Corporate Social Responsibility Investment and Strategies

Introduction

Corporate social responsibility is defined as the regular commitment by corporations to act morally and take part in economic development while enhancing the quality of life of the employees, as well as the surrounding community and society in general. CSR occurs when businesses engage in operations that seem to present a societal agenda beyond the prevailing statutory requirements. For example, car manufacturers could produce “fuel efficient” vehicles, which extensively surpass the existing pollution standard. Likewise, financial institutions could be said to be socially responsible if they channel most of their loans to underprivileged in the society more than it is required by the regulations controlling the lending practices.

In the earlier days, CSR was viewed as a corporate charity until the early 90s. Since then, companies are now seeing CSR as a strategy for surviving the current uncertain and turbulent environment. In other words, businesses have now realized that CSR can be used to gain a competitive advantage within an industry. According to Barnett, companies are part of the society. The company’s operations affect many people, not just stakeholders. As a result, just like human beings, companies should also be responsible members of the community in which they operate. Barnett adds that the current organizations have recognized their responsibilities to society in term of CSR. These responsibilities are in four parts, namely, economic, ethical, philanthropic, and strategic. Meeting these four obligations is very critical for their sustainability.

According to Brown, Companies all over the globe spend trillions of dollars to create a favorable perception in consumers’ minds, something which results in numerous benefits, with trust and commitment, better attributes, appraisals and buying intentions being among them. What is more, favorable corporate associations can form an important protective shield towards the corporate crisis, given that they positively affect consumers’ reactions. However, most of the recent theories of corporate social responsibility state that companies engage in profit-maximizing CSR. In other words, companies are believed to be socially responsible because they expect to benefit from CSR activities. The benefits include reputation development, the capacity to charge the best prices for the products, and the use of CSR to attract top talents and minimize employee turnover rate. These benefits are supposed to compensate for the high cost associated with CSR because resources have to be apportioned to enable companies to attain CSR status.

The viewpoints of different studies on CSR are relatively varied. They include studies on voluntary work, corporate citizenship, the relations between companies and the local community, corporate philanthropy, theories of social and environmental management, and the propagation of information on CSR activities. Social responsibility has become a very important part of every organization’s existence. The strategic decisions of these organizations have a social and economic impact, which are closely interconnected. Porter and Kramer emphasize the interconnectedness between society and organizations. For this reason, the organizational strategy must take into consideration societal welfare and expectations. The management must bear in mind the positive and negative impact of the strategies used not only to the organization but also to the stakeholders and society at large.

Several studies emphasize on how CSR activities are likely to be integrated into companies’ marketing strategies. They also stress the significance of lopsided information. This paper will examine whether the models of CSR activities are in tandem with CSR strategic application. Also, the pa, per will explore the use of CSR between companies selling experience commodities and those selling credence commodities. The paper will explore recent theoretical studies on the strategic use of CSR and identify key arguments between the authors, as well as their theoretical positions.

Strategic CSR

Baron and McWilliams and Siegel were among the first authors to model how companies use CSR to maximize profit. These authors emphasized on strategic CSR. Baron defines corporate social responsibility as an individual provision of public goods. More significantly, Baron states that firms normally compete for socially responsible clients by overtly linking their sales to social contribution. For example, a company may decide to donate a portion of its pre-tax profit to social causes. Similarly, McWilliams and Siegel use a simple hypothetical model to explain how two companies dealing in the same products can use CSR as a strategic tool for marketing. One company decides to attach an extra social attribute to its merchandise. This attribute is treasured by several clients, or probably by some stakeholders. In this model, companies carry out economic analysis to establish the number of funds and expertise required for CSR activities. In simple terms, companies concurrently weigh up the demand for CSR and the resources required and then determine the best possible level of CSR be provided.

The main implication of this model from the CSR point of view is the fact that CSR activities are likely to be integrated into the firm’s marketing differentiation plans. For instance, a hybrid version of Toyota Accord emitting fewer greenhouse gases than a luxurious version may be preferred by a section of the consumers. Furthermore, some consumers may be willing to pay more for the hybrid version than the luxurious version because the social attribute of less emission is important to them. Another type of CSR is the CSR related to the production process. This type of CSR emphasizes on the level in which the company’s production techniques are socially responsible. For instance, most food companies normally label their products as either organic or inorganic to denote the use of inorganic fertilizers and pesticides.

Bagnoli and Susan expand Baron’s model by examining how to market rivalry for private goods impact CSR. The new model assumes that the consumers are sufficiently aware of the good in question and other related products. Also, consumers are willing to pay higher prices because the product in question supplies joint benefits. Last but not least, the new model uses two oligopolistic models. These models are Bertrand cost rivalry model and the Cournot model. The study found a negative correlation between CSR activities and market competition for the product in question.

Feddersen and Thomas offer further insight on the strategic impact of CSR, particularly the role of lopsided information. While several CSR characteristics are easily discernable, it is at times tricky for consumers and other stakeholders to appraise a company’s social responsibility. The level of the irregularity of information regarding the company’s operations can be arbitrated by the company itself or by campaigners. For instance, huge multinational corporations normally issue yearly reports on social responsibility. This can be considered as a form of promotion, particularly for expansive types of CSR. While such annual reports may be very important, several people view them as bias. This is because most of the information in these reports has been doctored by the top management.

Feddersen and Thomas stress that activists can play a major part in averting such information bias by providing the consumers with reliable information. The information will help consumers in choosing socially responsible companies. According to Kotler and Keller, in the current competitive market, business success not only depended on consumer behavior but also information available concerning the current and prospective markets. Companies must continuously evaluate their products, prices, distributional channels, and CSR activities of their main rivals to ascertain their strengths and weaknesses. Identification of the rivals, their moves, and trends helps in establishing suitable strategies to compete in the market. This can only be achieved when adequate information is available. Lieberman and Flint-Goor add that appropriate CSR strategy can help businesses to maximize great opportunities to enhance sales and attain sustainable competitive advantage using the available information.

Experience commodities versus Credence or credence Commodities

McWilliams and Siege advanced the proposition that companies dealing in experience commodities are likely to use CSR than those dealing in credence commodities. Experience commodities are products and services used or consumed before their real value can be established, for instance, automobiles, domestic appliances, and mutual funds. Companies dealing in experience commodities normally emphasize on high quality during their promotional activities. On the other hand, credence commodities are product and service whose real values are determined before purchase. Advertising of credence commodities focuses on availability and price. Examples of credence commodities are clothes and furniture.

The concept of experience commodities and credence commodities was founded by Philip Nelson in the early 70s. Nelson created a nomenclature of experience and credence commodities. The idea was later expanded by Lieberman and Flint-Goor in 1996. Lieberman and Flint-Goor observed that consumers of high-quality commodities are very sensitive to information. This is because while lower prices normally translate to poor quality, higher prices may not signify high quality. Since wealthy consumers are the most likely to persist on high-quality products, CSR as an indicator of merchandise quality is likely to be linked to upmarket commodities.

The critical understanding of these facts adds further insight into the two models mentioned earlier. In particular, it is very clear that consumers view CSR operations as an indicator of the characteristics of private goods sold by companies. As a result, experience commodities are more likely to be linked to CSR activities. The concept of consumer demand for CSR is pegged on the perception that consumers believe that trustworthy and candid companies would produce high-quality goods. In the view of some buyers, CSR is considered as an indication of such reliability and candidness. Therefore, CSR is part of commodity differentiation tactic used by several companies to maintain and enhance their market share.

Companies selling credence commodities, for instance, foodstuff and furniture may choose to produce organic foodstuffs and make furniture from a specific type of wood respectively. In this case, the consumers may favor the commodity basically because of the need to encourage environmental sustainability or other causes, rather than using CSR as an alternative means for reaching out to society. Therefore, the relative significance of experience commodities against credence commodities in the CSR choice is still a pragmatic subject.

Reflection on CSR models and theories

Many business models have constantly included CSR as a key ingredient in the formulation of organizational strategy. In other words, CSR has become a universal concept in business. From the above models and arguments, it is clear that corporate social strategies have four components. The first component is marketing opportunities. Companies are aware that consumers are very sensitive about their health and the environment. However, the level of awareness depends on the market and the type of goods sold. Wealthy consumers are more sensitive than underprivileged consumers. Also, consumers of high quality and expensive products tend to be more insightful. As a result, CSR is being used to keep hold of the existing market and to explore new opportunities.

The second component of corporate social strategy is corporate resources and expertise. Resources are important in finding innovative solutions to meet the expectations of the stakeholders and society in general. Furthermore, most companies aim to maximize both profit and social performance. This cannot be achieved without a substantial investment of funds and expertise. Bagnoli and Susan define strategic investment as the creation of well-being and competitive advantage.

The third component of corporate social strategy is value and aspiration. As already been mentioned, the main objective of most companies nowadays is profit maximization and social performance. For this reason, CSR is no longer a matter of philanthropy, but a means of selling product or ideas to the public. Last but not least, the fourth component of corporate social strategy is the knowledge of responsibility to society and stakeholders. Companies have now recognized that they are part and parcel of society. They also acknowledge the fact that business success not only depended on the company operations but also the corporate responsibility to society. This is because consumers have become more and more aware of their health and environment.

The type of goods or services sold by a company is a very significant determinant when deciding on the CSR strategy and investment. On the other hand, the decision to invest in CSR normally reflects the quality of the company’s product or service. Consistent with the above CSR models and theories, it is very true that companies selling experience commodities or credence services are more likely to embrace CSR, for instance, companies selling financial services, automobiles and software. On the contrary, companies selling experience goods that are not durable or experience services are more likely to be socially responsible.

Non-durable experience commodities are frequently purchased by consumers and have multiple uses. Examples of such products include foodstuff, pharmaceutical products, and cosmetic products. Experience commodities and credence commodities normally show feeble brand loyalty and an increased level of competition. In other words, consumers tend to buy these commodities over and over again to assess their value. Therefore, they can shift to other products if they are not satisfied with the quality offered.

On the contrary, long-lasting experience goods, for instance, motor vehicles, give less room for repeated learning and also need a considerably long time for the product’s features to be identified. On the other hand, experience services and search services both entail a high level of asymmetric information between companies and consumers. Also, the services tend to be diversified. Therefore, information regarding a given brand is not important when assessing competing services. Even with time, it is still difficult to determine the value and quality of service. Examples of common experience services include elderly homes and air travel, while credence services include pension funds, mechanical repairs, and health care.

In some cases, consumers do not rely on companies for product information. State bureaus, for example, consumer product safety agencies or food and drug bureaus provide vital information. Non-governmental organizations and other consumer watchdogs are also important sources of information. Nonetheless, a company’s reputation is in all probability a plus point. For that reason, investing in CSR is a way of improving companies’ asset value.

Conclusion

In the current competitive market, business success not only depended on internal operations and market coverage but also the responsibility to society. The companies’ responsibilities to the society are grouped into four parts, namely, economic, ethical, philanthropic, and strategic. Companies’ responsibility to society and other stakeholders is what is commonly known as corporate social responsibility. Meeting these obligations is essential for business success and long term survival.

However, most companies are currently using CSR as a strategic tool for marketing. They have attached an additional social attribute to their products and services. These attributes are treasured by many consumers and other stakeholders. Currently, most consumers are willing to pay premium prices for products that supply joint benefits, that is, intended benefit and social benefit. In simple terms, consumers favor certain products because of health and environmental matters. As a result, companies frequently carry out economic analysis to establish the number of funds and expertise required for CSR activities. In simple terms, companies concurrently weigh up the demand for CSR and the resources required and then determine the best possible level of CSR be provided.

Information flow plays a very important role in the use of CSR as a strategic tool for marketing. First, the information helps consumers in choosing socially responsible companies. Secondly, companies can use the available information to gain competitive advantage using CSR. That is why most companies are constantly evaluating their products, prices, distributional channels, and CSR activities of their main rivals to ascertain their strengths and weaknesses. Identification of the rivals, their moves, and trends help in the establishment of suitable strategies to compete in the market.

CSR strategy and investment are significantly influenced by the type of goods or services produced by a company. On the other hand, the decision to invest in CSR normally reflects the quality of the company’s product or service. Companies selling experience commodities or credence services are more likely to embrace CSR. This is because these services can be acquired over and over again to assess their value. Consumers can shift to other products if they are not satisfied with the quality offered.

On the contrary, long-lasting experience goods are given less room for repeated learning and also need a considerably long time for the product’s features to be identified. Last but not least, experience services and search services both entail an extreme level of non-reliable information between companies and consumers. Also, the services tend to be spread among different portfolios. Therefore, information regarding a given product is not significant when assessing competing services. Even with time, it is still difficult to determine the value and quality of service

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