Loyalty program and its influence on customer loyalty on mobile service with customer satisfaction as a mediating variable

This study aims to analyze 1) the influence of loyalty program benefits on customer satisfaction, 2) the influence of loyalty program on customer loyalty, 3. the influence customer satisfaction on customer loyalty, and 4) the role of customer satisfaction in mediating the relationships of customer loyalty program and customer loyalty to mobile service providers in Jambi City. To test the benefits between the constructs, a model was developed as a conceptual framework of the research. A total of 202 samples were collected from mobile user population in Jambi city. Structural Equation Modeling (SEM) with Smart PLS was applied to assess the research model and to test the hypothesis. The result confirmed that the influence of loyalty program benefits directly and significantly affect customer loyalty at coefficient path 0,237 (t statistics = 2,669 < table 1, 96). Customer perceptions significantly affects customer satisfaction at coefficient path 0.625 (t statistical = 2,669 > T table 1, 96). Customer satisfaction also has significant effect on customer loyalty at path coefficients 0.256 (t stats = 2,893 > T table = 1, 96), and it partly mediate the relationship between Loyalty Programs and customer loyalty


Introduction
Indonesia's mobile industry has undergone rapid development and growth over the past decade. Along with the development, the number of mobile customers also experienced a considerable increased. During the year of 2013 -2017, the number of mobile phone subscribers increased almost twice its fold with a growth of 9.73 percent per year. On the other hand, however, diffusion rate or accumulated percentage of the adoption of new mobile products or services is stagnant. This is an indication that the market has reached its saturation stage. In such situation, high competition among the mobile provider in the industry is inevitable. The services providers experienced unstable sales, cash flow and profit sustainability. Attracting new customers and retaining existing customers are not only difficult but also costly (Kim et al., 2004). Churn rate becomes higher as Zoratti (2012) revealed that the average mobile user switched carriers every 48 months to take advantage of the low cost and benefits of signing a new contract. Matzler et al., (2015), argued that the increasing competition and declining customer loyalty account for the situation.
Keropyan and Gil-Lafuente (2012) posited that in an increasingly intense competition, loyalty program can provide great benefits for mobile providers. The same thing also argued by Dorotic et al., (2012) who argued that the marketing strategy of a company should have shifted from efforts to acquire new buyers to the effort to maintain customer loyalty. Mobile services must utilize existing consumers to increase their profits (Czajkowski and Sobolewski, 2016).
One of the most popular strategies to maintain market share for companies engaged in a service industry is to apply loyalty program (Baran, Strunk, & Galka, 2008). A number of previous research have studied loyalty programs in various aspects, such as how customers perceive the benefits of the loyalty programs (Bose & Rao, 2011;Radder et al., 2015), developed a scale to measures the key benefits that the customers perceived when they participate in the loyalty program (Mimouni-Chaabane & Volle, 2010); Impact of hedonic and utilitarian values on customer satisfaction and behavioral intention (Hanzaee & Rezaeyeh, 2013); The relationship between the program benefits (Omar et al., 2015), the linkage between the perceived benefits of the retail loyalty programs (Kim et al., 2013;Omar et al., 2015). Nevertheless, there is not researcher focusing their on the influence of customer loyalty programs towards customer satisfaction and loyalty in the mobile telecommunication services sector. This study, therefore, will examine the effect of loyalty program on customers loyalty to mobile services and the role of customer satisfaction in mediating the relationship between loyalty program and customer loyalty.

Literature Review
Customer loyalty is an essential element for organizational success and profitability. Scholars and practitioners have explored the various benefits of customer loyalty and competitive advantage in every business environment that is very high in competition (Seto-Pamies, 2012;Saleem, Zahra, Ahmad, & Ismail, 2016). Pan et al., (2012) for example explained how creating and personifying customers helped companies build long-term relationships with mutually beneficial customers. Loyal customers demonstrate engagement and commitment to the company and are not interested in competitor offerings (So et al., 2013). Loyal customers want to pay more, show higher buying intentions and do not want to move to competitors (Evanschitzky et al., 2012). Dehghan and Shahin (2011) posited that consumers who demonstrated their loyalty to a service were more likely to re-purchase more and spend more money to buy.
Chi-Chen, Chang, & Chuang (2016) in their study revealed that to maintain business amidst the competitive environment many companies used defensive strategies. Seto-Pamies (2012) posited that Loyalty program had ability to sustain customers and transformed them into loyalty. It provided incentives to customers to strengthen advanced marketing exchanges with customers and acquired their coordinated and membership-based loyalty (Sandada and Matibiri, 2015).
Previous research also revealed that loyalty programs were instrumental to ensure customers satisfaction and to retain their loyalty (Bahri-Ammari & Bilgihau, 2017). Satisfied customers are customers who are also members of a loyalty program, and they tend to be more loyal and less sensitive to prices (Omar, Aziz, & Nazri (2011) posited that customer satisfaction mediate the relationship between loyalty programs and customer loyalty. Other literature further revealed that the loyalty program was the antecedent of customer satisfaction (Soderlund & Colliander, 2015) and customer satisfaction is the antecedent of customer loyalty (Kandampully, Zhang, & Bilgihan, 2015). Further argument suggests that customer satisfaction is one of the antecedents of customer loyalty that tends to conform to the emotions and cognition of the customer (Vesel & Zabkar, 2009) and other factors needed to prevent any customer defection.

Conceptual framework and research hypothesis
Based on the literature reviews, we can develop the conceptual framework of this study and the research hypothesis. Figure 1  Based on the research conceptual framework, the hypothesis are proposed as the following: Hypothesis 1 : Perceptions of customer loyalty program benefits positively and significantly directly affect customer loyalty. Hypothesis 2 : Perception of customer loyalty program benefits positively and significantly affects customer satisfaction. Hypothesis 3 : Customer satisfaction positively and significantly affect customer loyalty. Hypothesis 4 : Customer satisfaction mediate the relationship between loyalty program and customer loyalty.

Research Method
Data was collected from mobile operator customers of in Jambi City using survey method. The questionnaires of loyalty program variable adopted Mimouni-Chaabane and Volle (2010) and customer loyalty variable adopted Zhang and Lu (2014). Both quesionnaires were measured using 5-digit Likert Scale range from 1 = strongly disagree to 5 = strongly agree. The customer satisfaction questionnaire adopted Xuanzhang and Feng (2009) and measured using a 5-digit scale ranging from 1 = very dissatisfied to 5 = very satisfied. The target population was all customers of mobile service in Jambi city. The samples were chosen using non-probability sampling and the sample size was determined in accordance with Structural Equation Modeling (SEM) requirements, which is Maxsimum Likehood (ML) method by Hair, et al. (1998). The recommended sample size, therefore, was between 100-200. SmartPLS version 3 was applied to test hypothesis, the model fitness and further evaluate the validity and reliability of the research construct.

Result and Discusssion
This study research applies Partial Least Square (PLS) analysis approach to test the research hypotheses. The empirical results of the research model is represented in Figure 2 below:

Figure 2. Structural Model
The construct reliability, convergent validity, and discriminant validity test to all constructs indicate sufficient reliability and validity. All composite reliabilities (ρ) were above 0.70. All average variance extracted (AVE) values were greater than 0.50, and the AVE for each construct was greater than the squared correlation with any other construct, indicating sufficient convergent and discriminant validity. Table 1 below contains sample mean, t-values, p values of each construct. It can be concluded from table 1 below that H1, H2, H3 are accepted as their P Values < 0.05. CS and LP positively and significantly affect CL and LP also positively and significantly affects influence CL. A follow-up analysis explored the mediating role of customer satisfaction. As can be found in table 2 below, LP and CL Customer Loyalty with CS mediates the relationship between, with CS as a mediating variable was proven by P value < 0.05. The mediation testing using VAF method reveals that the direct influence is significant (a) when CS variable was not incorporated into the model. When CS variable is inserted into the model, the indirect effect (b x c) is also found to be significant. The paths b and c are also significant. Variance Accounted For (VAF) is calculated to determine whether CS play as fully or partially mediator: Refer to Hair et al. (2013), the value of VAF is 41.0% which mean the customer satisfaction variables partially mediate the relationship between loyalty program and customer loyalty.

Discussion
This study makes a contribution to the existing body of knowledge of customer behavior literature by establishing and testing the mediating effect of customer satisfaction in the loyalty program and customer loyalty relationship in the case of Jambi city. There are some previous researchers who studying the relationship between loyalty program and customer loyalty including the mediating role of customer satisfaction. However, there is shortages of research on the mediating effect of customer satisfaction on the relationship between loyalty programs and customer loyalty specifically in mobile services.
Our findings support the hypothesis that loyalty program significantly and positively affect customer satisfaction, consistent with findings studies by Martaleni (2017) and Sugiati (2017). Customer satisfaction has also found to be significantly and positively impact on customer loyalty. The same finding is found in many previous research such as Matabiri, 2015;Kang, Alejandro, and Grosa, 2015). By and large, the findings of the current study provide tentative support to the proposition that loyalty programs and customer satisfaction should be recognized as significant antecedents for customer loyalty in the context of mobile service.
The role of customers satisfaction in the relationship between loyalty program and customer loyalty is found to be a partial mediator (quasi mediation), consistent with this research finding in the study by Al Mansour et al (2015). It means that customer satisfaction does not play importance role in the relationship between loyalty program and customer loyalty. Thus, customer satisfaction does not necessary play important role as a mediating variable between loyalty programs and customer satisfaction

Conclusion
The study has revealed loyalty program and customer satisfaction both have positive and significant effect on customer loyalty. Loyalty program also has positive and significant influence on customer satisfaction. Customer satisfaction, therefore, play partial mediation in the relationship between loyalty program and customer loyalty.