Int. J. Business Innovation and Research, Vol. X, No.

Y, xxxx 1

The effect of service innovation on service loyalty in

post offices

Shaian Kiumarsi*
Graduate School of Business (GSB),
Universiti Sains Malaysia (USM),
11800 USM, Malaysia
Email: shaian@usm.my
*Corresponding author

Salmi Mohd Isa

Graduate School of Business (GSB),
Universiti Sains Malaysia (USM),
11800 USM, Malaysia
Email: salmi.mohd.isa@usm.my

K. Jayaraman
Faculty of Business and Law,
Taylor’s University,
47500, Subang Jaya, Selangor, Malaysia
Email: Jayaraman.Krishnaswamy@taylors.edu.my

Azlan Amran
Graduate School of Business (GSB),
Universiti Sains Malaysia (USM),
11800 USM, Malaysia
Email: azlan_amran@usm.my

Shiva Hashemi
School of Housing, Building and Planning (HBP),
(USM), 11800 USM, Malaysia
Email: shhashemi4@gmail.com

Abstract: Globally, post offices are service-oriented organisations which

perform many social obligations towards public services. However, the
empirical literature on post offices’ service innovation is relatively new.
Therefore, this study examines the post offices’ service innovation that ensures
their long-term sustainability. It investigates the influence of customer
satisfaction and brand loyalty on the link between the predictors of service
innovation and service loyalty. It conducts an enormous primary survey

Copyright © 20XX Inderscience Enterprises Ltd.

2 S. Kiumarsi et al.

consisting of 123 users of post offices in Malaysia. The study finds that service
innovation has a direct positive effect on service loyalty, but service quality has
no impact on service loyalty. Remarkably, it shows that service quality
influences service loyalty through customer satisfaction. The findings of this
study will assist the post offices in their efforts to modernise their services
within the limited available resources to satisfy the needs of the society in daily
transactions.

Keywords: service innovation; service quality; customer satisfaction; service

loyalty; post office.

Reference to this paper should be made as follows: Kiumarsi, S., Isa, S.M.,
Jayaraman, K., Amran, A. and Hashemi, S. (xxxx) ‘The effect of service
innovation on service loyalty in post offices’, Int. J. Business Innovation and
Research, Vol. X, No. Y, pp.xxx–xxx.

Biographical notes: Shaian Kiumarsi is currently a Teaching Fellow at the

Graduate School of Business, Universiti Sains Malaysia, where he earned
his PhD. His Bachelor degree was in computer software engineering, while he
obtained Master’s in Business Administration with a speciality in service
science, management and engineering. He is interested in business IT, service
innovation, marketing, energy and tourism. His current research focus is on
innovation-business information technology. He has several journal articles
and conference presentations to his record. He has eight years of educational
experience, as well as sufficient work experience.

Salmi Mohd Isa is an Associate Professor and the Deputy Dean of Academic
of the Graduate School of Business (GSB), Universiti Sains Malaysia. Her
research examines the links between marketing, corporate social responsibility
and ethics, service innovation, neuromarketing and tourism marketing. For the
past five years, her efforts have centred on sustainable development associated
with sustainable marketing and food security. Her research is, in part, focused
upon educational development and the creation of linkages between academia,
industry and communities.

K. Jayaraman has 32 years of teaching, research and consultancy experience in

operations management and for the last three years, he has been attached to the
Faculty of Business and Law, Taylor’s University, Malaysia. He is specialised
in quantitative research methods and has executed a number of major
projects for national and international organisations. His areas of research
include operations management, service innovation in marketing, quantitative
methods, Lean Six-Sigma manufacturing and tourism and transportation. He
has published more than 95 research articles in international and national
journals. He has guided seven PhD candidates of the Universiti Sains
Malaysia, Penang and currently guiding eight research scholars for PhD in
Management/Business at Taylor’s. He has been serving as a Visiting Professor
for numerous universities all over.

Azlan Amran is the Dean and a Professor at the Graduate School of Business,
Universiti Sains Malaysia, Penang. He is also an Associate Fellow for the
Center of Global Sustainability Studies. He is an active researcher in the area of
sustainability reporting and sustainability management.

Shiva Hashemi had received her Master in Tourism Development in the School
of Housing, Building and Planning at Universiti Sains Malaysia, in 2015 and is
now a PhD in Tourism Business and Marketing in School of Housing, Building
and Planning at USM, Malaysia. Her research interests include convention
 The effect of service innovation on service loyalty in post offices 3

tourism, culinary tourism, hospitality, event as well as tourism business and

marketing. Her research accomplishments in the past five years are
demonstrated in several articles published in international journals and
presented at international conferences.

1 Introduction

The delivery of efficient and high-quality service is very important in the service sector
(Meesala and Paul, 2018). The variables used for evaluation comprise service quality and
customers’ satisfaction, which are correlated with the judgements of customers regarding
a product or service (Ograjenšek and Gal, 2012). Thus, Velázquez et al. (2011) noted that
improvement in profitability resulted from enhanced service quality and customers’
satisfaction due to increased customers’ loyalty. This is considered as a construct together
with multi-dimensions (e.g., attitudinal and behavioural dimensions). This study begins
by describing the concept of service loyalty and thereafter differentiates between service
quality and customers’ satisfaction. It also proposes a meditative model that links service
quality and service loyalty through customers’ satisfaction (Caruana, 2002). Empirical
research on post offices’ service loyalty is relatively new. According to Huarng and Yu
(2011), the improvement in information and communication technology leads to
innovation of service as well as the rapid development of technology.
Moreover, Snyder et al. (2016) posited that service innovation serves as an engine of
renewal in the society and provides the necessary element for the advancement of the
service sector. Witell et al. (2016) also noted that service innovation research abounds in
many disciplines, as it had made fundamental contributions to management, marketing
and operations research. According to Isa et al. (2017), service innovation represents the
basic of all competitive advantages and the key which enhances the capacity of industry
to be vastly competitive, gain new customers as well as stay relevant in the contemporary
business world. There is competition among products to satisfy customers’ requirements
due to modern advanced technologies. Hence, service providers are challenged to
engender innovation in their services (Danaher et al., 2001). It is necessary to provide
customers with high-quality service. Due to the rapid expansion of services over time,
several companies are focusing their attention on technology and services innovation
(Bitner and Brown, 2006).
Although Ryu and Lee (2017) documented that technology occupies a central
position in service innovation, but the mechanism through which service innovation
influences service loyalty has not been thoroughly explored (Parasuraman and Grewal,
2000). According to Kiumarsi et al. (2015b), the development of post offices has been
neglected by the governments in both undeveloped and developing countries. Hence,
the advancement in information and communication technology impedes the only
trustworthy means to send and receive services. In order to distinguish their products
from other competitors, post offices are needed to offer their services with excellent
innovation. Consequently, this study seeks to provide insights into the mediating role of
customer satisfaction on the impact of service innovation on service loyalty. Evidence
from the study indicates that customers’ satisfaction mediates the influence of service
quality on service loyalty.
4 S. Kiumarsi et al.

2 Review of literature

2.1 Service quality

Generally, service quality is the provision of services to consumers and it depends on
their judgements (Qaiser Danish et al., 2018). Producers who want to attain competitive
purposes should provide high quality services to customers (Kemp and Rotmans, 2005).
Thus, service quality originates from the cognitive assessment of services by the
customers (Chiou, 2004) and it has direct influence on customers’ loyalty (Lai et al.,
2009). According to Wilson et al. (2012), service quality connotes a global attitude or
judgement which is associated with service superiority. For the customers to derive
optimum benefits, post offices should directly implement their services (Ltifi and Ghardi,
2012). Moreover, Lenka et al. (2009) investigated whether the service quality of Indian
commercial banks increases customers’ satisfaction, which ultimately leads to customers’
loyalty. There are widespread discussions on service quality and customers’ satisfaction
in the literature. Moth constructs posited that service quality and customers’ satisfaction
are measured as a gap, with a gap model. Basically, a gap is the difference between a
customer’s expectation (what he wants) and the customer’s perception (what he gets).
According to Gunasekaran et al. (1996), an increase in quality decreases cost, but
enhances productivity. In their research, Siringoringo and Thaeras (2018) developed the
characteristics of mobile cell phones based on the perceived quality of consumers about
mobile cell phones. Kiumarsi et al. (2014) also stated that some vital characteristics of
post offices regarding service quality and service innovation include operations and cost
effectiveness in terms of implementation of information technology. Thus, it is necessary
to minimise the inconvenience associated with service orientation such as long length of
queue, waiting time and adequate publicity of post office services.

2.2 Service innovation

Service innovation refers to a new or considerably enhanced service or product offering
and it is not often restricted to a modification in the features of the service or product
itself (Hertog, 2000). According to Kindström and Kowalkowski (2014), the essence of
the entire service innovation is to uniquely integrate the resources and capabilities.
Hence, service innovation could be likened to the making of new value propositions
through the development of existing or generating new resources and/or practices (Skålén
et al., 2015). Thus, Chattopadhyay and Shah (2014) revealed the influence of service
innovation on the performance and innovations of business in service marketing.
Furthermore, service innovation represents the power of competitiveness in an attempt to
attain long-term competitive differentiation (Jiřinová and Kolis, 2017; Ferasso et al.,
2017; Yunus, 2017). Serpe et al. (2017) recommended a method to appraise a large
number of innovation activities which are helpful in guiding companies to implement
service innovation in their crucial structure of decision-making.
Generally, the processes of service innovation are often observed in postal service
rather than service innovation. Pedersen and Nysveen (2010) mentioned a typology of
service innovation which was often referred to or documented in Hertog (2000). Zakerian
et al. (2017) recommended that innovation in marketing occupies a central position in the
present competitive market, since it enhances the comprehension of the influence of
several marketing practices on innovative marketing. Moreover, service innovation is
 The effect of service innovation on service loyalty in post offices 5

regarded as a change in the customer’s role as well as the process of value-creation

(Michel et al., 2008). Abdallah et al. (2016) showed that innovation has significant and
positive effect on the entire operational performance. It was also revealed that innovation
is directly related to customer satisfaction. Accordingly, the feedbacks of users and
non-users of the post offices are necessary for the assessment of the prevailing service
innovation within the context of postal service. Postal and courier services’ innovations
are necessary for their daily survival. Consequently, since digital and physical
communications could reinforce each other, the post and courier sector require an
integrated development technique. YongQiang et al. (2010) identified some innovations
which are applicable to the logistic services, including the postal and courier services.
Wu (2014) conducted a study on service innovation for digiservice on loyalty where
Bitner and Brown (2006) stated that the rapid evolution of service innovation over time
emphasised the need for companies to change their focus from technology to service
innovation.

2.3 Customer satisfaction

The concept of customer satisfaction has been consistently used as an appraisal of
emotion. It also denotes customers’ psychological response regarding their previous
experiences as they compare between expected and perceived performances (Shankar
et al., 2003). Moreover, Kim et al. (2016) noted that customer satisfaction represents the
purpose of business due to its feasible influence on service sector’s purchasing behaviour
and profits. Hence, customer satisfaction remains a vital marketing concept (Kurniawan,
2010) since it is a business term that indicates the degree in which customers are satisfied
about products or services (Naveed et al., 2012), as well as an affirmative feeling
obtained by a customer after utilising a particular good or service (Delafrooz et al., 2013).
Hence, customer satisfaction is progressively considered as a fundamental tool for
business achievement, with an increasing understanding that customer satisfaction is
necessary to sustain the market in Malaysia (Nawi and Al-Mamun, 2017).
Besides, Jiang and Zhang (2016) stated that service quality variable remains a
significant variable that influences the levels of customer satisfaction. Similarly, Kasiri
et al. (2017) posited that customer satisfaction is significantly associated with service
loyalty. Literally, customers who are satisfied with particular services are likely to be
loyal to the service or business. Therefore, customer satisfaction is essential because
satisfied customers are capable of bringing high-margin profits share to the business
(Chowdhury, 2014). Accordingly, this present study considers customer satisfaction as
the need or demand in the context of post office.

2.4 Service loyalty

Service loyalty portrays a severe challenge to many companies in this modern era (Liu
and Khalifa, 2003). It has been argued that service loyalty’s pursuit has received
tremendous attention of both marketing managers and scholars (Panjakajornsak, 2018).
Basically, service loyalty refers to the extent to which a customer displays his or her
recurring purchasing behaviour for a provider of a specific service, has a positive
attitudinal disposition for the provider, as well as considers utilising only the provider
whenever there is a need for the service (Gremler and Brown, 1996). Remarkably, in
6 S. Kiumarsi et al.

relationship marketing themes, service loyalty continues to grow among marketing

practitioners and scholars (Gupta and Sahu, 2015). According to Lenka et al. (2009), it is
more costly to attract new customers than to retain existing ones. Loyal customers usually
possess emotional attachment to products or services and they are not often attracted to
any other brands even if the brand offers a better deal.
The primary focus of the research was on the behavioural perspective of loyalty
(Bodet, 2008), while disregarding what happened in the mind of the customers (Caruana,
2002). Afterwards, these scholars gave their attention to the other potential elements of
loyalty. The concept of loyalty was further extended to include intangible products by
Gremler and Brown (1996) whose definition of service loyalty entails three particular
constituents of loyalty such as the purchase, attitude and cognition. Kamat et al. (2017)
conducted a comparative study of hotel with hospitals, retail banking and retail services
industries in order to investigate the link between service quality and loyalty. Ltifi and
Ghardi (2012) noted that the denotation of action loyalty is accurate via action. Hence,
post offices have close competitors such as internet and other providers of global
information such as the Google, Facebook, Yahoo, Twitter as well as other private
courier services. A switch by post office users to any of these sources either partially or
fully implies absence of loyal to post office. Apparently, the users who utilise post office
services, off and on, could still be loyal because they have faith in the post office.
Conversely, an individual who does not utilise post office services at all and has no faith
in post office, cannot be regarded as a post office loyal customer (Kiumarsi et al., 2015b).

3 Underlying theories

This section focuses on the conceptualisation of the variables highlighted in Sections 2.1
to 2.4. It also presents the management theory that underpins the framework of the
research. Thus, the theory of planned behaviour (TPB) by Ajzen (1985, 1991) and
innovation diffusion theory (Rogers, 2003) support the framework. Nonetheless, the
conceptual framework in this present study has been considered in the context of post
office with a view to identifying the available challenges and opportunities in the sector.
TPB was originally developed based on the theory of reasoned action (TRA) (Ajzen and
Fishbein, 1980; Fishbein and Ajzen, 1975) that was designed to describe virtually every
human behaviour. Evidences have shown that it has been successful in the prediction and
explanation of human behaviours in diverse application settings (Davis, 1989). Broadly
speaking, empirical evidences support the theory, as it has been proved to be valuable
in past study by Boonlertvanich (2011). Basically, TPB hypothesises that the best
determinant of an individual behaviour is intention. Accordingly, an individual who
possesses a strong intention is most likely to be involved in a behaviour compared to the
one who has low intention. Within the context of this study, the TPB posits that
customers’ satisfaction will mediate the relationship between service quality and service
loyalty. Caruana (2002) examined how service loyalty is influenced by service
quality using customers’ satisfaction as the mediator. Nevertheless, the above study
recommended the need to conduct further research in related area. Furthermore, Shi et al.
(2014) investigated the relationship among service quality, customers’ satisfaction and
loyalty within six casinos context in Macau to offer membership to customers. In the
context of post office, Ltifi and Ghardi (2012) investigated the relationship between
postal services quality and customers’ loyalty using customers’ satisfaction as a
 The effect of service innovation on service loyalty in post offices 7

mediating variable (MV). Evidence from the study revealed the presence of causal
relationships among service quality, customer satisfaction and service loyalty.

4 Conceptual research frameworks

The main purpose of this study is to examine the influence of service quality and service
innovation on customer satisfaction and service loyalty in post offices. Thus, it seeks to
determine the explanatory model regarding the impact of post office services quality
and service innovation on customer satisfaction and service loyalty. Finally, the
above-mentioned study showed the presence of connection between service quality,
service innovation as well as customer satisfaction and loyalty.
The conceptual framework was developed from the variables explained in
Sections 2.1 to 2.4 as shown in Figure 1. In the framework, the independent variables
(IVs) are service quality and service innovation, the dependent variable (DV) is service
loyalty, while customer satisfaction is the MV. The conceptual framework is employed to
determine the direct effects of the link between service quality and the constructs of
service innovation on service loyalty in the context of post offices. Moreover, it also
examines the indirect effects of customers’ satisfaction on the link between the constructs
of service quality, service innovation and service loyalty. In this study, individual
customers are the unit of analysis.

Figure 1 Conceptual research framework with hypothesised relationships

Figure 1 shows a conceptual framework which investigates the direct relationship

between the IVs (service quality and service innovation) and the DV (service loyalty).
Additionally, it also determines the mediating role of customer satisfaction in the link
between service quality/service innovation and service loyalty. Based on the model, the
following hypotheses were developed and tested with Smart-PLS:
H1 Service quality has a positive influence on service loyalty.
H2 Service quality has a positive influence on customer satisfaction.
H3 Service innovation has a positive influence on customer satisfaction.
H4 Customer satisfaction has a positive influence on service loyalty.
8 S. Kiumarsi et al.

H5 Influence of service quality on service loyalty is mediated by customer satisfaction.

H6 Influence of service innovation on service loyalty is mediated by customer
satisfaction.

5 Research methodology

The main goal of this study is to determine the relationship between service quality and
service innovation on service loyalty. This will enable us to gain better insights into the
services provided by post offices in Malaysia with a view to determining the areas that
could benefit from service innovation (Kiumarsi et al., 2015a). This present study seeks
to analyse the particular issues of post offices; hence, the research framework was
developed to be appropriate for quantitative study. Thus, the respondents are the post
office users and they revealed their opinions regarding service quality, service innovation
and service loyalty. The data were collected by administering a hard copy questionnaire
to the respondents. A comprehensive cover letter was addressed to the respondents and it
comprised the title of the study, the aim, questionnaire items’ keywords as well as the
confidentiality of the survey. The post offices were randomly chosen based on the
percentage of the total number of post offices in each state. The researcher administered
the survey during office hours with diverse time interval to individuals who visit the post
office and have used post office services for at least once in the last two months.
A total of 123 post office users were contacted by the researcher and their responses
to the questionnaire were recorded. Thus, the IV, MV and DV were measured with a
7-point Likert scale in postal services. There were also open-ended questions in the
questionnaire in order to provide opportunity for the respondents to make comments and
suggestions. The data analysis was conducted with Smart-PLS statistical techniques. The
first part of the analysis focuses on the information relating to the participants’ profiles as
well as the frequency and percentage of profile distribution. Moreover, it also indicates
the number of times the respondent has used postal service in Malaysia.
In selecting the respondents from the post offices, the study employs the purposive
sampling technique which is a part of convenience sampling. Thus, it is purposive
sampling since the questionnaire has filtering questions. Besides, the researcher
allocated periodic interval between selecting two respondents. In essence, the researcher
administered the questionnaires in the early morning, late morning, afternoon and early
evening. This is to allow for variability in the responses to the questionnaire on various
working days of the week during the period.
Out of the 123 questionnaires distributed to respondents, 123 of them were collected
successfully during the one-month period (1st July to 30th July 2016). The researcher
conducted a test of common method bias to evaluate the instrument’s validity and
reliability (Podsakoff et al., 2012). Evidence from the test indicated absence of response
bias, since the overall variation, 75.664% and first factor, 39.899%, satisfies the 50%
threshold recommended by Podsakoff et al. (2003).
From the demographic information, the respondents were classified into gender, age,
race, marital status and the number of times they visited post office in Malaysia during
the last three months. The results indicated that male respondents are 65 (52.8%),
while female respondents are 58 (47.2%). The age distribution showed that 50 (40.7%)
respondents are between 18 and 30 years old and 42 (34.1%) respondents are between
 The effect of service innovation on service loyalty in post offices 9

31 and 40 years old. Moreover, the respondents’ race revealed that Malay 70 (56.9%),
Indian 21 (17.1%), Chinese 20 (16.3%) and others 12 (9.8 %). Regarding the
respondents’ marital status, 68 (55.3%) respondents were married, while 55 (44.7%) were
single. The profile of the respondents is shown in Table 1.
Table 1 Profile of the respondents (n = 123)

Category Description No. respondents %

Gender Male 65 52.8
Female 58 47.2
Age (years) 18–30 50 40.7
31–40 42 34.1
41–50 18 14.6
51–60 13 10.6
Race Malay 70 56.9
Chinese 20 16.3
Indian 21 17.1
Other 12 9.8
Marital status Singe 55 44.7
Married 68 55.3
During the last two months, 1–2 times 77 62.6
how many times did you go 3–4 times 34 27.6
to the post office
5–6 times 3 2.4
> 6 times 9 7.3

5.1 Significant results

This study conducts VB-SEM statistical approach with Smart-PLS on 123 samples. It
analyses the convergent validity which comprises latent variable, question items, main
loadings, average variance extracted (AVE) and composite reliability (CR). In all the
items, the main loadings are above the 0.5 recommended by Hair et al. (2009). However,
two items namely SL2 and SL3 were removed because of the discriminant validity of
measurement model. The convergent validity was assessed with AVE. According to Hair
et al. (2014), AVE denotes the squared loadings’ grand mean value of each indicator
related to the construct. In other words, AVE shows the degree to which the latent
construct explains the indicators’ variances. Basically, convergent validity is satisfactory
when each construct explains at least 50% of the allocated variance of the indicator
(Bagozzi and Yi, 1988; Hair et al., 2014). The AVE obtained for all the constructs in this
study are greater than 0.5, suggesting a satisfactory level of convergent validity (Fornell
and Larcker, 1981). Moreover, all the constructs have CR and Cronbachs alpha greater
than 0.80, satisfying the rule of thumb suggested by Hair et al. (2013). Table 2 and
Figure 2 show the final results of the measurement model.
10 S. Kiumarsi et al.

Table 2 Measurement model of PLS (n = 123)

Latent Composite Cronbachs

Items Main loading AVE
variable reliability alpha
Service SQ1 0.806 0.769 0.943 0.925
quality SQ2 0.930
SQ3 0.899
SQ4 0.908
SQ5 0.836
Service SI1 0.871 0.805 0.925 0.879
innovation SI2 0.925
SI3 0.894
Customer CS1 0.905 0.836 0.953 0.935
satisfaction CS2 0.923
CS3 0.910
CS4 0.920
Service SL1 0.877 0.771 0.964 0.957
loyalty SL10 0.821
SL4 0.856
SL5 0.906
SL6 0.890
SL7 0.894
SL8 0.891
SL9 0.883
Notes: SL2 and SL3 were deleted based on discriminant validity of measurement model.
The squared root of AVE, while the other entries represent the correlations.

Figure 2 PLS-path analysis of beta value (n = 123)

 The effect of service innovation on service loyalty in post offices 11

5.2 Discriminant validity of measurement models

As for the discriminant validity, the square roots of AVEs are greater than the off indirect
elements in their associated row and column, which discloses the desired discriminant
validity. In essence, satisfactory convergent and discriminant validity is confirmed via the
measurement model. Thus, the discriminant validity is established for every construct’s
square root of AVE (Fornell and Larcker, 1981), which is higher than the construct’s
inter-correlations with other constructs in the model. Hence, a latent variable has a larger
explanation for its indicators variance compared to the variance of another latent variable.
The analysis certified the discriminant validity of all the constructs as presented in
Table 3.
Table 3 Discriminant validity of measurement model (n = 123)

Latent variable CS SI SL SQ
Customer satisfaction (CS) 0.914
Service innovation (SI) 0.752 0.897
Service loyalty (SL) 0.875 0.664 0.878
Service quality (SQ) 0.668 0.611 0.614 0.877
Note: Italic numbers represent the squared root of AVE while the other entries represent
the correlations.

Figure 3 PLS-path analysis of t-values (n = 123)

5.3 Assessment of structural models

The study measures the path coefficients of the structural model and applies a bootstrap
analysis with 5,000 samples to test the structural model regarding the significance of the
direct effects path coefficients. It evaluates the significant effects indicated in the
research model. The results show a significant and positive effect of service quality on
customer satisfaction (β = 0.332, t-value = 2.929, p < 0.01) and service innovation on
customer satisfaction (β = 0.549, t-value = 4.834, p < 0.001). As for the effect of
12 S. Kiumarsi et al.

customer satisfaction on service loyalty, a positive relationship is also highly supported

(β = 0.839, t-value = 13.158, p < 0.001). Hence, Hypotheses 2, 3 and 4 are supported.
Conversely, there is no significant relationship between Service quality and service
loyalty (β = 0.054, t-value = 0.689, p > 0.05). Consequently, Hypothesis 1 is not
supported. The study uses variance inflation factor (VIF) to test for multicollinearity.
Accordingly, there exists multicollinearity when VIF value is above 5 (Hair et al., 2011).
In this study, the VIF values reported in Table 4 are below 3. Hence, multicollinearity
is not a problem among the predictor constructs in the structural model. Table 4 and
Figure 3 present the relationship and results.
Table 4 Significance of direct effects – path coefficients and collinearity assessment (n = 123)

Hypotheses Relationship Beta value SE t-value Decision VIF

Hypothesis 1 Service quality → 0.054 0.078 0.689 Not 1.804
service loyalty supported
Hypothesis 2 Service quality → 0.332 0.114 2.929** Supported 1.596
customer satisfaction
Hypothesis 3 Service innovation → 0.549 0.114 4.834*** Supported 1.596
customer satisfaction
Hypothesis 4 Customer satisfaction 0.839 0.064 13.158*** Supported 1.804
→ service loyalty
Note: *p < 0.05, **p < 0.01, ***p < 0.001.

5.4 Mediating effect of customer satisfaction

As for the mediating effect of customer satisfaction, it was revealed that both service
quality and service innovation positively mediate service loyalty. Remarkably, the
mediating role of customer satisfaction revealed in this study is considered as the first
research conducted within the context of post office in Malaysia. A significant
relationship exists between service quality (service quality → customer satisfaction
→ service loyalty, β = 0.279, t-value = 3.206, p < 0.01) and service innovation (service
innovation → customer satisfaction → service loyalty, β = 0.460, t-value = 4.149,
p < 0.001); with customer satisfaction playing a mediating role on service loyalty.
Therefore, Hypotheses 5 and 6 are supported. Comparatively, a significant relationship
was established between service quality and service innovation with customer satisfaction
playing a mediating role on service loyalty. Table 5 presents the significance of the
indirect effects and path coefficients.
Table 5 Significance of indirect effects – path coefficients (n = 123)

Hypotheses Relationship Beta value SE t-value Result

Hypothesis 5 Service quality → customer 0.279 0.087 3.206** Supported
satisfaction → service loyalty
Hypothesis 6 Service innovation → customer 0.460 0.111 4.149*** Supported
satisfaction → service loyalty
Note: *p < 0.05, **p < 0.01, ***p < 0.001.
 The effect of service innovation on service loyalty in post offices 13

5.5 Blindfolding and predictive relevance (Q2)

From the results, the value of R square for customer satisfaction was 63.4%, while that of
service loyalty was 76.8%. This signifies that 63.4% of the variance in customer
satisfaction is explained by service quality and service innovation. Moreover, service
loyalty is substantially explained by customer satisfaction. Hence, it is shown that the
predictive relevance of cross-validated redundancy values (Q2) for endogenous variables
of customer satisfaction and service loyalty are 0.492 and 0.547. This implies that
these values are greater than zero (Fornell and Cha, 1994). This technique signifies the
adequacy of the model to predict the manifest indicators of each latent construct. The Q2
values in the structural model are greater than 0.5 for a certain reflective endogenous
latent variable which indicate the predictive relevance of a specific construct in the path
model (Chin, 2010). Since the predictive relevance Q2 of service quality is larger than
0.5, it suggests that service quality satisfies the rule of thumb recommended by Chin
(2010) as displayed in Table 6.
Table 6 R-square and predictive value (n = 123)

Endogenous variable R2 Q2 Predictive relevance

Customer satisfaction 0.634 0.492 Yes
Service loyalty 0.768 0.547 Yes
2
Table 7 Effect size (f ) (n = 123)

Path f2 Degree of effect size

Service loyalty
Service quality → service loyalty 0.007 Not effect
Customer satisfaction → service loyalty 1.682 Large
2
Path f Degree of effect size
Customer satisfaction
Service quality → customer satisfaction 0.189 Medium
Service innovation → customer satisfaction 0.515 Large

5.6 Assessing effect size (f2)

The effect size (f2) measures the impact of a particular predictor construct on an
endogenous construct. It indicates the change in R2 value occasioned by the omission or
inclusion of a specific exogenous construct from the model. Hence, the model fit can be
determined by investigating the effect size of the path between the respective predictor
variables to the DV. A certain independent construct’s strength on the dependent
constructs can be examined through the effect size (Chin, 2010). All the predictors that
have significant effects on the exogenous variables have the effect size greater than 0.02.
According to Cohen (1988), the criteria for evaluating f2 values are: 0.02 = small,
0.15 = medium and 0.35 = large. In this present study, the highest effect size is that of
customer satisfaction on service loyalty which is considered as a large effect size
(f2 = 1.682). The effect size of service innovation on customer satisfaction is also large
(f2 = 0.515), while the effect size of service quality on customer satisfaction is medium
14 S. Kiumarsi et al.

(f2 = 0.189). Hence, service quality on service loyalty is not effective in this study as
indicated in Table 7.

6 Discussions

This study revealed that service quality has direct effect on customer satisfaction in post
offices in Malaysia, suggesting the importance of service quality to post offices customer
satisfaction. However, the results indicated that service quality is not a significant
predictor of service loyalty. These results are based on the analysis of the feedback from
the respondents about the performance of post offices. When the service provider offers
the associated and fundamental elements of service quality, customers or users of the post
office services will derive satisfaction, which is capable of leading to service loyalty.
This finding agreed with Sureshchandar et al. (2002) who found similar outcomes in the
Indian banking industry. According to Kiumarsi et al. (2015a), as post offices strive to
achieve the goal of making profits, it is necessary for them to serve the general public
with social responsibilities in mind.
Moreover, this study showed that customer satisfaction is positively and significantly
related to service loyalty. Apart from enhancing service loyalty, customer satisfaction
also reinforces the cause and effect relationship that exists between service
quality/service innovation and service loyalty, thereby performing the role of a MV.
From the mediation analysis, it was revealed that two mediation paths are positively and
significantly supported. In the service industry for example, reliability influences the
degree of service loyalty that promotes the ties of trust and ultimately intensifies the
long-term customer’s relationships (Kheng et al., 2010). Accordingly, this study’s
respondents have adequate customer satisfaction and consequently have ties with post
office via customer relationship. This is consistent with the outcomes of Sureshchandar
et al. (2002). Hence, it is necessary for post offices’ service providers to improve the
level of satisfaction of their customers by focusing on the improvement of the service
quality with a view to increasing service loyalty. Hayes (2009) suggested the use of
bootstrapping technique to estimate the significance of indirect effect. In this study, our
results revealed that customer satisfaction plays a positive mediating role in the link
between service quality and service loyalty.

7 Conclusions

The fundamental contributions of this study to both management theories and practical
applications within the context of post offices are not only relevant to Malaysia but also
to other Asian countries. As the TPB posited that intention could be regarded as the
greatest determinant of the behaviour of an individual, the post office user who has strong
intention could most likely utilise post office services compared to an individual with low
intention. Moreover, TPB also connects the link between service quality and service
loyalty with customers’ satisfaction as a MV in this study. This research comprehensively
explored the link between service quality and customers’ satisfaction and we expect this
study’s findings to stimulate future researches which will concentrate on the individuals’
intention to use post offices in Malaysia. In addition, this study indicated that service
quality and service innovation significantly influence customer satisfaction, while the
 The effect of service innovation on service loyalty in post offices 15

latter significantly determines service loyalty. Both service quality and service innovation
are significantly and positively related and the relationship is mediated by customer
satisfaction. Conversely, service quality has no significant relationship with service
loyalty. Hence, it is necessary for post offices in Malaysia to extensively enhance the
satisfaction of their customers in order to encourage greater patronage.
Irrespective of the limitation of this study, the findings will be of immense benefits to
post offices in terms of assessing service loyalty, service quality and service innovation
as well as the attainment of customer satisfaction. Generally, we hope this study will
significantly contribute and provide insights into greater understanding of service loyalty
in Malaysia’s post offices. Because post office serves diverse customers with various
needs, it becomes necessary to embark on incremental innovations that are capable of
developing new products and services. Hence, the users of post office services need
drastic innovation regarding the core products and services such as the use of latest
service sector software as well as the provision of e-commerce services via online.
According to post office respondents, they expect services such as expanded online
products and services which are capable of meeting the needs of customers including
online purchase of stamps, online bill payment, as well as online shopping facilities.
These services have the capacity to attract greater customers. Therefore, this study
provided practicable solutions and recommendations to Malaysia’s post office regarding
the introduction of new products as well as the development of services that can satisfy
the customers’ demands. In essence, this study’s findings will enable post offices to
improve their services by using modern digital technology within the available resources
and infrastructures with a view to fulfilling the needs of the society.

7.1 Theoretical contributions

This study contributes to management theories, since it determines the relationship
between intention and behaviour (service loyalty) of post office services users in line
with the TPB. Accordingly, the theory perceives intention as the greatest determinant of
the behaviour of an individual. Proposed by Ajzen (1985, 1991), TPB was utilised in this
study to connect service quality and service loyalty with customer satisfaction as a MV
(Shi et al., 2014). Moreover, the link between the features of service quality and customer
satisfaction was examined by Sureshchandar et al. (2001, 2002). The DV (service
loyalty) serves as a response in TPB. A study of the prevailing post offices service
innovation as well as the needed future changes could reveal the interests of customers to
continue to revisit the post office (Wu, 2014).

7.2 Practical contributions

As a service-oriented industry, the post office has a large number of social
responsibilities to public services. Therefore, the findings of this study are capable of
improving the understanding of the influence of service quality/service innovation and
customer satisfaction on service loyalty within the context of a developing country such
as Malaysia. It has immense practical contributions to the post office system. Therefore,
it stressed the need for post office service providers to consider the significance of
perceived service quality and service innovation with a view to improving their services
in contemporary globalised marketplace. In its model, this study emphasised the
16 S. Kiumarsi et al.

prominence of customer satisfaction and service quality within post office setting. This is
importance since it draws managerial attention on how to enhance the perceptions of
customers about post office services.

7.3 Limitations of the study

In spite of the immense contributions of this study, there are three unavoidable limitations
because of practical considerations. Firstly, this study only considered post offices
service users in West Malaysia, while those of East Malaysia (Sabah, Sarawak) were not
considered. Secondly, although the officials of post office could also be respondents in
this study but they were not included in the sample population because it is beyond this
research scope. Thirdly, the researchers are aware that this study could have been better,
had it compared post office with other related service providers such as DHL and FedEx.
But the focused of this research was solely on post office due to the magnitude of
business transactions and the degree of post office associated challenges in its daily
operations.

7.4 Future research directions

According to the respondents, post office provides services to the public with their social
responsibilities in mind regarding their commercial survival. This study indicated that
enhancement in service quality and service innovation is capable of improving service
loyalty. In their practical decision-making options, post office officials should consider
some of the innovations highlighted by the respondents. In this regard, regular publicity
in social media and television are capable of improving service loyalty. Hence, future
researchers should focus on these issues from the perspectives of post office’s vision and
mission statement.

Acknowledgements

The authors are grateful to the editor and blind reviewers of the International Journal of
Business Innovation and Research for their valuable comments and feedback.

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