Service Quality, Customer Satisfaction and Customer Loyalty:
Preliminary Findings
Abror Abror, Dina Patrisia and Yunita Engriani
Department of Management, Universitas Negeri Padang, Jl. Prof Hamka, Padang, Indonesia
Keywords: Shariah bank, Service quality, Customer satisfaction, Customer loyalty, Structural Equation Modelling
(SEM)
Abstract: Shariah banking is an emerging business recently. One of the important factors in managing the Shariah
business, such as the banking sector, is how to create customer loyalty. This preliminary study examines the
influence of service quality and customer satisfaction on Shariah bank’s customer loyalty. The population of
this study is the customers of Shariah banks in West Sumatera. We used Structural Equation Modelling
(SEM) with Partial Least Squares (PLS) as the data analysis. This study found that the service quality has a
positive and significant impact on customer satisfaction. Customer satisfaction is also a significant and
positive antecedent of loyalty. Surprisingly, we found that service quality also has a positive and significant
influence on customer loyalty. Hence, the link between service quality and customer loyalty has been
partially mediated by customer satisfaction. Furthermore, some limitation and future study are discussed.
1 INTRODUCTION
The banking industry is an important sector in
the financial system in Indonesia and it has the
biggest market share in the financial industry
(Darsono et al., 2017). According to the Financial
service Authority survey in 2016, the financial
inclusive index in Indonesia is 67,82% (Otoritas
Jasa Keuangan, 2017). Hence, it means that 67.82%
of Indonesian people have employed the financial
service in their business activities.
Furthermore, Indonesia is the biggest Muslim
population country in the world. In the Islamic
perspective, all activities, including business and
economics have to consider the Shariah law
(Darsono et al., 2017). Therefore, we need another
banking system which adaptable to the Shariah law.
The Indonesian government has created special
regulation for the Shariah banking which is
compatible with the Shariah law. Consequently,
some new Shariah banks have been established, such
as Bank Muamalat, Bank Syariah Mandiri and some
Shariah branches from conventional banks.
However, the participation rate of the people to use
this Shariah banks is still low (11.06%) in 2016
(Otoritas Jasa Keuangan, 2017). This situation has
also happened in West Sumatera. In contrast, West
Sumatera or Minang Kabau is well-known as the
religious province where its motto is “Adat Basandi
Syara’, Syara’ Basandi Kitabullah”. This motto
means that all activities in the Minang Kabau culture
should be based on The Al-Quran law. Presumably,
the Shariah banks should be more acceptable in
West Sumatera, however, we found the contrary
evidence. Hence, the study on this situation is
needed.
One important factor in managing a service
business such as a bank is how to create customer
loyalty (Bruneau et al., 2018). When the customer
loyal to the product or brand, they will recommend
that product to other people and that product will be
more acceptable by the customer. Accordingly, we
assume that this problem is a potential factor for the
lower participation rate of the customer on Shariah
banking in Indonesia (Kamran-Disfani et al., 2017).
According to Murali et al. (2016), loyalty is the
result of an organization creating a benefit for a
customer so that they will maintain or increase their
purchases (p.69). Loyalty has some influence
factors, such as customer satisfaction, customer
engagement and service quality (Han and Hyun,
2018, Kamran-Disfani et al., 2017, Meesala and
Paul, 2018, Bruneau et al., 2018, Vera and Trujillo,
2013). However, research which focuses on the
Shariah banking is still limited (Hassan and Aliyu,
14
Abror, A., Patrisia, D. and Engriani, Y.
Service Quality, Customer Satisfaction and Customer Loyalty: Preliminary Findings.
DOI: 10.5220/0008436300140019
In Proceedings of the 4th Sriwijaya Economics, Accounting, and Business Conference (SEABC 2018), pages 14-19
ISBN: 978-989-758-387-2
Copyright
c
2019 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
2018). This study aims to examine the link between
service quality, customer satisfaction and customer
loyalty. This study is a preliminary study. It will
contribute to give a better understanding of how
service quality affects customer satisfaction and
customer loyalty and how customer satisfaction
influences the customer loyalty.
2 LITERATURE REVIEW
2.1 Customer Loyalty
Customer loyalty is an important factor in
managing service such as banking sector (Kamran-
Disfani et al., 2017). According to Thakur (2016a),
“loyalty is a customer's intention or predisposition to
purchase from the same seller or the same brand
again and is an outcome of the conviction that the
value received from the said seller/ brand is higher
than the value available from other alternatives”
(p.153).
Han and Hyun (2018) argue that loyal customers
bring enormous advantages to every firm, such as
allowing for a continuous profit stream and
reduction of marketing/promotion costs (p.75).
Loyalty has some antecedents, such as customer
satisfaction, customer engagement, service quality
and customer perceived value (Akamavi et al., 2015,
Han and Hyun, 2018, Bruneau et al., 2018, Raïes et
al., 2015). According to Meesala and Paul (2018),
customer loyalty can be measured by using some
items, such as intention to buy more products,
prefers to buy that product compared to the
competitor and the willingness to recommend the
product to other potential customers.
2.2 Service Quality
Miranda et al. (2017) assert that service
quality is the customer’s perceived value of the
service by comparing between perceived quality and
service expectation. Furthermore, Parasuraman et al.
(1988) have defined 5 dimensions of service quality,
including tangible, assurance, reliability,
responsiveness and empathy. Moreover, Miranda et
al. (2017) have asserted 8 dimensions of service
quality which are expanded from the Parasuman’s
model. They added three more dimensions,
including comfort, connection and convenience.
According to some prior studies, service quality has
a close relationship with customer satisfaction and
customer loyalty (Miranda et al., 2017, Meesala and
Paul, 2018). Hence, the next part discusses the
customer satisfaction construct.
2.3 Customer Satisfaction
Murali et al. (2016) assert that customer
satisfaction can be perceived as the degree to which
customer expectations of a product or service are
met or exceeded as against the perceived
performance (p.68). Customer satisfaction is the
result of an objective evaluation of a product or
service by comparing between customer perceived
value and customer expectation (Kamran-Disfani et
al., 2017, Meesala and Paul, 2018). Moreover, Han
and Hyun (2018) argue that customer satisfaction
refers to a pleasurable level of customer
consumption fulfilment. Accordingly, we argue that
customer satisfaction of Shariah bank’s customer is
the level of pleasurable consumption fulfilment of
the customer by comparing the expectation and the
perceived service quality. Some previous studies
argue that when a customer such as Shariah bank’s
customer is satisfied with the service quality, he/she
will be loyal to the bank in the future (Kamran-
Disfani et al., 2017, Meesala and Paul, 2018, Han
and Hyun, 2018, Murali et al., 2016, Thakur,
2016b).
2.4 Service Quality and Customer
Satisfaction
Some previous studies have found that
service quality has a significant impact on customer
satisfaction (Meesala and Paul, Miranda et al., 2017,
Murali et al., 2016, Vera and Trujillo, 2013).
Meesala and Paul (2018) have investigated the link
between service quality, customer satisfaction and
customer loyalty in 40 private Indian Hospitals.
They employed 180 undergone patients as the
samples. They found that service quality has a
significant impact on customer satisfaction.
Furthermore, Vera and Trujillo (2013) have found
that customer satisfaction in a consequence of
service quality. Accordingly, we argue that service
quality has a relationship with customer satisfaction
(Miranda et al., 2017). From the discussion above
we hypothesise that service quality has a positive
and significant impact on Shariah banks’ customer
satisfaction (H1).
Service Quality, Customer Satisfaction and Customer Loyalty: Preliminary Findings
15
2.5 Service Quality and Customer
Loyalty
Service quality might have a significant
effect on customer loyalty (Meesala and Paul, 2018,
Murali et al., 2016, Vera and Trujillo, 2013). Murali
et al. (2016) have examined the link between
customer satisfaction and customer loyalty in India.
They studied 510 customers of a home appliances
business. Their study found that service quality is a
significant antecedent of customer loyalty. Whilst,
Meesala and Paul (2018) have also studied the
relationship between service quality and customer
loyalty in 40 hospitals. They surveyed 180
undergone patients and found that service quality
has a direct and positive impact on customer loyalty.
In addition, Vera and Trujillo (2013) have also
revealed that service quality has a direct and indirect
positive relationship with customer loyalty.
Therefore, we argue that service quality is a positive
antecedent of customer loyalty, then, we propose a
hypothesis that service quality is a positive and
significant influence factor of customer loyalty (H2).
2.6 Customer Satisfaction and
Customer Loyalty
Many previous studies have found that
customer satisfaction has a significant effect on
customer loyalty (Han and Hyun, 2018, Kamran-
Disfani et al., 2017, Meesala and Paul, 2018, Murali
et al., 2016, Vera and Trujillo, 2013). Meesala and
Paul (2018) assert that one of the antecedents of
customer loyalty is the customer satisfaction. When
a customer has satisfied with the service quality,
he/she will loyal to the product or service. Murali et
al. (2016) have found a similar finding that customer
satisfaction will lead to the customer loyalty. We
argue that this relationship will also occur in the
Shariah banking sector. However, this relationship
has been investigated in other service sectors and the
study on this link is still neglected in the Shariah
financial sector. Therefore, we posit that customer
satisfaction will positively and significantly
influence the loyalty of Shariah bank’s customer
(H3).
3 METHODOLOGY
3.1 Sampling and Data Collection
Procedures
The population of this study is all customers of
Shariah banks in West Sumatera. However, for this
preliminary study, we only used 30 respondents as
the samples. The procedures of the data collection
are: First, we sent the questionnaires to the
customers of Shariah banks by using purposive
sampling method. The criterion of the respondent is
the respondent who has an active account in Shariah
Bank. After we got 30 responses, the collected data
have been coded and input to the SPSS programme.
3.2 Measurement
We have developed the measurement of
constructs based on the previous studies. This study
has three constructs, including service quality,
customer satisfaction and customer loyalty. First,
service quality measurement has been adopted from
Karatepe et al. (2005) who have revealed four
dimensions of service quality, including service
environment, interaction quality, empathy and
reliability. The sample of the items is “employees of
this bank always help customers”. Second, customer
satisfaction measurements have been adopted from
Meesala and Paul (2018). The sample of items is “I
am satisfied with the overall services of this bank”.
Finally, the measurement of customer loyalty has
been taken from Meesala and Paul (2018). This
construct has four items, for instance “. I will use
this Shariah bank in spite of the competitors’ deals”.
The data have been analysed by using Structural
Equation Modelling (SEM) PLS with Smart PLS-3
as the software tools package.
4 RESULT AND DISCUSSION
4.1 Result
Before the main analysis with PLS, we have
conducted some preliminary tests, such as normality,
multicollinearity and heteroscedasticity (Abror and
Akamavi, 2015, Wardi et al., 2018b, Patrisia and
Dastgir, 2017). We also have done the validity and
reliability test. Table 1 shows that all the constructs
have a good construct validity and reliability (Abror
and Akamavi, 2015) because we found that the
Cronbach’s alpha and Construct Reliability values
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are ≥ 0.70 and the Average Variance Extracted
values are ≥ 0.50 (Wardi et al., 2018a).
Table 1: Construct validity and Reliability
Variable
Cronbach’s
Alpha
Rho
A
CR
AVE
SERVQUAL
0.88
0.89
0.90
0.54
SATISFACTION
0.70
0.76
0.87
0.76
LOYALTY
0.86
0.87
0.91
0.71
CR= Construct Reliability, AVE= Average Variance
Extracted
We also conducted the discriminant validity test
by using the square root of AVE in Table 2. The
value of the square root of AVE in the diagonal
should be greater than the correlation (Hair et al.,
2013).
Table 2: Discriminant Validity
1
2
3
0.84
0.64
0.87
0.66
0.60
0.74
Note: Diagonal is the square root of AVE
Table 3: Construct Loading Factors
Table 3 shows the construct loading factors. This
study found that all the constructs have high loading
factors (≥ 0.50) (Hair et al., 2013). Hence, we argue
that all the constructs are valid. Furthermore, the
main analysis shows that service quality is a
significant and positive antecedent of customer
satisfaction (H1). The service quality also has a
significant and positive impact on customer loyalty
(H2). Finally, we also found that customer
satisfaction positively and significantly affects the
customer loyalty (H3). For the details please see
Table 4 and Figure 1.
Constructs
Items
Mean
Std.
Dev
Loa
ding
α
CR
AVE
Service Quality
0.88
0.90
0.54
Employees of this bank have neat appearances
4.53
0.57
0.70
Employees of this bank are polite to customers
4.40
0.57
0.83
Employees of this bank are experienced
4.20
0.66
0.64
Employees of this bank instill confidence in customers
4.00
0.61
0.79
Employees of this bank are understanding of customers
3.77
0.73
0.77
Employees of this bank serve customers in good manner
4.23
0.68
0.80
There is a warm relationship between employees of this
bank and
customers
3.80
0.85
0.61
Employees of this bank are willing to solve customer
problems
3.83
0.59
0.72
Satisfaction
0.70
0.87
0.76
I am satisfied with the overall services of this bank
4.10
0.81
0.61
The services of this bank meet my expectation
3.87
0.57
0.70
Customer
Loyalty
0.86
0.91
0.71
I will increase the amount of my saving
3.67
0.76
0.81
I will use this Shariah bank in spite of the competitors’
deals.
3.73
0.83
0.80
I would prefer to use additional products and services in
this bank
3.60
0.77
0.84
I will recommend this bank to others.
3.99
0.74
0.90
Service Quality, Customer Satisfaction and Customer Loyalty: Preliminary Findings
17
Table 4: Hypothesis Testing
Hypothesis
Coefficient
T
Statistic
P
Value
Servqual-
Satisfaction
0.59
6.47
0.000
Servqual-Loyalty
0.43
2.43
0.015
Satisfaction-
Loyal
0.39
2.38
0.018
Figure 1: Research Model
Moreover, based on the R
2
we found the
contribution of service quality on customer
satisfaction is 35% and the contribution of service
quality and customer satisfaction on customer
loyalty is 53%. Therefore, we argue that 47% of
customer loyalty will be influenced by other
variables.
4.2 Discussion
This study found that the service quality of
Shariah bank has a significant and positive impact
on customer satisfaction (H1). This finding is similar
with some prior studies (Meesala and Paul, Miranda
et al., 2017, Murali et al., 2016, Vera and Trujillo,
2013). For example, Meesala and Paul (2018) have
investigated the link between service quality and
customer satisfaction. They found that service
quality is a significant and positive antecedent of
customer satisfaction. Accordingly, when a Shariah
bank’s customer has perceived that he/she has got a
good service quality, he/she will satisfy with the
Shariah bank’s services.
This study has also found that service quality of
Shariah bank has a significant impact on customer
loyalty (H2). This finding is in line with some prior
studies (Murali et al., 2016, Vera and Trujillo, 2013,
Meesala and Paul, 2018, Mugion et al., 2018).
Murali et al. (2016) have asserted that service
quality also has a direct impact on customer loyalty.
They argue that when a customer has a good
perceived service quality, it will lead to a loyal
behaviour, such as want to do repurchase intention
or recommend that product to other people. In this
context, when a customer of Shariah bank has
perceived a high service quality, it will lead to a
better customer loyalty.
Furthermore, this study found that customer
satisfaction has a significant and positive impact on
customer loyalty (H3). This finding supports prior
studies, such as Han and Hyun (2018); Kamran-
Disfani et al. (2017) and Meesala and Paul (2018).
For instance, Han and Hyun (2018) have asserted
that customer satisfaction will lead to customer
loyalty. Hence, when a customer of Shariah bank is
satisfied with the service quality, he or she will be
loyal. For example, he/she will do more transaction
at the Shariah bank or will recommend that Shariah
bank to other people.
Finally, even though we found a significant
direct impact of service quality on customer loyalty,
this study has also revealed that service quality is a
significant and positive mediating variable on the
link between service quality and customer loyalty.
Hence, it means that the customer satisfaction has a
partial mediation impact on the link between service
quality and customer loyalty. Therefore, by
increasing the service quality, arguably, it will affect
customer satisfaction which has a direct impact on
customer loyalty.
5 CONCLUSIONS
This study has revealed that service quality and
customer satisfaction are the antecedents of
customer loyalty. Furthermore, we found that
customer satisfaction is a mediating variable
between service quality and customer loyalty. This
study is not free from some limitations. For
example, this is a preliminary study with a small
sample; hence, it should be followed by the main
study with a bigger sample size. For the main study,
we will use 400 respondents from Shariah Banks in
4 cities in West Sumatera. We select the cities based
on the Shariah Bank data from The Indonesia
Central Bank (Bank Indonesia). Second, this study is
a cross-sectional study; hence, it has a
generalisability problem. Therefore, for the future
study, we might expand it to a longitudinal study
where the results might have a good generalisability.
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ACKNOWLEDGEMENTS
We would like to thank to Universitas Negeri
Padang for its financial support, hence, by the
university’s research grant we can conduct this
study.
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