8  

CHAPTER 2

THEORETICAL FOUNDATION

2.1Theoretical Foundation

In this chapter, the theoretical foundation related to the research will be explained. In

addition, concepts, theories and literatures relating to user satisfaction and online

trading system will be discussed.

2.1.1 Online trading

Online Trading can be defined as “The act of placing buy/sell orders for financial

securities and/or currencies with the use of a brokerage's internet-based proprietary

trading platforms. The use of online trading increased dramatically in the mid- to late-

'90s with the introduction of affordable high-speed computers and internet

connections.”[26]

In fact, people have invested billions of money in online trading. Moreover, the speed of

information spread across the internet is unbelievable and it provides accessibility to the

investors. Therefore, the trend of investing money in the form of stock is increasing.

Also, by investing money in stocks, there are several advantages which really affect the

investors. For example, investors can gather information from internet without any help

from broker so investors will take charge of their own money and make decision base on

their information. Companies can gain more profit from the information they have

spread. Why? Because nowadays common people can seek for information freely in

 

8 

9  

which only be seen by brokers. Furthermore, the existing of internet means that less

paper will be used. As a result, company can save more money in transaction process.

Although online trading system has created a circumstances that investors can fulfill

their own needs of information, there are still called online trading system which is

provided by stockbrokers. Investors should access the website through internet

compatible device such as computers and laptops. Then, they can place their order in the

system and it will be ordered in just a few seconds. Therefore, it is mean that there is a

potential of online trading system will be successfully applied. Through stockbroker’s

online trading system indicate that the broker provide service to traders which divided

into 3 parts; full time, discount and online.

Mostly, investors invest their money in online trading not as their primary job. Therefore

many of investors entrust their money to some full time brokerage firms to assist them.

For example, broker helps investors to organize orders and recommendations. As a

result, investors will be much easier in choosing which investment is beneficial.

Investors who seek for assistance from brokers usually use the discount or online broker

services. Also, investors must pay the online broker in the form of commission.

Furthermore, online broker will trade through internet and there will be call center which

can be called every time according to the brokerage regulations.

With the advanced technology in these recent years, it is important that users must fully

recognize the important attribute of methods and approaches in online trading system.

There are actually 2 approaches of online trading which generally used these recent

years. The first approach is by “Conventional Online Trading”. This approach works by

10  

utilizing the Internet browsers and Web based broker. The second approach named

“Direct Access Trading System” which enabled users to use some sort of specialize

software and private network to do the trade.

2.1.1.1 Online Trading System

Years of competition between securities in Indonesia regarding to control the stock

market has pushed each securities to provide better technical services such as improving

accessibility. As a result, Online Trading System become an identity of each securities

like Indo Premier Securities with IPOT (Indo Premier Online Technology), Phillips

Securities Indonesia with POEMS (Phillip’s On-Line Electronic Mart System), and e-

Trading Securities with HOTS (Home Online Trading System). In brief, Online Trading

System has become a vital point of securities in order to maintain services.

Indo Premier Securities is one of the largest domestic securities in Indonesia with more

than 350millions rupiah [29]. Indo Premier Securities begin its operation in 2003 with

99.98% ownership from Indo Premier Capital [30]. Moreover in Online trading System,

Indo Premier relies on IPOT (Indo Premier Online Technology) to compete with other

securities. Also, IPOT has released its newest program named IPOT ODT (One Day

Trading) which offer low buy clause about 0.1% and sell clause about 0.2%. Then, IPOT

provide several benefits such as; Real time market info, trading, and news [31].

PT Phillips Securities Indonesia has been established in 1989 as trusted foreign

securities in Bursa Efek Indonesia (BEI). PT Phillips Securities Indonesia is a part from

Phillips Capital which headquartered in Singapore [32]. Regarding to provide more

services to user, Phillips Capital established POEMS (Phillip’s On-line Electronic Mart

11  

System) in 1996 and being developed in Indonesia in 2003. One of the best facilities is

Smart Order which user can set target entry price and stop loss so user does not have to

standby all the time in front of computer [33]. In addition, there are several advantages

of POEMS like E-mail/SMS done alerts and Account Management and Online Funds

Withdrawal [34].

e-Trading securities has become a pioneer in Indonesia Stock market since 2003 which

established one of the earliest Online Trading System in Indonesia named HOTS ( Home

Online Trading System) [35]. E-Trading securities have been awarded “Indonesian Best

Securities Company” by Investor Magazine in 2004 and 2009. Also, as “IT Innovation

for Excellent Improvement” by Warta Ekonomi in 2005 and finally in 2010 Investor

Magazine awarded “No. 1 securities Company” [36]. Other reasons which make e-

trading securities considered as the best securities in Indonesia is E-Trading Securities

has been supported by a good shareholder for example PT Daewoo Securities as No.1

Securities Company in Korea and Japan Asia Investment Co., Ltd [35]. Moreover,

HOTS version 2 has been launched in 2009 in order to provide more services to user.

There are several features which provided by HOTS;

• Stock Depth transaction

• Historical Price

• Menu order (Buy-Sell-Ammend-withdraw)

• Ranking

• Chart

12  

In this thesis, author will refer to e-trading securities’ user as the main respondent in

questionnaire which will be conducted in Chapter 3. The several reasons which make e-

trading securities as our main target respondent;

• E-trading securities have 40 galleries spread all around Indonesia and it will keep

growing. Therefore, the scope will be bigger not only concentrate in big cities

[36],

• Most advanced Online trading system named HOTS [36],

• Partner of Jsxpro since January 2011 which will provide more services through

seminar, gathering, or any event [38].

2.1.2 User satisfaction

As we know, the market nowadays is more competitive than before. Thousands of

companies are established every day. Furthermore, companies begin to expand or

improve their performance in order to control the market such as improving technology,

improving communication between company and customer. As a result, user satisfaction

is always being the center of attention of the management in order to know whether the

company has met the expectation or not. In traditional service quality there are some

aspects which can be used as factors to determine user satisfaction such as physical

appearance, employee’s willingness to help customer, and the completeness of

equipment. On contrary, there are some aspects which cannot be the factors to determine

user satisfaction in online trading for example in online trading users cannot see directly

to the physical appearance of the product. Therefore, it refers to the how online trading

company can build some sorts of Trust to the users.

13  

There are several studies which conclude satisfaction into several definitions:

• Customer satisfaction is an experience-based assessment made by the

customer of how far his own expectations about the individual

characteristics or the overall functionality of the services obtained from

the provider have been fulfilled[21]

• Satisfying the needs and desires of the consumer[22]

• Satisfaction-as-delight[23]

In brief, the most general definitions of satisfaction is “ satisfaction is a feeling which

results from a process of evaluating what was received against that expected, the

purchase decision itself and/or the fulfillment of needs/wants” [20]

Therefore based on the definitions above, companies should gather information about

the customers’ needs for example by analyzing complain, critics, feedbacks and even

companies can spread questioners to customers. These various ways ensure companies

to collect a lot of information in order to maintain customer relationship management

especially to keep customer satisfaction as high as possible. Moreover, the awareness of

customer satisfaction can influence on how the companies conduct some action to have

it. For example from the feedbacks which are spread, companies should find a way on

how they must reduce the number of complaints such as by increasing employees

responsiveness, by having more attractive user interface and etc. these number of

complaints can be as a sign of customer dissatisfaction. Furthermore, there are actually

3kinds of method which determine the customer satisfaction through the services;

14  

2.1.2.1 User Satisfaction Theory

In this part, it will explain about the user satisfaction theory which related to the research

topic. Author will explain several theories as a comparison to main research framework

2.1.2.1.1 The Gronroos Service Quality Model

The first model (figure 1) to determine the user satisfaction is the service quality model.

This model has 2 different dimensions which have been evaluated. The evaluation will

conduct based on some service elements such as behavior, attitude, personality and etc.

as a result of this evaluation, 2 dimensions have been developed, and they are Technical

Quality and Functional Quality. According to Gummesson and Gronroos [9] the first

dimension which is Technical Quality means that “basic condition for positively

perceived total quality, but functional quality is the one that adds the competitive edge”.

Moreover, the functional quality has increased its value in the case of evaluating

customer satisfaction. But, there is a separate space between technical quality and

functional quality which refer to a new model called Total Perceived Quality (Figure 2).

15  

Figure 1: The Service Quality Model [5]

Figure 2: The Total Perceived Quality [10]

Expected Quality

Experienced Quality

Market Communication

Image

Word Of mouth

Customer needs Functional

Quality Technical Quality

Total Perceived Quality

Image

Technical Quality

• Technical Solutions

• Computerized system

• Employee technical abilities

• Technical Solutions

• Mashines

Functional Quality

• Attitudes • International

Relations • Customer

Contacts • Accessibility • Appearance • Behavior • Service

mindedness

Expected

Service

Perceived

Service Perceived Service Quality

Corporate Image 

Traditional Marketing Activities

16  

This model has been developed to adapt itself in the company’s problem such as besides

offering quality product, it will be included some sort of services to improve the

customer satisfaction. In Perceived Quality model, the perceived quality can be achieved

by having experienced quality to join the customer expectations. For example; perceived

quality’s rate will not be pleasing when company have a low experienced quality on the

other hands customer expectation is high. As a result customer will not be satisfied.

Therefore, both experienced quality and expectation quality must be in the same level.

There are several aspects which influence both experienced quality and expectation

quality. For example, expectation quality is much affected by customer’s side e.g. mouth

to mouth, image of company, advertising and etc. for that reason, company should find a

way to control this market such as creating a good image, provide a good service and

product quality. In brief, not only focus on 2 main aspects; Technical quality and

Functional Quality but also the space between them; Expected Quality and Experience

Quality.

Moreover, Edwardsson et al (1989) [11] has developed another model which associated

to the Service Quality model. He concluded that customer’s perception will change

whenever company can do these 4 elements of quality;

• Technical Quality

The first elements require good personality skills such as employee’s willingness

to help customers and how actually company can design the service through

online trading system. Both of these aspects are invincible, it means that

customer would never view the service directly.

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• Integrative Quality

The second elements of the model elaborate about how the company integrate all

different aspects of the system into a united system which work together to meet

customer expectation. In addition, it will be much better if the customer can feel

the satisfaction both in online and offline system.

• Functional value

The third element of the model is the functional quality. It explains about how

the value of each service can affect the customer satisfaction. In online trading

system, there is almost no direct human interaction or in other words face-to-face

contact and physical environment will not affect customers. Therefore, this is a

challenge to each company to deliver the service well in order to have high

customer’s satisfaction.

• Outcome Quality

The fourth element elaborates about how the company can produce such a

service in order to meet customer’s expectation. For example whenever user

feels dissatisfied with one website, user will directly look for another. In brief,

the outcome quality of service which produced by each online trading system

should meet customer expectation.

The service quality model has been implemented by researchers such as Service Quality

in Private Commercial Banks in Bangladesh. According to Jinea Akhtar [17], this study

explains about the service quality which influences the satisfaction in the private

commercial banks in Bangladesh. Also, this study recommends using the model of

18  

Gronroos (1985, 1993) [5,18]. Why? It is because the model is suitable and relate to the

service quality in private commercial banks in Bangladesh. Thus, this study concludes

that there is some major problem found. The customer service hasn’t had a good

relationship with the service quality produced. For instance, whenever there is a high

demand of customer services, it means that it will need more time to fulfill all the

services demanded. Moreover, in Bangladesh the major trading activity will take place

in the capital city (Dhaka), it concludes that there will have more advance technology

and security issue. As result, there are 3 determinants which involve in this study;

customer service, technology and security. Consequently, if the banks can identify those

issues, they must solve the issue such as improving service quality.

Moreover, the service quality model also determines the customer satisfaction on

Service quality in Railway Platforms in India. According to Geetika,, & Nandan, Shefali

(2010)[19], this study has determine several aspects in measuring customer satisfaction

through railway platforms in India; there are

• Availability and Quality of refreshment

• Effectiveness of Information System

• Behavior of Railway staff

• Basic amenities provided on platforms

• Safety and Security

Based on service quality model which has been applied, refreshment and behavioral

factors has become the most influencing parts of measuring customer satisfaction.

19  

Moreover, this study will be based on service quality model which supports the railway

platforms in India by giving an administration supports to indentify which services

should be improved in order to improve customer satisfaction in the future.

2.1.2.1.2 The Balasubramanian, Konana and Menon Satisfaction Model (2003)

The conceptual model of Balasubramanian, Konana and M enon (2003) determines the

user satisfaction via online broker. Moreover, the user satisfaction is affected by 3

aspects; perceived operational competence, perceives trustworthiness of online broker

and perceived cost of trading (commissions). To measure the Perceived Trustworthiness,

it will need 2 elements; first element is Perceived Operational Competence and second

element is Perceived Environmental Security. Although both elements are in the same

level, Perceived Environmental Security also has influenced the measurement of

Perceived Operational Competence. Moreover, both of these elements are also greatly

affected by user’s trust. Therefore, it becomes a model which related to each other in

order to measure user satisfaction.

Figure 3 : The Balasubramanian, Konana and Menon Satisfaction Model [6]

Price

Trust Disposition

Perceived Operational competence

Perceived Environmental Security

Perceived trustworthiness

Satisfaction

20  

• Satisfaction

This part of the model will be the key element of the model. Why? Because to all

measurement from another parts will end here such as Perceived Trustworthiness,

Perceived Operational Competence and price. Therefore, satisfaction can be explained

as the outcome of a combination of user expectation.

• Perceived Trustworthiness

According to Mayer et al. (1995, p.712) [12] trust can be defined as “"[t]he willingness

of a party to be vulnerable to the actions of another party based on the expectation that

the other will perform a particular action important to the trust or, irrespective of the

ability to monitor or control that other party.” User’s trustworthiness is very important

in online trading because there will be no direct contact between user and system. As a

result, to build user trust can be very critical in doing service. While doing online

trading, the user interface can be seen as very pleasing to the user such as fast, user

friendly and etc. but , in the background process, it still bring many unpredictable such

as the flow of each order. Moreover, the trust between investor and broker must be

maintained to have user satisfaction.

• Perceived Environmental Security

Perceived environmental security directly influences to perceived trustworthiness in

some ways. There are 2 aspects which can determine the trust; situational normally and

structural assurance. Situational normally will focus on user interface such as UI design;

physical appearance like well-armed security guard in the bank can provide user the

feeling of safe. Also, situational normally can be easily applied and detected. Other

aspect called Structural assurance focus on performance of procedure and regulation of

21  

each trading agent. Moreover, this aspect improves the security of online trading

environment and manages the flow of regulation and guarantee to each action taken such

as company should act as behalf of the user to check the quality, increase the

transparence of each transaction and protect user from high market volatility.

• Perceived Operational Competence

This aspect provides how broker give with day-to-day report operational performance

such as timelines of making order or canceling order. Perceived Operational

Competence is related to the trust which given to broker in order to execute transactions.

Therefore, the relationship between user and broker must be maintained so that user can

trust the broker. If the relationship between broker and user can be maintained well,

there are several benefits to both parties. Such as broker can give rapid report to the user

and on the other hand, user gives rapid feedback to the broker. As a result there is some

mutual relation.

• Trust Disposition

This aspect shows that how the individual to trust other parties with a general tendency.

Therefore, this trust should go on even in unstructured condition. But there some issues

that global component cannot measure someone’s trust perfectly in some conditions.

Therefore, individual’s trust about each system will affect to someone’s

expectation environmental security.

• Price

User’s satisfaction can determine the value of each system. Therefore, to determine price

in the trading system should be also meet user expectation. Even though having high

22  

user satisfaction but on the other hand the price is too high, by the end user will be

dissatisfied.

2.1.2.1.3 SERVQUAL model

Parasuraman et al (1985; 1988) [7,8] had different idea in measuring user satisfaction in

online trading named SERVQUAL. This theory mentioned there are at least 10 aspects

of measurement. Thus, these 10 aspects will review about the customer point of view in

service quality. There are;

• Access: It explain about how the system approach to the customers

• Communication: It elaborate about how the company meet the user satisfaction

by keeping a constant communication with the user

• Competence: It show the technical ability of the company to perform a service

• Courtesy: It gives a detail about the attitude of each contact person with the

customer

• Creditability: It explain about the attitude of the company such as trustworthiness

and honesty

• Reliability: It elaborate about the consistency of each service performance

• Responsiveness: It gives explanation about how the employee or the system act

in order to counter customer specific needs

• Security: It explain about the company should make the users feel save to use the

system

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• Tangibles: It show the physical prove of service

All of these aspects show that there are a difference between customer’s expectation of

the quality of service which will be delivered and customer’s perception about how the

real service delivered. For instance if the customer’s expectation cannot meet the

company performance, as a result customer will be dissatisfied, on the other hand,

customer will satisfied if the service company can beyond the expectation. But,

customer will be unresponsive if customer expectation is the same as company

performance. It means customer will stay the same condition. These 10 aspects have

become the basic elements of SERVQUAL model after it filtered into 5 key factors of

measuring user satisfaction;

• Tangibles

The first elements of SERVQUAL model is tangibles. This element seems to be

unrelated to the model which focuses on user’s satisfaction through services quality.

Why? Because this element elaborates about something that customer will not see, for

example the physical appearance of the warehouse. Customer will only directly

communicate through the website. On contrary, this elements show the growth of each

company to fulfill customer needs such as if the company has an advanced system in

warehouse which integrated to the website and it will run smoothly and fast,

automatically user will be satisfied. Therefore, although it will not directly interact with

the users, this element can show how actually company doing to earn user’s satisfaction

by having equipments such as communication materials, physical facilities and etc.

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• Reliability

According to Zeithaml, Parasuraman, and Malhora (2000)[13], Reliability means that

“Correct technical functioning of the site and the accuracy of service promises (having

items in stock, delivering what is ordered, delivering when promised), billing, and

product information.” it means that how the company encounters the customer

expectation to perform the expected service in both consistent and accurate. For instance

users has ordered a product, then company should process the product in the way to both

deliver the product on time and the correct product according to the user’s order. This

element can be judged by the user such as does the product come on time or not?

Therefore, company must solve problem related to this elements in order to keep user

satisfied.

• Responsiveness

Responsiveness is one of the main parts in services trading. Therefore, it will hold an

important point to each company which applies service. Responsiveness can be notice

by user well enough. The responsiveness need to quick response to any user which need

help or counter any certain problems. From this point of view user can judge whether the

trading system can responds positively to each problem faced or not. For that reason,

company should understand what the user need in every single interaction. Then, by

understanding user situation, company should immediately acknowledge user’s need so

that company can take an action quickly to solve the problems.

• Assurance

This element covers about the insurance which include some aspects such as security,

credibility, competence, courtesy and knowledge of employees. The purpose of this

25  

element is to build a trust and confidence between the system and user. It is about how

actually employee will act in a manner to user in order to maintain relationship.

Therefore, company has to create a condition to make user feel safe for instance privacy

policy, customer service speak in a good manner and etc. therefore user can judge based

on his experience with the assurance of the website. Also, company should build a

confidence about the service which is offered to user for example; user should feel

confidence that website will have integrity in both information which is provided and

order which made.

• Empathy

The fifth element of SERQUAL model contain of the empathy. The words “empathy”

means

“The action of understanding, being aware of, being sensitive to,

and vicariously experiencing the feelings, thoughts, and experience of another of either

the past or present without having the feelings, thoughts, and experience fully

communicated in an objectively explicit manner; also : the capacity for this”[27]

It measure how care the company to provide anything to the user. Therefore, company

should work it out such as constant communication, understand and acknowledge user’s

need. It also matter how the company treat equally to all users. In addition, author has

attached the framework model of SERVQUAL in figure 4;

26  

Figure 4: The SERVQUAL model [7,8]

Based on Babakus, E and Mangold, W, G research [14], by defining and measuring the

user satisfaction is the key attribute for health firms. Therefore, the potential of

SERVQUAL model has been developed to measure the user satisfaction in the hospital.

SERVQUAL model has been a tool to test the performance of service in the range of

industries such as the willingness of employee to help patients in hospital. Thus,

SERQUAL model provide a tool to calculate the functional quality in the administration

of hospital. This model provides a patient feedback about the employee. For instance, it

helps the system to measure each employee’s score which determine the grade. The

higher the grade of the employee means that the employee has a good quality of service

to the patient.

Furthermore, refer to khan, Ahmed, Nawaz [15] studies of student’s perspective in

service quality in high learning institutions, it can be concluded that although there are

many stakeholders in learning institution such as parents, teachers, government, and

students. Students are considered to be the main stakeholder of this institution. Why?

Because all the process of the education will be through the students, so researchers try

to implement SERVQUAL model in order to measure how students’ satisfa

TANGIBLE

RELIABILITY

RESPONSIVENESS

ASSURANCE

EMPATHY

SERVQUAL

27  

ction can affect the performance or in other words the score of each students. According

to khan, Ahmed & Nawaz[15] explain that “Students rely on educational institution to

impart knowledge and to get employment, while educational institutes look at students to

meet their financial needs.” Therefore, in students’ perspective show that they should

have a good service quality as well as a good education. As a result, by having high level

of satisfaction it can be proved that it will automatically improve students’ score.

Moreover, as refer to Rost M (n.d)[16] conclude that “Success is the outcome of students

motivation, greater is the level of motivation higher are the efforts put by students are

better are the results in shaper of performance. Students who are willing to put more

efforts will learn more and do better academically”. Therefore, high level of service

quality from the institution will motivate students to work harder so higher score can be

obtained.

2.2 Theoretical Framework

According to the theoretical foundation, author concludes that user satisfaction using

SERVQUAL model will determine by 5 determinants. Moreover, SERVQUAL model

has been used by researchers all around the world. Therefore, the model below will be as

a reference towards the thesis research.

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Figure 5 : Theoretical framework

As describe by Parasuraman et al [8], the SERVQUAl model can be applied in the

online trading system or stock exchange by replacing tangible with security. Moreover,

based on Parasuraman et al [7] security is the most important part in measuring service

quality. As we know, online trading system will not develop well without a proper

security system which ensure the system run smoothly and guarantee a safe transaction

to the users. Therefore, by considering the importance of security in online trading

system which can cause several risk. Researchers prefer to use security to replace

tangible which is not very important measurement in online trading system. In addition,

to increase the quality of service measurement in Online Trading System, author adds 2

determinants; Price and Company Image. As we know, users usually focus on how

much the price of each service given by each company. Although having a good quality

SERVQUAL

USER

SATISFACTION Empathy

Security

Reliability

Responsiveness

Assurance

Company Image

Price

29  

service but on the other hand company cannot adjust the price, consequently it will

affect the user’s satisfaction. Also, Company’s image can determine the user satisfaction

for instance through “world of mouth” and user’s past experience.

Author Theory Description

Gronroos

(1984)

The Gronroos

Service

Quality

Model

This theory develops 2 key elements; Technical

Quality and Expected Quality which measured

to define the gap between expected service and

perceived service.

Balasubramania

n, Konana and

Menon (2003)

The User

Satisfaction

Model Of

Balasubramani

a,Konana and

Menon (2003)

Satisfaction is influenced by 3 determinants

which is Price, Perceived Operational

Competence and Perceived trustworthiness.

Parasuraman

(1985)

SERVQUAL

model

SERVQUAl model is divided into 5

determinants to measure user quality. There are

Tangible, Reliability, Responsiveness,

Assurance, and Empathy.

Table 1 : User satisfaction Theory