The Distribution of Bread in the Village, Frans van Leemputten, 1892 (Source: Wikimedia Commons)
Ideas for Leaders #346

Do CSR Initiatives Enhance Customer Loyalty?

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Key Concept

Are customers more loyal to retailers who engage in corporate social responsibility (CSR) activities? In general, CSR is going to earn customer loyalty, although a closer look reveals that the type of CSR makes a difference. CSR related to the customer experience — involving employees and products — inspires the most loyalty, followed by community support activities. Environmental projects generate less enthusiasm from customers, and with some customers actually have a negative effect.

Idea Summary

While research shows that people generally view CSR activities favourably, the question remains whether that positive attitude changes consumer behaviour. To answer this question, a team of professors from Dartmouth’s Tuck School of Business focused on one specific industry — grocery retailing — and also divided the types of corporate social responsibility in their study to generate more specific results for specific CSR activities: environmental friendliness, community support, selling local products, and treating employees fairly.

To measure behavioural loyalty in response to attitudes about CSR, the team correlated share of wallet (SOW) figures with survey responses about CSR.. The analysis was based on two sources: the shopping data of a major grocery retailers's 16,000 active loyalty members, and survey responses from nearly 2,000 of these loyalty members.

The survey asked respondents how much they had spent with the retailer in the past six months, and how much they had spent during the same period with seven competing retailers. It then asked respondents for their perceptions about the ‘focal retailer’ on key attributes such as product quality, price, in-store service, as well as the CSR activities, dividing these activities based on the four types of initiatives described above. It asked the same question about the respondents’ second choice (out of the seven competitors offered).

Conclusions drawn from the survey results and the shopping data include the following:

  1. In general, CSR activities indirectly improved SOW because such activities improved consumer attitudes toward the retailer. However, the total positive impact of CSR on SOW was somewhat reduced because some customers reacted negatively to specific aspects of CSR.
  2. The total effect varied based on CSR activities and four customer segments. For the CSR activities, selling local products was the most popular, followed by employee fairness and community support.  Environmental friendliness received mixed reaction, and was even a negative for one customer segment.
  3. Looking at the customer segments, for the largest segment (50%), employee fairness generated the greatest increase in share of wallet, with selling local products next, while environmental friendliness decreased share of wallet significantly. The impact was substantial: a one-unit improvement in perception meant an increase in SOW of 1.8 points for employee fairness and 1.5 points for local products. Share of wallet took a hit of 1.9 points in response to environmentally friendly activities. For two other customer segments, totaling 25% of the sample, selling local products improved SOW more substantially and both environmental friendliness and community support also led to significant hikes in SOW. For a fourth and final customer segment, also representing 25% of the sample, CSR activities had no impact on their share of wallet.
  4. The customer segments were differentiated by: education, age, and income; attitudes towards the store; and the belief that CSR limited a store’s ability to serve customers effectively. The most negative of the customer segments — the large segment that reduced their SOW because of the retailer’s CSR activities in community support and environmental friendliness — was more price sensitive, placed greater value on location and assortment, didn’t appreciate signs of exclusivity such as unique items or wealthy shoppers; and had a smaller weekly grocery budget than average. Finally, this segment believed CSR activities took the focus of the store away from serving customers.

Business Application

The research offers specific lessons for retailers engaged in CSR:

  1. Pay attention to customer perceptions of your CSR. Given the size of the market — U.S. supermarket sales of $550 billion per year, with average store sales more than $25 million — the one- or two-point impact on sales revealed in the research translates into significant amounts.
  2. Prioritize CSR initiatives that involve the customer experience. Not all CSR initiatives are equally important or meaningful. Looking at the broad strokes, any CSR will help customer perceptions of your store or chain. However, the most popular CSR initiatives for your customers across the board will be those tied to the customer’s experience with the firm — which means CSR that supports your front-line employees and your products. For example, before saving the whales, focus on employee wellness initiatives or sourcing local products.
  3. Target your CSR communications to customer segments. All customers should receive email or other communication describing the retailer’s efforts in buying local products or other types of CSR that directly enhances customer experience. More care should be taken in communicating the less universally popular environmental initiatives. Green customers may in fact be some of your most loyal customers, representing high lifetime customer value. Thus, your loyalty programs may offer one communication outlet. Since higher-income customers are more likely to be green, communication targeted to certain zip codes can also be effective.
  4. Emphasize the customer experience benefit as well as the ’greater good‘ of your CSR efforts. As noted, some customers believe that CSR initiatives detract from the retailer’s mission of serving customers. So, if your green initiatives reduce costs, emphasize that these cost-savings allow you to reduce costs or invest in products and services that your customers value. Another approach is to tie customer participation in CSR to direct savings. British retailer Tesco awards loyalty points to customers who use reusable bags.
  5. Don’t expect customers to pay more for CSR. Related to the above point that customers prefer CSR that helps them, retailers who think they can charge more for CSR should be careful. It’s true that the greenest customers tend to be less price-sensitive, but they don’t represent the largest customer segment, which, in contrast, is very price-sensitive. Already suspicious about CSR, especially environmentally oriented CSR, they will respond even more negatively if CSR carries a price.
  6. Recognize the difference between the cost and the value of CSR. The least costly initiatives can be the most effective. For example, it can be less costly to the retailer to buy locally, through savings on shipping and spoilage, and yet sourcing local products is one of the more popular CSR initiatives.

In conclusion, communicating your corporate social responsibility initiatives will improve customer attitudes toward your business. However, evaluating the response to your CSR based on customer behaviour as well as attitude reveals a more complex, but overall still positive, picture. 

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Authors

Institutions

Source

Idea conceived

  • December 2013

Idea posted

  • March 2014

DOI number

10.13007/346

Subject

Real Time Analytics