Advances in Economics, Business and Management Research, volume 100

International Conference of Organizational Innovation (ICOI 2019)

THE ROLE OF VALUE CO-CREATION IN

IMPROVING CUSTOMER LOYALTY WITH
CUSTOMER SATISFACTION AS
MEDIATING VARIABLE
Estik Hari Prastiwi (Department of Management, Universitas Brawijaya, Malang)
Surachman (Department of Management, Universitas Brawijaya, Malang)
Sunaryo (Department of Management, Universitas Brawijaya, Malang)
Ananda Sabil Hussein (Department of Management, Universitas Brawijaya, Malang)

Email: estikhariprastiwi@yahoo.co.id

Abstract—The objective of this conceptual paper is executives stated that they have provided good customer
to keep up with the changes in marketing paradigm, experiences, but interestingly there are only 8% of
which involves customer’s active participation in the customers agree to it. The difference is quite possibly
caused by perspective gaps. Companies may think that
creation of goods and service values offered by
that have created a valuable customer experience
companies in order to maintain customer loyalty to the through excellent services, but they frequently do not
companies. The success of new products relies not only change into a good customer experience since
on product quality but also on market condition experience quality is determined by individual customer
customer targeting and even product launching time. perspective (Vargo & Lusch 2004).
The product development process in the new wave Service quality and customer satisfaction have been
marketing era requires companies to co-create with considered important, and therefore they have been
experts who are able to identify and create quality investigated by many researchers in retail marketing and
products. This study aims to identify the relationship service management (e.g. Parasuraman Zeithaml, Berry
between value co-creation and customer loyalty, the 1988; Verhoef, Langerak, Donkers, 2007). Meanwhile,
relationship between value co-creation and customer the importance of customer experience has been
loyalty with the mediation of customer satisfaction, recognized by several researchers (e.g. Lemke et al.,
2011; Verhoef et al., 2009), and customer experience is
and the relationship between customer loyalty and a key factor for loyalty (Badgett Boyce & Kleinberger
customer loyalty. This study uses SEM-PLS by 2007). Verhoef et al. (2009) proposed a conceptual
observing its outer and inner models. model and suggested several determining factors for
customer experience, i.e. social environment service,
Keywords—value co-creation, customer
retail atmosphere, various prices, and promotion.
satisfaction, customer loyalty, new wave marketing
The empirical study of Francisco Jose (2016) found
I. INTRODUCTION that the effect of value co-creation on loyalty is not
Changes in marketing philosophy implies the active significant, but the results of Eapen (2016) and Ana
participation of customers in value creation (Prahalad, (2014) indicated that the effect of value co-creation on
2004, Vargo, 2004). Companies adopt the facilitator role loyalty is significant. Studies on the influence of value
of value creation, and customers feel the motivation and co-creation on loyalty produced contradictive results
willingness to involve themselves in this service (Payne, and caused research gap (Ferdinand, 2014). Therefore,
Storbacka, and Frow 2008). Several empirical studies customer satisfaction is used as a mediator to fill the
have identified the benefit of customer participation for research gap.
the companies in improving customer satisfaction II. LITERATURE REVIEW
(Sharma & Patterson, 1999; Vega-Vazquez, Revilla-
camacho, and Cossío-silva 2014) and the relationship A. The Definition of Loyalty
between level of trust and loyalty in the area of B&B . Kotler, Hayes, and Bloom (2002) mentioned six
A survey conducted by Bain & Co. on 362 reasons why institutions need to attain the loyalty of
companies found that 80% of the interviewed senior their customers. The first reason is that existing
customers are more prospective, which means that loyal

Copyright © 2019, the Authors. Published by Atlantis Press.

This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/). 596
 Advances in Economics, Business and Management Research, volume 100

customers will give more benefits to the institutions. started to develop through the merge of various existing
The second reason is that the cost for acquiring new paradigms about exchanges.
customers is far higher than the cost of keeping and
SDL is based on the convergence of historical ideas
maintaining the existing customers. The third reason is
and literatures in economic and management marketing
that customers who have trusted the institutions in one
(e.g. Gummesson, 1995; Normann and Ramirez, 1993;
matter believe them in other matters. The fourth reason
Shostack, 1977), marketing theories that are influential
is that the institutions’ operational cost becomes more
in services and relationship marketing (e.g. Gummesson,
efficient if they have more loyal customers. The fifth
1995; Gronroos, 1994), resource-advantage theory
reason is that the institutions can reduce psychological
(Hunt, 2000), core competence theory (Hari, 1994;
and social costs since existing customers have many
Prahalad and Hamel, 1990), and network theory
positive experiences with them. Finally, the sixth reason
(Achrol, 1999; Hakansson and Snehota ,1995; Norman
is that loyal customers will always defend the
and Ramirez, 1993) that revealed that alternative is
institutions; they are even willing to attract new
centered on market logic service for evolution (Vargo
customers and suggest people to become customers.
and Lusch, 2004).
Loyalty is a repetitive purchase response that can be
B. Value Co-Creation
perpetually disclosed by decision makers by considering
one or more alternate brands from a number of similar New wave marketing era is an era where producers
brands, and it is a psychological process function. An can collaborate with consumers in developing dynamic,
emphasis should be made that it is different from repeat interactive, and multi-source-based co-creation products
purchase behavior, where customer loyalty involves that involve value creation processes that are not only
feeling aspect, not involving affective aspect done by coordinating everything that deals with quality,
(Dharmesta, in Diah Dharmayanti, 2006, pp. 37-38). cost, and delivery but also done through collaboration.
Olson (in Trisno Mushanto, 2004, pp. 128) asserted that The success of the new products is influenced by not
customer loyalty is a behavioral urge to make repetitive only product quality but also market condition, customer
purchases and to build customer loyalty on certain goods targeting, and the time of product launching. The
and services produced by certain companies, which product development process in the new wave
requires a long time through repetitive purchase marketing era requires companies to co-create with
processes. experts who are able to identify and create quality
products. Prahalad and Ramaswanmy (2004) asserted
Wiliam W. Zikmund (2003:72) proposed aspects that that the value of a product will be better than the
influence customer loyalty as follows. produced product if the company has run the co-creation
1) Satisfaction process well.
Comparison between pre-purchase expectation and C. DART Model
perceived performance. DART (Dialogue, Access, Risk-assessment, and
2) Emotional Bonding Transparency) is a model that straightforwardly
describes foundations or basic principles that must be
Customers feel strong bonds with other customers built by companies in order to successfully create shared
who use the same products and services. value creation. Consumers’ access to information and
their possibility to have dialogues in consumer
3) Trust
communities have changed the role of consumers in
The willingness of a person to trust a company to run current business systems. According to Prahalad and
a function. Ramaswamy (2004: 12), future competition relies on the
new approach in value creation that is based on shared
4) Choice reduction and habit value creation that is centered around individuals
Regular purchase of a product as the accumulation of between customers and companies. Therefore, in order
experience from every repetition. to be successful in co-creation value, companies must
focus on a new set of building blocks called the DART.
5) History with company Prahalad and Ramaswamy (2004:23) explained that, to
increase the knowledge about organizational knowledge,
Service Dominant Logic (SDL)
interactions between consumers and companies as a
There are many concepts, such as value co-creation means for value creation are needed. This also describes
and operant resources, that according to SDL do not the need for co-creation through key building blocks;
originate from SDL and are not created by SDL. they are dialogue, access, risk assessment, and
However, SDL adopts the shift in modern society’s transparency, the DART (Co-Creation Value through
thoughts, in which marketing is regarded as a facilitator Customer Experience, 2008). They are explained as
of continuous process of voluntary exchanges through follows.
values that create various relationship among social
1) Dialogue
actors such as individuals and organizations. SDL

597
 Advances in Economics, Business and Management Research, volume 100

The dialogues between consumers and companies it can be concluded that, in general, the definition of
must focus on the interest of both. Therefore, companies customer satisfaction includes differences between
must do more than just listening to their consumers. In expectation and perceived achievement or result.
addition, rules of engagement and productive interaction
Customer satisfaction provides some benefits, such
are also expected. Dialogue means interaction, deep
as harmonious relationships between companies and
involvement, and tendency to act on the behalf of both
their customers, strong foundations for repeat purchase
sides. It requires understanding on empathy to build
and customer loyalty, and word-of-mouth
experiences around what consumers experience,
recommendations that benefit companies (Tjiptono,
recognize emotional context, and recognize social and
2000). Engel (1990) stated that customer satisfaction is
cultural experiences. This is a knowledge and
a post-purchase evaluation where the selected
communication between to identical problem solver.
alternative is at least the same with or exceeds
Dialogue creates and maintains a loyal community.
customer’s expectation, while dissatisfaction appears
2) Access when the outcome does not meet customer’s expectation.
It is generally accepted that the objective of any business
Access starts with information and equipment, such is to create satisfied customers. The success of creating
as the internet. A company can provide access to data customer satisfaction can give several advantages, such
regarding processes and designs for consumers. The as harmonious relationships between companies and
traditional focus of companies and value chain is their customers, strong foundations for repeat purchase
creating and transferring ownership of product to and customer loyalty, and word-of-mouth
consumers. Nowadays, the objective of consumers is recommendations that benefit companies (Tjiptono,
access to desired experience, not always product 2000).
ownership. Therefore, the idea of ownership access
must be submitted.
3) Risk Assessment

The freedom to exchange information, either to predict

or share risks. When consumers and companies become
value co-creator, the request for information regarding
risk potential will increase. Consumers can also predict
future risks. The risks refer to the probability of Fig. 1. Conceptual Model
endangering consumers. Managers traditionally
assumed that companies can assess and manage risks E. Research Hypotheses
better. Thus, when communicating with consumers, H1: Value co-creation significantly influences
marketers entirely focus on articulating benefit, and they customer loyalty
mostly ignore risks.
H2: Value Co-Creation significantly influences
4) Transparency customer loyalty through the mediation of customer
satisfaction
Transparency is created to build trust between
consumers and companies, for example about price, and H3: Customer Satisfaction significantly influences
to facilitate them to overcome disturbance potentials in customer loyalty
their interactions. Information about products and F. Previous Research
business system is now easier to access, creating a new
level in transparency that increase consumers’ desire. TABLE 1. MAPPING OF JOURNALS
Research
D. Customer Satisfaction No. Article Title Author
Type
Research Result

The definition of satisfaction varies across literatures. 1 Impact of Value Eapen Quantitative Conducted on 330
Kotler (2000, pp. 36) defined customer satisfaction as a Co-Creation on Thiruvattal SMEs using EFA and
pleasure or disappointment of a person with a product Logistics (2016) SEM. Value co-creation,
Customers’ both internal and
after comparing it with his expectation. Wilkie (1994, Loyalty external, significantly
pp. 541) defined customer satisfaction as positive influences loyalty with
emotional response to the evaluation about an the mediation of
superior service.
experience of using a goods or service. Engel (1990)
stated that customer satisfaction is post-purchase 2 Value Co- Ana Isabel Quantitative Conducted on 100
Creation via Polo Pena, service companies and
evaluation where the selected products are at least the Information and Dolores Maria 572 customers using
same with or exceed customer’s expectation. Communications Frias Jamilena SEM. In terms of the
Dissatisfaction appears when the outcome does not meet Technology and Miguel company, there is a
significant relationship
the expectation. Based on the various definitions above, between technology and

598
 Advances in Economics, Business and Management Research, volume 100

No. Article Title Author

Research
Research Result object. This test calculates the correlation coefficient
Type
between the score of the items and their total score using
Angel communication and Pearson’s product moment correlation. The instrument
Rodríguez value co-creation. In
terms of the customers,
of the research is declared valid if the r value is greater
Molina (2014) there is a significant that 0.30 (Solimun, 2017). Test of reliability measures
relationship between the internal consistency of indicators in a construct that
value co-creation and
perceived value and a show to which degree each indicator identifies a general
significant relationship latent factor. This test identifies the reliability and the
between value co- consistency of an instrument if it is used to measure the
creation and loyalty.
same object for multiple times. The test of reliability
3 Co-Creating C. K. Prahalad Conceptual The key for value co- conducted to statement items uses Cronbach’s alpha
Unique Value and Venkad creation is the DART
with Customer Ramaswamy model, consisting of
with the acceptable cut off point of greater that 0.60
(2004) dialogue, access, risk (Solimun, 2017). The Definition operational variables
assessment, and are,
transparency

4 Efficacy of Co- Nina Quantitative 395 questionnaires were

a. Value Co-Creation is measured by Dialogue,
Creation and Prebensen*, collected, analyzed Access, Risk Assement and Transparency.
Mastering on Jinghua Xie using EFA and
Perceived Value (2015) econometric equation. b. Customer satisfaction is measured by image sharia
and Satisfaction in Co-creation and bank, Sharia Bank keep the confidentially of the
Tourists' mastering influences
Consumption satisfaction with the customer personal person and performance of
mediation of perceived
value.
Sharia Advisory Board.
c. Customer loyality is measured repurchase of sharia
5 Wine Service Linda D. Conceptual Consumer Involvement
Marketing, Value Hollebeek and influences service with bank product, reference to others.
Roderick J. the mediation of brand
Co-Creation and Brodie and value co-creation. Causal relationship is a relationship pattern across
Involvement:
research variables from exogenous variables and
Research Issues endogenous variables. The causal relationship of this
6 Value Co- Francisco- Quantitative Using 547 sample and
study is between the exogenous variable. customer
Creation and José Cossío- SEM. Value co-creation loyalty and the endogenous variable. value co-creation
Customer Loyalty Silva, María- behavior significantly with the mediation of customer satisfaction. To analyze
Angeles influences attitudinal
Revilla- loyalty, but the
causal relationships or a series of interdependent
Camacho, influence of value Co- relationships between variables, a multivariate analysis
Manuela
Creation behavior on technique that can explain and predict the relationship
behavior loyalty is
Vega- insignificant. between variables simultaneously and assess the
Vázquez, structural model is needed. The technique is Partial
Beatriz
Palacios-
Least Squares (PLS).
Florencio
(2016) The data analysis of this study uses SmartPLS
version 2.0.m3. According to Ghozali (2006), PLS is a
variance based structural equation modelling (SEM) that
III. METHODS is able to simultaneously assess measurement and
The data of this study was collected through structural model. Measurement model is used to assess
observations, interviews, and questionnaires (Ranjit validity and reliability, while structural model is used to
Kumar, n.d.), the questioner was sent to customer of assess causality (i.e. hypothesis testing with predictive
Sharia Bank . The population of this study is all of model). Furthermore, PLS is a soft modelling analysis
customer of Sharia Bank Indonesia. The sample of this method because it is not based on multiple data
study is purpusive sampling 250 customer of Sharia assumptions, uses measurement scale, does not require
Bank Indonesia. Likert scale was used to measure the large sample size. Hence, it only requires small sample
attitudes, opinions, and perceptions of respondents size, from 30 to 50 (Ghozali and Latan, 2015).
about the object. The instrument is said to be good if it There are several reasons behind the use of PLS in
meets three main conditions: valid, reliable, and this study. The first reason is that PLS is a method of
practical according to Cooper and Schindler (2006). If data analysis that is based on the assumption that the
the instrument is invalid or unreliable, the results will sample does not have to be large and the assumption of
not represent the real condition. The assessment on the residual distribution. The second reason is that PLS can
questionnaire as a research instrument was conducted be used to analyze theory-based data, empirical research
using test of validity and test of reliability. Test of results, relationship between variables in other
validity measures the scale accuracy over the instrument disciplines, and other rational relationships, so the
being used to ensure the suitability between the theoretical foundation of PLS can be strong, weak, or
instrument, i.e. questionnaire items, and the measured even explorative. The third reason is that the PLS

599
 Advances in Economics, Business and Management Research, volume 100

approach assumes that all variance sizes can be used to (t-value) shows the significance level in a
explain relationships between variables. hypothesis testing (Abdillah dan Hartono,
The model testing, was performed to analyze the 2015).
relationship between variables and indicators, was
conducted as follows. IV. DISCUSSION
The research of Eapen (2016) about the relationship
1. Outer model, which is the specification of a
of Value Co-Creation to customer loyalty shows
relationship between latent variables and their significant results while the study of Francisco jose
indicators, explains the characteristics of the (2016) has no significant relationship between value Co-
latent variables with their indicators or manifest Creation. This causes a gap that results are not
variables (Wiyono, 2011). This model is a consistent. To fill in the gap between value Co-Creation
measurement to assess the validity and and customer loyalty by adding mediation namely
reliability of a model (Abdillah dan Hartono, custumer satisfaction. Research on the relationship of
2015). To determine whether the research value Co-Creation to loyalty can be applied to sharia
banks as the object of research.
instrument measures what it has meant to
measure, test of validity is conducted (Cooper, Customer value creation and sharia banks must
et al., 2006). Meanwhile, to measure the always improve customer involvement in creating
shared value in products of sharia bank products in
consistency of an instrument in measuring a
accordance with the sharia principle. Value Co-Creation
concept of research instrument, test of between customer and sharia bank will increase
reliability is conducted (Abdillah dan Hartono, customer satisfaction, high customer satisfaction will
2015). increase customer loyalty so that the relationship of
Test of validity uses the confirmatory factor value Co-Creation to customer loyalty is significant by
analysis by referring to the results of convergent mediating customer satisfaction.
validity and discriminant validity test on the V. CONCLUSION
measurement instrument. Outer model with
reflective indicator is evaluated through Changes in the marketing paradigm namely
customer involvement in the creation of products and
convergent validity. Assessment criteria are services (value Co-Creation) will increase customer
said to have convergent validity if the loading loyalty by mediating customer satisfaction.
factor value is 0.7 and the p value is significant Implementation of these models in companies can be
(<0.05). The loading factor that is greater than applied to products and services of the Sharia Bank.
0.6 to 0.7 is acceptable if the research has not Implementation at Bank sharia is by adding
settled, the value of average variance extracted performance indicators of the sharia supervisory board
(AVE) must be greater than 0.5, and the good to the customer satisfaction variable. The
implementation of the value Co-Creation at sharia banks
discriminant validity is shown by the square
is very influential on customer satisfaction. The policies
value of AVE for each construct that is larger of each sharia bank are different in the implementation
than the correlation between constructs (Latan of bank sharia products such as the types of savings and
dan Ghozali, 2012). Reflective variable time deposits offered and profit sharing according to
assumes that indicators are as if influenced by customer needs and expectations.
other latent variables hence demand The development of the business world is
correlations among indicators. increasingly supported by high technology so that all
2. Inner model, which is the specification of businesses can be accessed on line so that customers
relationships between latent variables, shows can choose the type of product they want. Companies
the relationship between latent variables based need customer involvement in creating / designing new
on the substantive theory of Wiyono (2011). products that can satisfy customer desires. Customers
who are satisfied to the service of the company will be
Inner model is a structural model to predict the
loyal and provide references to other people to use the
causality relationship between latent variables. company's products or services
This structural model is evaluated by using R2
for dependent construct and path coefficient REFERENCES
value (t-value) of each path for inter-construct [1] Chang, Ting-yueh, and Shun-ching Horng.
significance test in a structural model. The R “Conceptualizing and Measuring Experience
squared value is used to measure the variation Quality : The Customer ’ s Perspective.”
level of changes of exogenous variable on (December 2014): 37–41.
endogenous variable. The path coefficient value [2] Chen, Ching-fu, and Meng-huan Tsai. 2008.

600
 Advances in Economics, Business and Management Research, volume 100

“Perceived Value , Satisfaction , and Loyalty of TV “Co-Creating Unique Value with Customers.”
Travel Product Shopping : Involvement as a 32(3): 4–9.
Moderator.” 29: 1166–71. [17] Prebensen, Nina K, Hyelin Lina Kim, and Muzaffer
[3] Christian Grönroos, (2012) Conceptualising value Uysal. 2015. “Cocreation as Moderator between t
co-creation: A journey to the 1970s and back to the Experience Value and Satisfaction
[4] the future, Journal of Marketing Management Vol. Relationship.”
28, Nos. 13–14, December 2012, pp 1520–1534 [18] Saarijärvi, Hannu, P.K. Kannan, and H. Kuusela.
[5] Cossío-silva, Francisco-josé, and María-ángeles 2016. “The Effect of Experience Quality on
Revilla-camacho. 2016. “Value Co-Creation and Perceived Value , Satisfaction , Image and
Customer Loyalty ☆.” Journal of Business Behavioral Intention of Water Park Patrons : New
Research 69(5): 1621–25. versus Repeat Visitors.” Sport Management
http://dx.doi.org/10.1016/j.jbusres.2015.10.028. Review 29(8): 4–9.
[6] El-menouar, Yasemin. 2014. “The Five http://dx.doi.org/10.1016/j.jhtm.2016.05.005.
Dimensions of Muslim Religiosity . Results of an [19] Saarijärvi, Hannu, P K Kannan, and Hannu
Empirical Study.” 8(1): 53–78. Kuusela. 2013. “Value Co-Creation : Theoretical
[7] Fernandes, Teresa, and Mariana Cruz. 2016. Approaches and Practical.”
“Journal of Retailing and Consumer Services [20] Tyler, Katherine et al. 2017. “Consumer Trust in
Dimensions and Outcomes of Experience Quality Banking Relationships in Europe.” (018006).
in Tourism : The Case of Port Wine Cellars.” [21] Vargo, Stephen L et al. 2013. “Theorizing Islamic
Journal of Retailing and Consumer Services 31: Retail Experiential Value in Predicting Total
371–79. Islamic Experience Quality:A Hypothesised Model
http://dx.doi.org/10.1016/j.jretconser.2016.05.002. Syaharizah.” Journal of Business Research 2(1):
[8] Foroudi, Pantea et al. 2016. “In Fl Uence of 37–41.
Innovation Capability and Customer Experience on http://dx.doi.org/10.1080/14766086.2013.836127.
Reputation and Loyalty ☆.” Journal of Business [22] Vargo, Stephen L, Robert F Lusch, Melissa A
Research 69(11): 4882–89. Akaka, and Yi He. “Service-Dominant Logic A:
[9] http://dx.doi.org/10.1016/j.jbusres.2016.04.047. Review and Assessment.” : 125–67.
[10] Grönroos, Christian, and Päivi Voima. 2013. [23] Vargo, Stephen L, Paul P Maglio, and Melissa
“Critical Service Logic : Making Sense of Value Archpru. 2008. “On Value and Value Co-Creation :
Creation and Co-Creation.” : 133–50. A Service Systems and Service Logic Perspective.”
[11] Hernando, Elisa, and Sara Campo. 2009. “An Artist : 145–52.
’ s Perceived Value : Development of a [24] Vega-Vazquez, Manuela, María-ángeles Revilla-
Measurement Scale.” camacho, and Francisco-josé Cossío-silva. 2014.
[12] Kashif, Muhammad, Mohsin Abdur Rehman, and “The Value Co-Creation Process as a Determinant
Lina Pileliene. 2016. “Customer Perceived Service of Customer Satisfaction.”
Quality and Loyalty in Islamic Banks.” [25] Wang, Yi-shun. 2014. “Exploring the Relationship
[13] Kim, Hyunsik, and Beomjoon Choi. 2013. “The between Intentional and Behavioral Loyalty in the
Influence of Customer Experience Quality on Context of E-Tailing.”
Customers ’ Behavioral Intentions.” : 322–38. [26] Waseem, Donia, Sergio Biggemann, and Tony
[14] Marı, Dolores, Ana Isabel, and Polo Pen. 2014. Garry. 2017. “Value Co-Creation : The Role of
“Value Co-Creation via Information and Actor Competence.” (June).
Communications Technology.” 34(13): 1043–59. [27] Wu, Hung-che. 2017. 41 A Study of Experiential
[15] Payne, Adrian F, Kaj Storbacka, and Pennie Frow. Quality , Perceived Value , Heritage Image ,
2008. “Managing the Co-Creation of Value.” : 83– Experiential Satisfaction , and Behavioral
96. Intentions for Heritage Tourists.
[16] Prahalad, C K, and Venkat Ramaswamy. 2004.

601