Investing in Corporate Social Responsibility to Enhance Customer Value

Editor’s Note: The following post comes to us from the Conference Board Governance Center. and is based on a Conference Board report by John Peloza and Jingzhi Shang .

Corporate social responsibility (CSR) activities have the potential to create several distinct forms of value for customers. It is the customer perception of this value that mediates the relationship between CSR activities and subsequent financial performance. By categorizing major CSR activities and the different types of value each can create, this report offers a number of practical recommendations to business leaders embarking in CSR programs for their companies.

Investments in CSR activities are under scrutiny. Boards and shareholders are increasingly demanding that outcomes from these investments be measured to understand if and how they positively impact the profitability of the firm. Not surprisingly, a significant amount of research has been undertaken to understand the relationship between CSR and profitability.

Due to the importance of customers among business stakeholders, marketing research that examines the effects of CSR on profitability is particularly informative. In particular, this research shows that CSR leads to outcomes such as increased customer loyalty, willingness to pay premium prices, and lower reputational risks in times of crisis. [1,2,3] Each of these marketing outcomes in turn has the potential to support increased profitability.

However, the research findings in question are often equivocal and offer business leaders limited guidance when it comes to choosing and implementing specific CSR activities. In fact:

• 1. the relationship between CSR activities and financial performance is typically affected by many other mediating variables, which are not always thoroughly considered by researchers; and
• 2. the metrics used to define CSR vary widely among researchers.

To understand how CSR can impact profitability, this report focuses on customer value as a variable linking CSR activities and firm financial performance. This report argues that CSR activities have the potential to create several distinct forms of value for customers. It is the customer perception of (and subsequent response to) this value that mediates the relationship between CSR activities, positive marketing outcomes, and subsequent financial performance. By categorizing major CSR activities and the different types of stakeholder value each can create, this report provides guidance for business leaders embarking in CSR programs for their companies. For this reason, a section of the report is dedicated to a number of practical recommendations to board members and senior executives.

CSR Activities and Customer Value

Corporate social responsibility has been defined as “a business organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s social relationships.” [4] It consists of specific firm investments called “activities.” [5] Collectively, over time, these activities can lead to a reputation for social responsibility— a valuable business asset of its own.

Table 1: Categorization of CSR Activities