Corporate Social Responsibility as a Crucial Factor - Coursework Example

Corporate Social Responsibility always adds value to the brand Executive Summary Corporate Social responsibility is a crucial factor that drives the success of a company. CSR initiatives enhance brand value of a company by elevating customer awareness as well as employee satisfaction towards a particular brand or a company. By designing social responsibility programs and stating different initiatives pertaining to social responsibility, a firm is actually helping itself to improve its image in front of the international market. This is primarily because it has been witnessed that consumers’ purchase behaviour is heavily influenced by the extent to which a particular company is engaged in social responsibility activities. Research scholars have concluded that consumers tend to buy products from those companies, who are socially responsible. In fact, they do not mind paying a premium for a product, which is distributed by a socially engaged company. As far as employees are concerned, it has been found that existing employees as well as job seekers also choose to work with a company, which satisfy them, in terms of its social responsibility engagement. This study highlights significance of CSR in enhancing the brand value. In order to be able to do an in-depth analysis, the paper has been divided into several sections, highlighting different aspects of CSR. Contents Executive Summary 2 Contents 3 3 Introduction 4 Corporate Social Responsibility and firm value 4 The impact of CSR on brand equity 5 How CSR adds value to a brand 6 CSR influences customer’s decision 7 Conclusion 8 Reference List 10 Introduction Corporate social responsibility is receiving an unprecedented level of attention, over the last few decades. According to a report published by The Economist (2008), majority of the executives working in international organizations regard corporate social responsibility at the top of their priority list. Smith (2009) states that due to the advent of globalization, there is a mounting pressure on multinational companies to address issues related to social responsibility. The issues that are majorly addressed by executives, all over the world, are environmental protection, supply chain, employee rights and working conditions (Mueller, dos Santos and Seuring, 2009). The underlying reason behind multinational organizations for giving such importance to corporate social responsibility is that failing to do so might tarnish global brand reputation and image of the company. The theories mentioned above suggest the fact that in order to manage the reputation and value of a brand, understanding the role of corporate social responsibility is of utmost importance. On a formal note, corporate social responsibility refers to an organization’s status and activities associated to the perceived stakeholder and societal obligations (Sen and Bhattacharya, 2001; Brown and Dacin, 1997). On the other hand, corporate social performance refers to the overall performance of a company in corporate social responsibility programs, which are related to companies occupying the topmost position in the same industry (Luo and Bhattacharya, 2009). While corporate social responsibility initiatives represent programs designed by a firm aimed towards investments in sustainability, corporate social performance reflects assessments made by shareholders regarding overall quality of the programs and investments (McWilliams and Siegel, 2000; Servaes and Tamayo, 2013). Corporate Social Responsibility and firm value Even though the existing literatures reveal that CSR actions can help a company attain reputational advantages (Fombrun and Shanley, 1990; Orlitzky, Schmidt and Rynes, 2003), yet rigorous study has not been done regarding effects of CSR on brand value. Brand equity refers to the additional value that is accrued by a firm because of the presence of brand name. This value cannot be accrued by an unbranded company, which produces products that are similar to the branded company (Keller and Lehmann, 2006). In spite of the inter-relation that is drawn between brand reputation and value, both the concepts are not exactly synonymous. According to Ettenson and Knowles (2008), brand is more customer-oriented; whereas, reputation centres mainly on the company. Reputation may lay a solid foundation for product evaluation, but it is not a satisfactory condition that would lead to brand enhancement. Brady (2003) and Middlemiss (2003) state that there is a lack of empirical support for the proposition that corporate social responsibility improves brand equity. According to Wang (2010, p. 335), "Global brands are citizens of a global community, and their frame of reference transcends national boundaries." The image of a global brand depends on its evaluations that are based upon internationally accepted standards that stakeholders adopt. It is also based on the way internationally recognized brands behave, environmentally and socially (Waddock and Smith, 2000). Therefore, it can be said that, despite the presence or absence of expected physical returns as a result of CSR investments, brands may lay beneath the CSR initiatives of multinational corporations. An illuminating example of the theory mentioned above is the recent changes, which were observed in the strategy adopted by Coca-Cola. After its environmental practices and association with child labour in the developed economies were criticized, the multinational corporation intended to become a global leader in CSR (Marketing Week, 2007). Critics started contemplating that the underlying reason behind Cokes delayed focus on CSR was the threats posed by negative media publicity to the companys most precious asset, its brand value (Marketing Week, 2007). The impact of CSR on brand equity According to Wang (2010, p. 336), “brand building literature interprets branding effects in terms of consumers’ mindsets toward the brand.” Their mindset reflects their feeling and their behaviour regarding a particular brand. The literature also illustrates impact of those mindsets on their behaviour (Aaker and Joachimsthaler, 2000; Barnett, 2007; Baron, 2001; Berman, et al., 1999). In the light of such literatures, Hoeffler and Keller (2002) state that corporate social responsibility programs does add to the value of a brand by building customer awareness, ascertain brand credibility, develop brand image, generate a feeling of brand community, stir up brand feelings and bring forth brand engagement. Further studies have revealed that CSR programs lead to favourable evaluations, firmer customer identification and enhanced customer satisfaction; all of which are key drivers of brand value (Brown and Dacin, 1997; Sen and Bhattacharya, 2001; Luo and Bhattacharya, 2006). Hence, it can be said that the positive customer attitude, ensuing from CSR programs, generate rewards for a company in the form of enhanced brand value. Erdem and Swait (1998) suggested that firms can utilize brands as market indicators to apprise clients about product features (for example, product quality) and ensure that product attributes seem credible. Research scholars have concluded that reliability of brand as an indicator can enhance the perceived quality, lessen the apparent risks associated with a product and augment the expected utility of consumers. Thus, in return, augmentation in the expected utility of consumers will always add value to a brand. Researchers, who have done an extensive study on corporate social responsibility, have proposed that social activities done by organizations reverts a signal of non-self-serving point of reference that spawns optimistic attributions or moral capital for an organization (Godfrey, Merrill and Hansen, 2009; Godfrey, 2005). According to Luo and Bhattacharya (2009), the moral capital generated from CSR initiatives results in enhanced brand integrity among customers. Therefore, CSR positively influences brand value by boosting the integrity of brands as market indicators. Better CSR practices can establish goodwill and improve relationships between stakeholders, thereby developing insurance-like security on brands (Werther and Chandler, 2005). With increase in the brand value, the strategic significance of CSR as a tool for stakeholder relationship management also heightens. In other words, international brands with higher value should have greater enticement to make investment for CSR activities (Wang, 2010). How CSR adds value to a brand Henry David Thoreau quoted that, “Goodness is the only investment that never fails.” Majority of the international brands demonstrate that they take this statement very seriously. They have been and will continue to run their business sustainably and efficiently, in turn developing smarter and better business practices, which exhibit their concern for stakeholders as well as the community that they are serving. CSR is a broad umbrella that comprises a set of activities, such as, voluntary community service, carbon footprint improvement or reduction, enforcement of high ethical standard and focus on designing programs related to enhancement of quality of life for both employees as well as their families. There are several benefits of CSR. It has a positive impact on employees and customers, elevating and improving the performance on customary reputational stimulants, such as, performance, perception, fairness, services, products and innovation. In addition to that, CSR raises the drivers for the shareholders and owners, who have identified that it leads to smarter and better business. Furthermore, CSR catches the attention of top level talent by enhancing brand perception and also, establishes a long lasting root in regional and local communities, thereby developing the organic pool of talent (Chu and Keh, 2006; Kampf, 2007; Simmons and Becker-Olsen, 2006). Even so, while numerous Americans claim that they are more inclined towards purchasing a product from a sustainable organization or from an organization that supports a particular cause, a Ketchum (2011) report revealed that only one in a five actually contribute something substantial in direct response to CSR, such as, changing brands, paying or purchasing more. A study conducted by a Reputation Institute discovered that customer’s willingness to purchase, suggest, work for and invest in an organization is motivated mainly by their perception about the organization (60%) and later by their perception about the product (40%). The report analyzed seven aspects of corporate reputation, which included workplace, citizenship, governance, financial performance, products and services, leadership and innovation. Among the seven aspects, three of them (governance, workplace and citizenship) fall in the category of CSR. As far as that measure is concerned, 42% of people’s opinion about an organization is based upon their view of the company’s CSR initiatives. Consequently, the opinion about an organization’s CSR activity accounts for nearly 25% of general people’s overall view on conducting business with the organization (Smith, 2013). CSR influences customer’s decision While it cannot be definitively said that CSR always acts as a driver of revenue, but it certainly influences specific performance metrics positively, such as, preference, perception and premium price. Perception: CSR plays a substantial role in influencing the general perception of an organization across drivers, which are emotionally differentiating (for example, integrity, sense of trust and contribution to a noble cause). When the general public was surveyed regarding their perception about social factors such as, governance, workplace environment and citizenship, it was revealed that they tend to favour organizations that practice CSR extensively (Boston College and Reputation Institute, 2010). This suggests that CSR activities certainly enhance the value of a business/brand in front of its potential customers. Customers might not directly respond to the CSR initiatives taken by an organization, but CSR certainly influences customers’ behaviour and decision regarding an organization in a better way, compared to their competitors in the same or in other industries (Becker-Olsen, Cudmore and Hill, 2005; Bhattacharya, Sen and Korschun, 2008; Bowen, 2007). Preference: CSR adds value to the brand through employee engagement and customer preference. 75% of the people, who have gathered information regarding an organization’s social responsibility initiatives on their website, have said that it made them more inclined towards purchasing their products and availing the offered services. Even so, according to a survey conducted by Penn-Schoen-Berland (2010), only 13% customers are seen to gather information regarding social responsibility initiatives of organization from their websites. Existing as well as potential employees also pay close attention to CSR values of their employers. A report by Price Waterhouse Coopers revealed that 88% of job seekers chose to work for employers on the basis of their CSR values and 86% employees chose to resign from companies, in case the CSR values of the organization, which they are working for, do not satisfy their expectations (PWC, 2007). Premium Price: CSR can boost the perceived value and quality of a brand, significantly. 70% of consumers would be inclined towards paying a premium price for a product of a company, which is socially responsible. A firm’s repute for philanthropy is more likely to influence the purchase decisions of consumers than those of governments or other organizations (Lev, Petrovits and Radhakrishnan, 2010). This is primarily because by being socially responsible, a firm is basically enhancing the value of its brands. Conclusion The brand value rating of the industry captures certain components, which are directly driven by CSR, although those determinants do not unequivocally refer to CSR. For example, CSR unswervingly affects the value and position of a brand positively. It plays a crucial role in enhancing factors such as, brand presence, clarity, consistency and many other factors, which are both internal and external to the organization. These factors are actually sought after by many consumers, who tend to measure the brand value of a company, before making their mind to purchase products and services from the concerned organization. The CSR initiatives taken by a company also has a significant impact on the way a brand is being referred to in the market by customers, analysts from different industries as well as external influencers (Ingram and Skrinar, 2013; Bhattacharya and Sen, 2004; Brammer and Millington, 2008; Barth, et al., 1998). Reference List Aaker, D. A. and Joachimsthaler, E., 2000. Brand Leadership. New York: The Free Press. Barnett, M. L., 2007. Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32, pp. 794-816. Baron, D. P., 2001. Private politics, corporate social responsibility, and integrated strategy. Journal of Economics and Management Strategy, 10, pp. 7-45. Barth, M. E., Clement, M. B., Foster, G. and Kaszink, R., 1998. Brand values and capital market valuation. Review of Accounting Studies, 3, pp. 41-68. Becker-Olsen, K. L., Cudmore, A. and Hill, R. P., 2005. The impact of perceived corporate responsibility on consumer behaviour. Journal of Business Research, 59, pp. 46-53. Berman, S. L., Wicks, A. C., Kotha, S., and Jones, T. M., 1999. Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. Academy of Management Journal, 42, pp. 488-506. Bhattacharya, C. B. and Sen, S., 2004. Doing better at doing good: When, why, and how consumers respond to corporate social initiatives. California Management Review, 47, pp. 9-24. Bhattacharya, C. B., Sen, S. and Korschun, D., 2008. Using corporate social responsibility to win the war for talent. Sloan Management Review, 49(2), pp. 37-44. Boston College and Reputation Institute, 2010. The 2010 Corporate Social Responsibility Index. [pdf] Boston College and Reputation Institute Available at: http://www.bcccc.net/pdf/CSRIReport2010.pdf [Accessed 20 February 2014]. Bowen, F., 2007. Corporate social strategy: competing views from two theories of the firm. Journal of Business Ethics, 75, pp. 91-113. Brady, A. K., 2003. How to generate sustainable brand value from responsibility. Journal of Brand Management, 10(4/5), pp. 279-289. Brammer, S. and Millington, A., 2008. Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29, pp. 1325–1343. Brown, T. J. and Dacin, P. A., 1997. The company and the product: corporate associations and consumer product response. Journal of Marketing, 61, pp. 68-84. Chu, S. and Keh, H. T., 2006. Brand value creation: analysis of the interbrand-business week brand value ratings. Marketing Letters, 17, pp. 323-331. Erdem, T. and Swait, J., 1998. Brand equity as a signaling phenomenon. Journal of Consumer Psychology, 7(2), pp. 131-157. Ettenson, R. and Knowles, J. (2008), “Don’t confuse reputation with brand. Sloan Management Review, 49(2), pp. 19-21. Fombrun, C. J. and Shanley, M., 1990. What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33(2), pp. 233-258. Godfrey, P. C., 2005. The relationship between philanthropy and shareholder wealth: a risk management perspective. Academy of Management Review, 30(4), pp. 777-798. Godfrey, P. C., Merrill, C. B. and Hansen, J. M., 2009. The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypotheses. Strategic Management Journal, 30, pp. 425-445. Hoeffler, S. and Keller, K. L., 2002. Building brand equity through corporate societal marketing. Journal of Public Policy and Marketing, 21(1), pp. 78-89. Ingram, J. and Skrinar, E., 2013. Corporate social responsibility: Why it matters and how it can increase brand value. [pdf] Straightline Available at: [Accessed 24 February 2014]. Kampf, C., 2007. Corporate social responsibility. WalMart, Maersk, and the cultural bounds of representation in corporate web sites. Corporate Communications: An International Journal, 12(1), pp. 41-57. Keller, K. L. and Lehmann, D. R., 2006. Brands and branding: research findings and future priorities. Marketing Science, 25(6), pp. 740-759. Ketchum, 2011. Ketchum social responsibility report 2011. [pdf] Ketchum Available at: [Accessed 20 February 2014]. Lev, B., Petrovits, C. and Radhakrishnan, S., 2010. Is doing good good for you? How corporate charitable contributions enhance revenue growth. Strategic Management Journal, 31(2), pp. 182-200. Luo, X. and Bhattacharya, C. B., 2009. The debate over doing good: Corporate social performance, strategic marketing levers and firm-idiosyncratic risks. Journal of Marketing, 73(6), pp. 198-213. McWilliams, A. and Siegel, D., 2000. Corporate social responsibility and financial performance: correlation or misspecification. Strategic Management Journal, 21(5), pp. 603-609. Middlemiss, N., 2003. Authentic not cosmetic: CSR as brand enhancement. Journal of Brand Management, 10(4/5), pp. 353-361. Mueller, M., dos Santos, V. G. and Seuring, D., 2009. The contribution of environmental and social standards towards ensuring legitimacy in supply chain governance. Journal of Business Ethics, 89(4), pp. 509-523. Orlitzky, M., Schmidt, F. L. and Rynes, S., 2003. Corporate social and financial performance: a meta analysis. Organization Studies, 24(3), pp. 403-441. Penn-Schoen-Berland, 2010. Corporate social responsibility branding survey. [pdf] Penn, Schoen and Berland Associates Available at: [Accessed 20 February 2014]. PWC, 2007. Managing tomorrow’s people: The future of work to 2020. [pdf] PWC Available at: [Accessed 20 February 2014]. Sen, S. and Bhattacharya, C. B., 2001. Does doing good always lead to doing better? Consumer reactions to corporate social responsibility. Journal of Marketing Research, 38, pp. 225-244. Servaes, H. and Tamayo, A., 2013. The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness. Management Science, 59(5), pp. 1045-1061. Simmons, C. J. and Becker-Olsen, K. L., 2006. Achieving marketing objectives through social sponsorships. Journal of Marketing, 70, pp. 154-169. Smith, J., 2013. The companies with the best CSR reputations. [online] Available at: [Accessed 20 February 2014]. Smith, N. C., 2009. Bounded goodness: marketing implications of Drucker on corporate social responsibility. Journal of Academy of Marketing Science, 37, pp. 73-84. The Economist, 2008. Just good business. [online] Available at: [Accessed 20 February 2013]. Waddock, S. A. and Smith, N., 2000. Relationships: the real challenge of corporate global citizenship. Business Society Review, 105(1), pp. 47-62. Wang, H. D., 2010. Corporate social performance and financial based brand equity. Journal of Product & Brand Management, 19(5), pp. 335-345. Werther, W. B. and Chandler, D., 2005. Strategic corporate social responsibility as global brand insurance. Business Horizons, 48, pp. 317-324. Read More