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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),

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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

by four Greenpeace activists. such as protecting animal rights. In response to the consumers’ demand. 2010. pp. companies possibly try to behave socially and environmentally responsible. One example of the successful cases is European boycott of Shell’s products in 1995 (Smith 2007. 2002. in a competitive market. Sen & Bhattacharya 2001). It was triggered by the occupation of Shell’s oil platform. 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. which attempted to dispose of the unused platform 2 . companies need to retain consumers as loyal consumers can enhance their reputation (Ferrell 2004). Hence. consumers might be able to motivate companies to provide them with ‘good-products’ (Sen & Bhattacharya 2001). companies must be responsive to the consumers’ needs. Good-products refer to better price and better quality as well as a broad range of considerations. consumer boycott. Conversely. theoretically.consumers can be perceived to play a significant role in enforcing CSR practices through their purchase decisions. consumers can punish them. They include ethical and environmental friendly practices. In the 1990s. which is ‘negative ethical consumerism’ (Smith 2007). to the most extreme. Thus. provides incentives for companies to be socially and environmentally responsible (Smith 2007. consumers can create relational loyalty for CSR-associated products. Negative ethical consumerism is a broad range of actions from not re-purchasing. consumers can punish companies which are perceived to be unethical by demanding a lower price for their product (Carvalho et al. and pollution and toxics prohibition.4). Besides. 4). Otherwise. 5-6). 293). Therefore. media reported consumer boycott as a workable mechanism (Klein et al. Moreover. called Brent Spar. In the meantime. some consumers are willing to reward companies which behave ethically and socially responsible. in turn. This. More importantly. The Greenpeace protested Shell. human rights. p. p. but also to be socially-responsible for the overall society's welfare and sustainability (Kreng & Huang 2011. consumers’ care and awareness about certain issues of CSR can influence their purchase and consumption behaviors. Understanding what consumers want and providing them with high-quality products can lead to the companies’ economic success. an increasing number of consumers expect companies not only to deliver better products with better prices. leaving for competitors and. Companies need consumers to ensure financially sustainable sources and profits. such as by paying premium for their products. p.

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

Stakeholders. It. Although minority does not always mean powerless. Regarding CSRassociated products. 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. Valor (2008. However. supports the reported figures. Sen & Bhattacharya 2001. 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’. 316-319) relates this ‘attitude-behavior gap’ to the costs associated with responsible purchases.7).The second question on the efficacy of consumers in promoting CSR is how many consumers actually concern about social and ethical consumerism. As rational decision makers. Vogel (2005. 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). engagement process is mostly dominated and controlled by the companies’ management. The fourth reason is attributed to lack of effective stakeholder engagement mechanism.7) observed that ‘there is little evidence to support these assertions. pp. therefore. as Smith (2007) claims. p. 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. Many polls have reported that high portion of consumers consider CSR in their purchase and consumption behaviors (Bhattacharya & Sen 2004. previous studies report that a small number of ethical consumers contribute to the lower support of consumers towards CSR outcomes (Valor 2008). in terms of purchasing decisions. Furthermore. Smith 2007). cited in Smith 2007. 48. It is worsened by consumers’ characteristics which are inconsistent and sensitive to price. However. consumers’ intention in ethical and social consumerism can be minor and insignificant. strengthens companies’ position in supply-side. 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. p. The third reason is related to consumers’ inconsistent purchase behavior and price sensitivity. There is a major gap between what consumers say they would do and their actual behavior’. including consumers. can have significant power if they are engaged in designing and formulating CSR agenda and companies have good relation among stakeholders. p. so that stakeholders become too powerless to involve in meaningful 4 . It is the problem of respondents’ bias. it seems that the number has been overestimated because less-readily evidence in terms of sales.

dialogue. increase corporate sales’. legal. multi-drivers pressure is called for. Finally. 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. 316) states ‘undertaking a CSR program is justified in economic terms: being responsibly will help. 2-3) also mentions that current practice of CSR is only at the most basic level. market share. including maintaining their sustainable profits. A more formal enforcement and a more comprehensive stakeholders’ engagement can involve government. and reputation. 2007). 5 . Therefore. that is. but apparently for companies trying to help themselves maintain future economic benefit. p. 2 According to Caroll (1991). which are economic. cited in Smith. It is all about common companies’ motive for engaging in CSR that is based on economic motivation. pp. media and other stakeholders in formulating CSR agenda. It implies that CSR activities are adopted not genuinely for the sake of society’s development and wealth distribution. Consequently. Valor (2008. Companies are more likely to be devoted to CSR activities to gain future economic benefits. 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. economic responsibility2. single driver will not effectively work. Consideration on CSR decisions is merely greater from intra-organizational factors. p. inter alia. Accordingly. ethical and philanthropic responsibilities. Smith (2007. which are perceived to be vast benefits for companies’ brand imaging and reputation. In order to intensify normative CSR practices. In addition. 246). strengthening management’s awareness of CSR issue should be preceded. it is difficult to internalize external stakeholders’ views into the CSR activities. especially if it refers to a certain stakeholder who has no direct influence to the companies’ organizational decision making like consumers. a company’s responsibility consists of four different levels. Companies try to formulate CSR decisions which can minimize their costs and concurrently maximize their future benefits (Haigh & Jones 2006. In turn. 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. brand power. a companies’ point of view can account for another constraint on consumers’ ability to promote CSR practices. companies are more likely to engage in CSR activities.

California Management Review. Therefore. regardless of the level of CSR performance of the producers. their engagement in CSR activities is inspired to maximize their future economic benefits. no. JG. 18. vol. 126-129. 6 . ‘Business ethics and customer stakeholders’. vol. they are less likely to lose some potential revenues. ‘The drivers of corporate social responsibility: a critical review’. MT 2006. Although consumers conceptually have a potential role to influence CSR practices through their purchase and consumption behaviors. SW. 1. As a result. 9-24. C & Sen. pp. Ferrell. and how consumers respond to corporate social initiatives’. vol. Smith. S 2004.To conclude. companies’ position is more superior. so they tend to maximize their utilities. pp. a few number of responsible consumers exerts insignificant power to push company to be more ethically and socially responsible. in the reality. S. irrespective of their performance in CSR issues. ‘Consumer reactions to CSR: a Brazilian perspective’. consumers cannot be effective to promote CSR outcomes in the real world. Klein. International Survey of Corporate Responsibility Reporting. 245-251. Subsequently. ‘Why we boycott: consumer motivations for boycott participation and marketer responses’. no. 39-48. Mota. pp. They prefer to buy better quality and better price products. MdO & de Lima. Haigh. 47. Consumers are rational and self-interested. Business Review. KPMG 2011. consistent with Haigh and Jones (2006). 2. why. pp. vol. 5(2). consumers cannot to be counted on to promote CSR outcomes. AB 1991. Likewise. Furthermore. Business Horizons. pp. there are limitations affecting the consumers’ ability. As long as they can deliver better price and better quality. Academy of Management Executive. companies are rational and self-interested. 291-310. Similarly. M & Jones. consumers are powerless due to their inconsistent purchasing decision related to CSR-associated products and lack of management’s initiative to involve them in formulating CSR agenda. 91. References Bhattacharya. NC & John. Carvalho. 34. A 2002. ‘Doing better at doing good: when. RC 2010. In general. vol. Sen. Carroll. ‘The pyramid of CSR: toward the moral management of organizational stakeholders’. O 2004. London: London Business School. Journal of Business Ethics. Swiss: KPMG International Cooperative. consumers are not well-informed enough to attain consumers’ sovereignty in promoting CSR because the imperfect market structure reinforces information asymmetry.

MY 2011. Journal of Consumer Policy. VB & Huang. Social Behavior and Personality. no.Kreng. 315-326. vol. (eds). KE 2001. vol. vol. pp. vol. C 2008. no. LA. Oxford: Oxford University Press. 4. S & Bhattacharya. ‘Does doing good always lead to doing better? consumer reactions to CSR’. In: A Crane. ‘Consumers as Drivers of Corporate Responsibility’. et al. 45-72. Journal of Consumer Affairs. 31. and public policy’. pp. 1. Webb. 35. 7 . DJ & Harris. pp. ‘Can consumers buy responsibly? analysis and solutions for market failures’. 39. Journal of Marketing Research. The Oxford Handbook of Corporate Social Responsibility. ‘Corporate social responsibility: consumer behavior. Sen. Mohr. ‘Do consumers expect companies to be socially responsible? the impact of corporate social responsibility on buying behavior’. C 2001. 529-541. NC 2007. pp. corporate strategy. Smith. 225-243. 38. Valor.