Corporate Social Responsibility: Strategy in Keeping the Customers - Essay Example

Corporate Social Responsibility - Literature Review on the Benefits of CSR - Table of Contents I. About Corporate Social Responsibility (CSR) ……………………… 3 II. Positive Effects of Having a Satisfied Customers ……………………. 4 III. Importance of CSR on Customer Satisfaction ……………………... 5 IV. Importance of CSR on the Market Value ……………………………. 6 References ………………………………………………………………………. 8 - 9 About Corporate Social Responsibility (CSR) Corporate Social Responsibility (CSR) is broadly defined as the company’s activities and status in relation to its societal and/or stakeholder obligations. (Sen and Bhattacharya, 2001) CSR is considered important strategy in keeping the customers satisfied due to the tight competition in the domestic and international markets. Corporate ability which refers to a wide range of elements in terms of a company’s expertise and competency such as its ability to generate new products and services through a constant innovation based on the creativeness of its employees when combined with CSR could positively influence the customers’ perception on the products and services the company is offering. (Rust, Moorman, and Dickson, 2002) In order to gain benefits from CSR initiatives, Handelman and Arnold (1999) argued that companies should be engaged in CSR for good causes and at the same time offer high quality products to its consumers. The main intension of the company’s effort in investing on the CSR initiatives is an important factor that could affect its success. According to Sen and Bhattacharya (2001), CSR initiatives could backfire and result to a lower purchase value and a negative perception.1 The proper implementation of CSR initiative is better than the use of high cost advertisements since it could not only increase a company’s profitability but also establish a direct and more effective relationship with its customers. Based on the observation of Drumwright (1996), the use of advertisements together with a social dimension is gradually increasing. In line with the increasing importance of CSR, several marketing studies shows that social responsibility programmes have a significant direct and indirect positive effect on several customer-related outcomes. (Bhattacharya et al., 2004; Brown, 1998) A good relationship between the company and customers enables the customers to develop a positive attitude on the company’s products. (Berens, Van Riel, and Van Bruggen, 2005) Since most of the companies who are knowledgeable on how to take advantage of the CSR initiatives have proven that social participation could result to a better relationship with the satisfied customers, investment on CSR is considered as “the smart thing to do.” (Smith, 2003; p. 52) Positive Effects of Having a Satisfied Customers Satisfied customers tend to be loyal to the company despite the tight competition within the same industry. (Bolton and Drew, 1991) The positive experience(s) of customers toward a company will be passed on to other prospective customers via word-of-mouth. (Szymanski and Henard, 2001) In the long run, some of these customers will be more than willing to pay the premium price of that company has declared. (Homburg, Koschate, and Hoyer, 2005) All of these aspects contribute to the increase of the company’s market value. Since customer satisfaction could result from activities related to CSR initiatives, we may conclude that customer satisfaction represents the pathway in which the CSR activities could affect the market value of the company positively. In some cases, CSR activities could affect the market value through a ‘non-customer routes.’ CSR could also create a positive ‘moral capital’ to improve the market value of a particular company. (Godfrey, 2005; p. 777) Eventually, improving the employees’ moral could result to a higher productivity rate whereas boosting the customers’ moral would bring in more sales and profit to the company. Importance of CSR on Customer Satisfaction In most cases, the number of satisfied customers are measured based on the customers’ total purchases and consumption experiences over a long period of time. (Anderson, Fornell, and Mazvancheryl, 2004) For many years, customer satisfaction has become a very important part of marketing strategy since it could trigger a long-term profitability and increase the market value of the company. (Fornell et al., 2006; Gruca and Rego, 2005) Based on the stakeholder theory (Maignan et al., 2005) and the institutional theory (Scott, 1987), the action of a company towards the society appeals to a multi-dimensionality of the consumers in terms of the economic aspect and as a member of a family, community, and a country. (Handelman and Arnold 1999) For this reason, a company that is socially responsible is expected to attract a wider scope of consumers as compared to a company that is only focusing on the economic aspects of the society. CSR could indirectly boost a positive attitude towards the company based on the consumers’ personal evaluation. (Sen and Bhattacharya, 2001) In some cases, CSR initiatives could persuade the customers to identify themselves with the image of the company. (Bhattacharya and Sen, 2004) A strong relationship between the customers and the company creates long-term benefits for both parties. Some customers could derive a better perceived value and a much higher satisfaction when consuming products that are made by a socially responsible company such as recyclable cups, recyclable papers, etc. This encourage the customers to become religious in purchasing the company’s products and services whereas the company enjoys the good image it creates to the public including the continuously inflow of sales and income. Along with the process of engaging in CSR initiatives, a lot of companies are given the chance to understand a more generalized customer better. As a result, the company gets to know more about the needs and wants of the customers and eventually improve their customer-specific knowledge and services. (Sen and Bhattacharya, 2001) Importance of CSR on the Market Value Not all companies that have invested on CSR initiatives are earning good profit and/or enjoying a larger market share since each firm has its own ways of executing, supporting, and exploiting the CSR initiatives in the marketplace. (Brown, 1998) In fact, a lot of companies have considered the CSR initiative to cause a lower or a negative financial return since it adds up to the costs of implementing the system instead of using the company’s fund in improving the quality of products and services. (Sen and Bhattacharya, 2001) A firm could either have a positive or negative market value from the CSR initiatives. It has been argued that companies with good corporate abilities in terms of product quality and innovativeness could generate more market value from the CSR program. (Aiken and West, 1991; pp. 12 – 14) On the other hand, companies with less competent corporate abilities may conclude that CSR is causing harm to customer satisfaction as it decreases the company’s stock performance. To know whether a company is benefiting from CSR, a person could simply check on the market value of the firm. (Fornell et al. 2006) References: Aiken, L., & West, S. (1991). Multiple Regression: Testing and Interpreting Interactions. Thousand Oaks, CA: Sage Publications. Anderson, E., Fornell, C., & Mazvancheryl, S. (2004). Customer Satisfaction and Shareholder Value. Journal of Marketing , 68(October):172 - 185. Berens, G., Van Riel, C., & Van Bruggen, G. (2005). Corporate Associations and Consumer Product Response: The Moderating Role of Corporate Brand Dominance. Journal of Marketing , 69(July):35 - 38. Bhattacharya, C., & Sen, S. (2004). Doing Better at Doing Good. California Management Review , 47(1):9 - 24. Bolton, R., & Drew, J. (1991). A Longitudinal Analysis of the Impact of Service Changes on Customer Attitudes. Journal of Marketing , 55(January):1 - 9. Brown, T. (1998). Corporate Association in Marketing: Antecedents and Consequences. Corporate Reputation Review , 1(3):215 - 233. Drumwright, M. (1996). Company Advertising with a Social Dimension: The Role of Non-economic Criteria. Journal of Marketing , 60(October):71 - 87. Fornell, C., & al., e. (2006). Customer Satisfaction and Stock Prices: High Returns, Low Risk. Journal of Marketing , 70(January):3 - 14. Godfrey, P. (2005). The Relationship Between Corporate Philanthropy and Shareholder Wealth: A Risk Management Perspective. Academy of Management Review , 30(4):777 - 798. Gruca, T., & Rego, L. (2005). Customer Satisfaction, Cash Flow, and Shareholder Value. Journal of Marketing , 69(July):115 - 130. Handelman, J., & Arnold, S. (1999). The Role of Marketing Actions with a Social Dimension: Appeals to the Institutional Environment. Journal of Marketing , 63(July):33 - 48. Homburg, C., Koschate, N., & Hoyer, W. (2005). Do Satisfied Customers Really Pay More? A Study of the Relationship Between the Customer Satisfaction and Willingness to Pay. Journal of Marketing , 69(April):84 - 97. Maignan, I., Ferrel, O., & Ferrel, L. (2005). A Stakeholder Model for Implementing Social Responsibility in Marketing. European Journal of Marketing , 39(9-10):956 - 977. Rust, R., Moorman, C., & Dickson, P. (2002). Getting Return on Quality: Cost Reduction, Revenue Expansion, or Both? Journal of Marketing , 66(October):7 - 24. Scott, R. (1987). The Adolescence of Institutional Theory. Administrative Science Quarterly , 32(December):493 - 511. Sen, S., & Bhattacharya, C. (2001). Does Doing Good Always Lead to Doing Better? Consumer Reactions to Corporate Social Responsibility. Journal of Marketing Research , 38(May):225 - 244. Smith, C. (2003). Corporate Social Responsibility: Whether or How? California Management Review , 45(4):52 - 76. Szymanski, D., & Henard, D. (2001). Customer Satisfaction: A Meta-Analysis of the Empirical Evidence. Journal of the Academy of Marketing Science , 29(Winter):16 - 25. Read More