Getting your power froman energy company which pollutes or buying clothes which were made by childrenis something most people try to avoid. Consumers are becoming more aware of theeffect their purchases have and sometimes make purchasing decisions regardingsociety and environment (Eisingerich, Rubera, Seifert, & Bhardwaj, 2011).Many companies havelearned from the devastating effects of corporate social irresponsibility, forexample the 2013 Savar building collapse, which killed more than 1000 people,caused companies to evaluate how their goals affect society and environment.
Thismeans that Corporate Social Responsibility(CSR) refers to “the ethicalprinciple that an organization should be responsible for how its behavior mightaffect society and the environment.”(Jobber & Ellis-Chadwick, 2012, p 134) However, doesthat stand at odds with the for-profit aim of companies?. An important factorin this system is customer loyalty; do your customers believe in yourcommitment to society and does this have a profitable outcome? Having higherethical standards leads to consumers to believe that an organization is morecommitted to their CSR and this ultimately leads to more customer satisfactionand trust (Park, Kim, & Kwon, 2017). Therefore, theresearch question in this paper is: should for-profit organizations use CorporateSocial Responsibility to generate more loyal customers? Companies often engage in CSR not because oftheir commitment to social good, but the expected financial benefits(Aguinis & Glavas, 2012).
These ideas areoften staged in a “shareholder-stakeholder debate”; the “shareholder view”means that managers only make choices in benefit of the shareholders by seekingprofit at all means necessary. In contrast, the “stakeholder view” states thatthere are more groups besides shareholders (e.g. employees, environmentalactivists) that are affected by the organizations’ choices and these groupsshould be measured equally in managers’ decisions (Castelo Branco & Lima Rodriques, 2007).
This paper looksat CSR through the stakeholder view as this is the way CSR experts address theproblem (Castelo Branco & Lima Rodriques, 2007).Still, there are manydifferent views on the profitability on CSR. Some even say there is no relationbetween CSR and profitability (Aupperle, Carroll, & Hatfield, 1985). A great amountof research has been done on the profitability of CSR. Thus, this papers’academic relevance is that this paper combines these findings and shares adifferent view on how CSR is likely to turn out profitable, especially forstart-up companies. In turn, it’s social relevance is that with the informationcombined in this paper, it is likely that organizations would consider behavingsocially responsible. Ultimately, this leads to more stakeholder satisfactionand other organizations noticing that behaving positive towards society andenvironment is a possibility. To achieve this, this paper first discusses theimportance of ethical standards and how this affects consumer behavior,secondly this paper describes the process of achieving loyal customers andlastly considering the profitability of loyal customers.
2.1Ethical standards and CSR commitment “Ethics is the code ofmoral 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 orbad in conduct and decision-making” (Daft& Benson, 2016). Thus, ethical standards are thestandards set in an organization to determine how the organization willinteract with its’ environment to assure positive outcome on society andenvironment.
Therefore, ethical standards determine an organizations’ commitmentto CSR. Companies with highethical standards, for example, would provide consumers with complete andaccurate information about their products and services, offer a comprehensivecode of conduct, and implement precautionary measures to process sensitivepersonal information. More importantly, companies should provide theirconsumers with information explaining their ethical commitment as well asmarketing their ethical standards to consumers, specifically through statements(Murphy,2005),because of this type of communication organizations have a higher ethicalcontext (Valentine& Barnett, 2002). Therefore, the ethical standards ofthe organization are likely to positively influence consumers’ perception ofthe organizations’ commitment to CSR (Park e.a., 2017).
For example: Microsoftranked number one in CSR by Reputation Institute in their research whichinvited 42000 consumers across the globe to rank the worlds’ 100 most reputablecompanies. This study also found that 42% on the consumers belief in anorganization is based on their perception of the organizations’ commitment toCSR. Microsoft, which ranked number one, is obviously known for its chairman,Bill Gates, often giving to charity. This improves the perception of theorganizations’ commitment to CSR, thus improving the organizations’ overalltrustfulness. Not only their chairman helps Microsoft in consumers’ perception,they have an entire page on their website devoted to their commitment to CSRand how they help society and environment. This kind of marketing improves theconsumers’ perception on the organizations’ commitment, thus ranking Microsoftnumber one and making it a successful, innovative organization. 2.
2CSR commitment, satisfaction and trust. The perceived commitmentto CSR by consumers is positively related to satisfaction as well as trust (Park e.a., 2017). This means thatby raising awareness on commitment to ethical standards, consumers tend to bemore satisfied with the organization and have more trust in the organization.In this paragraph there will be looked at the relation between these variablesand how this positively affects the organization. 2.
2.1CSR commitment and trustCSR helps to create moretrustful relationships between the organization and stakeholders (Lantos,1999).As mentioned earlier, this paper lays its importance on the stakeholders of anorganization. Stakeholders are all thepeople who influence organizational goals or could be influenced byorganizational goals (Daft& Benson, 2016). With a lot of studies alreadyconducted concerning the relationship between CSR and consumers perceptions ofan organization, there is found that CSR is a key element in positivelyaffecting consumers reactions to an organization (Brown,1998).Thus, by implementing appropriate CSR-plans, it is likely that there will be amore favorable attitude by consumers towards the organization (Bhattacharya& Sen, 2003).
This more favorableattitude by consumers is a product of the higher trust they attained, becauseof how the organization is acting towards society and environment, thus theirCSR plans. Trust can be defined as “theconfidence one party has in an exchange partners’ reliability and integrity” (Morgan& Hunt, 1994, p23). The importancehere should be laid on confidence. Trust is a product of the organizations’reliability and integrity, where CSR improves an organizations reliability andintegrity. With greater reliability and integrity, it is likely that theconfidence consumers have in an organization grows larger. With this largerconfidence it is likely that a more trustful relationship between anorganization and its stakeholders also grows lager. This means that theperception consumers have on an organizations’ commitment to CSR is positivelyrelated to consumers trust in the organization (Park e.a.
, 2017). 2.2.2CSR commitment and satisfactionSimilar to consumerstrust, the perceived commitment to CSR is also closely related to satisfactionwith the organization (Berens,Riel, & Bruggen, 2005). Satisfactioncould be seen as an emotional state resulting from a purchase or service by anorganization and the response to this (Westbrook,1987).The perception consumershave on an organizations’ commitment to CSR is positively related to theevaluation consumers have on the organization and provide a better experiencewith its products and services (Mohr,Webb, & Harris, 2001).
Therefore,consumers tend to be more satisfied with an organization when they areconvinced this organization is more committed to their CSR activities (Sen& Bhattacharya, 2001). The stakeholder theory (Maignan, Ferrell, & Ferrell, 2005), that suggeststhat consumers not only have an economic perspective, but also are a member ofa family and community. Building on this, a term has been developed: “generalizedcustomer. This customer does not only care about the product or serviceexperience, but is also part of a stakeholder group which impacts theorganization that needs to be taken into consideration by the sellingorganization.
When looking at it this way, these generalized customer arelikely to be more satisfied with socially responsible organizations (Luo & Bhattacharya, 2006). 2.2.3Trust and satisfactionConsumers mostly feelmore confident in the quality of a product or service when they trust thisorganization and believe that trustful organizations are more committed toethical responsibilities and CSR-plans, thus trust is an important determent ofconsumer satisfaction (Kim,Park, & Jeong, 2004). Therefore, wecan say that higher perceived commitment to CSR ultimately leads to highertrust in and higher satisfaction with an organization. 2.3Trust, satisfaction and loyal customersPurchasing products froman organization are likely to be influenced by the confidence consumers have inthe organizations’ reliability, thus trust and earlier experience with theorganization, thus satisfaction.
With greater trust in an organization it isalso likely that there will be more satisfaction with the company (Kim e.a., 2004). Ultimately,trust and satisfaction influence consumers into repurchasing products andservices from organizations.
Thus, trust and satisfaction positively affectcustomer loyalty (Garbarino& Johnson, 1999; Homburg & Giering, 2001). Park, Kim andKwon (2017) tested this and found that trust and satisfaction make for 60.4% ofthe variance in loyalty. In this paragraph there will be looked at the waytrust and satisfaction positively affect customer loyalty.
2.3.1Trust and loyal customers. Commitment is animportant factor in attaining loyal customers, there customers must commit toan ongoing relationship with the organization. Thus, commitment can be definedas a “relationship that is considered important” and “a committed partner wantsthe relationship to endure indefinitely and is willing to work at maintainingit” (Morgan & Hunt, 1994, p 23). Nobody commitsto an ongoing relationship with someone or something they do not know.
Whenlooking at marriage, the moment where an ongoing and loyal relationship isformed, it is not likely that the persons involved in this marriage do notknow, nor fully trust the other while committing to this relationship. Bylooking at customer relationships the same way, we can better understand theimportance of a trustful relationship between the customer and theorganization. Going through the steps of commitment in a social relationship, alot of similarities between social relationships and customer-organizationrelationships can be found. Firstly, people meet and get to know each other alittle better with often a good first impression. Secondly, there will be moresocial exchanges and the beginning of a trustful social relationship.
Thirdly,the full commitment to a trustful relationship. Notice that first, trust isestablished before committing to the relationship. Commitment involves certainvulnerability and sacrifice, thus it is unlikely that customers will becommitted unless a trustful relationship has already been established (Garbarino & Johnson, 1999). Therefore, wecan say that trust is positively related to loyal customers and when a trustfulrelationship is established customers are more likely to repurchase and reuseproducts and services of an organization, thus become loyal. 2.3.2Satisfaction and loyal customersThe knowledge of CSRultimately leading to more consumer satisfaction is already given, but thisconsumer satisfaction must lead somewhere.
There are many different factorsthat determine a consumers’ satisfaction including the experience with theproduct or service, communication with the company and price, personalcharacteristics and quality (Crosby, Evans, & Cowles, 1990). Furthermore,brand experience can be seen as an important determent of satisfaction (Brakus, Schmitt, & Zarantonello, 2009). This isconceptualized as sensations and feelings provoked by stimuli through theexperience with the brand. When building on the stakeholder theory, where allthe groups affected by organizational choices are taken in to account, CSRcould be a stimulus through the experience with the brand.
This is especiallywith consumers who feel affiliated with society and environment, but not onlythese consumers, most of the consumers who have a higher perception of an organizations’ commitment to CSR areultimately more satisfied with this organization (Sen & Bhattacharya, 2001). The consumer who has nowbecome more satisfied with an organization after realizing that it is committedto CSR, has to purchase a new product. This customer is now more likely toreturn to the same organization where they were most satisfied, thussatisfaction with an organization leads to higher customer retention (Anderson & Mittal, 2000). Take, forexample, personal experience. When going to an electronics shop to buy a newlaptop, the employee working there often immediately approaches the customer toask what it is they are looking for specifically. After helping the customerwith the right choice, the customer leaves the store with a satisfied feeling.
In this case, the employee assisting the customer in their choice is thestimulus leading to satisfaction and possibly customer retention. Thus,different stimuli affect the experience with the brand and when positivelyused, higher satisfaction is achieved, ultimately leading to loyal customers.wiskundig model van die kut koreanen 2.4Loyal customers and profitabilityLoyalty and profitabilityare two variables with a interesting relationship. Many studies have beenconducted on their relationship. These studies mostly lead to four main points.
Purchase/repurchase behaviour, word-of-mouth (WOM) communication, complainingbehavior and price sensitivity (Zeithaml, Berry, & Parasuraman, 1996). Satisfaction isan important factor in the relationship between loyal customers andprofitability, therefore there will be mostly referred to satisfaction as adeterment of profitability. 2.4.1Purchase/repurchase behaviourPurchase/repurchasebehaviour is the willingness consumers have to purchase a product or serviceand utilize the same organization for repurchase intentions. The relationshipbetween customer satisfaction and repurchase intentions is positive (Zeithaml e.
a., 1996). Actualrepurchase behaviour is also positively related to customer satisfaction (Bolton, 1998).
Thus, the higherthe level of satisfaction, the higher the level of repurchase behaviour. Statedlike this, repurchase behaviour is a different name for loyal customers.Repurchase intentions is related to customers with a high level ofsatisfaction, nevertheless not enough satisfaction to have actual repurchasebehaviour. Customers with actual repurchase behaviour have a high level ofsatisfaction and after returning to the same organization the same experiencerelates to an even higher level of satisfaction. This phenomenom ultimatelyleads to customer retention (Anderson & Mittal, 2000). For example, thecosts for McDonalds to market to customers who are a fan of their Big Mac areobviously lower then the costs to acquire BurgerKing customers who are a fan oftheir Whopper. These customers return to McDonalds especially for theirsatisfaction with the Big Mac and therefore we can conclude repurchasebehaviour of loyal customers is more profitable. 2.
4.2Positive WOM communicationPositive WOMcommunication (also reffered to in literature as advocacy) are therecomendations customers make after purchasing a product of service. WOM couldalso be seen as storytelling. This is a phenomenon used since the ancient oftimes. When looking specifically at the tales tolld by the aboriginals, mostlygestures were used as there was no clear language at that time. The storytellerhad to remember the story and drew pictures on the walls as help. These storieswere not only used to educate and amuse, the storyteller used these pictures toremember good hunting ground and places to gather fruits. This is not exactlythe same as WOM, nevertheless it shows exactly what WOM is about.
Afterpurchasing a new iPhone, many customers had a satisfying experience. Thesecustomers take their new iPhone to their friends and start showing them all thefeatures on this new iPhone. This is known as positive WOM communication. Thisphenomenon is mostly valid when the customer is satisfied. The more satisfyingthe experience, the higher the level of positive WOM and ultimately, higherfinancial outcomes (Ranaweera & Prabhu, 2003). After showingall the features on the new iPhone, the friends all decide to also buy a newiPhone. This is exactly what not only Apple wants to achieve, everyorganization tries to achieve 100 per cent customer satisfaction. In fact, thisis not the case.
On december 12th 2017 the American CustomerSatisfaction Index states that the overal satisfaction is 77 per cent.Nevertheless, when taking into account that the overall satisfaction in thesecond quarter of 2002 was 73 per cent it is most likely that organizations areconstantly trying to improve customer satisfaction. With this knowledge, it isalso most lok that customer satisfaction is the most important factor of havingpositive WOM and therefore having higher financial outcomes. 2.4.
3Complaining behaviourComplaining behaviour ornegative WOM communication is the exact opposite of positive WOM communication.With instead of promoting a product or service, now it consists of negativeresponses. Negative WOM consists of three dimensions: Voice responses (wantingredress from seller), private responses (towards friends and family) andthird-party responses (legal action) (Singh, 1988).
This paragraphwill be talking about private responses and third-party responses, since theseaffect profit more then voice responses do. Private responses are customersspeaking out their negativity towards the organization mostly aimed towardsfriends, family and other customers. This occurs mostly when the customersexperiences a lack of satisfaction and develops a negative attitude towards theorganization (Singh, 1988; Zeithaml e.a., 1996). Third-partyresponses are contacting a third-party organization and utilizing thisorganization to take action towards the organization where a negativeexperience had taken place. This too occurs mostly when the customersexperiences a lack of satisfaction.
The main difference between privateresponses and third-party responses are the costs. Private responses do nothave the possibility to impact he organizations’ profit severely. Neverthelessif the customer does not get any satisfaction out of the private response andthese turn into third-party response, it has the possibility to impact theorganizations’ profit severely. Day and Landon (1977)classified Concumer Complaint Behaviour (CCB) (see figure 1) and distinguishedthe first level between action and no action. The second level distinguishespublic and private action.
Whereas private action should be seen as privateresponses and public action should be seen as voice responses and third-partyresponses. Day and Landon justify public and private action by recognizing thedifference between the nature or importance of the product where the customerexperienced dissatisfaction. That is for expensive and difficult products (e.
g.rare cars or solar panels). Customers experiencing dissatisfaction with these productsare more likely to engage in public action and especially third-party response.In addition to these situations “the chances that the customer will do nothingat all or take only private action are lower but still appear to besubstantial” (Day & Landon jr., 1977, p. 432).
Thus, byconstantly lowering dissatisfaction, the chances that customers will takepublic or private action will also regress. This is likely to positively affectprofitability.