DIGITAL TRANSFORMATION AND SERVICE QUALITY AS DRIVERS OF CUSTOMER LOYALTY: THE MEDIATING ROLE OF CUSTOMER SATISFACTION IN INDONESIAN SMEs

Abstract

Purpose-This article develops an integrative framework explaining how digital transformation and service quality generate customer loyalty in Indonesian small and medium-sized enterprises (SMEs), with customer satisfaction as the central mediating mechanism. Design/methodology/approach-An integrative literature review synthesizes established and recent research on digital transformation, dynamic capabilities, service quality, expectation-confirmation, satisfaction, and loyalty. The synthesis follows problem formulation, purposive database-oriented searching, conceptual coding, comparison of mechanisms, and theory integration. Findings-Digital transformation is unlikely to create loyalty merely through technology acquisition. Its customer value depends on whether SMEs convert digital resources into reliable, responsive, secure, accessible, and personalized service encounters. The framework proposes that digital transformation improves loyalty directly by increasing convenience and relational continuity, and indirectly by strengthening service quality and satisfaction. Service quality also predicts loyalty directly and through satisfaction. The joint configuration of digital capability and human service consistency is therefore more consequential than digitization intensity alone. Originality/value-The article connects firm-level digital capability with customer-level evaluations in an SME-specific model and clarifies satisfaction as the mechanism that converts operational improvements into durable relational outcomes. It also identifies resource constraints, digital trust, channel integration, and customer heterogeneity as boundary conditions. The framework provides testable propositions and a staged implementation agenda for Indonesian SMEs.