Getting on the profitability on CSR. Some even

Getting your power from
an energy company which pollutes or buying clothes which were made by children
is something most people try to avoid. Consumers are becoming more aware of the
effect their purchases have and sometimes make purchasing decisions regarding
society and environment (Eisingerich, Rubera, Seifert, & Bhardwaj, 2011).

Many companies have
learned from the devastating effects of corporate social irresponsibility, for
example the 2013 Savar building collapse, which killed more than 1000 people,
caused companies to evaluate how their goals affect society and environment. This
means that Corporate Social Responsibility(CSR) refers to “the ethical
principle that an organization should be responsible for how its behavior might
affect society and the environment.”(Jobber & Ellis-Chadwick, 2012, p 134) However, does
that stand at odds with the for-profit aim of companies?. An important factor
in this system is customer loyalty; do your customers believe in your
commitment to society and does this have a profitable outcome? Having higher
ethical standards leads to consumers to believe that an organization is more
committed to their CSR and this ultimately leads to more customer satisfaction
and trust (Park, Kim, & Kwon, 2017). Therefore, the
research question in this paper is: should for-profit organizations use Corporate
Social Responsibility to generate more loyal customers?

 Companies often engage in CSR not because of
their commitment to social good, but the expected financial benefits(Aguinis & Glavas, 2012). These ideas are
often staged in a “shareholder-stakeholder debate”; the “shareholder view”
means that managers only make choices in benefit of the shareholders by seeking
profit at all means necessary. In contrast, the “stakeholder view” states that
there are more groups besides shareholders (e.g. employees, environmental
activists) that are affected by the organizations’ choices and these groups
should be measured equally in managers’ decisions (Castelo Branco & Lima Rodriques, 2007). This paper looks
at CSR through the stakeholder view as this is the way CSR experts address the
problem (Castelo Branco & Lima Rodriques, 2007).

Still, there are many
different views on the profitability on CSR. Some even say there is no relation
between CSR and profitability (Aupperle, Carroll, & Hatfield, 1985). A great amount
of research has been done on the profitability of CSR. Thus, this papers’
academic relevance is that this paper combines these findings and shares a
different view on how CSR is likely to turn out profitable, especially for
start-up companies. In turn, it’s social relevance is that with the information
combined in this paper, it is likely that organizations would consider behaving
socially responsible. Ultimately, this leads to more stakeholder satisfaction
and other organizations noticing that behaving positive towards society and
environment is a possibility. To achieve this, this paper first discusses the
importance of ethical standards and how this affects consumer behavior,
secondly this paper describes the process of achieving loyal customers and
lastly considering the profitability of loyal customers.

2.1
Ethical standards and CSR commitment

“Ethics is the code of
moral principles and values that governs the behaviour of a person, or group,
with respect to what is right or wrong. Ethics set standards to what is good or
bad in conduct and decision-making” (Daft
& Benson, 2016). Thus, ethical standards are the
standards set in an organization to determine how the organization will
interact with its’ environment to assure positive outcome on society and
environment. Therefore, ethical standards determine an organizations’ commitment
to CSR.

Companies with high
ethical standards, for example, would provide consumers with complete and
accurate information about their products and services, offer a comprehensive
code of conduct, and implement precautionary measures to process sensitive
personal information. More importantly, companies should provide their
consumers with information explaining their ethical commitment as well as
marketing their ethical standards to consumers, specifically through statements
(Murphy,
2005),
because of this type of communication organizations have a higher ethical
context (Valentine
& Barnett, 2002). Therefore, the ethical standards of
the organization are likely to positively influence consumers’ perception of
the organizations’ commitment to CSR (Park e.a., 2017).

For example: Microsoft
ranked number one in CSR by Reputation Institute in their research which
invited 42000 consumers across the globe to rank the worlds’ 100 most reputable
companies. This study also found that 42% on the consumers belief in an
organization is based on their perception of the organizations’ commitment to
CSR. Microsoft, which ranked number one, is obviously known for its chairman,
Bill Gates, often giving to charity. This improves the perception of the
organizations’ commitment to CSR, thus improving the organizations’ overall
trustfulness. Not only their chairman helps Microsoft in consumers’ perception,
they have an entire page on their website devoted to their commitment to CSR
and how they help society and environment. This kind of marketing improves the
consumers’ perception on the organizations’ commitment, thus ranking Microsoft
number one and making it a successful, innovative organization.

2.2
CSR commitment, satisfaction and trust.

The perceived commitment
to CSR by consumers is positively related to satisfaction as well as trust (Park e.a., 2017). This means that
by raising awareness on commitment to ethical standards, consumers tend to be
more satisfied with the organization and have more trust in the organization.
In this paragraph there will be looked at the relation between these variables
and how this positively affects the organization.

2.2.1
CSR commitment and trust

CSR helps to create more
trustful relationships between the organization and stakeholders (Lantos,
1999).
As mentioned earlier, this paper lays its importance on the stakeholders of an
organization.  Stakeholders are all the
people who influence organizational goals or could be influenced by
organizational goals (Daft
& Benson, 2016). With a lot of studies already
conducted concerning the relationship between CSR and consumers perceptions of
an organization, there is found that CSR is a key element in positively
affecting consumers reactions to an organization (Brown,
1998).
Thus, by implementing appropriate CSR-plans, it is likely that there will be a
more favorable attitude by consumers towards the organization (Bhattacharya
& Sen, 2003).

This more favorable
attitude by consumers is a product of the higher trust they attained, because
of how the organization is acting towards society and environment, thus their
CSR plans.  Trust can be defined as “the
confidence one party has in an exchange partners’ reliability and integrity” (Morgan
& Hunt, 1994, p23). The importance
here should be laid on confidence. Trust is a product of the organizations’
reliability and integrity, where CSR improves an organizations reliability and
integrity. With greater reliability and integrity, it is likely that the
confidence consumers have in an organization grows larger. With this larger
confidence it is likely that a more trustful relationship between an
organization and its stakeholders also grows lager. This means that the
perception consumers have on an organizations’ commitment to CSR is positively
related to consumers trust in the organization (Park e.a., 2017).

 

2.2.2
CSR commitment and satisfaction

Similar to consumers
trust, the perceived commitment to CSR is also closely related to satisfaction
with the organization (Berens,
Riel, & Bruggen, 2005). Satisfaction
could be seen as an emotional state resulting from a purchase or service by an
organization and the response to this (Westbrook,
1987).

The perception consumers
have on an organizations’ commitment to CSR is positively related to the
evaluation consumers have on the organization and provide a better experience
with its products and services (Mohr,
Webb, & Harris, 2001). Therefore,
consumers tend to be more satisfied with an organization when they are
convinced this organization is more committed to their CSR activities (Sen
& Bhattacharya, 2001).

The stakeholder theory (Maignan, Ferrell, & Ferrell, 2005), that suggests
that consumers not only have an economic perspective, but also are a member of
a family and community. Building on this, a term has been developed: “generalized
customer. This customer does not only care about the product or service
experience, but is also part of a stakeholder group which impacts the
organization that needs to be taken into consideration by the selling
organization. When looking at it this way, these generalized customer are
likely to be more satisfied with socially responsible organizations (Luo & Bhattacharya, 2006).

 

 

2.2.3
Trust and satisfaction

Consumers mostly feel
more confident in the quality of a product or service when they trust this
organization and believe that trustful organizations are more committed to
ethical responsibilities and CSR-plans, thus trust is an important determent of
consumer satisfaction (Kim,
Park, & Jeong, 2004). Therefore, we
can say that higher perceived commitment to CSR ultimately leads to higher
trust in and higher satisfaction with an organization.

2.3
Trust, satisfaction and loyal customers

Purchasing products from
an organization are likely to be influenced by the confidence consumers have in
the organizations’ reliability, thus trust and earlier experience with the
organization, thus satisfaction. With greater trust in an organization it is
also likely that there will be more satisfaction with the company (Kim e.a., 2004). Ultimately,
trust and satisfaction influence consumers into repurchasing products and
services from organizations. Thus, trust and satisfaction positively affect
customer loyalty (Garbarino
& Johnson, 1999; Homburg & Giering, 2001). Park, Kim and
Kwon (2017) tested this and found that trust and satisfaction make for 60.4% of
the variance in loyalty. In this paragraph there will be looked at the way
trust and satisfaction positively affect customer loyalty.

2.3.1
Trust and loyal customers.

Commitment is an
important factor in attaining loyal customers, there customers must commit to
an ongoing relationship with the organization. Thus, commitment can be defined
as a “relationship that is considered important” and “a committed partner wants
the relationship to endure indefinitely and is willing to work at maintaining
it” (Morgan & Hunt, 1994, p 23). Nobody commits
to an ongoing relationship with someone or something they do not know. When
looking at marriage, the moment where an ongoing and loyal relationship is
formed, it is not likely that the persons involved in this marriage do not
know, nor fully trust the other while committing to this relationship. By
looking at customer relationships the same way, we can better understand the
importance of a trustful relationship between the customer and the
organization. Going through the steps of commitment in a social relationship, a
lot of similarities between social relationships and customer-organization
relationships can be found. Firstly, people meet and get to know each other a
little better with often a good first impression. Secondly, there will be more
social exchanges and the beginning of a trustful social relationship. Thirdly,
the full commitment to a trustful relationship. Notice that first, trust is
established before committing to the relationship. Commitment involves certain
vulnerability and sacrifice, thus it is unlikely that customers will be
committed unless a trustful relationship has already been established (Garbarino & Johnson, 1999). Therefore, we
can say that trust is positively related to loyal customers and when a trustful
relationship is established customers are more likely to repurchase and reuse
products and services of an organization, thus become loyal.

2.3.2
Satisfaction and loyal customers

The knowledge of CSR
ultimately leading to more consumer satisfaction is already given, but this
consumer satisfaction must lead somewhere. There are many different factors
that determine a consumers’ satisfaction including the experience with the
product or service, communication with the company and price, personal
characteristics and quality (Crosby, Evans, & Cowles, 1990). Furthermore,
brand experience can be seen as an important determent of satisfaction (Brakus, Schmitt, & Zarantonello, 2009). This is
conceptualized as sensations and feelings provoked by stimuli through the
experience with the brand. When building on the stakeholder theory, where all
the groups affected by organizational choices are taken in to account, CSR
could be a stimulus through the experience with the brand. This is especially
with consumers who feel affiliated with society and environment, but not only
these consumers, most of the consumers 
who have a higher perception of an organizations’ commitment to CSR are
ultimately more satisfied with this organization (Sen & Bhattacharya, 2001).

The consumer who has now
become more satisfied with an organization after realizing that it is committed
to CSR, has to purchase a new product. This customer is now more likely to
return to the same organization where they were most satisfied, thus
satisfaction with an organization leads to higher customer retention  (Anderson & Mittal, 2000). Take, for
example, personal experience. When going to an electronics shop to buy a new
laptop, the employee working there often immediately approaches the customer to
ask what it is they are looking for specifically. After helping the customer
with the right choice, the customer leaves the store with a satisfied feeling.
In this case, the employee assisting the customer in their choice is the
stimulus leading to satisfaction and possibly customer retention. Thus,
different stimuli affect the experience with the brand and when positively
used, higher satisfaction is achieved, ultimately leading to loyal customers.

wiskundig model van die kut koreanen

2.4
Loyal customers and profitability

Loyalty and profitability
are two variables with a interesting relationship. Many studies have been
conducted on their relationship. These studies mostly lead to four main points.
Purchase/repurchase behaviour, word-of-mouth (WOM) communication, complaining
behavior and price sensitivity (Zeithaml, Berry, & Parasuraman, 1996). Satisfaction is
an important factor in the relationship between loyal customers and
profitability, therefore there will be mostly referred to satisfaction as a
determent of profitability.

2.4.1
Purchase/repurchase behaviour

Purchase/repurchase
behaviour is the willingness consumers have to purchase a product or service
and utilize the same organization for repurchase intentions. The relationship
between customer satisfaction and repurchase intentions is positive (Zeithaml e.a., 1996). Actual
repurchase behaviour is also positively related to customer satisfaction (Bolton, 1998). Thus, the higher
the level of satisfaction, the higher the level of repurchase behaviour. Stated
like this, repurchase behaviour is a different name for loyal customers.
Repurchase intentions is related to customers with a high level of
satisfaction, nevertheless not enough satisfaction to have actual repurchase
behaviour. Customers with actual repurchase behaviour have a high level of
satisfaction and after returning to the same organization the same experience
relates to an even higher level of satisfaction. This phenomenom ultimately
leads to customer retention (Anderson & Mittal, 2000). For example, the
costs for McDonalds to market to customers who are a fan of their Big Mac are
obviously lower then the costs to acquire BurgerKing customers who are a fan of
their Whopper. These customers return to McDonalds especially for their
satisfaction with the Big Mac and therefore we can conclude repurchase
behaviour of loyal customers is more profitable.

2.4.2
Positive WOM communication

Positive WOM
communication (also reffered to in literature as advocacy) are the
recomendations customers make after purchasing a product of service. WOM could
also be seen as storytelling. This is a phenomenon used since the ancient of
times. When looking specifically at the tales tolld by the aboriginals, mostly
gestures were used as there was no clear language at that time. The storyteller
had to remember the story and drew pictures on the walls as help. These stories
were not only used to educate and amuse, the storyteller used these pictures to
remember good hunting ground and places to gather fruits. This is not exactly
the same as WOM, nevertheless it shows exactly what WOM is about. After
purchasing a new iPhone, many customers had a satisfying experience. These
customers take their new iPhone to their friends and start showing them all the
features on this new iPhone. This is known as positive WOM communication. This
phenomenon is mostly valid when the customer is satisfied. The more satisfying
the experience, the higher the level of positive WOM and ultimately, higher
financial outcomes (Ranaweera & Prabhu, 2003). After showing
all the features on the new iPhone, the friends all decide to also buy a new
iPhone. This is exactly what not only Apple wants to achieve, every
organization tries to achieve 100 per cent customer satisfaction. In fact, this
is not the case. On december 12th 2017 the American Customer
Satisfaction Index states that the overal satisfaction is 77 per cent.
Nevertheless, when taking into account that the overall satisfaction in the
second quarter of 2002 was 73 per cent it is most likely that organizations are
constantly trying to improve customer satisfaction. With this knowledge, it is
also most lok that customer satisfaction is the most important factor of having
positive WOM and therefore having higher financial outcomes.

2.4.3
Complaining behaviour

Complaining behaviour or
negative WOM communication is the exact opposite of positive WOM communication.
With instead of promoting a product or service, now it consists of negative
responses. Negative WOM consists of three dimensions: Voice responses (wanting
redress from seller), private responses (towards friends and family) and
third-party responses (legal action) (Singh, 1988). This paragraph
will be talking about private responses and third-party responses, since these
affect profit more then voice responses do. Private responses are customers
speaking out their negativity towards the organization mostly aimed towards
friends, family and other customers. This occurs mostly when the customers
experiences a lack of satisfaction and develops a negative attitude towards the
organization (Singh, 1988; Zeithaml e.a., 1996). Third-party
responses are contacting a third-party organization and utilizing this
organization to take action towards the organization where a negative
experience had taken place. This too occurs mostly when the customers
experiences a lack of satisfaction. The main difference between private
responses and third-party responses are the costs. Private responses do not
have the possibility to impact he organizations’ profit severely. Nevertheless
if the customer does not get any satisfaction out of the private response and
these turn into third-party response, it has the possibility to impact the
organizations’ profit severely.

 

Day and Landon (1977)
classified Concumer Complaint Behaviour (CCB) (see figure 1) and distinguished
the first level between action and no action. The second level distinguishes
public and private action. Whereas private action should be seen as private
responses and public action should be seen as voice responses and third-party
responses. Day and Landon justify public and private action by recognizing the
difference between the nature or importance of the product where the customer
experienced dissatisfaction. That is for expensive and difficult products (e.g.
rare cars or solar panels). Customers experiencing dissatisfaction with these products
are more likely to engage in public action and especially third-party response.
In addition to these situations “the chances that the customer will do nothing
at all or take only private action are lower but still appear to be
substantial” (Day & Landon jr., 1977, p. 432). Thus, by
constantly lowering dissatisfaction, the chances that customers will take
public or private action will also regress. This is likely to positively affect
profitability.