CHAPTER TWO

REVIEW OF RELATED LITERATURE

This chapter contains the collection of the researchers’ reviewed related works of

literature and related studies; whereas these studies share almost identical ideas or

concepts that can be useful to the current topic. The chapter also covers critics and

the importance of having the related literature and studies to help understand the

purpose of the researchers’ study. However, the chapter does not explore complex

or unrelated topics; it only provides limited information on the effects of customer

satisfaction to customer retention. Throughout this chapter, after providing the

related studies and literature, conclusions will be presented by the researchers.

RELATED STUDIES

Customer Satisfaction

Kabu Khadka & Soniya Maharjan (2017) posited that every business

organization`s success depends on the satisfaction of the customers. Whenever a

business is about to start, customers always come “first” and then the profit. They

also stated that the companies that are succeeding to satisfy the customers fully will

remain in the top position in a market. Today’s business company has known that

customer satisfaction is the key component for the success of the business and at

the same time it plays a vital role to expand the market value.

The concept of customer satisfaction is reviewed from a theory-based applied

perspective based on a large body of work in the academic community that has only

recently found its way into nonacademic surveys. Although other conceptualizations
have been suggested, the expectancy disconfirmation with performance model is

used as a guiding framework wherein satisfaction is viewed as an end-state with

distinct antecedents. Each of the focal determinants, namely expectations,

performance, and subjective disconfirmation, is defined, explained from a conceptual

perspective, and suggested as to how they might be used in satisfaction studies.

(Richard L. Oliver, 2010)

Nadia (2020) research examines experiential marketing and its effect on

customer loyalty with customer satisfaction as a mediator. The research is based on

two theories; expectation-confirmation theory (ECT) and satisfaction-loyalty theory.

The article was made because the development of the marketing concept has grown

rapidly, therefore, that it no longer focuses on its products, but focuses on its

consumers, hence, that an interesting experience will provide something different for

consumers to enjoy their products or services. In an effort to provide a theoretical

basis for the role of customer satisfaction in mediating experiential marketing on

customer loyalty, researcher propose a framework that describes consumer

behavior. 

Seman, Harun, & Siew (2020) posited that the traditional way of marketing

strategy tends to focus more on attracting new customers than satisfying the existing

customers. However, as globalization continue to precede, low growth and highly

competitive marketplace shows that retaining customers is the more effective way to

sustain a company against inroad competition. It is found by some studies showing

that companies which emphasize on attracting new customers are actually earning

to cover up the regular loss of existing customers without them noticing. 

In summary and as several academic researchers have concluded, customer

satisfaction can be a mediator in customer loyalty which is a determining factor in

customer retention (Richard L. Oliver, 2010; Nadia, 2020,; Seman, Harun, & Siew,

2020; Kabu Khadka & Soniya Maharjan , 2017) These studies helped in discussing

one of the variables of the study which is customer satisfaction. The studies

reviewed about the importance of customer satisfaction in the longevity of a

business, it also provided theories which can be used by the present researchers in

examining the current topic.

Customer Retention

The main objective of this research is to examine the effect customer satisfaction

may or may not have on customer retention by examining customer satisfaction and

customer loyalty. This section of the review, focuses on the perceived connection

between customer satisfaction and customer retention.

Customer retention in the traditional marketing approach is however seen as the

‘end’ rather than the means of delivering long term profitability of firms. The

development of effective relationships is increasingly recognized as an important

component of marketing strategies. Developing and maintaining satisfactory

customer relationships can help increase customer retention. From the customer’s

perspective, the determinants of relationship retention include factors such as

eliminate service irritants, provide loyalty benefits, assist customers in making brand

choice, provide service beyond expectations, provide the benefits offered by

competitors, satisfactorily settled all service related problems, selling various product

items, build emotional  commitment in the relationship, building company image,

maintain regular interaction with customers. (Krishnan & Govindarajan, 2013)

 Dadha & Ismael (2018) study about the importance of customer retention in

small and medium enterprises in New Zealand, investigating the value of customer

retention and customer loyalty.  The aim of the research is to find a usable strategy

in order to attain customer retention in a SME. It studies the various reasons

customers prefer certain businesses for their products and services. The research

found that both customers and SMEs believe that location and customer service are

the two important factors that help in generating a successful business. Customer

retention helps in securing long term stability and profitability amongst the

customers and the SME.

Many review studies were handled to provide valuable insights into customer

retention issues and factors that could influence it positively and effectively. The

study of Alkitbi et. al. (2020) systematically reviews and analyzes customer retention

and its related factors of 30 research studies from 2005 to 2019. The main findings

contain that the most common factors that affect customer retention are service

quality, satisfaction, trust, and commitment. Moreover, most of the customer

retention studies were focused on the banking sector, followed by the studies that

concerned about retail industry issues.

Customer Loyalty

Customer satisfaction is a concept that has received extensive attention over the

past few years (Helgesen, 2010; Nelson, 2012; Evanschitzky et. al., 2011; Batista,

Kumar, Maull, 2010; Hassan, 2012). The status of customer loyalty completely

depends on customer satisfaction. Generally, there is a significant relation between

customer satisfaction, loyalty and company profitability (Helgesen, 2010; Nelson,

2012). According to Evanschitzky et. al. (2011) Gaining customer loyalty is an

important goal of marketing, and loyalty programs are intended to help in reaching it.

They also posited that loyalty program is a far more important driver of purchase

behavior. This implies that company loyalty primarily attracts customers to a

particular provider and program loyalty ensures that once inside the store, more

money is spent.

Batista, Kumar, Maull (2010) conducted a research that develops a longitudinal

study that builds upon previous findings that operations performance of service

delivery can positively affect customer satisfaction, further extending this verdict to

point out operations performance as a direct determinant of customer loyalty. This

paper reports the findings of an empirical research conducted in a large

telecommunications company operating in the UK. Regarding operations

performance impact on customer loyalty, the research findings support the

conclusion that while operations speed may help to acquire customers, it is the

operations dependability that more strongly drives customer loyalty in the long term.

Hassan (2012) indicated that increasing a store’s loyal customer base provides

opportunities for enhanced profitability and business sustainability, a key component

to a supermarket’s organizational success. Hassan’s study, conducted in the United

Kingdom’s supermarket industry, provided insights into how supermarket customers

perceive value and the importance value has to loyalty. Hassan’s qualitative study

utilized mini-depth interviews as the approach of collecting and analyzing the data.

Hassan’s (2012) findings indicated that for customers value proposition is a widely-
used concept, but lacks specific definition. Additionally, Hassan provided valuable

insights to marketers by identifying that customers perceive value differently and,

thus, respond to more than one attribute of value.

RELATED LITERATURE

Customer Satisfaction

The study of Almohaimmeed (2017) explored the relationships among five

factors: customer relationship management, customer satisfaction, customer loyalty,

customer profitability, and customer retention. The sample of the study consists of

750 managers and employees of different restaurant in Riyadh, the capital city of

Saudi Arabia. The findings of the study revealed a significant influence of customer

relationship management on customer satisfaction, a significant influence of

customer satisfaction on both customer loyalty and customer profitability. Therefore,

the data doesn’t support the hypothesis that customer loyalty mediates the

relationship between customer satisfaction and customer profitability. On the other

hand, there are significant relationships between customer satisfaction and customer

profitability and between customer profitability and customer retention, while there is

no significant relationship between customer satisfaction and customer retention.

This study focused on the customer satisfaction among the members of the

Summit Point Golf and Country Club which served as the basis for continuous

improvement. It determined the level of customer satisfaction on the services offered

by the Summit Point employees in terms of food and beverages, customer service

and facilities.  The members of the Summit Point Golf and Country Club are

generally satisfied in terms of facilities and amenities, food and beverages and

customer service. The hypothesis has no significant difference between the

membership profile and level of customer satisfaction in terms of facilities and

amenities and customer service is rejected. This means that their responses differ as

to their reasons of joining the club, their obtained degree and the frequency of

playing in the club. 

Hypotheses

The null hypothesis will be tested at 0.5 level of significance.

H1a: There is a significance correlation between customer satisfaction and business

growth.

H10: There is no significant correlation between customer satisfaction and business

growth.

H2a: There is a significant correlation between customer loyalty and customer

retention.

H20: There is no significant correlation between customer loyalty and customer

retention.

H3a: There is a significant correlation between customer satisfaction and customer

retention.

H30: There is no significant correlation between customer satisfaction and customer

retention.