There is no disputing that CSR engagements such as corporate donations and responsible supply chain practices offer many advantages. To illustrate, consider the fact that Microsoft donated more than $1 billion (!) to charitable causes in 2015. Beyond the benefits for society, companies such as Microsoft benefit from their CSR engagement themselves: Many studies show that customers feel a “warm glow” if their suppliers engage in CSR – which potentially strengthens customer loyalty and thus keeps suppliers’ cash registers ringing.
However, our new study shows that customers do not blindly perceive benefits from firms’ CSR engagement and that, as a consequence, firms engaging in CSR often do not achieve such beneficial outcomes. This insight results from our analysis of data from more than 4,000 customers to understand more deeply how customers perceive suppliers that engage in CSR. Our findings should raise red flags for CSR and PR managers: Customers often believe that suppliers who engage in CSR charge unfair prices.
The reason for this suspicion is that CSR engagement often triggers uncalled-for thought processes. Customers tend to reflect on the costs of CSR engagement and ask themselves how suppliers cover these costs. An obvious answer to this question is that the suppliers factored these costs into their product prices. As a result, customers depreciate these suppliers’ price fairness and become less loyal.
To prevent CSR engagement from backfiring in this way, our study provides two recommendations for managers. First, managers need to make sure that their customers believe that a supplier’s CSR engagement results from a genuine concern for society rather than from the supplier’s egoistic objective to gain a competitive advantage. In this case, customers are not only far less likely to engage in any detrimental thought processes, but they are also likely to evaluate a supplier’s price fairness more positively. The reason is that, in this case, customers experience the abovementioned “warm glow,” which leads them to perceive their suppliers’ prices through rose-colored glasses.
Admittedly, convincing customers of one’s genuine concern for society may be difficult. This becomes even more obvious looking at recent opinion polls suggesting that 75% of customers are highly skeptic of corporate communications in general and CSR communication specifically. Therefore, a second strategy to counter customers’ detrimental thought processes is to explain where the budget for the CSR engagement stems from. For example, if a supplier communicates that it finances its CSR engagement from the reduction of top management salaries, customers will be less inclined to think that the supplier marked up its prices, and thus they will not devalue the supplier’s price fairness. This communication strategy ensures that CSR engagement not only benefits society but also helps to realize its potential for the customer–supplier relationship.
- This post is based on the authors’ paper Warm Glow or Extra Charge? The Ambivalent Effect of Corporate Social Responsibility Activities on Customers’ Perceived Price Fairness, Journal of Marketing: January 2016, Vol. 80, No. 1, pp. 84-105.
- This post gives the views of its authors, not the position of LSE Business Review or the London School of Economics.
- Featured image credit: Ron Mader CC-BY-2.0
Johannes Habel is a lecturer and program director at the European School of Management and Technology. Johannes’ research passion lies in sales and marketing management, and his works have been published in top academic journals. For his research projects, Johannes has cooperated with leading German corporations, such as car manufacturers, airlines, technology corporations, and retailers. Before joining ESMT, Johannes worked as a strategy consultant for Booz & Company for several years. He consulted for major international corporations on their strategy and organization, such as technology corporations, telecommunication incumbents, pharmaceutical companies, financial service providers, and organizations within the public sector. In addition, Johannes is a trained radio journalist.
Laura Marie Schons is Assistant Professor of Corporate Social Responsibility at the University of Mannheim. Her research interests focus on employee and consumer reactions to corporate social responsibility (CSR), CSR management, CSR communication, as well as innovative pricing mechanisms and business models. Her work has been published in renowned academic journals. Before taking over the Chair of Corporate Social Responsibility at the University of Mannheim, she worked as a postdoctoral researcher at the Sales and Marketing Department of the Ruhr University Bochum where she finished her doctoral thesis in 2011 (supervised by Prof. Jan Wieseke and Prof. Mario Rese). She studied economics and business management at Ruhr University Bochum and Udayana University Denpasar (Indonesia), and took additional courses in philosophy and social psychology in Bochum.
Sascha Alavi works as an Assistant Professor at the Sales & Marketing Department of the Ruhr-University of Bochum. In his research and teaching he focuses on the success factors of sales management, price enforcement and leadership. In particular, he is interested in price negotiations, sales promotions, and the selling of complex solutions. Regarding the topic of selling complex solutions, he is a project leader of an interdisciplinary special research area of the German Research Foundation. Sascha studied Business at the University of Mannheim and received his doctoral degree at the Sales & Marketing Department of the Ruhr-University of Bochum. His dissertation on the role of price management received several awards.
Jan Wieseke has held a Chair at the Sales and Marketing Department at Bochum University since 2008. Prior to this engagement, he completed his habilitation at the Department of Professor Christian Homburg at Mannheim University and his doctorate at the Department of Professor Michael Lingenfelder at Marburg University. He studied psychology at Marburg University. Jan is internationally recognized for his work in sales management, pricing, and organizational behavior. Currently considered to be one of the top 3 sales researchers globally, his work has been published in leading marketing journals, He also received offers of professorship for universities in Mannheim, Münster (both Germany), Leicestershire (UK), and Groningen (Netherlands).