Effects of Service Quality and Corporate Image on Service Value and Its Impact on Customer

EFFECTS OF SERVICE QUALITY AND CORPORATE IMAGE ON SERVICE VALUE AND ITS IMPACT ON CUSTOMER LOYALTY TO CITILINK AIRLINE IN THE CITY OF MALANG

I Wayan Jaman Adi Putra

Departement of Management, Faculty of Economics,

Universitas Negeri Malang, INDONESIA

Abstract

This study seeks to discover these following items: (1) effects of service quality on corporate image; (2) direct and indirect effects of service quality and corporate image on service value; and (3) direct and indirect effects of service quality, corporate image and service valueon customer’s loyaltyto Citilink Airline in Malang. Data sources are obtained from customers of Citilink Airline in the city of Malang. One hundred and sixty respondents areselected using random sampling technique. Data is collected using questionnaire and interview. The analysis method is descriptive in which hypothesis testing is conducted using Path Analysis.Results of hypothesis testing are: (1) service quality are influencing positively and significant on the corporate image of Citilink. (2) service quality and corporate image directliesand indirectlies have positive and significant effects on the service value of Citilink (3) service quality, corporate image and service value directlies and indirectlies have positive and significant effectson customer loyalty of the of Citilink.

Key words: Service Quality, Corporate Image, Service Value, CustomerLoyalty

Introduction

One of the fastest growing service sectors in Indonesia is transportation services, i.e. land, sea and air transportation. The air transport services sector in Indonesia is experiencing quite a tight competition. This is evidentfrom the number of providers operating in Indonesia. Competition among airlines in Indonesia is getting even tighter as LCC (Low Cost Carrier) services are getting into the game. An LCC is an airline service that provides relatively inexpensive rates by removing some passenger services. This concept was introduced in the United States before it spread to Europe in the early 1990s and around the world. The way it is termed refers to the low cost operating structure in comparison to its competitors.

With the increase in air transport users plus the number of airlines competing in Indonesia, each airline offers a different experience for its clients. It is essential that an put the best effort to maximize the service quality and satisfaction perceived by customers who choose the flight services. Service quality provided by the airline company has to exceed customer expectations becauseit is highly related to the customer's perception of the service quality. Zeithaml (1996) and Haksever et al. (2000) defineservice qualityas the delivery of service superiorityin comparison to customer expectations. Therefore, service quality depends on the success of service providers to meet customer expectations consistently.

Airlines capable of delivering services beyond the expectations of customers will be deemed to have a good image. The public perception of a good airline will form a good image for the airline accordingly. Kotler and Keller (2012) suggest an image is the total perception of an object formed by processing information from various sources every time. Meanwhile, the image of the company according to Adona (2006) is the impression or mental impression or a picture of a company in the eyes of the audiences formed based on their own knowledge and experience. Image is one of the important assets of a company that should be continuously built and maintained, because the image has an impact on people perception of the company.

Faced with various selection ofprolific service products, customers always attempt to maximize the value of perceived service they are getting. Kotler and Armstrong (2004) said that maintain that customer delivered value is the difference between total customer value and total customer cost. The value for the customer is the ratio of the total value to the total cost incurred from purchasing or using goods or services from the customer. While the total value includes all values obtained from product value, service value, personnel value and image value; While the total cost includes monetary price, time cost, energy cost, and psychic cost. As a criterion to maximizing value, customers have an expectation of the value they will get and the offer will be evaluated whether it meets the expectation.

Customer loyalty to an airline in using air transportation is crucial to the sustainability of the airline. According to Kotler and Keller (2012) loyalty is a deeply held commitment to return or support a preferred product or service in the future even if the influence of a marketing situation and effort has a potential to turn the customers. Meanwhile, according to Oliver (2000), loyalty is an in-depth customer commitment to re-subscribe or make consistent buybacks in the future, even though the influence of marketing situations and efforts might cause behavioral changes. Customer loyalty is considered as a company asset that must be maintained and improved because it benefits the company in the long run, especially companies engaged in services.

The objective of this study is to investigate: (1) condition of service quality, corporate image, service value and customer loyalty of Citilink airline in Malang, (2) direct and indirect influence of service quality and corporate image on the value of Citilink airline service partially and simultaneously, and (3) direct and indirect influence of service quality, corporate image and service valueon Citilink airline customer loyalty.

Literature Review

1. Service Quality and Corporate Image

Corporate image is public perception of a company regarding its service, product quality, corporate culture, corporate behavior, or behavior of individuals within the company et cetera. Gronroos (1983), Kandampully and Suhartanto (2006), andO'Leary and Deegan (2005) have found that service quality has been considered as the single most important determinant of corporate image and argue that corporate image plays a key role on in influencing customer satisfaction. This statement is supported by Anderson and Lindestad (1998b) who propose that a high level of customer satisfaction increases behavioral intentions through the establishment of a positive corporate image. Furthermore, Hung (2014) states that the service quality comprises five components, namely reliability, responsiveness, assurance, empathy, and tangibles in which each has correlated indicator and positively affect the company image.

1. Effects of Quality Service on Perceived Value

The relation of service quality to the service value perceived by the customer was proposed by Tam (2000)to be highly related to service quality and satisfaction satisfaction.Brady,Robertson, and Cronin (2001) and Cronin,Brady, and Hult(2000) point out that service quality positively influences perceived value. Furthermore, Lin andWang (2006)and Bauer,Falk and Hammerschmidt (2006) found that previous studies have pointed to the positive relationship between service quality and perceived value which has been shown to cause loyalty among customers.

1. Effects of Quality Service onCustomerLoyalty

Despite companies might decide to spend less money to acquire new customers, they can also afford to spend money to constantly improve the quality of their products and services. In turn, it can also help with customer loyalty (Griffin 1997). In other words, when a company improves the quality of its services, then customer loyalty will be formed (Lai, Griffin, and Babin 2009,Balabanis, Reynolds and Simintiras 2006, and Guo,Xiao and Tang 2009). Additionally, Jamal (2009) asserts that the five dimensions of service quality have been shown to significantly influence customer loyalty. Additionally according to Chebat andSlusarczyk (2005) and Lee et al. (2008) much of the researches have shown that the emotions involved in service recovery have a strong relationship to customer loyalty.

1. Effects of Corporate Image on Customer Loyalty

Several previous studies suggest that a brand of a company is one of the main factors that provide customer satisfaction and loyalty (Andreassen andLindestad,1998b; Bloemer, Ruyter and Peeters 1998; and Johnson et al. 2001).It is believed that the tendency of the customer leans more towards the company image rather than towards the product.Brodie, Whittome, Brush (2009). and Hartman and Spiro (2005) maintains that consumers who develop apositive mental schema of a brand will tend towardshigher satisfaction and loyalty. Therefore, a positivecorporate image appears to encourage customer loyaltyto the service provider.According to KotlerBarich (1991) abetter understanding of the impact of corporate image on customer loyalty appearswarranted, given the current highly competitive environment and importance ofcustomer retention to a company’s bottom line. Above all,Kandampully and Suhartanto (2006),Clemes, Gan and Ren (2011) and Kaur (2012) suggest that corporate image has a positive influence on loyalty.

1. Effects of Service Value on Customer Loyalty

Customer perceived-value is defined as the perception about quality, social psychology, benefit and money (Bishop, 1984; Velimirović, Velimirović and Stanković 2011).It is also defined as the influence of value on customers’ purchase intentions (Lin, Sher and Shih 2005, Eggert and Ulaga, 2002, and Petrick 2002).Lin Wang (2006)andTung (2004)found positive relationship among perceived value and customer satisfaction. Many research scholars also found direct relationship of perceived value with word-of-mouth communication and repurchase intentions. Even further, Cronin, Brady and Hult (2000);Wang, Lo and Yang (2004); Yangand Peterson(2004); Sirdeshmukh, Singh and Sabol(2002) all propose that there is also positiveassociation found between consumer perceived value and customer loyalty.

Methodology

The research design used in this research is explanatory survey. The explanatory survey research is employed to explain: (1) the influence of service quality to the corporate image of Citilink airline in Malang, (2) the influence of direct and indirect service quality and corporate image on the service value of Citilink airline in Malang, and (3) the influence of service quality and the service valueon customer loyalty of Citilink in Malang. The sample is 160 respondents selected using random sampling technique. Data is collected using questionnaire and interview. Data analysis method is Path Analysis. Data collection is conducted in one shoot, which means that the information is obtained on a certain period of time, i.e. March 2017.

Findings

Path analysis is used to determine the effect of service quality, corporate image and service value to customer loyalty. The first substructure model is used to investigate the effect of service quality (X1) on corporate image (X2). The second substructure model is used to investigate the effect of service quality (X1) and company image (X2) on service value (X3). The third substructure model is used to investigate the effect of service quality (X1), corporate image (X2) and service value (X3) on customer loyalty (Y).

1. Direct Effects of Service Quality (X1) on Corporate Image (X2)

The equation for the first substructure model analysis is:

X2 = Px2x1 + Px2e1

Px2e1=

The result of path analysis is shown in Figure 1 and the calculation to find the direct effect of Service Quality (X1) on Company Image (X2) is shown in Table 1.

Figure 1.Substructure relationship between variables X1on X2

Table 1.Path Analysis Testing on Effects of Service Quality on Corporate Image

Path Analysistesting on Table 1 demonstrates real effects of service quality on corporate image which is evident from the path coefficient value of 0.776(77.6%) and direct effects of 0.5868 (58.68%). Therefore, customer perception on corporate image can be explained by service quality variable in 58.68%. The influence of other variables on corporate image is 0.4132 (41.32%).This signifies that service quality is capable of stimulating the escalation of corporate image formation on Citilink airline. This fact indicates that there are still many other variables affecting the service value of Citilink airline beyond service quality that have not been identified in this study and require further research.

1. Direct and Indirect Effects of Service Quality (X1) and Corporate Image (X2) on Service Value (X3)

The equation for the second substructure model analysis is:

X3 = Px3x1 +Px3x2 + Px3e2

Px3e2=

Results of path analysis testing are demonstrated on Figure 2. Path coefficient of service quality and corporate image on service value is demonstrated on Table 2. Direct and indirect effects of service quality and corporate image on service value are demonstrated on Table 3.

Figure 2.Substructure relationship between variables X1 and X2 onX3

Table 2 Path Coefficient of Service Quality and Corporate Image on Service Value

Table 3 Direct and Indirect Effects of Service Quality and Corporate Image on Service Value

Partially, the result of statistical test of Path Analysis in Table 3 shows the direct influence of service quality to the service value equal to 0.1232 (12.32%) and indirect influence of service quality to service value through company image equal to 0.0755 (7.55 %). Thus, the influence of the total sub-service quality to the value of the waiter is 19.87%. This means that the value of customer perceived service can be explained by the service quality variable sebesar 19.87%. While the direct influence of corporate image to the service value amounted to 0.0790 (7.9%) and indirect effect of corporate image on the service value through service quality of 0.0755 (7.55%). Thus, the influence of the total sub corporate image on the service values amounted to 15.45%. This implies that the value of customer perceived service can be explained by corporate image variable is 15.45%. The indirect influence of service quality on the service value through corporate image is 0.0755 (7.55%) and accordingly indirect effect of company image to service value through service quality equal to 0.0755 (7.55%). Thus, the influence of total service quality and corporate image to the service values amounted to 0.3532 (35.32%).

The cumulative effect of service quality variable and corporate image on service value is 35.32% and the effect of other variables outside these two variables is 0.6469 (64.68%). It indicates that there are still many other variables that influence the service value beyond the variable service quality and corporate image which require further study.

1. Direct and Indirect Effects of Service Quality (X1),Corporate Image(X2) and Service Value(X3) on Loyalty (Y)

The equation for the third substructure model analysis is:

X3 = Pyx1 +Pyx2 + Pyx3 + Pye3

Pye3=

Structural relationships among variable X1, X2,X3 and Y are demonstrated on Figure 3. Path coefficient of service quality, corporate image and service value on loyalty is demonstrated on Table 4. Direct and indirect effects of service quality, corporate image and service value on loyalty are demonstrated on Table 5. Total effects of direct and indirect effects of service quality, corporate image and service quality on loyalty are demonstrated on Table 6.

Figure 3 Structural Relationship among variabel X1, X2,X3and Y

Table 4 Path Coefficient of Service Quality, Corporate Image and Service Value on Loyalty

Table 5 Direct and Indirect Effects of Service Quality, Corporate Image and Service Value on Loyalty

Table6 Total Value of Direct and Indirect Effects of Service Quality, Corporate Image and Service Quality on Loyalty

Partially, path analysis testing as shown on Table 6 demonstrates direct effects of service quality (X1) on customer loyalty (Y) are 0.1149 (11.49%) and indirect effects of service quality on loyalty via corporate image (X1) and service value (X2)are0.1187 (11.87%). In total, the effect of service quality on loyalty is 0.213 (21.3%).Accordingly, customer loyalty can be explained by service quality variable by21.3%.

Direct effects of corporate image (X2) on customer loyalty (Y) are0.0645 (6.45%) andindirect effects of corporate image on customer loyaltyvia service quality (X1) andservice value (X3) are0.107 (10.7%). In total, the effect of service image on loyalty is 0.1715 (17.15%). Therefore, customer loyalty can be explained by corporate image variable by17.15%.

Direct effects of service value (X3) on customer loyalty (Y) are0.1149 (11.49%) andindirect effects of service value on customer loyalty via service quality (X1) and service image (X2) are 0.1063 (10.63%).In total, the effect of service value on loyalty is 0.2212 (22.12%). Therefore, customer loyalty can be explained by service value variable by 22.12%.

Cumulative effect of service quality (X1), corporate image (X2) and service value (X3) on customer loyalty is 60.57%. There are also effects of external variables beyond ones being investigated in the study which account for 0.3943 (39.43%). This is an indication that there are more variables affecting service value other than service quality and corporate image calling for further research.

Hypothesis testing of direct effects of service quality on corporate image shows t value is 14.967 and significance value is 0.000 (sig. < 0.05). On that account, it can be inferred that the service quality has a positive and significant impact on corporate image.Tests show that these results support the first hypothesis in this study. Hypothesis testing 2, i.e. to determine significance level of effects of service quality and corporate image on service value simultaneously shows F value = 0,000 <0,05. Thus, simultaneously service quality and corporate image have positive and significant effects on the service value of Citilink airline in Malang. Meanwhile Hypothesis testing 3, i.e. to determine significance level of effects of service quality, corporate image and service value to customer loyalty simultaneously shows F value = 0,000 <0.05.Hence—simultaneously—service quality, corporate image and service value have positive and significant influence to the loyalty of Citilink airline customers in Malang.