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THEORYANDPRACTICE
The Good, The Bad
And The Ugly Truth
How Corporate Social Responsibility (CSR)
Violations Affect Marketi...
The Problem: CSR Violations may not only
affect sales and not only the violator!
Information Asymmetry between
management ...
We measure impact of different violations on
marketing effectiveness of all marketers
• We use Discrete Choice Experiments...
1. Measurement of preferences with Best/Worst Scaling Type 3 experiments (most suitable tool to
measure ethical values acc...
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
Pri...
The ugly truth: CSR violations negatively
affect all market participants
In case of a crisis stop price promotions! They a...
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Theory and Practice in Marketing "The good, the bad and the ugly truth: The impact of CSR violations on marketing effectiveness"

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

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Theory and Practice in Marketing "The good, the bad and the ugly truth: The impact of CSR violations on marketing effectiveness"

  1. 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. 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. 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. 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. 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. 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

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