Recovery from a Social Crisis: The Halo Effect of Corporate Social Responsibility Reputation

Author: ANDREA INSCH

Track: Social Responsibility, Ethics and Consumer Protection

Co-author(s):TessaBlack

Aknowledgements:
ThankyoutoGeraldineMcLeodforprovidingusefulfeedbackonanearlierdraftofthispaper.

Recovery from a Social Crisis: The Halo Effect of

Corporate Social Responsibility Reputation
Abstract
A positive CSR reputation has been linked to minimizing the blame consumers

attribute to a company following a crisis. This study investigates the extent to which a
positive prior CSR reputation influences consumers evaluations of a company and its
new products following a social crisis. The results of an experiment revealed that a
positive CSR reputation prior to a social crisis enhances consumers evaluations of the
company and their support for its new products, thereby facilitating the companys
recovery. These findings provide further insight into the goodwill afforded by a positive
CSR reputation and its halo effect in social crises.

Keywords: Corporate Social Responsibility, New Product Development, Social Crises, Recovery
Track: Social Responsibility, Ethics and Consumer Protection

1. Introduction
Corporate Social Responsibility (CSR) is an increasingly relevant consideration for many
consumers in their purchase decisions. This trend is attributed to the increasing volume of
information about firms CSR available to consumers via the mass media (Wagner, Lutz &
Weitz, 2009). CSR encapsulates a broad range of obligations that firms hold in society and
can be defined as: important areas of responsibility such as obeying laws and ethical norms,
employee treatment, protecting the environment and contributing to charities (Mohr, Webb
& Harris, 2001, p, 47). A companys CSR actions and reputation can influence consumer
perceptions and intentions to purchase a companys brand(s) and impact financial
performance (Luo & Bhattacharya, 2006). Brown and Dacin (1997) also report that positive
CSR associations can enhance company and product evaluations. Firms therefore recognise
the need to invest resources into CSR activities. Several studies that have investigated the
role of CSR, in relation to negative events a company can encounter, demonstrate a halo
effect on firms (Brown & Dacin, 1997; Klein and Dawar, 2004). This could be attributed to
the benefits of a strong CSR reputation such as increased loyalty and consumers willingness
to forgive and underplay negative information about a company that is perceived to be
socially responsible (Sen & Bhattacharya, 2004).
The literature on CSR is vast, yet gaps in knowledge remain about its impacts on
business performance. In particular, one question yet to be answered is the extent to which
CSR reputation acts to insulate against the negative impacts of a social harm crisis. Like
product harm crises, social crises can produce detrimental outcomes for the company
involved. A social crisis can be defined as low probability/high consequence events that
threaten the most fundamental goals of an organisation (Weick, 1988, p. 305). Klein and
Dawar (2004) provide evidence of one long-term benefit of CSR activities, validating CSRs
halo effect. Their study, which captured consumers brand evaluations following a product
harm crisis, showed that a positive CSR reputation pre-crisis can minimize the blame
consumers attributed to the company. Further, the brand evaluations and purchase intentions
were inversely related to blame. As innovation and the frequent release of new products are
critical for business growth, firms may face the dilemma of when to launch new products due
to possible negative consumer responses after a crisis. The main objective of this research is
therefore to investigate how new products from a company that has recently experienced a
social crisis will be evaluated. The extent to which CSR reputation could mediate blame will
be investigated through consumers company evaluations, product evaluations and purchase
intentions.
CSR has been identified as a strategy that can be used to gain positive consumercompany identifications. Einwiller, Fedorikhin, Johnson & Kamins (2006) investigated how
consumers identification with a company might moderate the extent of negative publicity.
Through exposing consumers who had strong or weak company identification to moderately
negative information, it was found that consumers with strong identification produced less
negative company associations. However, in the case of extreme negative information, the
consumer-company identification did not have a moderating effect and all participants held
strong negative associations. When a CSR halo effect is prominent it has positive spillover
effects onto other aspects of the company. However, consumers lack of awareness of CSR
efforts may hinder this outcome. Mohr et al. (2001, p. 48) view lack of awareness as a major
inhibitor of consumer responsiveness to CSR. Therefore, differing levels of awareness may
influence the outcome of the halo effect. According to Vanhamme and Grobben (2009),
knowledge of the benefits of CSR associations is scare, thus research is needed to examine
how the halo effect of a positive CSR reputation operates. Adoption of new products is vital
to a companys success. How these products are evaluated is influenced by CSR reputation.

Therefore, there is a need to determine if a companys CSR reputation facilitates its recovery
after a social crisis in terms of consumers evaluations of the company and its new products.

2.0 Research hypotheses

Two theoretical perspectives attribution theory and assimilation theory assist to explain
consumer response to a company and its products when exposed to information about a
companys social crisis. Firstly, attribution theory posits that behaviour is interpreted in terms
of its cause, and these interpretations determine reactions to the behaviour. Here a distinction
is made between internal and external causes. In terms of the consequences, if the consumer
has attributed internal causes to the behaviour, the company will benefit from perceived
positive attitudes and traits (Kelley & Michela, 1980). Applying this theory, a companys
CSR reputation will influence consumers inference of cause to the company in regards to a
social crisis. Due to the halo effect of a positive CSR reputation, companies with positive
CSR reputations will likely have less blame attributed to them so the new product and
company evaluation and the purchase intention will be more favourable following the social
crisis. Based on this theory, it is hypothesised - H1: Companies with positive CSR reputations
will be evaluated more favourably in terms of overall company evaluation than companies
with negative CSR reputations, following the social crisis.
Secondly, assimilation-contrast theory can aid in understanding the interaction
between CSR reputation and the social crisis. Assimilation theory posits that any discrepancy
between expectations and performance will be assimilated into the consumers adjusted
perception of the object (i.e. company), so that the perception will be more consistent with
the expectations. At the other end of the theoretical continuum is contrast theory. Contrast
theory explains that a consumer will magnify the difference between what was received and
what was expected. Hence, if a product fails to meet expectations, a consumers product
evaluation will be less favourable than if there were no prior expectations (Anderson, 1973).
The prior CSR reputation of the company and the crisis can be viewed within a systematic
framework. Consumers are likely to update their attitudes towards a company after a social
crisis. For a company with a negative CSR reputation, the social crisis will confirm the
expectation and reinforce the negative CSR belief. In the case of a positive CSR reputation
and the social crisis, contrast effects could result. Consumers expectations will be
disconfirmed and new expectations will be set to avoid future disconfirmation. The social
crisis may even be magnified and more negative perceptions about the company formed.
However, this contrast effect is not expected to be as intense as the assimilation of the
negative CSR reputation and the social crisis. Therefore, consumers responses are likely to
be more favourable toward the positive CSR reputation company. As the evaluation of a
product hinges on the CSR reputation prior to a social crisis it is hypothesized - H2: A
companys positive CSR reputation will positively influence consumers evaluations of the
companys new products, following the social crisis, and a negative CSR reputation will have
a negative influence on new product evaluations. As CSR reputation has been shown to
increase company loyalty and consumer forgiveness (Sen & Bhattacharya, 2004), blame
toward the positive CSR reputation company is likely to be less than the negative CSR
reputation company. Therefore, it is hypothesized - H3: A new product released by a
company with a positive CSR reputation will have a higher purchase intention than a
negative CSR reputation company, following the social crisis.
Consumers personal beliefs about CSR activities have been shown to influence their
perceptions of those activities. Klein and Dawar (2004) demonstrated that CSR predicted
attributions of blame toward a company after a product crisis only for the consumers who

placed high importance on CSR. Sen and Bhattacharya (2001) also explained that consumers
personal beliefs about CSR issues mediated responses to CSR actions. This in turn affected
consumers level of support for the CSR activities, company and product evaluations and
purchase intentions. Therefore, it is hypothesized - H4: Consumers with strong CSR beliefs
will be more influenced by the companys CSR reputation, and will evaluate the positive CSR
company more favourably than less concerned consumers, and will evaluate the negative
CSR company more severely than less concerned consumers.

3.0 Research methods

An experiment, adapting Brown and Dacins (1997) and Klein and Dawars (2004) designs,
was used to test the research hypotheses. The Cadbury and Nestl palm oil social crisis was
chosen due to its salience and use of real companies enhanced the studys external validity.
Pre-tests were conducted to assess the effectiveness of the proposed stimulus. An
independent sample was used to eliminate the chance of interactive effect of testing with the
actual experiment. Thirty participants were recruited from public areas of the University of
Otago campus and asked to read a document and complete a survey for a small compensatory
chocolate bar. The pre-test results revealed that the stimuli for both Nestl and Cadbury were
met with moderate awareness levels and that the sources of the CSR reputation profile and
the social crisis article needed credible, reliable references, so this was modified accordingly.
The CSR reputation information presented to participants was developed based on material
obtained from press releases and historical information about the company and its CSR
activities. All information used to write company profiles were obtained from trustworthy,
credible sources. The companys social crisis was presented in the form of an actual
newspaper article. Both companies have recently been involved in a social crisis involving
their use of palm oil in chocolate confectionary recipes. Each company experienced high
profile negative press in early to mid 2010. The press article was developed through a
compilation of actual press articles released at the time of the crisis. Consistent information
about the social crisis was used for the two articles (one Cadbury and one Nestle) along with
a consistent image. The product that was presented was described as under development by
the company and in simple terms, consistent with Brown and Dacins (2004) experiment.
Participants in the experiment were presented with a test booklet designed to enable
them to work through a series of stages (Klein and Dawar, 2004). There were two conditions.
Half of the participants (condition one) received booklet 1, the other half (condition two)
received booklet 2. Section A of each booklet included a description of the CSR reputation
and status of a company (either Cadbury-positive CSR record or Nestle-negative CSR
record). In Section B participants rated the companys CSR, as a manipulation check. They
also rated their personal attitudes towards CSR by answering two CSR belief questions on
seven point Likert scales. Section C of the booklet described the CSR crisis that the company
encountered. Section D presented participants with a new product (in the form of an image
and small description) that was described as currently being developed by the company. In
Section E participants were then asked to evaluate the company. These company evaluations
were obtained by asking participants to provide their overall opinion of the company on a
seven-point Likert scale (1-very unfavourable, 7-favourable). Participants were asked to
provide their overall product evaluation on a seven point Likert scale (1-very unfavourable7-very favourable). Participants were also asked to provide their purchase intentions for the
new product. This was measured on a 7-point Likert scale (1-very likely to purchase, 7-very
unlikely to purchase). These scales were adapted from Brown and Dacin (1997).

Convenience sampling was used to gain access to the students who were attending a
class in a designated classroom. Participants were recruited for the experiment through
lectures and tutorials at the University of Otago. The classes were all marketing papers (first,
second and third year). The sample consisted of 200 participants, reduced to 198 after data
cleaning to eliminate non-responses. This sample size follows Fields (2009) advice that for a
sample to be large enough when the sample is divided into groups, each group will have a
minimum sample size of 100 in order to ensure adequate power detect any statistically
significant results (Aaker, et al., 2007). Respondents were aged between 18 and 50 years. The
average age group was 18-23 years with 93% of respondents falling in this age bracket. 62%
of participants were female. The distributions of the sample demographics were consistent
between the two conditions and representative of the student population, apart from the
unavoidable over-representation of commerce and marketing students (Otago University,
2009). Survey data were entered into the PASW statistics program to analyse responses.
Firstly, to ensure that the manipulation checks for each condition were successful, one-way
ANOVA tests were conducted to analyse the differences in evaluations between the two CSR
reputation conditions. Participants reasons for their purchase intentions toward the new
product were evaluated using Pearsons Chi-Square test of contingencies to test whether the
two variables the condition and participants reasons to purchase or not to purchase - were
related. A standard multiple regression analysis (MRA) was conducted to assess the possible
influence of participants personal beliefs on their overall company evaluations.

4.0 Results
A one way ANOVA used to test the differences between participants ratings of the company
and their new product between each condition revealed a statistically significant difference in
mean responses between the two conditions (p<0.001). Frequency analysis, examining the
direction of the differing ratings between the two conditions, indicated that respondents
evaluating Nestl rated the company as unfavourable (95%). This contrasted with majority of
respondents rating Cadbury as favourable (44.2%). Cadbury was, however, still viewed
negatively by 39.4% of participants. As the positive CSR reputation company was evaluated
more favourably following the social crisis than the negative CSR reputation company,
hypothesis 1 was supported. Statistically significant differences (p=.000) were also detected
in respondents product evaluations. Specifically, the new Nestl product was evaluated
significantly less favourably than the Cadbury product following the social crisis, providing
support for hypothesis 2. A one-way ANOVA revealed significant differences in the purchase
intentions between the two conditions (p=.000). Frequency analysis indicated that the
likelihood of purchasing the Cadbury product was higher than the Nestl product. The
majority of Nestl condition participants (62.6%) were unlikely to purchase the product. In
contrast, the majority of participants (51.6%) in the Cadbury condition were likely to
purchase. Cadburys CSR reputation before the social crisis positively influenced consumers
purchase intention towards the new Cadbury product following the social crisis, aligning with
hypothesis 3. Therefore, the results suggest that products released by a company after a social
crisis will be better received and accepted if the company holds a positive CSR reputation.
Finally, two predictor variables (CSR belief 1, CSR belief 2) were tested within the
regression. Only one significantly predicted participants evaluations. CSR belief 1 I would
purchase from a company that is not socially responsible had a significant influence on all
final evaluations for each condition. The CSR belief 2, it is important for a company to be a
good corporate citizen in society, did not have a significant influence on participants final
evaluations for either condition. The MRA revealed that for the Nestl condition, the weaker

the CSR beliefs, the greater the evaluation of the Nestl company and the new Nestl
product. Participants with weaker CSR beliefs were also more inclined to purchase the new
Nestl product. Therefore, the results suggest that the stronger the CSR beliefs, the more the
participants were influenced by the negative CSR reputation of the Nestl company, and
hence evaluated the company and its product more unfavourably. The results from the
multiple regression analysis performed with the Cadbury condition did not support
Hypothesis 4. In this situation, CSR beliefs did account for the variability of participants
evaluations of Cadbury following the social crisis, yet not in the direction as predicted. The
weaker the CSR beliefs, the higher the Cadbury product was evaluated and the higher the
purchase intention toward the new product. Therefore, participants who held high CSR
beliefs evaluated the product lower and were less inclined to purchase the product. The strong
CSR supporters were not more strongly influenced by the positive CSR reputation of the
company in evaluating Cadbury more favourably than weak CSR supporters. Overall, the
results reveal only partial support for Hypothesis 4. Instead of the strong CSR supporters
being influenced more by the positive CSR reputation and rating the company more
favourably, a contrast effect occurred. In this case, the social crisis was more influential than
the companys CSR reputation, as negative information is stronger than positive information
(Sen and Bhattacharya, 2001). Although, the majority of participants evaluated Cadbury and
the new product positively, hence the social crisis was not salient when it came to product
evaluation, or consumers readily forgave the company. Thus, these results suggest that the
stronger the CSR beliefs of the individual consumer, the less of an effect the positive CSR
reputation has over the consumers level of forgiveness towards the company following the
social crisis. Yet, overall, the CSR reputation will insulate the company from negative
evaluations.

5.0 Conclusions, implications and suggestions for future research

The findings stress the reasons to commit to CSR activities as the results reveal that a positive
CSR reputation facilitates a companys recovery after a social crisis. Hence, investing in CSR
not only supports the community it can enhance a companys image and its bottom line.
The extent that CSR reputation facilitates a firms crisis recovery may depend on the
severity of the crisis. In this case, although the environmental impacts were harmful, this may
not be seen as detrimental as child slavery or direct harm to consumers. In addition,
participants level of company-identification with Cadbury and Nestl was not assessed.
Einwiller et al., (2006) showed that by exposing consumers who had strong or weak company
identification to moderately negative information, consumers with strong company
identification had less negative company associations. As consumers were likely to identify
with Cadbury due to its history in NZ, this might enhance their forgiveness of the company.
Further research could replicate this with a sample of non-students. This would test
whether students were more responsive to the CSR reputation and hence why their responses
to the social crisis were influenced by this attribute. The study could also be extended to
evaluate higher involvement product categories which may elicit more powerful results.

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