The mediation effect of customer satisfaction in the relationship between service quality, service orientation, and marketing mix strategy to customer loyalty

Solimun (Department of Statistics, Faculty of Mathematics and Natural Sciences, University of Brawijaya, Malang, Indonesia)
Adji Achmad Rinaldo Fernandes (Department of Statistics, Faculty of Mathematics and Natural Sciences, University of Brawijaya, Malang, Indonesia)

Journal of Management Development

ISSN: 0262-1711

Publication date: 12 February 2018

Abstract

Purpose

The purpose of this paper is to investigate the mediation effect of customer satisfaction in the relationship between service quality, service orientation, and marketing mix strategy to customer loyalty, in a study in Telkomsel-Indonesia. The product used in this research will take the telecommunication service product categories with a number of products available in the market. In this research, the telecommunication service products of Telkomsel with various features as the research objects were studied.

Design/methodology/approach

The population of this research is Telkomsel customers who use the products of Halo, As and Simpati, domiciled in Malang, 2016. Since it was impossible to get the exact number of customers, the population in this study is infinite. The study had a sample size of 200 respondents. This research uses the structural equation modeling (SEM) analysis techniques along with AMOS methods.

Findings

The quality of service, service orientation, and strategy marketing mix applied by the company are not all variables can directly affect customer loyalty, but must first going through satisfaction. Which means that companies must first need to understand what the customer needs through variable service quality, service orientation, and marketing mix strategy so that the customers feel loyal when the level of satisfaction is resolved. The service quality provided by the telecommunications industry needs to be improved in order to improve customer satisfaction and loyalty of telecommunications services, especially for Telkomsel in Malang.

Originality/value

Originality for this paper shows: mediation effect (using the Sobel test) customer satisfaction on the effect of service quality, service orientation and marketing mix strategy to customer loyalty; location of the study (no previous research for this relationship): telecommunication services in Malang, Indonesia.

Keywords

Citation

Solimun, S. and Fernandes, A. (2018), "The mediation effect of customer satisfaction in the relationship between service quality, service orientation, and marketing mix strategy to customer loyalty", Journal of Management Development, Vol. 37 No. 1, pp. 76-87. https://doi.org/10.1108/JMD-12-2016-0315

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Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited


1. Introduction

One of the factors determining the level of success and quality of a company is the company’s ability in providing services to its customers. The company’s success in providing high-quality services to its customers, the achievement of a high market share, and an increase in the company’s profit are highly determined by the approach used. The consequence of the service quality approach of a product has an important essence for the company’s strategy to survive and achieve success in competition. The advancement of civilization and people’s lifestyle are a locomotive that has attracted the business world to keep running. In this globalization era, the competition between companies in the business world is getting increasingly fierce. Basically, a competition is a positive thing. In the business world, through competition, every company will be motivated to improve its quality in order to avoid failure in competition.

A company should be aware of and pay attention to how to create and improve service quality or the service offered. Service quality which has been created and which will be improved cannot be measured from the standpoint of a company, but from the customer’s standpoint (perceived quality) (Kotler, 2007, p. 9). Application of quality is a major part of a company’s strategy to achieve sustainable excellence, both as a market leader or as a strategy to continue to grow and survive. Customer loyalty will be a key for companies that want to win the competition, including in the telecommunications industry that is highly competitive. The development and improvement in the telecommunications services from year to year are getting more attention from the public. It can be seen from the intense competition in terms of service quality, price, and promotion among telecommunications companies. The great variety of activities and lifestyle of the people today are implied on the increasing needs of mobile phone users for telecommunications services resulting from their needs to increase comfort and satisfaction. It is known as the “great leap forward” or an extraordinary progress in the world of services.

Several mobile phone providers (in this study, the focus on model development alone, so as not to mention one or more specific provider names) in Indonesia, especially in Malang, such as the telecommunications service business operator in Indonesia, must always strive to be able to provide its best features and services to its customers, because this is the only way to make it maintain its existence in the increasing competition in the telecommunications services operator industry in the country. Thus, the basic thing that should become a priority for mobile phone providers is how to build a competitive strategy that is oriented to customers’ needs to create customer satisfaction and loyalty. It should be understood that one of the company’s goals is to provide satisfaction to its customers, which should be balanced by the effective use of resources by the company to produce goods and services which its customers want, so that the risk of market failure can be overcome. In addition, the company should be able to obtain the relevant information concerning the offered products, so that at a certain moment, it is able to convert a threat into a business opportunity.

The increasingly higher competition, in which there are more and more manufacturers involved in fulfilling the needs and desires of customers, causes every company to put orientation on customer satisfaction as a primary goal. This is reflected in an increasing number of companies which include the commitment to customer satisfaction in their mission statements, advertisements, and public relations. Nowadays, more people believe that the key to win the competition is by delivering value and satisfaction to customers through the delivery of high-quality products and services at competitive prices.

The effect of service quality on customer loyalty can be mediated by customer satisfaction. Customer satisfaction is one of the concepts that have a close relationship with customer loyalty. Caruana (2002) suggest that customer satisfaction has a significant effect on loyalty. In the event customers who obtain such a high level of satisfaction after evaluating the purchase of products/services, this will have an impact on their level of loyalty to the products/services. It can be concluded that the higher the level of customer satisfaction with the purchase of products/services, the higher the level of loyalty. Furthermore, it is stated that in addition to its function as a mediator of the effect of service quality on loyalty, customer satisfaction can also serve as a moderator in the relationship between service quality and loyalty. This argument shows that customer satisfaction can either strengthen or weaken the effect of service quality on customer loyalty. It means that if a customer is satisfied with the service quality provided by the company, he/she will further enhance his/her loyalty, and conversely in the event a customer is dissatisfied with the service quality, it will weaken the relationship between the service quality and the level of customer loyalty.

Based on the above background, the aim of this paper is to investigate the mediation effect of customer satisfaction on the relationship between service quality, service orientation, and the marketing mix strategy and customer loyalty. This research used the telecommunications service product categories with a number of products available on the market. In this research, the telecommunications products studied were the telecommunications service products of mobile phone providers with various features as the research objects. Originality for this paper consists of: the mediation effect (using the Sobel test) of customer satisfaction on the effect of service quality, service orientation, and the marketing mix strategy on customer loyalty and research site (no previous research investigating this relationship): telecommunications services in Malang, Indonesia.

2. Theoretical review

Marketing is one of the main activities conducted by a company in order to survive. Among the various functions within a company, marketing is a function that has more contact with consumers/customers. The essence of modern marketing thinking and practice today is to understand, create, communicate, and provide value and satisfaction to customers. Therefore, a company needs to know how to market a product or service properly in order to make the product or service produced not only can meet customers’ needs but also, more than that, to provide satisfaction to the customers.

Needs are the most fundamental concept in marketing. Human needs refer to a state in which humans feel deprived and will do anything to meet their needs. Meanwhile, desires constitute human needs shaped by individual culture and personality. Humans have almost unlimited desires with limited resources. So, they will choose a product that delivers the highest value and satisfaction in exchange for the money they have. When the desire is supported by purchasing power, it results in a demand.

Quality has varied definitions such as “fit for use,” “fulfillment of requirements,” and “variation” (Kotler, 2007). The American Society for Quality (Kotler, 2007) defines quality as the totality of features and characteristics of a product or service that bear on its ability to satisfy expressed or implied needs. This definition clearly illustrates that quality is customer centered. The definition also implies that a company has been delivering its quality if its products or services have met or exceeded the needs, requirements, and expectations of the customers. A company that typically satisfies the needs of almost all of its all customers is a high-quality company.

Service quality which is often abbreviated to Servqual (Service Quality), according to Zeithaml et al. (1998), is the comparison between two main factors, namely, the customer perception on the real received/perceived service and the actual expected/desired service. If the reality is better than the expected service, the service can be said to have high quality. Meanwhile, if the reality is same as the expected service, then the service is considered satisfactory. Conversely, if the reality fails to meet the expected service, then the service can be said to have low quality.

Basically, the concept of quality is relative, depending on the perspective used to determine the characteristics and specifications. Actually, there are three quality orientations that should be consistent between one another, namely, consumer perception, product/service, and process. For goods, these three orientations are almost always clearly distinguishable, but not for services. For services, the product and the process may not be distinguishable even the product is the process itself. The consistency of the quality of a service for these orientations can contribute to the success of a company in terms of customer satisfaction, employee satisfaction, and profitability of the organization.

In the more competitive situation of global competition, the issue of product quality, both goods and services, becomes the central issue for every company. A company’s ability to provide high-quality products will be a weapon to win the competition since customer satisfaction is achieved by providing high-quality products. However, the word quality becomes confusing when it should be perceived in the same way by everyone. Therefore, companies should determine the exact definition and have the accurate understanding of the so-called quality in the right way.

At the beginning, the theory of customer satisfaction is conceptualized in a simple way, that is the expectation of how the service will perform its function. However, findings of the research conducted by Wooddrulff and Gardial (1996, in Indarti et al., 2017) prove that there are varied comparisons used and even varied throughout the process of consumption. The other standards besides expectations used to make a comparison are the ideal product, product competitors, other product categories, the promise of marketers (created through marketing), and industry norms (Woodrulff and Gardial). Customer satisfaction can be defined as pleasure perceived by customers when evaluating a particular product or service which they have used. Czepiel (1990) expresses that “because satisfaction defines (and can be measured) the discrepancy between expectation and perceived reality, a firm can change its customer satisfaction without changing its offering at all.”

Loyalty is a psychological condition related to attitudes toward a product, consumers will form their beliefs, whether they like it or not, and decide whether they want to buy the product or not (Ajzen, 1988: in Hasan, 2008). In business, customer loyalty plays an important role in a company as maintaining customers means improving financial performance and maintaining the viability of the company. It is the main reason for a company to maintain its customers. To obtain the consumers loyal cannot be done all at once, but through several stages starting from obtaining potential customer until obtaining partners.

3. Research methodology

This is explanatory research which intends to examine and explain the simultaneously casual relation between variables by examining the research hypotheses. This research also explains the respondents’ perception (explanatory perceptional research) because this research is connected with the behavior of human beings. The research population consisted of all customers of mobile phone providers domiciled in Malang in 2016. Since it was impossible to get the exact number of customers, the number of the population in this research was infinite. The sample consisted of 200 respondents.

The analysis tool used was the structural equation modeling (SEM). SEM is a multivariate statistical technique which allows the testing of a series of causal relationships between variables simultaneously so as to provide statistical efficiency. Each exogenous and endogenous variable can be either a latent or unobservable construct that can be measured directly in the research process (Hair et al., 2013).

4. Research findings

4.1 Goodness of fit in SEM

Criteria were established and used to examine whether the proposed models have compatibility with the data or not. The criteria consisted of model fitting: the degree of freedom (DF) must be positive and a χ2 value which is insignificant is required (p⩾0.05) and is above a conservative one is generated (p=0.10) (Hair et al., 2013), the incremental fit is above 0.90, that is the goodness of fit index (GFI), adjusted GFI (AGFI), the Tucker-Lewis Index (TLI), the minimum sample discrepancy function (CMIN) divided by the DF and the comparative fit index (CFI), and the root mean square error of approximation (RMSEA) are the lowest. The following criteria presented models as well as critical values that have compatibility data (Table I).

From the evaluation of the model, it is shown that of the eight criteria of GFIs, only three of them do not meet the criteria of the AGFI, but the values are approaching the critical value. As for the χ2 value and the probability value, due to a very large sample size (n=200), sig. probability cannot be taken into account (Hair et al., 2013) so that it can be concluded that the overall model can be said to have been in accordance with the data and can be analyzed further.

4.2 Hypothesis testing

Based on the empirical model proposed in this research, hypothesis testing was conducted using the path coefficients on SEM. Table II presents the results of the hypothesis testing, in which if the p-value is less than 0.05, then the relationship between variables is significant. The test results are presented in Table II (Figure 1).

The analysis shows that service quality, service orientation, and the marketing mix strategy have a significant effect on customer satisfaction, which means that H1, H3, and H5 are accepted. Likewise, service orientation and customer satisfaction have a significant effect on customer loyalty, which means that H4 and H7 are accepted. On the other hand, service quality and marketing mix strategy do not have a significant effect on customer loyalty (direct effect). Based on the Sobel test to investigate the mediation effect, it can be seen that customer satisfaction serves as a mediation variable in the relationship between service quality, service orientation, and the marketing mix strategy and customer loyalty, which means that H2, H4, and H6 are accepted under some conditions (by using the mediation effect).

5. Discussion

Findings of the research show that the service quality in the telecommunications sector, especially in mobile phone providers, has a positive relationship with and a significant effect on customer satisfaction. The reason is that the service quality provided by mobile phone providers to its service users manages to make its customers significantly satisfied with it. Service quality consists of a number of dimensions, namely, responsiveness (fast and accurate responsiveness), tangibility (physical appearance), empathy (sincere and individual attention), reliability (reliable, timely, accurate and exact services), and assurance (guarantee/assurance in capabilities of the company/mobile phone provider). All of those dimensions are significant to meet the expectation, achievement, suitability, and the desired satisfaction of the customers of mobile phone providers. Perception of service quality is defined as perception or impression relating to the service quality of a telecommunications service provider perceived by customers. Findings of this research show that the customers perceived the service quality provided by the company as meeting their expectation. This suggests that what customers expect from the service quality is the same as what they perceive. It means that the mobile phone provider manages to provide service quality expected by its customers, so that the service quality is able to provide satisfaction to its customers. Thus, in evaluating service quality provided by a company or organization, the service quality should meet customers’ expectation that can lead to satisfaction.

Service orientation of telecommunications services has a positive relationship with and a significant effect on customer satisfaction. It means that if the mobile phone provider always conducts service orientation, it can improve customer satisfaction. The strong effect of service orientation on customer satisfaction is because the service orientation provided by a mobile phone provider is perceived positive by its customers. Significantly, in terms of service quality that proves significant to give satisfaction to customers, service orientation has a positive and significant effect on customer satisfaction. The findings of this research do not support the findings of the research conducted by Fornell (1992), which suggests that service orientation will positively and significantly affect customer satisfaction, which, in turn, will also affect customer loyalty. Furthermore, the findings of this research do not support the findings of the research conducted by Utari (2004) in the aviation industry, which suggest that airlines that conduct service orientation will be able to improve customer satisfaction.

The marketing mix strategy of telecommunications services, especially for mobile phone providers, has a positive relationship with and a significant effect on customer satisfaction. This positive effect shows that the indicators of the marketing mix will determine the level of their satisfaction (Ostrowski et al., 1993) and since the resulting effect is significant, the indicators of the marketing mix strategy applied by the company have an effect on customer satisfaction of users of mobile phone provider products. It means that when the indicators of the marketing mix strategy applied by the company to the customers of mobile phone provider products, the customers are satisfied with what they feel. Theoretically, the findings of this research support the findings of previous research conducted by Ostrowski et al. (1993) that the marketing mix determines the level of customer satisfaction, but empirically, these research findings are in contrast to the findings of previous research conducted by Voss et al. (1998) in the hospitality industry which find out that the marketing mix strategy does not have a significant effect on customer satisfaction. On the other hand, these findings are different from the findings of previous research in relation to the significant and insignificant effects of the marketing mix strategy on customer satisfaction. Differences in findings between the present research and the previous research are on the object, location, time, population, and the sample size, which result in different research findings. Therefore, this research has its own peculiarities that distinguish it from the previous research.

Service quality has a negative relationship with and does not have a significant effect on the loyalty mobile phone provider’s customers. This negative effect cannot be separated from the poor service quality provided by mobile phone providers that does not have a significant effect on customer loyalty. Findings of this research show that customer satisfaction tends to have a mediation effect on the relationship between service quality and loyalty. Caruana (2002), shows that customer satisfaction does play a mediating role in the effect of service quality on service loyalty. The findings of this research also prove that the indicators of the variable service orientation have a positive relationship with but do not have a significant effect on customer loyalty. This is precisely the reason why the variable service quality has a positive relationship with but does not have a significant effect on customer loyalty. If customer satisfaction tends to be a moderator on the relationship between service quality and loyalty, as suggested by Caruana (2002), it proves true that service quality does not have a significant effect on customer satisfaction, which, in turn, also does not have a significant effect on customer loyalty. On the one hand, findings of this research support the theory suggested by Caruana (2002) that customer satisfaction can either strengthen or weaken the effect of service quality on customer loyalty. On the other hand, the findings of this research are different from those of previous research conducted by Zeitham et al. (1998) and Cronin et al. (2000) suggesting that service quality has a positive but insignificant effect on customer loyalty.

Mobile phone provider’s service orientation has a positive relationship with and a significant effect on customer loyalty. It means that if the mobile phone provider keeps conducting its service orientation, it will be able to improve customer loyalty. The strong effect of service orientation on customer loyalty is because the service orientation provided by a mobile phone provider is perceived satisfying by its customers. Findings of this research do not support the findings of the research conducted by Zeithaml and Bitner (2000), which state that the service and repair failures are the major causes of changes in customers’ attitudes toward an organization. Failures at conducting service orientation will cause customers to switch to other companies. It means that if a mobile phone provider can improve its services (by quickly responding to any complaints), then the customers will not switch to other telecommunications providers.

There is a positive relationship and an insignificant effect between the marketing mix strategy and customer loyalty among the users of mobile phone providers in Malang. It indicates that the marketing mix strategy used by the company can improve loyalty to the company through customer satisfaction. The fulfillment of expectations and the suitability of the marketing mix that customers want by a mobile phone provider will create loyalty among its customers. Thus, the marketing mix highly determines loyalty, as reflected by the attitudes to buy mobile phone provider’s products, recommends them, and give positive feedback about the mobile phone provider to other people/parties. Customer loyalty plays an important role in a company as maintaining customers means maintaining the viability of the company. These become the main reasons for a company to attract and maintain its customers. The efforts to get and maintain loyal customers cannot be done all at once, but through strategic stages and policies. One of them is the policy of the marketing mix strategy which is believed to improve customer loyalty through customer satisfaction.

There is a positive relationship and a significant effect between customer satisfaction and loyalty of mobile phone provider service customers in Malang. It indicates that the higher the level of the perceived customer satisfaction is, the higher the level of loyalty is, and conversely, the lower the level of the perceived customer satisfaction is, the lower the level of loyalty to the telecommunications service industry is. The fulfillment of expectancy, suitability, and achievement of services provided by a mobile phone provider will result in customer satisfaction, which, in turn, will result in customer loyalty. Thus, customer satisfaction highly determines customer loyalty, as reflected by the attitudes to use and recommend the products of a mobile phone provider and convey positive feedback about the mobile phone provider to other people/parties. These findings support the theory and findings of previous research conducted by Ostrowski et al. (1993), Kandampully and Suhartanto (2000), Bowen and Chen (2001), and Caruana (2002), which state that customer satisfaction has a significant effect on customer loyalty. The significant effect of customer satisfaction on customer loyalty in the telecommunications industry supports the findings of the research conducted by Utari (2004) and Abadi (2007).

The findings of this research show a significant relationship with customer loyalty through satisfaction of the customers of mobile phone provider services in Malang. It means that the overall indicators of service quality, service orientation, and the marketing mix strategy will have a significant effect on customer loyalty when customers feel satisfied with the product/service since the first time they use it. Thus, customer satisfaction highly determines customer loyalty. The findings of this research are supported by the theory and findings of previous research conducted by Caruana (2002), Zeitham et al. (1998), and Cronin et al. (2000), which state that customer satisfaction tends to be a mediator in the relationship between service quality, service orientation, and the marketing mix strategy and customer loyalty; thus customer loyalty will be the key to success, not only in the short term, but also in a sustainable competitive advantage. Customer loyalty has a strategic value for the company and a number of other brands that cannot be separated from the strong bond among its customers, namely, loyalty.

6. Conclusions and suggestions

On the basis of the research findings and discussion relating to the effect of service quality, service orientation, and the marketing mix strategy on customer satisfaction and loyalty, the following conclusions can be drawn: service quality, service orientation, and the marketing mix strategy have a significant effect on customer satisfaction, which means that H1, H3, and H5 are accepted. Service orientation and customer satisfaction have a significant effect on customer loyalty, which means that H4 and H7 are accepted. On the other hand, service quality and the marketing mix strategy do not have a significant effect on customer loyalty (direct effect). Based on the Sobel test to investigate the mediation effect, it can be seen that customer satisfaction serves as a mediation variable in the relationship between service quality, service orientation, and the marketing mix strategy and customer loyalty, which means that H2, H4, and H6 are accepted under some conditions (by using the mediation effect). Based on the conclusions of the research findings, there are some suggestions that become the implications of the research findings. First, the service quality provided by the telecommunications industry needs to be improved in order to improve customer satisfaction and loyalty, especially for the mobile phone providers in Malang. Second, customer satisfaction and loyalty can be improved by improving service orientation. A mobile phone provider, which is aware of its shortcomings and responds to such a condition by fixing them immediately, is a company that has a better prospect of progress compared with the other companies that are not responsive to making improvements. It means that service orientation is needed in order to improve customer satisfaction and loyalty. Third, in order to maintain and improve customer loyalty through improved service quality, the management of mobile phone providers should pay attention to the special directly related process of services to the customers such as ease in terms of administrative services, good networks, addition of BTS, and, more importantly, improvement on customers’ confidence toward the programs offered by the mobile phone provider. Lastly, determination of the marketing mix strategy adapted to the service quality offered is among the solutions to increase customer satisfaction and loyalty from the aspect of the marketing mix. Efforts made by a mobile phone provider in an attempt to win the competition, especially in the telecommunications business, are to apply an efficient marketing mix strategy and to provide services which are both satisfying and decent. Future research is expected to conduct a deeper analysis of the theory used in this research so that more complex measurement of the indicators can be undertaken.

Figures

Analysis results for the mediation effect of customer satisfaction on the effect of service quality, service orientation, and the marketing mix strategy on customer loyalty

Figure 1

Analysis results for the mediation effect of customer satisfaction on the effect of service quality, service orientation, and the marketing mix strategy on customer loyalty

Critical evaluation of the goodness of fit in SEM

Goodness of fit index Cutoff value Resulting model Conclusion
Probability ⩾0.05 0.000 Marginal
CMIN/DF ⩽2.00 1.940 Fit
RMSEA ⩽0.08 0.056 Fit
GFI ⩾0.90 0.847 Marginal
AGFI ⩾0.90 0.805 Marginal
TLI ⩾0.95 0.642 Marginal
CFI ⩾0.95 0.573 Marginal

Hypothesis testing of the proposed model of SEM

Direct effect
Hypothesis number Exogenous variable Endogenous variable Standardized coefficient Critical ratio p-value Conclusion
H1 Service quality Customer satisfaction 0.236 2.663 0.008 Significant
H2 Service quality Customer loyalty −0.053 −0.678 0.498 Insignificant
H3 Service orientation Customer satisfaction 0.335 2.583 0.010 Significant
H4 Service orientation Customer loyalty 0.404 3.313 0.000 Significant
H5 Marketing mix Strategy Customer satisfaction 0.28 2.113 0.035 Significant
H6 Marketing mix strategy Customer loyalty 0.125 1.085 0.278 Insignificant
H7 Customer satisfaction Customer loyalty 0.463 5.24 0.000 Significant
Mediation effect (indirect effect)
Exogenous variable Endogenous variable Mediation variable Standardized coefficient Conclusion
Service quality Customer loyalty Customer satisfaction 0.109 Significant
Service orientation Customer loyalty Customer satisfaction 0.115 Significant
Mix marketing strategy Customer loyalty Customer satisfaction 0.130 Significant

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Corresponding author

Adji Achmad Rinaldo Fernandes can be contacted at: fernandes@ub.ac.i