The research summary is a brief overview of interesting scholarly work.
The big idea
Customers spent more to purchase products from companies that committed to corporate social responsibility than those that did not – as long as these benevolent efforts actually addressed the harms caused by the companies.
My colleagues and I followed what happened after the announcement of 80 initiatives, such as social service donations and the shift to plant-based plastics, linked to 55 brands. The companies made packaged goods, ranging from razors to ketchup.
We compared their sales with the sales of similar brands that had not announced such initiatives at the time. Our data started a year before and ended a year after this news broke. We controlled for other factors, such as pricing, advertising budgets and negative media coverage.
We then grouped these efforts into three categories.
We have used the term “corrective actions” to refer to companies that have attempted to compensate for past harmful environmental or social practices by modifying related operations, for example by reducing their carbon emissions. “Compensatory actions” involve a company giving money to compensate for the damage it has caused, but not changing its operations. And “culture actions” involve a company donating or inducing its employees to volunteer for programs that have nothing to do with its core business or past harmful practices.
Sales increased by an average of 1% over the year after the announcement of corrective actions and 3% for those of compensation. Cultivation actions unrelated to a company’s own operations had the opposite effect: sales fell an average of 3.5%.
We then conducted laboratory experiments with 507 people. They received contextual information about the brands we built that had performed remediation, compensation, or cultivation actions. We asked them to rate the likelihood of them buying these products.
We have found that consumers perceive corporate social responsibility initiatives differently depending on how sincere they perceive companies to be. Because they view cultivation efforts as less sincere, people are more likely to buy products from brands that take corrective and compensatory action.
why is it important
Perhaps that’s why Fortune 500 companies alone spend around 20 billion dollars per year on these efforts. At the same time, the consequences of many corporate activities, which can include pollution or low wages for workers in low-income countries with weak labor laws, are often forwarded to the company.
We believe our study is one of the first to cross-reference sales data with corporate social responsibility initiatives to see if these actions affect consumer behavior.
Our results suggest that when companies engage in acts of corporate social responsibility, they should choose actions related to the harms caused by their core business activities. They should also ensure that they communicate their goals and emphasize accountability, particularly with respect to environmental issues.
What is not yet known
We have focused strictly on consumers. It is also important to determine whether employees, shareholders, and the public respond differently to corporate social responsibility actions related to remediation, compensation, or culture of effort.
I’m currently conducting a related study with two other colleagues that compares how shareholders and Twitter followers respond differently to corporate social responsibility efforts. These future results could shed more light on what socially responsible acts mean for a company’s bottom line.
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