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10.13007/346

Ideas for Leaders #346

Do CSR Initiatives Enhance Customer

Loyalty?

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

Authors

Ailawadi, Kusum L.

Neslin, Scott A.

Luan, Y. Jackie

Taylor, Gail Ayala

Institutions

Tuck School of Business

Source

International Journal of Research in

Marketing

Idea conceived

December 2013

Idea posted

March 2014

DOI number

Subject

Corporate Social Responsibility

Customer Relationship Management

Marketing

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.

Further Reading

Does Retailer CSR Enhance Behavioral Loyalty? A Case for Benefit Segmentation.

Kusum L. Ailawadi, Scott A. Neslin, Y. Jackie Luan & Gail Ayala Taylor. International

Journal of Research in Marketing (Forthcoming).

When Retailers Do Good, Are Consumers More Loyal? Kirk Krikorian. Faculty Insights

(9th December 2013).

Further Relevant Resources

Scott Neslin’s profile at Tuck School of Business Dartmouth University

Kusum Ailawadi’s profile at Tuck School of Business Dartmouth University

Gail Taylor’s profile at Tuck School of Business Dartmouth University

Tuck Executive Education at Dartmouth's profile at IEDP

© Copyright IEDP Ideas for Leaders 2014

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