ABSTRACT
This study aims to analyze the effect of Customer Orientation of Service Employees (COSE) on customer retention, with customer satisfaction and customer commitment serving as mediating variables. The study distributed questionnaires to 292 consumers who are customers with installment financing and have active contract status in a multi-finance company. The sampling method used in this study is simple random sampling. The study tests seven hypotheses: (1) COSE has a direct effect on customer retention, (2) COSE has a direct effect on customer satisfaction, (3) COSE has a direct effect on customer commitment, (4) customer satisfaction has a direct effect on customer retention, (5) customer commitment has a direct effect on customer retention, (6) customer satisfaction mediates the relationship between COSE and customer retention, and (7) customer commitment mediates the relation- ship between COSE and customer retention. The results show that COSE has a positive and significant effect on customer satisfaction, customer commitment, and customer retention. Additionally, customer satisfaction and customer commit- ment both have a positive and signifi- cant effect on customer retention. The study further reveals that both customer satisfaction and customer commitment partially mediate the relationship between COSE and customer retention. All seven hypoth- eses were supported. Five hypotheses examined direct effects—specifically, from COSE to customer retention, customer satisfaction, and customer commitment, and from customer satisfaction and commitment to customer retention. The indirect effects through the mediating variables were also supported, though the mediation was partial.
However, the study has some limitations, particularly regarding the sample size and the criteria for respondents. Another limitation is that it analyzes only one exogenous variable (COSE). For future research, it is suggested that the sample criteria be broadened by expanding the geographical scope and exploring other exogenous variables, such as the elements of COSE, including technical abilities, social abilities, self-moti- vation, and
decision-making authority. For company insights, a longitudinal survey of the same customers over time could provide more valuable data. Furthermore, the COSE variable could be applied to other service industries, such as insurance, proper- ty, spas, beauty salons, hotels, restaurants, and banks.
KEYWORDS
customer commitment, customer orientation of service employee (COSE), customer satisfaction, customer retention, multi-finance company
INTRODUCTION
The development of the used car market has increased rapidly in recent years. During the ongoing covid-19 pandemic, the used car market can still rise and continue to spread its wings in Indonesia. The growth of the used car market and high public interest opens opportunities for financing institutions (multi-finance) to expand their credit services to fund debtors who purchase used cars (Paramacitra, 2022). Even though it was a pandemic Covid-19 condition, customer’s demand for used car increases. Other results of the pandemic were decrease of finance companies in Indonesia. In 2021, there were 223 financing companies, that is a decrease of 8.52% compared to 2020 (see Figure 1).
Multi-finance companies initially only provide credit for new cars, one of which is PT. X, are experiencing fluctuations in the company’s net profit from 2018-2022. High public demand for used cars initiates many multi-finance companies to offer credit for used cars. The development of the financing business continues to grow nowadays. The development of the multi-finance business continues to grow but PT. X multi-finance continues to experience a decline trend, so it can be interpreted that consumers’ desire to use PT. X’s service products is also decreasing.
Credit Marketing Officer (CMO) is the spearhead of the company in serving the credit needs of customers and acts as the company’s representa- tive in conveying the company’s own image. In practice, there are still complaints submitted by customers regarding the services they receive from the CMO of PT. X. The phenom- enon gap of this research is the development of the multi-finance business which continues to grow very fast through offline or online media. On the contrary, the develop- ment of the multi-finance business is inversely proportional to business development at PT. X which has experienced a decrease in net profit income and has not entered the Top Brand Index (2021) which indicates that PT X consumers do not have high commitment or other cause.
PT. X multi-finance experienced fluctuations in net income, especially in 2020, where the decrease was almost 65.76% compared to the previous year. Net income dropped again in 2022 (see Table 1). At a macro level, the decline in 2020 was caused by the COVID-19 pandemic. However, the decline in 2022 persisted. There- fore, aside from macroeconomic factors, it is important to investigate whether the trend is also influenced by micro factors, such as employee-re- lated issues.
Customer retention (CR) is influenced by many factors such as Customer Orientation of Service Employees (COSE). COSE refers to the ability and expertise possessed by employees to identify, understand, and fulfil customer needs and the actions they take to achieve these goals (Hennig-Thurau, 2004).
Customer satisfaction (CS) is often used to measure the comparison of customer expectations and experiences related to the services received (Hutchinson, et.al 2011). The more customers are satisfied, the higher the customer retention, that is, they will stay with the company (Ganguli & Roy, 2011).
Customer commitment (CC) to multi-finance companies varies according to products, customer segmentation and geographical location. Finance companies, especially multi-finance, require maintaining long-term relationships with their customer to gain more investment and credits for their company (N’Goala, 2007). Multi-finance companies require their employees to build intense and close relationships with their customers. Companies are required to offer financial products that suit their customer’s condition. High commitment affects customers retention, and not only measure conceptual level, but also to measure in operational and empirical level.
Based on the results of previous findings, several research gaps were found, namely in its development COSE has been widely used as research material in the object of travel and media agents (Hennig-Thurau, 2004), restaurants (Kim & Moon, 2009), the health sector (Ndubisi, 2012), hotels (Susskind et al, 2000), and private banks (Morales & Ruiz-Alba, 2019). Novelty of this research is the research object which is multi-finance companies in Indonesia. This study does not examine the effect of customer satisfaction on customer commitment because this study focuses on what factors affect customer retention instead of focusing on customer satisfaction on customer retention. This gap will be raised in this study, based on the background above, this study aims to see the effect of COSE on customer retention in multi-finance companies, using customer satisfaction and customer commitment as mediation.
LITERATURE STUDY
Multi-finance company is a business entity that carries out financing activities for products and services purposes. The outline of financing activities is to provide credit facility for debtor. As formulated in UU (Indonesian Constitution) number 10 of the year 1998 stated that credit is the provision of money that can be equated based on a lending and borrowing agreement between the financial service party and debtor with interest as reward. These activities will be stated in agreement between the creditor and debtor. Therefore, so that rights and obligations between creditor and debtor can have a good long-term relationship it’s important for both parties to build and maintain trust between each other.
COSE construct was introduced by several researchers related to marketing activities, specifically for service companies. COSE definition from Kelly (1992), was among the first researchers to study the construct of COSE. That the COSE of a service firm frontline employee is a crucial for business success. Brown et. al. (2002) stated that COSE is an individual’s tendency to meet customer needs in an on-the-job context. COSE is a composition of dimensions that covers the employee’s belief that they can fulfil customers wishes and enjoyment dimensions which represent the extent to which the employee enjoys interactions with customer. Hennig-Thurau (2004), COSE as employee’s behavior in intrapersonal relations, with 3 elements factor in COSE that is: an employee’s customer-oriented skills, motivation to serve customer, and self-perceived decision-making authority.
Based on several researchers’ definition, COSE can be concluded as intangible natural traits of service and high interaction level and integration with customer, COSE plays significant role in determining economic success for service company. There are four (4) elements of COSE that play significant role (Hennig-Thurau, 2004), that are:
1. technical skills, refers to the technical knowledge that service employees must possess to satisfy
customer needs in personal interactions.
2. social abilities, refers to employee’s ability to understand the customer’s point of view.
3. motivation, divided into 3 components. First, positive customer orientation behavior and its consequences. Second, employee perceptions of customer orientation. Third, the expectation of the desired outcome of a particular action.
4. decision-making authority, refers to the sense of authority that service employees must make decisions regarding each customer’s need.
Customer satisfaction has been studied in many marketing literatures, which most research results assume that customer transaction experience is the key to determine whether customers will do repeat order in the future (Senjaya, 2013). Customer satisfaction is the most used factor by managers because of their natural and general abilities to measure all types of prod- ucts or services (Rangkuti, 2018). In service’s market, customer satisfaction can be used to find out gap between customer’s expectation and experience, besides that customer satisfaction also reflect customer’s trust towards a service that could lead to positive feelings (Hutchison, et. al., 2011).
Commitment is the desire to maintain a good long-term relationship with a company (Hamka, 2013). Commitment is an action that stems from the customer’s desire to maintain a long-term relationship with the provider company, because the relationship is considered meaningful and beneficial. (Wibowo, 2014).
Customer retention is known as the long-term goal of the marketing department to prevent customers from switching to other competitors (Malopo & Mukwada, 2011). Customer retention shows the customer’s intention to return to use or repurchase goods and services provided by the provider company (Edward & Sahadev, 2011). Built long-term relationship with customer is main goal of economic viability and current success of the company (Hennig-Thurau, 2004). The role of customer retention in the financial industry depends on commitment, trust, and confidence between companies and their customers.
The purpose of this research is to analyze the direct and mediating effects of the variables COSE, customer satisfaction, commitment, and customer retention of PT. X multi-finance’s customers. In terms of service institutions, COSE is based on the customer’s personality, familiarity, and closeness with the CMO employee in providing the service. Therefore, the emphasis on having employees handle interactions with customers while influencing the level of commitment that customer develop towards the service provider. The services provided also contribute to customer retention of service companies, that stated on research held by Hanzaee & Marvaisi (2011), there is positive and significant influence between COSE and customer retention. In Hennig-Thurau (2004) research resulted different output, that COSE do not have effect towards customer retention. So, in this study the authors take the hypothesis that:
H1: COSE has a direct effect on customer retention.
Customer satisfaction served as one of COSE consequences. Customer satisfaction is one of the company’s main goals to improve business, economic and financial performance. The higher customer satisfaction will increase demand for goods and services, therefore COSE plays a significant role in achieving customer satisfaction. Research by Hennig-Thurau (2004), Huang (2006), Hanzaee & Marvaisi (2011), and Gonzales et al. (2018) has demonstrated a positive and significant effect of COSE on customer satisfaction. This suggests that improving COSE through closer employee-customer interactions and understanding customer needs can enhance customer satisfaction. In this study, the below hypothesis was built:
H2: COSE influences customer satisfaction.
In terms of services companies, customer commitment is based on the customer’s personal familiarity with the employee. As a result, an employee’s handling of interaction with customers greatly influences the level of customer’s commitment to provider company. Research conducted by Hennig-Thurau (2004) showed a significant influence of COSE on customer commitment. Additionally, studies by Huang (2006) and Hanzaee & Marvaisi (2011) demonstrate that COSE significantly affects customer commitment and can enhance it further. So, in this study the authors take the hypothesis that:
H3: COSE influences customer commitment.
Customers who experience a high level of satisfaction are more likely to stay with their existing service provider and maintain their subscription. Customer satisfaction is the main determinant in retaining current customers. The higher the satisfaction, the better customer retention. This is supported by research conducted by Huang (2008) and Hanzaee & Marvaisi (2011) which demonstrates a positive and significant influence of customer satisfaction on customer retention. Similarly, research conducted by Hennig & Thurau (2004) which explains that there is a direct influence of COSE on customer retention. Based on the previous research, it comes up to the hypothesis below:
H4: Customer satisfaction has a direct effect on customer retention.
Commitment is a shared belief between related parties who desire a continuous relationship and view it as important to maintain. It can be interpreted as a promise or pledge to preserve the relationship that has existed so far, as it is considered meaningful. Commitment arises because the existing relationship is positive and holds significant value for the customers. Based on Hennig-Thurau (2004), Huang (2006), and Hanzae & Marvaisi (2011) research, stated that customer commitment has direct effect to customer retention. The hypothesis is:
H5: Customer commitment has a direct effect on customer retention.
Customer orientation of employees is directly related to customer satisfaction. For service companies, employees play an important role in business success. COSE is defined as an individual’s tendency to fulfil customer needs in the context of work, if that satisfaction is realized it will create customer retention. In line with research conducted by Hanzaee & Marvaisi (2011) it is known that there is an influence of COSE on customer retention mediated by customer satisfaction. As well as research by Hennig-Thurau (2004), Huang (2006), and Hanzae & Marvaisi (2011) research, they found that customer satisfaction mediated COSE and customer retention. So, in this study the authors take the hypothesis that:
H6: Customer satisfaction mediates COSE and customer retention.
If the employee has COSE orientation, his/her services could be felt very well, it would increase customer’s commitment. Customer with high commitment usually has a high emotional feeling towards a product or service, it will have an influence on customer retention (Hanzae & Maryaisi, 2011). COSE plays an important role to increase customer retention with high customer commitment. Consistent with research conducted by Hennig-Thurau (2004), Huang (2006), and Hanzae & Marvaisi (2011) research results showed that customer commitment has mediate COSE to customer retention. The hypothesis that:
H7: Customer commitment mediates COSE and customer retention.
Based on previous research, a research model was proposed which can be seen in Figure 2.
RESEARCH METHODOLOGY
The population in this study are debtors of PT. X multi-finance company used car branch who use credit services in instalments. The researcher conducted research at PT. X because, even though, the development of the multi-finance business continues to grow very fast through offline or online media. In contrast, PT. X has experienced a decrease in net income (65.76%).
Based on data on the number of debtors for the 2019-2021 period taken as of September 2022, there are 1,087 debtors with active contract status. The research was conducted with a primary data collection process directly to the chosen debtors. The sampling technique used in this study is a simple random sampling technique, determining the number of samples, the researcher will use the Slovin formula and obtain a research sample of 292 active debtors.
The research instrument was a questionnaire with 27 indicators which were assessed with five (5) Likert scale. All indicators for every variable were taken from the previous research (see table 2).
All indicators in detail can be seen in Appendix 1
The questionnaire was analyzed as part of the pre-test process and distributed to 30 respondents to ascertain whether the variables exist are reliable and valid. 27 indicators passed the pre-test. The pre-test results confirmed the reliability criteria (with Cronbach Alpha value is more than 0.60) and the validity criteria (validity index value is more than or the same as 0.3 (Ghozali, 2016). The final questionnaires were distributed to 292 respondents using the Google Form (g-form) (see table 3 for the respondents’ profile).
Table 3 Respondent Profiles (n = 292)
77.4% respondents are men. The age majority is in the range between 28 till 34 years old with bachelor’s degree (64%) and working as private sector employees (78.1%). 99% of respondents are potential debtors in the future.
274 (93,8%) of 292 respondents stated that CMO played an important role in helping them to carry out credit simulations, especially in deciding to get credit again (37%). CMO gives good services (17,5%). A friendly, helpful, and knowledgeable CMO (35,3%) are important factors in increasing the debtor’s retention. CMO, who provides fast responses in processing advanced credit applications, plays an important role in the debtor’s decision to continue their credit with PT. X multi-finance.
DISCUSSION AND MANAGERIAL IMPLICATIONS
All empirical data was processed using smartPLS version 3.0. Data processing is carried out to measure the outer model which consists of convergent validity, discriminant validity (fornell – larcker creation), composite reliability
and multicollinearity test of empirical data (see appendix 1, table 1, table 2). Next, the inner model test was carried out consisting of the determinant coefficient test, F-square, goodness of fit (GoF), and partial test (see appendix table 3, table 4, table 5, table 6). The proposed research model reaches the level of goodness of fit as evidenced by the SRMR values (0.075/0.072) and NFI (0.919/0.916) (see appendix table 5).
Based on the results of testing the direct relationship hypothesis, COSE has a positive and significant effect on customer retention. It can be proved from the positive original sample relationship direction with t-value of 3.596 (< 1.96) and ρ-value 0.000 (<0.050) (hypothesis 1). COSE has a positive and significant effect on customer satisfaction (t-value = 21.119, ρ-value 0.000, hypothesis 2), and customer commitment (t-value = 8.289, ρ-value 0.000, hypothesis 3).
Customer satisfaction positively influences customer retention (hypothesis 4). It is showed by the t-value (6.306) is greater than the t-table (1.960) with ρ-value is 0.000 (<0.050). Customer retention was influenced by customer commitment positively and significantly with t-value 4,192 and ρ-value is less than 0,050) (hypothesis 5). which means that COSE has a positive and significant effect on commitment with a ρ-value (0.000 <0.050).
Figure 3 Complete Research Model Test Results
The results of the indirect relationship analysis consist of the effect of COSE on customer retention mediated by customer satisfaction, and the effect of COSE on customer retention mediated by customer commitment. The indirect results show that COSE is proven to have a partial effect on customer retention mediated by customer satisfaction and customer commitment. The partial effect can be explained that the COSE variable with customer satisfaction (hypothesis 6) and/customer commitment (hypothesis 7) are able to influence the customer retention variable both hypotheses are based on the t-value >1.96 and the -value <0.050 (see table 2). This result is supported by previous research conducted by Hennig-Thurau (2004), Huang (2006), and Hanzae & Marvaisi (2011) which showed that customer satisfaction and customer commitment mediate the relationship between COSE and customer retention.
Based on this research’ results, COSE (in this case is CMO) can improve customer retention. In PT. X multi-finance company, the level of customer retention will continue to increase as the service level given to customers or potential customers is able to identify and fulfil their needs. Therefore, COSE staff must maintain the quality of services they currently provide. COSE also need to improve their services in the future by trying to remain communicative, always provide good explanations, respond quicky and be friendly.
Several things that PT. X multi-finance company needs to pay attention to COSE staf. COSE staf is required to provide good, friendly, helpful, humble, and meaningful service to the customer. Therefore, the PT. X multi-finance company must provide coaching and training to COSE regularly. Providing consistent coaching and training on a regular basis is intended to improve COSE performance.
The customers of PT. X multi-finance company who were respondents in the study required the COSEs to have geographic limitations of the customers’ domicile, and the fact that each customer was surveyed only once during the research. Additionally, the study examined only COSE as the exogen variable.
For future research, it is suggested that the sample criteria be broadened and the geographic scope expanded, ideally to include participants from across Indonesia. Conducting longitudinal research on the same customers over time could also provide more valuable insights for the company. It is recommended that future studies test COSE as an exogen variable with elements such as technical abilities, social abilities, self-motivation, and sufficient knowledge of all procedures, rules, credit plan, and policies regarding used vehicle loans. Satisfied customers at COSE drive customer retention. Therefore, COSE needs to always pay attention to how satisfied customers are.
The COSE concept was refined into the characteristics of service employees, namely 1) having the ability to identify, understand, and fulfil customer needs; and 2) acting to fulfil the customer (Hennig-Thurau, 2004). The service provided to customers would give upsurge to the customer satisfaction especially if the service provided is in accordance with customer needs and desires. Customers who are satisfied will increase customer retention as well, so they will not move or switch to competitors’ companies.
The customers’ commitment to PT. X multi finance encourages COSE to provide excellent service so that customer retention is maintained and repeated. The business sustainability of PT. X multi finance is highly dependent on customer retention. Therefore, COSE really needs to pay attention to technical abilities, social abilities, self-motivation, and decision-making authority. Therefore, skillful, friendly, diligent, communicative, and knowledge COSE must be maintained and trained consistently and continuously, so that
the company’s long-term goals and an increase in customer retention can be achieved.
From this study, it is proved that COSE plays important roles in defending customer retention. PT. X company multi finance must provide great and consistent attention to COSE. Consumer satisfaction is a require- ment for their retention to PT. X multi finance. COSE who can maintain PT. X’s consumer commitment will push consumer retention. In the end, it can be assumed that COSE encourages customer retention if consumers are satisfied and highly committed to remaining customers of PT. X Multi Finance
CONCLUSIONS, LIMITATIONS AND FUTURE RESEARCH
Of the seven hypotheses proposed, all were accepted. Five hypotheses tested direct effects: from COSE to customer retention, COSE to customer satisfaction and commitment, and from customer satisfaction and commitment to customer retention. The indirect influence of COSE on customer retention through customer satisfaction and commitment as mediating variables was also accepted, although the effect was partial.
The weaknesses of this study include the limited sample size and criteria, such as focusing only on customers who have applied for credit once, the decision-making authority. Other exogen variables, like elements of the marketing mix, could also be explored. The endogen variables could include word of mouth (WoM), loyalty, brand advocacy, and brand switching. Furthermore, the COSE variable could be applied in other service industries, such as insurance, property, spas, beauty salons, hotels, restaurants, and banks.
