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THE EFFECT OF DIGITAL MARKETING AND CUSTOMER

SATISFACTION ON COMPANY IMAGE AND ITS IMPACT ON CUSTOMER

LOYALTY LOCAL WATER SUPPLY UTILITY SEMARANG REGENCY

Yahya

, Harry Soesanto

Faculty of Economics and Business, Universitas Diponegoro, Semarang, Indonesia

1,2

yahya.reyhanjaya@gmail.com

ABSTRACT

Water, as a vital element needed by all living entities, including humans, is an irreplaceable staple in

today's global ecosystem. Its presence has a crucial role in maintaining human survival. As a result, the

responsibility for overall water management falls on the government as the main regulator in this

regard. The basis for this research is due to the research gap and to strengthen theories about digital

marketing on customer satisfaction and digital marketing and customer satisfaction on company image.

The research method used is "explanatory research" which highlights the influence between research

factors through hypothesis testing. Researchers distributed 180 questionnaires to 180 respondents from

the draw. One hundred and thirty questionnaires were then examined for completeness until it showed

that only 151 questionnaires had data suitable for use for research. The results showed that by

increasing PDAM customer loyalty, an appropriate marketing method is needed using digital

marketing methods. Customer loyalty is built on two variables, namely customer satisfaction and

company image. The increasing number of customer complaints shows a decrease in the level of

customer satisfaction of PDAM Semarang Regency. Efforts to reduce customer complaints are carried

out through communication with customers.

Keywords: Digital Marketing; Customer Satisfaction; Company Image; Customer Loyalty; Local

Water Supply Utility

INTRODUCTION

Water, as a vital element needed by all living entities, including humans, is an

irreplaceable staple in today's global ecosystem. Its presence has a crucial role in maintaining

human survival. As a result, the responsibility for overall water management falls on the

government as the main regulator in this regard. In line with Article 33 paragraph (3) of the

1945 Constitution, which states that "Earth and water and the natural resources contained

therein are controlled by the state and used for the greatest prosperity of the people"

(Gunawan, Pakendek, & Heryanti, 2023). According to Article 10 of Law No. 22 of 1999

concerning "Regional Government, regions have the authority to manage natural resources in

their areas and are responsible for maintaining their sustainability in accordance with laws and

regulations". In order to divide the government's duties in the public works sector to the

regions, the Regional Government is responsible for the provision of drinking water services.

The implementation is then handed over to the Regional Water Supply Company (PDAM)

through regional regulations (Miranti, 2022).

In this situation, it is hoped that PDAM Semarang Regency, as one of the BUMDs, can

be of great benefit. It should be noted that "only companies that have a globally competitive

advantage are able to meet customer needs well and produce quality products at an efficient

cost" according to Mulyadi, (2001) in (Junita, 2017). This shows that high PDAM

performance is needed so that customer loyalty can continue to increase. In the past decade,

many customers in the Ambarawa area easily cut ties with PDAMs because they had an

alternative source of water, namely wells. Facing such geographical conditions, it is a

challenge for PDAM Semarang Regency to maintain customer loyalty through meeting

customer needs for smooth, quality and sufficient flow, as well as good communication

through socialization and education on the use of healthier drinking water using PDAM.

Siat (1997) states that customer loyalty is a key for companies to success in business

competition, loyal customers are satisfied customers. Based on the statement above, it appears

that PDAM customer satisfaction is one of the indicators of the company's success in the field

The Influence of Digital Marketing and Customer Satisfaction on Company Image and Its Impact on 
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of clean water supply services. But over time, consumer complaints managed by the Customer 
Service  Section  actually increased in  the  number and variety  of  problems.  The number  of 
customer complaints is increasing, which indicates a problem and needs to get a solution by a 
service  provider,  in  this  case  PDAM  Semarang  Regency.  In  other  words,  customer 
dissatisfaction in the services received has an impact on the increasing number of customer 
complaints against PDAM. 
Company image is also one of the factors that affect the level of customer loyalty. It is 
easy for a company to build customer loyalty, if the company has a good image.  Research 
(Hu,  2009)  states  that  "The  image  of  the  company  has  a  positive  effect  on  behavioral 
intentions or loyalty". Research (Lai, 2009) and (III, 2004) states that "Company image has a 
significant effect  on  customer loyalty". The image of the  company is  another element that 
affects  client  loyalty.  If  a  company  has  a  positive  reputation,  gaining  customer  loyalty  is 
relatively easy. According to research (Hu, 2009), corporate image has a beneficial impact on 
customer  loyalty  or  behavioral  intent.  According  to  research  (Lai,  2009)  and  (III,  2004), 
company image has a great influence on how loyal customers are (Kim, Yin, & Lee, 2020). 
According  to  Kotler  (2012),  image  is  a  collection  of  assumptions,  opinions,  and 
impressions that a person has about a particular thing. Sofiati (2017) explains an image has 
four components: reputation, recognition, affinity, and brand loyalty. Referring to the previous 
explanation, the increasing number of customer complaints shows a decrease in the level of 
customer  satisfaction  of  PDAM  Semarang  Regency  (Palimbo,  Sukamto,  &  Susanti,  2017). 
Efforts  to  minimize  customer  complaints  are  carried  out  by  opening  communication  to 
customers. Communication to customers can be interactive such as by providing information, 
criticism  and  suggestions  to  PDAM  Semarang  Regency,  one  of  which  is  through  digital 
marketing (Budi et al., 2016). Digital marketing is an initiative to make  goods or services 
more widely known by the public by using online channels including social media, websites, 
YouTube, and e-commerce (Yadav & Rahman, 2017). A system known as "digital marketing" 
has been integrated into the marketing world in the digital era (for example in 2020). People 
can easily and quickly access all kinds of information in the digital age (Fitriana, 2019). 
The basis for this conducting is due to the research gap and to strengthen theories about 
digital marketing on customer satisfaction and digital marketing and customer satisfaction on 
company image. According to research findings (Fadhli & Pratiwi, 2021) digital marketing do 
not have a clear influence on variables relate to costumer happiness (Chen et al., 2022; McLean 
& Wilson, 2019). According to (Afrilia, 2018), Socialmedia is the most accessible method of 
digital marketing campaigns to use to increase the number of consumers. Digital marketing is 
one aspect that according to research Putri et al., (2018) can increase brand equity of tourism 
products. 
In addition, there are four factors that are very important when doing online promotion, 
and  any  ICT-based  marketing  must  pay  attention  to  Content,  Trust,  Price,  and  Product 
(Rewah, 2018). These four factors interact with each other and cannot be supported by ICT-
based promotion on Facebook, Twitter, and Instagram itself. Therefore, young business people 
must balance these four factors (Olugbola, 2017). 
Thus,  it  is  expected  that  the  problems  faced  by  customers  will  immediately  get 
solutions, which are then followed up with improvements that lead to customer satisfaction. 
However, the effectiveness of using digital marketing through social media to boost customer 
satisfaction, in fact, needs to be studied more deeply. This became the basis for the birth of the 
following problem formulation:    "How to  increase customer  loyalty  of  Semarang Regency 
Drinking Water Regional Company" 
 
RESEARCH METHOD 
Types of research 
The  research  method  used  is  "explanatory  research"  which  highlights  the  influence 
between  research  factors  through  hypothesis  testing.  Although  the  description  includes  a 

The Influence of Digital Marketing and Customer Satisfaction on Company Image and Its Impact on 
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description, the emphasis is on the influence between variables. Research questionnaire as an 
instrument  used  to  collect  responses  from  respondents  given  to  research  participants, 
especially  PDAM  Semarang  Regency  customers.  The  questionnaire  measures  customer 
loyalty, digital marketing, and PDAM satisfaction and image (Afifah & Asnan, 2015).  
Population and sample 
Semarang Regency PDAM customers totaling 51,467 in total (December 2020) are the 
population for this study. In practice, sampling is first carried out by giving serial numbers to 
the  entire  population  of  PDAM  customer  dial  numbers,  then  drawing  lots  on  the  serial 
numbers until 100 respondents are reached. The draw is carried out using Lottery 5.0 software. 
Researchers distributed 180 questionnaires to 180 respondents from the lottery. One hundred 
and  thirty  questionnaires  were  then  examined  for  completeness  to  show  that  only  151 
questionnaires had data suitable for use for research (Calearo, Marinelli, & Ziras, 2021). 
 
Data collection 
A methodical approach can be used to collect statistical data. Data collection aims to 
capture the events or traits of some or all of the population constituents. Questionnaires with 
closed  and  open  questions/statements  were  used  in  this  study  to  collect  data,  where 
respondents were given a list of questions and asked to provide answers or answers that were 
already known. Closed questionnaire items were graded on a scale of 1 to 7 to collect interval 
data (Pérez-Sanagustín, Muñoz-Merino, Alario-Hoyos, Soldani, & Kloos, 2015). 
Analysis Methods 
Data  analysis  in  this  study  will  use  structural  equation  modeling  (SEM).  SEM  was 
chosen as  a  data analysis technique because the  model  in this  study  is  structural and not  a 
direct  influence  but  there is  also  an  indirect  influence  involving  intervening  variables.  The 
SEM approach method in this study is to use AMOS (Jain & Raj, 2016). 
Validity in Confirmatory Factor Analysis (CFA) is done by analyzing statistical forms 
and overall variable models. The statistical model will look at  the probability  value (p < 0.05) 
for the validity of each indicator and the validity of the discriminant is done by examining the 
fit model for each variable, the model fit indicator if more than 4 indicators are fit (Hair et al., 
2014). 
The  calculation  of  the  reliability  of  each  variable  is  carried  out  using  the  following 
formula (Hair et al., 2014): 
ρ = (∑λ)
2
 / [ (∑λ)
2
+ ∑(Ǿ) ] 
Information: 
ρ = composite reliability 
λ = loading indicator 
Ǿ = standar error 
When the reliability value obtained exceeds 0.6 (ρ >0.6) then the variable is declared reliable.  
RESULT AND DISCUSSION 
At  the  beginning  of  the  analysis  of  the  SEM  model,  it  is  necessary  to  test  the 
measurement model to avoid complex models that cannot be described. Measurement model 
testing is performed on each latent variable using confirmatory factor analysis (Bentler & Chou, 
1987). 
Exogenous Variable Construct 
The construct of exogenous variables is formed on one latent variable, namely digital 
marketing  with  a  total  of  4  indicators.  In  accordance  with  the  feasibility  results  of  the 

The Influence of Digital Marketing and Customer Satisfaction on Company Image and Its Impact on

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exogenous construct model that has been tested, Probability (P) produces a value above the

significance of ≥0.05, which is 0.115, so it is declared fit. CMIN/DF is in the good category

with a resulting output of 1.947 where the classification is met with a value of ≤2.0. GFI has a

good value where at a signification value of ≥0.90 the processed data produces an output of

0.986 (Singla, Ahuja, & Sethi, 2018). The AGFI criteria show the results of the fit evaluation

with a value of 0.928; where it is below with a value classification of ≥0.90. NFI and IFI have

values of 0.988 and 0.984 respectively; with a value that meets both ≥0.90. Likewise, CFI and

TLI, each showed good evaluation results with sequential values of 0.984 and 0.981 which

were in accordance with their respective classifications of ≥0.95. Finally, RMSEA produces

good output with a value of 0.068 with an expected classification of ≤0.08. So it can be

concluded that the results of the Goodness-of-fit test analysis of exogenous construct

confirmatory factors have good average results (Haruna, 2014).

Endogenous Variable Constructs

Endogenous variable constructs are formed on three latent variables, namely customer

satisfaction, company image and customer loyalty with a total of 13 indicators (Askariazad &

Babakhani, 2015). Based on the results of the feasibility of the endogenous construct model

that has been tested, probability (P) produces a marginal value where at a signification value

of ≥0.05 the processed data produces an output of 0.015. CMIN/DF produces a good value

with a resulting output of 1.502; The value has been classified as ≤2.0. GFI has a good value

where at a signification value of ≥0.90 the processed data produces an output of 0.932. The

AGFI criteria showed good evaluation results with a value of 0.869; where it does not match

the respective classification of ≥0.90. TLI and CFI each showed good evaluation results with

sequential values of 0.976 and 0.986 where it was stated to have been in accordance with the

respective classification of ≥0.95. Likewise, NFI and IFI are declared good with values of

0.959 and 0.986 respectively because they are classified ≥0.90. Lastly on RMSEA produced a

good output of 0.058 with an expected classification of ≤0.08; then it can be concluded that

the results of the Goodness-of-fit test of exogenous construct confirmatory factor analysis

have good average results.

SEM Model Full Analysis

SEM (Structural Equation Modeling) was used to process the data in this study. SEM

analysis measures the presence or absence of influence and the degree of relationship of

factors that are subsequently identified indicators.

Hypothesis testing is based on the value of critical ratio and significant level of regression

weight, seen from the value of c.r. ≥ 1.96 and significant ≤ α = 0.05. The statement indicates

that the conditions of the hypothesis are accepted.

1. Test Hypothesis 1 (The Relationship of Digital Marketing with Customer Satisfaction)

Based on the test results, obtained C.R. Digital marketing to customer satisfaction

amounted to 12,477. This value has qualified > 1.96 with sig. 0.000 < 0.05; so it is

concluded that hypothesis 1 which states Digital marketing has an effect on customer

satisfaction is accepted.

2. Test Hypothesis 2 (The Relationship of Digital Marketing with Company Image)

Based on the test results, obtained C.R. Digital marketing to the company's image

amounted to 5,027. This value has qualified > 1.96 with sig. 0.000 < 0.05; so it is

concluded that hypothesis 2 which states Digital marketing affects the company's image is

accepted.

3. Test Hypothesis 3 (Relationship of Customer Satisfaction with Company Image)

Based on the test results, C.R. customer satisfaction with the company's image was

obtained at 2,051. This value has qualified > 1.96 with sig. 0.040 < 0.05; so it is concluded

The Influence of Digital Marketing and Customer Satisfaction on Company Image and Its Impact on

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that hypothesis 3 which states customer satisfaction affects the company's image is

accepted.

4. Test Hypothesis 4 (Relationship of Customer Satisfaction with Customer Loyalty)

Based on the test results, C.R. customer satisfaction with customer loyalty was 3,071. This

value has qualified > 1.96 with sig. 0.002 < 0.05; so it is concluded that hypothesis 4 which

states customer satisfaction has an effect on customer loyalty is accepted.

5. Test Hypothesis 5 (The Relationship of Company Image with Customer Loyalty)

Based on the test results, C.R. obtained company image to customer loyalty of 2,042. This

value has qualified > 1.96 with sig. 0.041 < 0.05; so it is concluded that hypothesis 5 which

states the company's image has an effect on customer loyalty is accepted.

Indirect Effects Analysis

The strength of influence between variables is indirectly demonstrated through indirect

analysis (Najaf et al., 2018). Intervening variables arise due to indirect influences. In this

study, corporate image connects digital marketing, customer satisfaction, perceived behavioral

control, and consumer company image with customer loyalty.

Indirect Value

Digital

marketing on

custumer

loyalty

Customer

satisfaction

towards

customer

loyalty

Indirect

0,913

0,108

Source: Processed primary data, 2023

Based on the test results, there is an intersection between digital marketing and customer

loyalty. There is an indirect relationship between digital marketing and customer loyalty

through company image and customer satisfaction of 0.913. Based on the test results, there is

an intersection between customer satisfaction and customer loyalty. There is an indirect

relationship from customer satisfaction to customer loyalty through company image 0.108.

From these results it is known that there is an indirect relationship between the independent

variable (digital marketing) and the dependent variable (customer loyalty). These results prove

that customer satisfaction and company image mediate the influence of digital marketing on

customer loyalty to continue subscribing to PDAM Tirta Moedal Semarang.

Discussion

The Effect of Digital Marketing on Customer Satisfaction

Based on the test results in this study, it was concluded that digital marketing has a

positive and significant influence on customer satisfaction (Lucyantoro & Rachmansyah, 2017).

Digital marketing has a significant impact on the level of customer satisfaction because it can

offer various additional benefits to consumers, such as information and online transactions

(Ling et al., 2016) provided by PDAM, in addition to the same fundamental advantages as

other types of marketing. In this situation, it is very appropriate to advertise goods through

digital marketing because of the development of the era where the internet has integrated with

people's lives so that customers can also get product information offered by PDAM in the

form of social networks (Purwana et al., 2017).

Variable

Relationships

Inflience

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The Effect of Digital Marketing on Company Image 
Based  on  the  test  results in  this  study,  it  was concluded  that  digital  marketing has  a 
positive  and  significant  influence  on  the  Company's  image  (Laksana  &  Dharmayanti,  2018). 
According to Chambers (2008), buying intangible goods and services  has  a  higher level  of 
risk,  making  consumers  increasingly  dependent  on  personal  recommendations  and  online 
word of mouth. Digital marketing can help companies to  increase brand awareness. Digital 
marketing platforms such as social media and search engines can help companies to reach a 
large audience and increase brand awareness (Astuti et al., 2020). 
 
 
The Effect of Customer Satisfaction on Company Image 
Based on the test results of this study, customer satisfaction variables have a positive 
and significant influence on the company's image. Research conducted by Hui (2009) and Lai 
(2009)  in  (Kadarisman  &  Ariyani,  2021)  highlights  the  importance  of  service  quality  in 
influencing customer satisfaction levels and company image. The quality of services provided 
by a company or organization can be a critical factor in shaping a customer's perception and 
assessment of the company as a whole. Good service quality contributes to the improvement 
of the company's image, while high customer satisfaction enhances the Company's reputation 
(Prabowo, 2018). 
The Effect of Customer Satisfaction on Customer Loyalty 
The results of this research test state, customer satisfaction variables have a positive and 
significant influence on customer loyalty variables. The main condition that must be met is 
satisfaction  (Supriyanto  et  al.,  2021).  Consumer  satisfaction  has  a  significant  influence  on 
consumer loyalty. Satisfied customers are more likely to buy back a company, recommend the 
company to others, and forgive mistakes. Conversely, dissatisfied customers tend to turn to 
competitors, spread negative word of mouth,  and  forgive mistakes less. Satisfied customers 
feel valued and respected. When customers are satisfied with a company's product or service, 
they feel valued and respected. This makes them more likely to continue doing business with 
the  company.  Satisfied  customers  have  a  positive  emotional  connection  with  the  Company 
(Pradiani, 2018). 
The Effect of Company Image on Customer Loyalty 
The results of this research test state, the company image variable has a positive and 
significant influence on customer loyalty variables (Wai Lai, 2019). Business image positively 
influences consumer loyalty or behavioral intentions. The company's image has a significant 
influence  on  customer  loyalty  (Yu  et  al.,  2021).  Customers  are  more  likely  to  be  loyal  to 
companies  that  have  a  positive  image  of  them.  A  positive  company  image  can  be  created 
through  several  factors,  customers  tend  to  be  more  loyal  to  companies  that  provide  high-
quality  products  and  services  (Iman,  2010).  Customers  are  more  likely  to  be  loyal  to 
companies that provide excellent customer service. Customers are more likely to be loyal to 
companies with strong brand reputations (Ridho, 2013). 
CONCLUSION  
The  conclusions  that  can  be  drawn  according  to  the  results  of  the  research  and 
discussion  are  as  follows:  H1:  Digital  marketing  has  a  significant  effect  on  customer 
satisfaction.  From  the  results  of  data  processing,  the  values  of  CR  (Critical  Ratio)  and  P 
(Probability)  for  the  relationship  between  variables  from  digital  marketing  to  customer 
satisfaction show qualified results. Thus it can be concluded that hypothesis 1 of the study is 
accepted. H2: Digital marketing has a significant effect on the company's image. From the 

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results  of  data  processing,  the  values  of  CR  (Critical  Ratio)  and  P  (Probability)  for  the 
relationship between variables from digital marketing to the company's image show qualified 
results.  Therefore  it  can  be  concluded  that  hypothesis  2  of  the  study  is  accepted.  H3: 
Customer satisfaction has a significant effect on the company's image.From the results of  
data  processing,  the  values  of  CR  (Critical  Ratio)  and  P  (Probability)  for  the  relationship 
between variables from customer satisfaction to company image show qualified results. Thus 
it  can  be  concluded  that  hypothesis  3  research  from  this  is  accepted.  H4:  Customer 
satisfaction  has  a  significant  effect  on  customer  loyalty.From  the  results    of  data 
processing, the values of CR (Critical Ratio) and P (Probability) for the relationship between 
variables from customer satisfaction to customer loyalty show qualified results. Thus it can be 
concluded that hypothesis 4 of this study is accepted. H5: Company image has a significant 
effect on customer loyalty.From the results of  data processing, the values of CR (Critical 
Ratio)  and  P  (Probability)  for  the  relationship  between  variables  from  company  image  to 
customer loyalty show qualified results. Thus it  can be concluded that  hypothesis 5  of  this 
study is accepted. 
Based  on  these  conclusions,  in  increasing  PDAM  customer  loyalty,  an  appropriate 
marketing method is needed  using  digital  marketing methods. Customer loyalty is  built on 
two variables, namely customer satisfaction and company image. The increasing number of 
customer  complaints  shows  a  decrease  in  the  level  of  customer  satisfaction  of  PDAM 
Semarang Regency. 
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