One of the big questions in sustainable business is whether doing good can actually pay. This is often really tricky to establish. In an ideal world, we can run an experiment where we randomly assign some companies to do bad stuff and other identical companies to do good stuff and see what happens. Obviously, we can’t do that for a number of reasons. Not least because it is hard enough to get one company to listen to academics never mind enough to get a sample of significant size. Still, there are ways we can make partial steps towards understanding. For instance, one way better business can pay off is if customers value it. Do customers make an effort to buy from companies who they perceive as doing well by the world? Does doing good generate loyalty? If it does, then this can help justify the business case for sustainable business.
Survey Research
One of the challenges with understanding consumer behavior is getting good data. In marketing those scholars who call themselves consumer behavior researchers have, in recent generations, mostly focused on lab experiments. These give great control, you can carefully test something, but it risks divorce from what happens in the marketplace, i.e., how consumers actually behave. Given this I welcome recent moves to bring in more data sources from outside the lab.
Marketing strategy researchers moved to using more secondary data (which is data collected for a different purpose). Unfortunately, this often requires heroic assumptions about what the data represents. Basically, the data doesn’t cover exactly what you want it to so you often have to pretend that it does. This has obvious issues.
A third form of research, surveys of consumers and managers, got a battering in recent generations as scholars, correctly, noted problems. For example, people tend to ascribe unconnected good characteristics to things that already have good characteristics, known as halo effects. BTW the secret of my success is that people think I’m clever because I’m good-looking.
I agree that surveys have problems, but so does everything. At least surveys, as used in the paper that I am discussing today, can focus on topics that you actually want to address and ask people whose opinions about things that you actually care about. You can, as the authors do, take steps to assure yourself the problems of the survey aren’t too bad. When this is done, you get a paper that tackles an important topic, gives some insight into customer behavior, and is meaningful.
Does Doing Good Generate Loyalty?
To take a step towards assessing whether sustainable business can make money the authors ask: does doing good generate loyalty? They define good business based upon 4 CSR dimensions:
- environmental friendliness
- community support
- selling locally produced products
- and treating employees fairly
To measure loyalty the authors use share of wallet [SOW] — i.e., how much of a customer’s spend did they make with the retailer. We want to see a link between customers perceiving the retailer as doing more good and the retailer having a higher share of wallet. With a survey, it is pretty much impossible to show causation, i.e., to prove that is was perceptions of CSR which drove the customer to devote more of their spend to a retailer. That said, it is a good sign if you see higher perceived CSR being associated with higher share of wallet.
The authors examine two ways that this could happen. Firstly, the perceived good activities could lead to a more favorable attitude towards the retailer which in turn leads to higher share of wallet. Secondly, the perceived good activities could lead to higher share of wallet directly — the customer might not think about it much and so doesn’t form a positive attitude they can articulate, but still just find themselves drawn to a retailer that is doing good.
The paper should mostly a positive outcome for companies perceived as doing good.
The effects on attitudes are generally positive and attitudes enhance SOW. However, some of the direct effects are negative reducing the total effect on SOW…
Ailawadi, Neslin, Luan, and Taylor, 2024, page 165
Not All Customers Are The Same
A key contribution that the authors make is to segment the customer base. This makes sense as not all customers react in the same way.
The positive effect is especially strong for 25% of our sample. For 52% of the consumers, CSR related to the consumer’s experience in the store – local products and employee fairness – has a significant positive effect, but broader societal good related CSR, particularly environmental friendliness, detracts from SOW. There is a third group – 23% of consumers – for whom CSR is a non-factor.
Ailawadi, Neslin, Luan, and Taylor, 2024, page 164
What To Do?
… not all CSR initiatives are equally important or meaningful. The best CSR initiatives are closely integrated into the company’s core customer offering.
Ailawadi, Neslin, Luan, and Taylor, 2024, page 165
Given that not all consumers react the same way, and not all positive activities gain the same benefit, the lesson is that companies should work on uncovering the best way for them to make the world a better place.
Read: Kusum Ailawadi, Scott Neslin, Y. Jackie Luan, & Gail Taylor (2014) Does retailer CSR enhance behavioral loyalty? A case for benefit segmentation. International Journal of Research in Marketing 31, 156–167.
