Wednesday, June 1, 2011

Loyalty Impact of Corporate Social Responsibility

There is an interesting study documented by two professors at the Tuck School of Business at Dartmouth College. The authors Kusum Ailsesfi and Jackie Luan collected data from more than 3,000 grocery shoppers. Their objective was to determine if Corporate Social Responsibility (CSR) performance correlated with financial performance. They measured customer perceptions of the retailers' CSR on four dimensions as well as other variables including price, quality, etc. The results are noted below:

The first dimension is CSR performance (which included environmental friendliness, treating employees fairly, community support, sourcing from local growers and suppliers) all showed positive influence on customer's attitudes toward the retailer.

The second dimension is the economic return which is significant. If the retailer is able to improve the customer's perception of the company's CSR activities there was a gain of approximately 1.7% of share of wallet. This could translate into a sales lift of 10% to 15% for the average retailer in the study.

The third dimension is the price impact when higher prices were considered rather than higher share of wallet. The researchers found that a one-unit increase in customer perceptions of employee fairness translates to a price premium of about 12%. A similar increase in local sourcing of products translates to a price premium of about 16%.

The fourth benefit of CSR is that customers appear to patronize the company because they see personal benefits from the CSR initiatives and because the initiatives resonate with their own values. While high prices may be considered bad, they are considered fairer if they can be attributed to good motives such as CSR efforts. The researchers found that the perception of employee fairness accrues as much as 15% increase in share-of wallet.

The bottom line is that this research is showing that CSR is perceived positively by consumers. When consumers see that companies are spending their money on activities that reflect their own personal values, they appear to be willing to respond with their wallet. You might say that companies will can do well by doing good. The best news is that when companies participate beyond their walls everyone seems to benefit.


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