When Customers See CSR as a Negative

Don’t assume that all of your customers see the benefits of your corporate social responsibility initiatives. Unfortunately some think first about the costs and assume that your prices will have been inflated to finance CSR.

Received opinion paints a unanimously positive picture of the benefits of CSR and companies from Microsoft to SMEs now embrace CSR as a core business objective.

However, a recent series of studies led by Johannes Habel at the ESMT, involving more than 4,000 customers and participants, has revealed a much more ambiguous picture and its 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, although in fact this may not be the case and funding will have been out of profits.

The way people assess fairness is influenced by how they view the CSR activities. If they are seen as intrinsically motivated – that is, doing it simply because it is the right thing to do rather than to gain some strategic or financial advantage – the more customer believe  the company has kept its prices fair.  The more customers thought of CSR as promotional – a clear example of extrinsic motivation – the more they believed that companies were covering CSR costs through unfair prices.

The type of CSR also made a difference in customer perceptions. For example, when comparing philanthropic CSR, which benefitted society at large, with internally targeted CSR initiatives for employees, customers were more likely to believe that philanthropic CSR was more costly and that companies would have to engage in unfair pricing to cover these costs.

To prevent CSR engagement from backfiring in this way, the researchers recommend two strategies. First, managers need to make sure that their customers believe CSR initiatives result from a genuine concern for society rather than just from the company’s desire 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 price fairness more positively.

As genuine concern for society may be difficult to prove, a second strategy is to clearly show sceptical customers where the budget for the CSR engagement stems from. For example, if a company communicates that it finances its CSR engagement from its profits – which, interestingly, is always true – customers will be less inclined to think that it marked up its prices, and thus they will not devalue the company’s price fairness.

The bottom line is that customers don’t automatically view CSR in a positive light. Companies must make an effort to foster the benefit perceptions of CSR and tone down the cost perceptions. Highlighting intrinsic motivation and being transparent on funding sources can make a major difference.

Access the full research paper: Warm Glow or Extra Charge? The Ambivalent Effect of Corporate Social Responsibility Activities on Customers’ Perceived Price Fairness. Johannes Habel, Laura Marie Schons, Sascha Alavi & Jan Wieseke. Journal of Marketing (January 2016)