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E The Good, The Bad And The Ugly TruthHow Corporate Social Responsibility (CSR) Violations Affect Marketing EffectivenessMichael Riechert1, Raoul V. Kübler2, and Sönke Albers1

1Kühne Logistics University, Hamburg2Ozyegin University, Istanbul

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 imageTo 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? 2

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

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S1 S2 S3 S4

MP3-playerEnvironmental pollution scenario150 participants

Hard Disk DriveEnvironmental pollution scenario150 participants

MP3 and HDDChild Labor scenarios300 participants

MP3 and HDDEnvironmental pollution scenario60 participants

BARTER MARKET GAME

anonymity biaspersonal vs. non-personal affection

hedonic vs. functional

Best/Worst Scaling

Best/Worst Scaling

Best/Worst Scaling

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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 model3. 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

To investigate changes in effectiveness participants then pass a second DCE with violating and non-violating products

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Consistent decrease in effectiveness for BOTH market

participants in all scenariosS2 S3

• 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

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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 suspicionIn 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!

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