Invited for presentation at Kellog's School of Management at Northwestern University during the 2014 Theory and Practice Conference.

1. THEORYANDPRACTICE
The Good, The Bad
And The Ugly Truth
How Corporate Social Responsibility (CSR)
Violations Affect Marketing Effectiveness
Michael Riechert1, Raoul V. Kübler2, and Sönke
Albers1
1Kühne Logistics University, Hamburg
2Ozyegin University, Istanbul

2. The Problem: CSR Violations may not only
affect sales and not only the violator!
Information Asymmetry between
management and consumers
• Business-logic decisions can be
perceived as a violation against
ethical values (see Nokia/Siemens
Iran Scandal).
• In contrast to product harm crisis
company perceived to act
intentionally!
• Provoke strong negative reactions
such as BUYcots (Klein et al. 2004)
and lead to drop in sales and image
To RECOVER from crisis managers
usually use marketing tools
HOWEVER unclear whether these
campaigns are really fruitful!
Several examples (Nestlé, Nokia) show
that after crisis campaigns likely to fail.
This suggests that MARKETING
EFFECTIVENESS is decreased by a crisis
making it even harder to recover from it.
Key Questions
• How does a CSR violation
affect a violator’s marketing
effectiveness?
• Which factors (product
category, type of violation)
moderate impact?
• Can other market participants
profit from violation?
1

3. We measure impact of different violations on
marketing effectiveness of all marketers
• We use Discrete Choice Experiments (DCEs) to
investigate the moderating impact of CSR
violations on the effectiveness of price and
product performance.
• As a second stage moderator we investigate
effect differences between violator and non-
violator
• We further replicate our study for different
product categories (hedonic vs. functional) and
violation scenarios
Marketing Instruments Choice
CSR Violation Guilt
1
2
S1 S2 S3 S4
MP3-player
Environmental
pollution scenario
150 participants
Hard Disk Drive
Environmental
pollution scenario
150 participants
MP3 and HDD
Child Labor
scenarios
300 participants
MP3 and HDD
Environmental
pollution scenario
60 participants
BARTER MARKET
GAME
anonymity bias
personal vs. non-
personal affection
hedonic vs.
functional
Best/Worst
Scaling
Best/Worst
Scaling
Best/Worst
Scaling
2

4. 1. Measurement of preferences with Best/Worst Scaling Type 3 experiments (most suitable tool to
measure ethical values according to Auger et al. (2007)) and Barter Conjoint (to overcome
anonymity bias (Ding et al. (2009))
2. Estimation of individual preferences with hierarchical bayesian binary logit model
3. Individual preferences are transferred into elasticities to compare effects between Base Case
DCE and Violation DCE.
4. ANOVA to test effects between base case and case with violating and non violating case.
Combining within subject manipulation with
Discrete Choice Experiments (DCE)
Participants first pass a Base Case DCE with
only non-violating products to measure pre-
crisis elasticities
-5
-3,75
-2,5
-1,25
0
1,25
2,5
3,75
5
Price Performance
4,71
-4,22
Base Case Elasticities
-5
-3,75
-2,5
-1,25
0
1,25
2,5
3,75
5
Price Performance
1,96
1,07
1,83
-1,37
4,71
-4,22
AfterViolation Elasticities
BaseCase Violator
Non-Violator
To investigate
changes in
effectiveness
participants then
pass a second DCE
with violating and
non-violating
products
3

5. Consistent decrease in effectiveness for
BOTH market participants in all scenarios
S2 S3
-6
-4,5
-3
-1,5
0
1,5
3
4,5
6
Price Performance
2,92
1,95 2,33
-1,15
5,03
-4,19
HDD Environmental Pollution
BaseCase Violator
Non-Violator
-5
-3,75
-2,5
-1,25
0
1,25
2,5
3,75
5
Price Performance
0,91
0,29
0,92
-1,79
4,04
-4,74
MP3 Child Labor
BaseCase Violator
Non-Violator
-6
-4,5
-3
-1,5
0
1,5
3
4,5
6
Price Performance
2,95
1,37
2,45
-1,44
5,93
-4,5
HDD Child Labor
BaseCase Violator
Non-Violator
• Decrease of price sensitivity for violator and non-
violator consistent over product categories and
violation scenarios
• Decrease of product performance sensitivity for
both market participants consistent over product
categories and violation scenarios
• Decrease of performance elasticity slightly stronger
in case of hedonic good
S4
4

6. The ugly truth: CSR violations negatively
affect all market participants
In case of a crisis stop price promotions! They are only going to hurt profits
without bringing customers back to the shelves!
Non-Violators still benefit from enhancing product performance. But at a
much lower level!
Both marketers suffer from general suspicion
In case of a violation in the market consumers get suspicious about whole
segment and not only about the „caught“ violator. In consequence both
market participants suffer from a decrease in marketing effectiveness
Angels look after your devils!
Ethically behaving companies ADVICED to look after black sheeps in the market
to avoid CSR crisis
Low prices do not buy back consumer trust!
5