BUSN7017 Sustainability and CSR - Semester 2, 2012 The Australian National University

Course convenor: Dr. Colleen Hayes Topic: Consumers role promoting CSR The essay is to explain why consumers cannot be counted on to promote corporate social responsibility (CSR) outcomes, consistent with Haigh and Jones (2006, p. 249). First, it briefly introduces how companies currently perceive CSR and how it can be related to consumers. Secondly, it describes consumers potential ability to offer economic incentives to encourage companies to improve their CSR performance. Then, it explains that consumers do not have much power to promote CSR performance, due to lack of their awareness of CSR, a small number of conscious consumers, the inconsistency of consumers purchase decisions, lack of effective stakeholder engagement mechanism, and companies economic motive. As a result, it concludes that consumers cannot be effective to promote CSR outcomes. CRS, originally implemented with the focus on ethical and ideological reasons, has been adopted mainly for economic reasons in the contemporary global market. Bhattacharya and Sen (2004, p. 9) state that more than 80 percent of the Fortune 500 companies address CSR issue as their marketing tool. It reflects the pervasive belief among businessmen that CSR is a good idea to differentiate their products from other competitors. This trend implies that the companies are increasingly aware of both the normative and business aspects for engaging in CSR. In companies perspective today, doing good is not enough and companies should do better to give positive impacts on their key stakeholders with regard to achieving companies particular objectives1 (Bhattacharya & Sen 2004, p. 9). A particularly important stakeholder group is consumers. Customers are the demander of products and services from which companies can earn revenues. In a very competitive market, it is apparent that consumers can have a more influential position, compared to other stakeholders. Some literatures have documented that a positive causal linkage between consumers and CSR (Bhattacharya & Sen 2004, pp. 8-9; Carvalho, et al. 2010; Kreng & Huang 2011; Mohr et al. 2001). As the ethical consumerism movement and demand for ethical-products are significantly growing (Bhattacharya & Sen 2004; Sen & Bhattacharya 2001; Smith 2007),

Particular objectives refer to economic and financial performance, such as maintaining long-term profit, companies reputation and brands in order to be different with others and become a leader in the marketplace (Ferrell 2004; Smith 2007). 1

consumers can be perceived to play a significant role in enforcing CSR practices through their purchase decisions. Kreng and Huang (2011) explain that the relation between consumers and CSR is basically based on consumers and companies needs of each other to achieve their particular objectives1. Companies need consumers to ensure financially sustainable sources and profits. Besides, companies need to retain consumers as loyal consumers can enhance their reputation (Ferrell 2004). Hence, in a competitive market, companies must be responsive to the consumers needs. Understanding what consumers want and providing them with high-quality products can lead to the companies economic success. In the meantime, an increasing number of consumers expect companies not only to deliver better products with better prices, but also to be socially-responsible for the overall society's welfare and sustainability (Kreng & Huang 2011; Sen & Bhattacharya 2001). Thus, consumers might be able to motivate companies to provide them with good-products (Sen & Bhattacharya 2001). Good-products refer to better price and better quality as well as a broad range of considerations. They include ethical and environmental friendly practices, such as protecting animal rights, human rights, and pollution and toxics prohibition. Therefore, theoretically, consumers care and awareness about certain issues of CSR can influence their purchase and consumption behaviors. This, in turn, provides incentives for companies to be socially and environmentally responsible (Smith 2007, p.4). Moreover, some consumers are willing to reward companies which behave ethically and socially responsible, such as by paying premium for their products. Conversely, consumers can punish companies which are perceived to be unethical by demanding a lower price for their product (Carvalho et al. 2010, p. 293). More importantly, consumers can create relational loyalty for CSR-associated products. In response to the consumers demand, companies possibly try to behave socially and environmentally responsible. Otherwise, consumers can punish them, which is negative ethical consumerism (Smith 2007). Negative ethical consumerism is a broad range of actions from not re-purchasing, leaving for competitors and, to the most extreme, consumer boycott. In the 1990s, media reported consumer boycott as a workable mechanism (Klein et al. 2002, p. 4). One example of the successful cases is European boycott of Shells products in 1995 (Smith 2007, pp. 5-6). It was triggered by the occupation of Shells oil platform, called Brent Spar, by four Greenpeace activists. The Greenpeace protested Shell, which attempted to dispose of the unused platform

in the Atlantic Ocean. Because of the action, consumers boycotted the Shells product and it reportedly led to a 50 percent decline in sales at some German Shell stations during the protests. Negative ethical consumerism actions are unfavorable for companies as they can harm companies ability to earn revenues. With potential negative effects, companies may be forced to behave ethically and strengthening CSR practices. For instance, Bhattacharya and Sen (2004, p. 10) claim that the lure of greater consumer profits has contributed significantly in recent years to the strengthening of the business case for CSR activity. Furthermore, by understanding consumer reactions to CSR, firms can develop CSR strategies that are optimal from not only a normative perspective, but also a business one (Bhattacharya & Sen 2004, p. 10). However, many studies support that consumers are not regarded to have significant influence to promote CSR outcome (Bhattacharya & Sen 2004; Mohr et al. 2001; Smith 2007; Valor 2008). Their reasons can be classified as follows: (1) lack of consumer awareness, (2) a small number of ethical consumers, (3) consumers inconsistent purchase behaviour and price sensitivity, (4) lack of effective stakeholder engagement system, and (5) companies economic motive. First of all, if consumers have certain impact to promote CSR practices, which consumers practically influence CSR outcomes? Not all consumers have the same power to influence companies in engaging CSR. Empirical research found that consumers' personal support and awareness for a CSR domain is a key determinant of consumers sensitivity to a company's CSR efforts (Bhattacharya & Sen 2004; Sen & Bhattacharya 2001). For example, the more consumers support CSR issues, the more likely they purchase CSR-associated products. In contrast, consumers who do not value CRS activities appear to be reluctant to purchase CSRassociated products because they believe that such activities will detract companies ability to produce high-quality products and services (Bhattacharya & Sen 2004, p.18). Therefore, consumers knowledge and awareness of CSR issues in general as well as each companys CSR involvement is crucial to support companies initiative and engagement in CSR activities. For consumers to be able to play a significant role to exert sanction power, they should be better informed (Valor 2008). However, market structure is commonly imperfect, so that it hinders consumers from getting sufficient information about companies from whom they make purchases. This, in turn, can be one of the main obstacles for consumers sovereignty and limits consumers ability to promoting CSR issues.

The second question on the efficacy of consumers in promoting CSR is how many consumers actually concern about social and ethical consumerism. Many polls have reported that high portion of consumers consider CSR in their purchase and consumption behaviors (Bhattacharya & Sen 2004; Sen & Bhattacharya 2001; Smith 2007). However, it seems that the number has been overestimated because less-readily evidence in terms of sales, supports the reported figures. Vogel (2005, p. 48, cited in Smith 2007, p.7) observed that there is little evidence to support these assertions. There is a major gap between what consumers say they would do and their actual behavior. It is the problem of respondents bias. Consumers may say that they do the right thing in surveys but they are actually self-interest when it comes to purchase behavior (Smith 2007, p.7). Furthermore, Valor (2008, pp. 316-319) relates this attitude-behavior gap to the costs associated with responsible purchases. Regarding CSRassociated products, consumers apparently need to pay some forms of premium price and they may have to travel to a certain distance to find the products or spend more time considering which brands to buy at point of sale. As rational decision makers, consumers are less likely to make an ethically and socially responsible purchase decisions if they have to make trade-offs between price and other non-economic criteria. Therefore, as Smith (2007) claims, consumers intention in ethical and social consumerism can be minor and insignificant. The third reason is related to consumers inconsistent purchase behavior and price sensitivity. Although minority does not always mean powerless, previous studies report that a small number of ethical consumers contribute to the lower support of consumers towards CSR outcomes (Valor 2008). It is worsened by consumers characteristics which are inconsistent and sensitive to price, in terms of purchasing decisions. It, therefore, strengthens companies position in supply-side. Haigh and Jones (2006) argue that consumers can have a significant power to influence CSR if they are consistently willing to pay some form of premium for ethical products. This lack of power explains why many product boycotts as the most extreme negative ethical consumerism actions do not bring about significant changes in companies unethical practices these days (Valor 2008). The fourth reason is attributed to lack of effective stakeholder engagement mechanism. Stakeholders, including consumers, can have significant power if they are engaged in designing and formulating CSR agenda and companies have good relation among stakeholders. However, engagement process is mostly dominated and controlled by the companies management, so that stakeholders become too powerless to involve in meaningful

dialogue. In turn, it is difficult to internalize external stakeholders views into the CSR activities. Consequently, consumers are powerless and hence it hampers check-and-balance mechanism of consumers as stakeholder to drive companies on the right track implementing CSR as ethical actions. In order to intensify normative CSR practices, single driver will not effectively work; especially if it refers to a certain stakeholder who has no direct influence to the companies organizational decision making like consumers. Consideration on CSR decisions is merely greater from intra-organizational factors. Therefore, strengthening managements awareness of CSR issue should be preceded. In addition, multi-drivers pressure is called for. A more formal enforcement and a more comprehensive stakeholders engagement can involve government, media and other stakeholders in formulating CSR agenda. Finally, a companies point of view can account for another constraint on consumers ability to promote CSR practices. It is all about common companies motive for engaging in CSR that is based on economic motivation. Companies are more likely to be devoted to CSR activities to gain future economic benefits, including maintaining their sustainable profits, market share, brand power, and reputation. Valor (2008, p. 316) states undertaking a CSR program is justified in economic terms: being responsibly will help, inter alia, increase corporate sales. Smith (2007, pp. 2-3) also mentions that current practice of CSR is only at the most basic level, that is, economic responsibility2. The survey of corporate responsibility by KPMG (2011) found that 67 percent of companies identified reputational and brand considerations as a prime reason for corporate responsibility. It implies that CSR activities are adopted not genuinely for the sake of societys development and wealth distribution, but apparently for companies trying to help themselves maintain future economic benefit. Companies reluctance to implement normative CSR is also worsened by evidence suggesting that there is no association between higher CSR activities and high profitability (Vogel 2005, cited in Smith, 2007). Accordingly, companies are more likely to engage in CSR activities, which are perceived to be vast benefits for companies brand imaging and reputation. Companies try to formulate CSR decisions which can minimize their costs and concurrently maximize their future benefits (Haigh & Jones 2006, p. 246).

According to Caroll (1991), a companys responsibility consists of four different levels, which are economic, legal, ethical and philanthropic responsibilities. 5

To conclude, consumers cannot to be counted on to promote CSR outcomes, consistent with Haigh and Jones (2006). Although consumers conceptually have a potential role to influence CSR practices through their purchase and consumption behaviors, in the reality, there are limitations affecting the consumers ability. Consumers are rational and self-interested, so they tend to maximize their utilities. They prefer to buy better quality and better price products, regardless of the level of CSR performance of the producers. Subsequently, a few number of responsible consumers exerts insignificant power to push company to be more ethically and socially responsible. Furthermore, consumers are not well-informed enough to attain consumers sovereignty in promoting CSR because the imperfect market structure reinforces information asymmetry. Likewise, consumers are powerless due to their inconsistent purchasing decision related to CSR-associated products and lack of managements initiative to involve them in formulating CSR agenda. Similarly, companies are rational and self-interested. In general, their engagement in CSR activities is inspired to maximize their future economic benefits. As a result, companies position is more superior. As long as they can deliver better price and better quality, they are less likely to lose some potential revenues, irrespective of their performance in CSR issues. Therefore, consumers cannot be effective to promote CSR outcomes in the real world. References Bhattacharya, C & Sen, S 2004, Doing better at doing good: when, why, and how consumers respond to corporate social initiatives, California Management Review, vol. 47, no. 1, pp. 9-24. Carroll, AB 1991, The pyramid of CSR: toward the moral management of organizational stakeholders, Business Horizons, vol. 34, pp. 39-48. Carvalho, SW, Sen, S, Mota, MdO & de Lima, RC 2010, Consumer reactions to CSR: a Brazilian perspective, Journal of Business Ethics, vol. 91, pp. 291-310. Ferrell, O 2004, Business ethics and customer stakeholders. Academy of Management Executive, vol. 18, no. 2, pp. 126-129. Haigh, M & Jones, MT 2006, The drivers of corporate social responsibility: a critical review, Business Review, vol. 5(2), pp. 245-251. Klein, JG, Smith, NC & John, A 2002, Why we boycott: consumer motivations for boycott participation and marketer responses, London: London Business School. KPMG 2011, International Survey of Corporate Responsibility Reporting, Swiss: KPMG International Cooperative.

Kreng, VB & Huang, MY 2011, Corporate social responsibility: consumer behavior, corporate strategy, and public policy, Social Behavior and Personality, vol. 39, no. 4, pp. 529-541. Mohr, LA, Webb, DJ & Harris, KE 2001, Do consumers expect companies to be socially responsible? the impact of corporate social responsibility on buying behavior, Journal of Consumer Affairs, vol. 35, no. 1, pp. 45-72. Sen, S & Bhattacharya, C 2001, Does doing good always lead to doing better? consumer reactions to CSR, Journal of Marketing Research, vol. 38, pp. 225-243. Smith, NC 2007, Consumers as Drivers of Corporate Responsibility, In: A Crane, et al. (eds), The Oxford Handbook of Corporate Social Responsibility, Oxford: Oxford University Press. Valor, C 2008, Can consumers buy responsibly? analysis and solutions for market failures, Journal of Consumer Policy, vol. 31, pp. 315-326.