ABSTRACT
Loyalty has become one of the most strategic and sustainable goals of businesses which any business organizations dream to attain. Customer loyalty is a key variable that inspire corporate businesses to compete in order to gain competitive advantage and continuous patronage against their competitors. The purpose of this paper is to investigate the mediation effect of customer satisfaction in the relationship between service quality and customer loyalty in the non-formal sector of the Nigeria economy. The study considered the informal business sector comprising of hair salons, auto repairs, tailoring and masonry in Jos and Bukuru metropolis of Plateau state Nigeria with emphasis on tailoring and auto repairs as the unit of analysis. The sample size of the study is derived by applying the Yamane sample size formula of 1967; the research arrived at 372 as the minimum sample size for the study. Data was collected from a questionnaire survey and analyzed using ADANCO 2.1.1 to test the hypotheses. Findings from the study reveal that customer satisfaction mediates service quality and customer loyalty. Service quality and customer satisfaction also have direct relationship with customer loyalty. This applies that business is not the only factor that can directly affect customer loyalty, but must first go through customer satisfaction. This means that businesses must first understand what the customer needs and service quality to be provided in other to attract customer loyalty when the level of satisfaction is resolved. The study recommended that, service quality offered by this sector needs to be improved upon to enhance customer satisfaction and loyalty.
Key words: Service quality, Customer satisfaction, Customer loyalty, Informal sector