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Corporate Social Responsibility: Warm Glow or Extra Charge?

Many companies engage in corporate social responsibility (CSR) to improve their image. However, a study recently published in the prestigious Journal of Marketing reveals a dark side of CSR. Lead author and ESMT lecturer Johannes Habel explains what managers need in order to realize the full potential of their CSR engagement.

Tablet and Credit Card

There is no disputing that CSR engagements such as donations and responsible practices offer many advantages. To illustrate, consider the fact that Microsoft donated more than $1 billion (!) to charitable causes in 2015. Beyond the benefits for society, companies such as Microsoft benefit from their CSR engagement themselves: Many studies show that customers feel a “warm glow” if their suppliers engage in CSR – which potentially strengthens customer loyalty and thus keeps suppliers’ cash registers ringing.

However, our new study shows that such beneficial outcomes are often not achieved. Together with my co-authors, Laura Marie Schons (Mannheim University), Sascha Alavi, and Jan Wieseke (Ruhr-University of Bochum), we analyzed data from more than 4,000 customers to understand more deeply how customers perceive suppliers that engage in CSR. Our findings should raise red flags for CSR and PR managers: Customers often believe that suppliers who engage in CSR charge unfair prices.

The reason for this suspicion is that CSR engagement often triggers uncalled-for thought processes. Customers tend to reflect on the costs of CSR engagement and ask themselves how suppliers cover these costs. An obvious answer to this question is that the suppliers factored these costs into their product prices. As a result, customers devalue these suppliers’ price fairness and become less loyal.

To prevent CSR engagement from backfiring in this way, our study provides two recommendations for managers. First, managers need to make sure that their customers believe that a supplier’s CSR engagement results from a genuine concern for society rather than from the supplier’s egoistic objective to improve its image. In this case, customers are not only far less likely to engage in any detrimental thought processes, but they are also likely to evaluate a supplier’s price fairness more positively. The reason is that, in this case, customers experience the abovementioned “warm glow,” which leads them to perceive their suppliers’ prices through rose-colored glasses.

Admittedly, convincing customers of one’s genuine concern for society may be difficult. Therefore, a second strategy to counter customers’ detrimental thought processes is to explain where the budget for the CSR engagement stems from. For example, if a supplier communicates that it finances its CSR engagement from its profits – which, interestingly, is always true – customers will be less inclined to think that the supplier marked up its prices, and thus they will not devalue the supplier’s price fairness. This communication strategy ensures that CSR engagement not only benefits society but also helps in realizing its potential for the customer–supplier relationship.

ESMT Berlin Germany