The Effect of Retailer’s Perceived Service Innovation and Value Co-Creation Behavior on SME’s Brand Equity

Journal of Environmental Treatment Techniques

2021, Volume 9, Issue 1, Pages: 65-71

J. Environ. Treat. Tech.

ISSN: 2309-1185

Journal web link: http://www.jett.dormaj.com

https://doi.org/10.47277/JETT/9(1)71

The Effect of Retailer’s Perceived Service Innovation

and Value Co-Creation Behavior on SME’s Brand

Equity

Nor Asiah Omar *, Ahmad Sabri Kassim , Muhamad Azrin Nazri , Noor Hasni Juhdi

Centre of Value Creation and Human Well-being (INSAN), Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Selangor, Malaysia

Majlis Amanah Rakyat, Kuala Lumpur, Malaysia

Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Negeri Sembilan, Malaysia.

Received: 16/07/2020

Accepted: 13/09/2020

Published: 10/10/2020

Abstract

The purpose of this study is to examine the predictive effect of value-co creation, and service innovation on SME’s brand equity in

Malaysia. 529 questionnaires were collected via judgemental sampling from customers who patronizing SMEs involved in Food and

Beverages (F & B) services. The findings show that the impact of value co-creation on SME’s brand equity is positive. Moreover, the

retailer’s perceived service innovation is positively related to SME’s brand equity. This study provides theoretical, empirical and managerial

contributions to the field of brand and service management from consumers’ perspective. The outcome of the study will benefit SME retailers’

particular to F & B operators to manage their customers in a more excellent manner.

Keywords: Value CoCreation, Service Innovation, SMEs Brand Equity, F&B Services

guidance, skill and knowledge (4). As shown in (5), retail

Introduction

branding strategy and approach is becoming more important and

complicated to manage due to the consumers’ high expectation

and technological advancement. A study carried out in Malaysia’s

SME retail business (6) has found that among other problems

faced by these retail outlets in introducing new innovation in

service delivery are inadequate of knowledge and skill in

retailing, difficulties in getting competent employees for the

stores and lack of skills in managing marketing activities (7).

These problems could lead to poor service delivery and

consequently affect the brand equity of the SME retail outlets (8).

Service management and innovation have become strongly

desirable for business-to-consumer relationships which emphasis

on consumer’s receptivity (9, 10). Moreover, there are a lot of

advantages for innovation adoption which includes upgrading

firm performance (11), exceeding customers’ expectation (12)

and branding performance (13). Innovativeness plays an

important role in strong brand equity development (9) and (14)

also acknowledge a call for research in non-technical service

innovativeness to investigate how service-based retailers

implement innovations in service delivery, processes and

managing experiences through which could influence the brand

quality (15).

Small and Medium Enterprise (SME) particularly in service

sector has become a major contributor to Malaysia’s economy. In

014, SMEs in service sector contribute 21.1 percent to the

overall Gross Domestic Product (GDP) of Malaysia (1). Based on

census in 2011, a total of 580,985 or 90 percent out of 645,136

SMEs in Malaysia involved in services. This includes wholesale

and retail, food and beverage, transportation and storage,

personal, administrative and technical services, health services,

real estate, education, financial services and accommodation (2).

From the above-mentioned services, retail service has become the

highest contributor to the service sector with 432,519

establishments in various segments (2). According to the

Malaysian Standard of Industrial Classification (2008), food and

beverage is a sub-sector of the manufacturing sector, which is the

second largest concentration of SMEs.

Therefore, the

government has put a lot of efforts to develop retail industry and

enhance relevant business facilities in order to ensure that service

industry keep continuing to contribute significantly to the

economic growth (3).

In order to be more competitive in such a turbulent economic

environment, SME development has become the national priority

to bring this business segment into the economic mainstream and

propelling the economic growth of the nation (SME Corporation

Value co-creation currently is one of the important topics in

marketing field (16). Research by (17) on SME retailers’

competitiveness suggests that the ability of small retailers to

014). Several scholars posited that SME retailers in Malaysia are

facing marketing and branding issue with lack of appropriate

Corresponding author: Nor Asiah Omar, Centre of Value Creation and Human Well-being (INSAN), Faculty of Economics and

Management, Universiti Kebangsaan Malaysia, Selangor, Malaysia. E-mail: norasiah@ukm.edu.my

Journal of Environmental Treatment Techniques

2021, Volume 9, Issue 1, Pages: 65-71

become close to their customers will help them to understand the

customer needs and improve their product and service offerings.

Therefore, it is vital for retailers to leverage on these advantages

in order to strengthen their brand equity which can be cultivated

through relationship marketing efforts. Basically, value co-

creation process can improve retailers’ brand equity as it nurtures

a ‘win-win’ situation for both retailers and customers (18).

However, Fisher and Smith (2011) argue that there is no concrete

evidence that co-creation will result in a satisfactory outcome to

the brand or company as it could lead to a chaotic situation.

Scholars (20) and (21) proposed that there are still research gaps

concerning co-creation benefits for the customer in service

setting. Therefore, it is important to extend the research on brand

equity concept with co-creation practices since it is proven to be

one of the most important focuses in marketing and business

strategic process.

Theoretically, this research concerns the application of the

Social Exchange Theory (22), The Wheel of Retailing (WOR)

theory originally developed by Malcolm P. McNair (23) and the

Service-Dominant Logic (S-D Logic) (24). Consequently, the aim

of the current study is to examine the effect of customer value

cocreation, and perceived service innovation on SME’s brand

equity.

innovation and innovativeness are often interchangeably used

where both terms can benefit SME retailers in respect of the

approach. (34) put forward the idea explains the innovativeness

normally refers to a firm’s capability to offer new products and

services as well as other kind of promotions. Besides new

products, there is also other range of definition for innovation. For

example, (35) defined innovation as a process of translating ideas

into useful and used new products, processes and services. While,

service innovation reflects the business' new market services, new

company services, new delivery processes, service modifications,

service line extensions, and service repositioning (36). In

summary, this research adopts this definition because it covers all

aspect of innovation in service management, which is beneficial

to SME retailers to compete and sustain with other service

providers. Innovation and innovativeness play important roles to

enable firms to be competitive in retail industry (37) and to have

the ability to make new offerings in term of products or services

and promotions to delight the customers (38, 39). In addition, a

study by (40) also found that there is a significant impact of brand

innovativeness towards brand loyalty in which will create a strong

brand equity of products or services. Studies by (41)

demonstrated that the strength of the consumers' innovative

experience with the brand influences brand identification and

brand equity of the company. As such, this study proposed that:

H1:

Perceived Service Innovation (SI) is positively related

Literature Review and Hypotheses

to brand equity of retailer (BE).

Development

.1 Brand Equity

.3Customer Value Co-creation Behaviour (CVCB)

Branding and brand equity are important studies in marketing

Customer Value Co-creation Behaviour can be understood as

fields as it was proven to help business entities in improving their

sales, perception and cognitive behaviour beyond loyalty (25).

Brand equity has been debated in various fields such as

marketing, accounting, financial and management perspective.

Furthermore, it has been highlighted for a long-term focus for

business performance and sustainability (26).

There are large volumes of researches in brand equity field

which reflect several different definitions of brand equity. (27)

proposed brand equity as the consumers’ perception and feeling

about a product and its performance; everything that the product

or service means to consumers. (28) defined brand equity as a

relational type of intangible asset that is co-created through the

interaction between consumers and retail brand. According to

a high involvement level of customer participation in co-creating

and customizing the product or service (42). This is further

supported by several researchers whom have provided

comprehensive reviews on customer roles and their participation

during the transaction process, namely, as human resource (43),

partial employee, auditor (44), customer as co-producer (45),

innovator (46), source of competence (47).

New ideas in

relationship marketing research show that customers are no

longer become passive entities in value creating interaction, but

they co-jointly creates the offering made by firms, co-creates the

value, co-produce and co-innovate with firms (47,48). Recent

finding by (20) empirically found that co-creation has a positive

effect on the observer-based brand equity. In addition, (49)

proposed that co-creation practices and positive interaction with

customers lead to brand equity development of SME designer

fashion enterprises. As such, this research proposed that:

(

29), small segments of consumers have different needs compared

to the general or generic national brand segments. Thus, Vargo

and Lusch in citing Chen (2001) make clear that this situation

provides opportunities for specialty retail brands where SMEs

should offer highly customized service related to co-creation

practices. In order to improve the superior branding for SME

retailers, inclusion of other stakeholders branding association. is

in line with current marketing literature which suggests further

research on co-production beyond consumer and company

collaboration in value creating domain (31)(32).

H2:

Customer Value Co-creation Behaviour (VCB) is

positively related to brand equity of retailer (BE).

Customer Value CoCreation

VCB)

(

.2 Perceived Service Innovation

Retailers’ innovativeness is perceived as one of the most

SME s Brand Equity

important capability to develop competitive advantage and

provides niche strategy (33). Numerous studies have

acknowledged and suggested that modern retailing environment

strongly requires SME retailers to introduce and adopt innovative

private brand products or services to attract consumer attention

and consequently improve retailers’ brand equity (33). Moreover,

Perceived Service

Innovation (SI)

Figure 1: Research Framework

Journal of Environmental Treatment Techniques

2021, Volume 9, Issue 1, Pages: 65-71

. Research Methodology

4.1 Demographic Variables

The majority of the 529 respondents are female (65%). The

sample contains individuals with varying age levels: 216 (41%)

are in the category of 20-29 years of age, 164 (31%) are in the

category of 30-39 years of age, and 90 (17%) are in the category

of 40-49 years of age. Most of the respondents are Malay,

contributes for almost 92% of the sample. Majority of the

respondents are married, contributes for 58% of the sample.

Additionally, 37.7% of the respondents have a monthly income

bracket between RM2, 000 to RM3, 999. The results also reveal

that approximately 214 respondents have the experience of being

the F&B service customers for at least one year.

.1 Sampling and Research Procedure

This research adopts positivism view to test the proposed

theoretical and conceptual framework (50). The study population

is customers who patronize Food & Beverages SMEs operating

around Kuala Lumpur and Selangor, Malaysia. Specifically, those

individuals are adult consumers who are being chosen due to their

ability to make decision which service providers are satisfying

their needs and meet the expectations. Judgement sampling was

chosen for this research because it is a common approach in

consumer studies particularly in retail industry where sampling

conforms to certain criteria (50). This study uses filter questions

to ensure that respondents are well aware of F & B retailers and

have been using the F&B services for at least a year.

4.2 Measurement Model Analysis

Based on the literature review and relevant previous studies,

this study proposed a pool of measurement items for each

construct. All scales were derived and adapted directly from their

This study uses Smart PLS-SEM 3.0 software as the primary

statistical inferential analysis tool for the research. PLS-SEM

analysis involves a two-step approach: assessment of the

measurement model and assessment of the structural model to test

the hypothesized relationships (58). As described in Table 1, the

measurement model reveals the Cronbach’s alpha of all

constructs range from 0.748 to 0.954; this means that the

indicators used in this study were highly reliable (59). The item

loading was assessed based on the common rule of thumb of 0.60

or higher (60). Based on the results, few items were deleted due

to low loading; one item was from helpful and two items were

from service innovation.

In terms of the composite reliability (CR) of the constructs,

the CR of the constructs range from 0.856 to 0.957 which

exceeded the cut-off level, demonstrating there is no major issue

in the convergent validity of the scales. In addition, the AVE of

the constructs ranged from 0.500 to 0.811 indicating the scales

exceeded the cut-off level and meet the convergent validity

requirements. Next, discriminant validity is assessed by

examining the Fornell-Larcker criterion, cross-loadings and the

Heterotrait-Monotrait (HTMT) criteria of the items. To check the

discriminant validity, all items were further examined for cross-

loading. The cross-loading results showed that all of the loadings

are higher in corresponding constructs than in other constructs.

The HTMT results of this study also stated that the findings

satisfy the threshold criteria of HTMT of 0.85. Furthermore, all

correlations between the variables were lower than their

respective AVE square root estimates (see Table 2). Hence, this

study concludes that discriminant validity has been ascertained.

original sources in the English language.

Because the

questionnaire is to be administered in Bahasa Malaysia, the

original English version of the questionnaire has first been

translated into Bahasa. Data collection was carried out for a

period of three months, from April 2019 to Jun 2019.

.2 Research Instruments

All questions in the survey were formulated based on the

measures revised from previous studies. In this study, measures

of Customer Value Co-creation Behaviour (VCB) is based upon

the research of (51). It is a multidimensional concept which

consists of two dimensions including the customer participation

behaviour and customer citizenship behaviour. Customer

participation behaviour comprises four dimensions, namely (1)

information seeking, (2) information sharing, (3) responsible

behaviour and (4) personal interaction, while customer

citizenship behaviour comprises (1) feedback, (2) advocacy, (3)

helping and (4) tolerance (51). Service innovation consists of

eight items come from research of (9), (36), and (52).

Consistent with past studies, brand equity was measured as a

unidimensional construct that consists of six items (53) (54). All

items use 5-point Likert scale as it is more suitable for general

population in marketing field as compared to other scales (50).

.3 Common Method Bias (CMB)

To ensure that there was no common method bias (CMB)

problem in this study, the researchers conducted several tests to

assess CMB. First, the respondents were informed in the

introduction of the questionnaires that there is no “right or wrong”

answers to minimize the chances of receiving socially desirable

responses (55). Second, correlations between the constructs were

calculated. The correlation outcomes show that none of the

correlations among the research constructs are greater than the

value of 0.90 (56). Finally, Harman’s one-factor test was

conducted to check for the existence of CMB (57). The Harman’s

one-factor was 28.5%, confirming there was no significant CMB

.3 Structural Model

Before the assessment of the structural model was conducted,

the variance inflation and the tolerance values were initially

calculated. The Variance Inflation Factors (VIFs) were found to

be in the range of between 1.343 and 4.108, which are below the

threshold of 5 indicating no major issues (61). Thus, collinearity

among predictor constructs in this study is not an issue. A

bootstrapping procedure of 2,000 samples was applied to test the

significance of the path coefficients. The value of R2 for brand

equity is 0.512. According to several scholars, R2 values at 0.67,

[47].

0.33 and 0.19 are indicated as substantial, moderate and weak,

respectively (62). Therefore, the model demonstrates moderate to

strong explanatory capability based on the above result. Table 3

demonstrates that the estimation of the hypothesized structural

model establishes that all the paths support the positive (+)

direction of the hypotheses. Critical values for a one-tailed test

. Data Analysis

The results are discussed based on the demographic

characteristics of the respondents using measurement model and

structural model analyses.

Journal of Environmental Treatment Techniques

2021, Volume 9, Issue 1, Pages: 65-71

are 1.645 (significant level=5%), 2.326 (significant level=10%),

and 3.090 (significant level=1%) (63). Based on the structural

model (see Fig. 2), perceived service innovation is positively

related to SME’s brand equity (=0.134, p<0.05, t=3.090). Thus,

H1 is supported. In addition, the finding indicates that value

cocreation behaviour (=0.622, p<0.00, t=16.44) has significant

positive influences on SME’s brand equity. As such, H2 is

supported.

Table 1: Regression results between perceived scarcity, negative feeling and status consumption

First-order construct

Advocate

Higher-order construct

Loadings

AVE

0.675

0.758

0.861

ADVO1

ADVO2

ADVO3

0.737

0.702

0.602

Feedback

0.808

0.806

0.84

0.886

0.904

0.914

0.722

0.723

0.758

0.726

FEEDB1

FEEDB2

FEEDB3

0.67

0.65

0.715

Helpful

HELP1

HELP3

HELP4

0.705

0.641

0.682

Information Seeking

Information Sharing

INSEEK1

INSEEK2

INSEEK3

0.662

0.628

0.664

0.874

INSHARE1

INSHARE2

INSHARE3

INSHARE4

0.695

0.724

0.68

0.768

Personal Interest

Responsible Behavior

Tolerance

0.922

0.866

0.748

0.945

0.909

0.856

0.811

0.714

0.665

PINT1

PINT2

PINT3

PINT4

0.697

0.658

0.639

0.619

RESB1

RESB2

RESB3

RESB4

0.753

0.747

0.719

0.706

TOL1

TOL2

TOL3

VCB

0.528

0.628

0.558

0.954

0.933

0.905

0.863

0.957

0.941

0.92

0.500

0.518

0.500

0.594

0.961

0.932

CCB

Brand Equity

BEQ1

BEQ2

BEQ3

BEQ4

0.898

0.765

0.781

0.754

0.783

0.754

0.787

BEQ5

BEQ6

Innovation

PRI_11

PRI_12

PRI_14

PRI_15

PRI_16

PRI_8

0.909

0.928

0.647

0.818

0.835

0.801

0.834

0.848

0.718

0.77

PRI_9

Notes: VCB= Customer Value CoCreation, CP=Customer Participation, CCB=Customer Citizenship Behavior, α= Cronbach's alpha

Journal of Environmental Treatment Techniques

2021, Volume 9, Issue 1, Pages: 65-71

Table 2: Discriminant validity assessments

SMEs (69). The findings also enhance our understanding of brand

association model, which relates the innovativeness, association

and identification towards strategic brand development.

0.676

0.639

0.708

. Customer Value Co-Creation

. Innovation

. Limitations

0.805

0.532

The selection of a sample size of 529 Malaysian consumers

. Brand Equity

0.771

who patronize F&B service SME using judgmental non-

probability sampling method may limit the validity and

generalizability of the findings. Thus, to enhance the validity and

generalizability of this study, the replication of it to other service

contexts i.e. different nation, service segments and industries is

recommended.

Aknowledgment

The author would like to thank Malaysia Research University

Network (MRUN) in providing the grant: EP-2019-004/

UPM.800-4/11MRUN/2019/5539140 in assisting this research.

Ethical issue

Authors are aware of, and comply with, best practice in

publication ethics specifically with regard to authorship

(

avoidance of guest authorship), dual submission, manipulation

of figures, competing interests and compliance with policies on

research ethics. Authors adhere to publication requirements that

submitted work is original and has not been published elsewhere

in any language.

Figure 2: Structural model with direct effect

Table 3. Hypotheses findings for the structural model

Competing interests

The authors declare that there is no conflict of interest that

would prejudice the impartiality of this scientific work.

Hypo

thesis

Std

t-value

Decision

Beta

Error

value

SI-BE

VCB-

0.134

0.622

0.043

0.038

3.090

0.001

0.000

Supported

Authors’ contribution

All authors of this study have a complete contribution for data

collection, data analyses and manuscript writing.

16.449

0.512

Notes: Significant at p< 0.05

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This study empirically confirmed that Customer Value Co-

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