Effects of Corporate Social Responsibility (CSR) on Brand Loyalty

Abstract

This paper deals with the concept of Corporate Social Responsibility. Economic models and schemes such as CSR that aim to create optimal environmental and social circumstances to meet the needs of stakeholders and the environment are getting more popular. In this context we want to examine whether a concept like CSR affects consumers positively. Specifically, this paper deals with the concept of Corporate Social Responsibility and its effects on Brand Loyalty. We want to see if customers get attached to a brand or a product because of its positive image and social dedication.

1. Introduction

The segment of industry and economy always had the urge to assimilate. Whether it has been because of changing circumstances (e.g. the Industrialization, later digitalization) or because of the changing needs of customers and consumers. But in the late 1900's governments, shareholders and companies themselves needed to face another problem: not harming the environment nor society to be able to keep up with competitors and limited resources.

“Our Common Future”, also known as the Brundtland Report, from the United Nations World Commission on Environment and Development (WCED) was published in 1987. The report highlighted three fundamental components to sustainable development: environmental protection, economic growth and social equity and has therefore been a milestone for nowadays well-known concepts such as Corporate Social Responsibility. Since then, CSR concepts and activities have grown in importance in literature as well as in daily business. In almost every business unit it is not imaginable today being without sustainability concepts.

Due to the specific role of a retailer as a gatekeeper between the producer and the consumer in the supply chain, a comprehensive understanding of the impact of consumer perceptions of CSR activities is of great relevance (Zentes, 2013). This leads to the question whether CSR has a positive impact on consumer behaviour. We want to explore if Corporate Social Responsibility has an impact on Brand Loyalty.

To assert whether CSR activities affect BL and therefore profits of a corporation it is necessary to have a look at the consumers and their (psychological) needs. It is important to know how firms are capable to influence their potential as well as their long-time customers. Purchasing decisions are mostly made out of unconscious and conscious psychological needs and wishes. Concepts such as CSR aim to stimulate these needs to win customers.

At first, we construct the framework and define what the main assets CSR and Brand Loyalty consist of and what they mean. Then we will have a look at how ethical concepts such as CSR influence consumer behaviour, especially when it comes to being loyal to one or few specific brands. After that, we will discuss the outcomes and incorporate limitations and discrepancies that come within our study. At the end we will conclude the made analysis and respond to the stated research question.

2. Corporate Social Responsibility

2,1, The concept of CSR

In the last few years, Corporate Social Responsibility has evolved into an enigmatic term in the world of business. Its success and its relevance in the highest business units is caused by the change of social frame works which are mostly generated by globalisation (Althaus, 2005). Important aspects of globalisation are the growing importance of media and easy access to all kind of information with the opportunity to see everything a company does, which makes their actions almost totally transparent. This forces companies to act more conscientiously in order to not lose any of their customers or even investors. One of the main motives behind CSR are the enormous potential benefits that firms can derive when they are perceived as being socially responsible.

The concept of CSR is not easily defined, as there are multiple descriptions how the skeletal structure should look like and what it should aim to achieve. Therefore, different companies or organisations have diverse definitions with a reproducible common ground between them. A superficial description would be that CSR exists to give organisations the opportunity to optimate their processes to have a positive impact on society. The European Commission describes CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis” (Green Paper). Still, Corporate Responsibility is separable into four dimensions: economic, legal, ethical and philanthropic (Carroll, 1979). From this perspective, CSR mainly concentrates on subjects such as employee rights, human rights and community involvement.

Figure deleted due to copyright issues

These subjects can be seen in the figure above. In this graphic it is clear to see that sustainable business development is tributary to CSR and its scope of application. Thus, the three main impacted areas are the environmental are, the social area as well as the economic one. Another important aspect that is shown in the graphic is that the topics which are influenced by practicing CSR are not completely separated, they even merge into each other. We assume that environmental, social and economic issues are not separable and therefore interlocked.

In everyday business the concept of CSR becomes blurred (Belz and Peattie, 2013). Newer studies claim that there exists another dimension, a strategic one. This dimension implies that CSR activities can improve corporate image and increase motivation as well as loyalty. We assume that CSR nowadays can be seen as a voluntary plus as well as an important business strategy and a source of competitive advantage.

2.2. How CSRis practiced

CSR normally consists of voluntary programs and efforts and their associated corporate features like structure, strategies, and communication. How firms practice CSR depends on their industrial sector, their size and the market they operate in. To realize CSR, it is required that a company records economic success, because only firms that are capable of competing are able to solve social problems, at first by saving jobs. Furthermore, CSR is separable into two dimensions. It can either be practiced internal or external. The internal dimension focuses on employee rights, health and safety at work and the impact of their production on the environment, whereas the external facet focuses on communities, suppliers, human rights and global environmental concerns (Belz and Peattie, 2012).

One way topractice internal CSRis to focus on the actual product and its sustainability. The Product Sustainability Index (PSI) which was invented by Ford, shows whether a prospective product will perform with better data than its forerunner. There are a variety of indicators like whether the materials are sustainable, the greenhouse emissions during the manufacturing, the safety or the life cycle cost. PSI is a comprehensive range of sustainability criteria and is integrated at the beginning of the product development process. Thus, the goal is to continuously make products more sustainable by further reducing their environmental impact, enhancing their value to society and keeping the focus on efficiency and affordability (Ford, 2016).

Furthermore, another option is to implement a Corporate Compliance. Basically, a compliance verifies the adherence of rules and law (schulergroup, 2017). But it is also a creation of personalised terms of references. ACC aims to create (worldwide) valid codes of behaviour that secure their workers, the company itself as well as customers and partners or shareholders. Thus, a Corporate Compliance should be a guideline and answer all ethical questions (Bosch, 2017). The Concept combines arrangements of prevention and supervision which helps to secure the standards. Often workers are forced to take part of so called “Compliance Trainings” to be part of regular communication. In many cases Compliance systems are supplemented by a system which allows others (e.g. stakeholders) to inform the companies if something occurred which is not in the guidelines. Using check systems like this, firms are aware of anomalous behaviour and intervene to ensure that everything is correct.

3. Brand Loyalty

3.1. Definition

Global brands are a big issue in business. They make it possible to share a global identity and enhance economies of scale in manufacturing, marketing, and research and development activities. But to keep customers, making them sensitive for your brand, and to assure their repurchase it is very important to strengthen brand loyalty.

To understand the concept of Brand Loyalty, it is necessary to define what “Loyalty”, especially in this context, means. Loyalty often stands for a measure of commitment based on obligation or, in consumer preferences, degree of satisfaction (Businessdictionary, 2017). It can also be described as a situation where a person has become intrinsically committed as a matter of his or her identity. But how is Loyalty being connected to the Economy?

Brand loyalty is a pattern of consumer behaviour where consumers become committed to brands. It can be demonstrated by repeated buying of a product, service, or other positive behaviours such as word of mouth advocacy (e.g. trying to convince other people how great the product you use is). Loyal customers consistently purchase products from their preferred brands, regardless of convenience or price. A very important aspect in the concept of brand loyalty is to make the potential customers feel emotionally attached, whether because they can identify themselves with it, or because of positive aspects that make a buyer feel better while buying it. Companies often use different marketing strategies to cultivate loyal customers, for example reward programs such as Payback.

Furthermore, Brand Loyalty is separable into two dimensions: behavioural and attitudinal. Behavioural Loyalty describes repurchases that are not reasonable. Buying decisions are made from laziness or out of a lack of time. Whereas attitudinal loyalty is formed by consumer preferences and “true” brand loyalty. Most of the attitudinal repurchases show a long-term relationship and customers feel a sort of obligation to rebuy.

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