalty at consumer loyalty, namely Repetition, Purchase
Western steak restaurants in Bandung City based across product lines, Retention, and
on the consumer's point of view. The implications Recommendation (Jill, 2001).
of the results of this study are expected to be a
Perceived Quality
reference or motivation for culinary business
According to Durianto (2011), Perceived
people, especially western steak restaurants in the
Quality is a consumer's view of the superiority and
city of Bandung, in innovating products in the
quality of goods or services as a whole that is
businesses they run and being able to understand
related to what is expected of these consumers
 4

(Tarumingkeng, 2019). In addition, according to something new (Widjaja & Winarso, 2019). To
Kotler and Keller (2016), perceived quality is a maintain a business, the company must make
customer's perception or view of product quality as changes by increasing creativity and innovation
a whole or the superiority of a product compared to (Ahmed et al., 2022). Innovation is needed to
alternative products or previously expected goals understand consumer needs and desires to achieve
(Keller, 2016). satisfaction, trust, and customer loyalty (Keller,
Perceived quality is one of the key 2016).
dimensions of the added value of a product for According to Kotler and Bes (2004), there
consumers (Wasil, 2018). Products with a good are several main dimensions in developing new
quality will shape the perception of good quality in products based on market assumptions, namely (1)
consumers so that this can create repeat purchases modulation based, (2) Size-based, (3) Packaging-
and then be able to increase the company's sales based, (4) Product design-based, (5) variety-based,
turnover (Pappu & Quester, 2016b). Consumers and (5) effort-based. Furthermore, the indicators
usually assess the quality of a product based on for product innovation are Line extensions, Me too
extrinsic factors (presentation, color, size, aroma, - product, New to the world product (Widjaja &
menu variety, freshness, and taste) and intrinsic Winarso, 2019).
factors (price, brand image, marketing model, and
Price
innovations offered by a product).
According to Philip Kotler (2007), price is
According to Garvin, there are seven
the amount of value or amount of money for an
indicators that influence the perception of quality
item or service to benefit from the use or
for consumers, namely performance, service,
consumption of an item or service (Sari, 2019). A
durability, confidentiality, product features and
company sets the right price to get maximum profit,
characteristics, specification conformity, and
optimal sales growth, and excellence in product
aesthetics and quality impressions. Furthermore,
quality to maintain the company's sustainability
according to Durianto, Perceived quality can be
(Ekawati, 2020).
divided into three concepts, namely objective
According to Fandy Tjiptono, price has two
quality, product-based quality, and manufacturing
roles as the key dimension in decision-making: (1)
quality (Wasil, 2018).
Price as an allocation dimension, which is the role
Innovation of price influencing consumers in considering the
In general, innovation is an idea or method suitability between the value obtained and the
used by someone to produce something new purchasing power of the consumer itself. (2) Price
(Widjaja & Winarso, 2019). In addition, according as an information dimension, which is the role of
to Rosenfeld, innovation can be interpreted as a price as a provider of information or knowledge to
change in knowledge of new products, processes, consumers about several intrinsic factors of the
and services, as well as actions regarding the use of products, such as quality (Sari, 2019).
 5

Setting the price is usually influenced by positive impact on customer loyalty. In addition,
several factors, such as positioning of services, Hery Sustiyono stated that perceived quality and
organizational goals, nature of competition, service customer satisfaction simultaneously have a
life cycle, demand elasticity, cost structure, positive and significant impact on brand loyalty
resources used, current economic conditions, and (Sulistiyono & Koeshartono, 2017).
service capacity (Payne, 2000). Furthermore, the
The Effect of Product Innovation on Perceived
strategy used in price adaptation includes
Quality
Geographical Prices, Price Discounts and
In understanding various needs and desires
Allowances, Promotional Pricing, Discriminatory
of consumers, companies need innovation to meet
Pricing, and Product Mix Pricing.
consumer expectations. Currently, besides offering
According to Kotler, indicators of
taste, the culinary business also provides
consumer perception of price are: (1) Product
innovation in all of its businesses, especially in
affordability, (2) Compatibility of price with
product innovation to create a perception of quality
quality, (3) Price competitiveness, and (4) Price
among consumers(Pappu & Quester, 2016a).
suitability with benefits. Meanwhile, price
Based on Chia-Lin Hsu's research (2019),
perceptions according to Herawaty, namely: (1)
innovation in the form of product design acts as a
Customers pay a fair price, (2) Pricing provisions,
force that drives the acquisition of positive
(3) Reasonable price policy, (4) Price changes
perceptions from consumers toward brands. Pappu
according to ethics, and (5) Prices are acceptable to
and Quester (2016) stated that innovation functions
customers.
as a signal and conveys quality-related information,
The Effect of Perceived Quality on Customer so that consumer perceptions of innovation
loyalty positively influence their quality perceptions.
In creating and maintaining customer
The Effect of Price on Perceived Quality
loyalty, companies need to know the needs and
Setting the price can affect a company's
desires of consumers (Edison & Restuti, 2014). The
competitive ability to create customer perceptions
company's ability to meet consumer expectations
(Sagala, 2019). Price feasibility perceived by
for a product can build quality perceptions in
consumers is a form of comparative price
consumers' minds of a brand (Tarumingkeng,
assessment, which means that in assessing whether
2019). Good product quality will create a good
a price is acceptable or not, the customer must
quality perception in consumers so that repeat
compare it with the reference price obtained from
purchases will occur and be able to increase the
the price of a competitor's product. In addition,
company's sales turnover (Pappu & Quester,
consumers also use price as an indicator of the
2016a).
quality of a product (Monroe, 2012).
Based on research by Peter Jefferson
Several studies on price signaling theory
Tarumingeng, perceived quality has a significant
show a positive relationship or impact between
 6

discounted or normal prices on the quality of a stated that product innovation affects customer
product (DelVecchio & Puligadda, 2012). Nurvica loyalty.
Sari (2019) states that price labeling affects the
The Effect of Price on Customer Loyalty
perception of product quality, where consumers
Price is one of the elements that influence
think that high prices describe high product quality
consumers in determining product choices, and that
as well. However, Devon DelVecchio (2012) said
price is also related to consumer buying decisions
not all low prices have a negative impact on
(Edison & Restuti, 2014). Setting proper prices
products, setting low prices in the form of discounts
needs to be the main focus for companies because
can actually have a positive impact on customer
prices will affect the amount of consumer demand
perceptions, but must be regulated in such a way by
for the products offered (Ekawati, 2020).
company management so as not to harm the
The appropriate price is not always low or
company's image.
high, but according to the perceived value of the
The Effect of Product Innovation on Customer consumer. According to Made Caesar Surya
Loyalty (2020), if the products offered by the company are
In this modern era, companies are not only in accordance with customer expectations will
dealing with competitors, but also dealing with create customer satisfaction and loyalty. Research
consumer behavior that is always changing by Ekawati (2020) proves that price has a major
(Sarijani, 2014), so companies cannot survive effect on customer loyalty. Then Enos Karowa's
without efforts to develop their products (Sagala, research (2018) also proves that there is a positive
2019). Innovation is an economic and social influence between price and consumer
success caused by the new methods or a repurchasing behavior.
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
Kim (2021) proves that Brand Innovativeness
Figure 1. Research Framework
(brand innovation) has a positive and significant
effect on Loyalty. Then food quality and service Based on the phenomena and research
quality also have a positive and significant objectives, the hypothesis in this study is as
mediating effect on the effect of Brand follows:
Innovativeness on Loyalty (Kim et al., 2021). H1:There is an effect of product innovation and
Furthermore, Aryoni and Achyar Eildine (2019) price on quality perceptions simultaneously
 7

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 quality
partially 1 Chiba Cafe

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 loyalty
6 Glosis Restaurant
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 this
Furthermore, the determination of the
study are product innovation and price, while the
sample using a purposive sampling technique using
intervening variable is perceived quality, and the
several required criteria as follows:
dependent variable is customer loyalty. This study
1) Respondents are consumers of 15
uses associative and verification research methods
predetermined western steak restaurants,
using a quantitative approach through Structural
2) Have visited the restaurant/café at least
Equation Modeling (SEM) analysis with Partial
more than one time,
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
4) Respondents can come from the Bandung
customers of western steak restaurants in Bandung
area or tourists from outside the Bandung
City. The types of questions used in this study are
area.
closed and structured questions using the Likert
Meanwhile, determining the number of
scale method. The population in this study are
samples using the Isaac and Michael formula
consumers at western steak restaurants in Bandung
(Sugiono, 2013). This formula can assist the
City with the following list.
 8

writer in determining the number of samples for loyalty and their perceptions of service
a population whose number is not known with quality, price and satisfaction in restaurant
certainty. The formula is as follow: service. TQM Journal.
𝜆2 . 𝑁. 𝑃. 𝑄 https://doi.org/10.1108/TQM-06-2021-0158
𝑠=
𝑑 2 (𝑁 − 1) + 𝜆2 . 𝑃. 𝑄 DelVecchio, D., & Puligadda, S. (2012). The
Keterangan: effects of lower prices on perceptions of
s = Sample brand quality: A choice task perspective.
N = Population Journal of Product and Brand Management,
P = Standard Deviation (True) (0,5) 21(6), 465–474.
Q = Standard Deviation (False) (0,5) https://doi.org/10.1108/10610421211264946
d = Margin of Error (0,05) Edison, & Restuti, S. (2014). Pengaruh Persepsi
λ2 = Desired Significance Level. Kualitas dan Persepsi Harga Terhadap
Perceived Value, Citra Perusahaan dan Minat
Table 4. Determination of the Number of
Samples Based on the Isaac and Michael Konsumen Membelu Beras Komersial Bulog
Formulas
di Kota Pekanbaru. Jurnal Tepak Manajemen
N s
Bisnis, VI(2), 20–30.
1% 5% 10% Ekawati. (2020). Pengaruh Inovasi Produk, Harga,
10 10 10 10 Citra Merek Dan Kualitas Pelayanan

50 47 44 42 Terhadap Loyalitas Pelanggan Sepeda Motor

Vespa. E-Jurnal Manajemen Universitas
100 87 78 73
Udayana, 6(3), 255365.
1000 399 258 213
Gunday, G., Ulusoy, G., Kilic, K., & Alpkan, L.
950.000 663 348 271 (2011). Effects of innovation types on firm
∞ 664 349 272 performance. International Journal of
Production Economics, 133(2), 662–676.
In this study, the population is assumed to be https://doi.org/10.1016/j.ijpe.2011.05.014
infinite (∞) with the error tolerance limit used is Jill, G. (2001). Customer Winback: How to
10% (0.1). Based on the table above, the Recapture Lost Customers And Keep Them
minimum sample size in this study was 272 Loyal. Jossey Bass.
respondents from customers spread across 15 Keller, K. (2016). Marketing Management. In S.
western steak restaurants in Bandung city. Wall (Ed.), ISBN 10: 1-292-09262-9 (15th
ed., Vol. 15e). Pearson Education Limited.
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