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Influence of corporate social responsibility on consumer behavior

Within a constantly evolving business era, firm have been investigating in different alternatives to distinguish themselves as business leaders, increase profits, and improve their overall standing in the community. These activities are undertaken for several reasons, the most important of which is sustainable development.

Sustainable development has been define as “growth that meets the needs of the present without compromising the ability of future generations to meet their needs” (Sprungli, 2005). While Reed ( 2001) define business sustainability as “ business strategies that are intended to add social and or environmental value to external stakeholders while increasing value to shareholders”. Throughout the modern business development, corporation nowadays has been devoted their understanding of business practice and the idea of businesses exist for more than profit maximization. The general business trends nowadays, involve economic and development and growth while maintaining health and functionality of ecosystem, environment and community.

The emergence principles of sustainable development have an important impact on the concept of Corporate Social Responsibility (CRS) resulting two significant contributions of sustainability concept: incorporating environmental variable as one of the main social expectations to be covered under sustainability and firm must satisfy not only the expectation of current society but also those of future generation.

Enquist et al. (2006) define Corporate Social responsibility (CSR) as “concept and strategies by which companies voluntarily integrate optional relationship with environment and societal. Between 1980s and 1990s, the stakeholder theory contributed significantly to the development of CSR. This theory proposed that a firm tied with the contracts with stakeholders: shareholders, employees, customer, supplies and local communities. Elkington (1999) proposed triple bottom line concept, suggested the CSR concept to be including the three dimensions of sustainability: social, ecological and economic.

Within the area of interest, the purpose of this research is to trace the sources contribute to sustainable by focusing on Corporate Social Responsibilities (CSR). Within an assumption that CSR of a firm involves running a business with an action – oriented managerial strategies through out business operation and make decisions includes a voluntary commitment to contribute to sustainable development gain positive attitude and behavioral attention by customers.

1.2 Statements of the Problem

Socially responsible behavior of business may include a broad array of actions in voluntary nature such as compliance with legislation, behaving ethically, supporting the work of nonprofit organizations, treating employees fairly, and also minimizing damage to the environment. As such, researchers are moving beyond just defining and identifying CSR activities, to examine the role of Corporate Social Responsibility (CSR) in a broader organizational context. Different approaches to CSR have been classified by scholars, but the three most important were recommended by Woods ( 1991) identified institutional, organizational and individual level of CSR, Carroll ( 1979, 1991, 2004) identified economic, legal and ethical responsibilities, while Freeman(1984) develop stakeholder approach of CSR.

This research will focus on the stakeholder approach as recommended by Freeman (1984) but emphasize on Corporate Environment Responsibility (CER) as only on environmental aspect of CSR. Maignan (2001) criticizes past studies acknowledge more on typical philanthropic responsibility (corporate giving and community involvement) taken to be an expression of CSR. So this study move towards filling this gap by focusing on only Corporate Environmental Responsibility suggested by Piotr Mazukrkiewicz (2008) as “ environmental aspect of CSR is define as duty to cover the environmental implications of the company operations, products and facilities; eliminates waste emissions; minimize the efficiency and productivity of its resources, minimize practices that might adversely affect the enjoyment of the country’s resources by future generations.”

The majority of studies on CSR, corporate ethics, and social sponsorship suggested a link between social initiatives and improved financial performance (Margolis and Walsh, 2001; McGuire, Sundgren, and Schneeweis, 1998; Pava and Krause, 1996; Stanwick and Stanwick, 1998). These studies have attempted to assess what sort of company return may be expected for engaging in socially responsible business activities. These activities are then compared with measures of the corporation’s financial performance, such as profits growth, return on investment, earnings, market performance, and stock performance. Generally, what these studies have pointed out is that a company that does “good” will generally do “well” financially (Key and Pokin, 1998; Sen and Bhattachary, 2001). Harrison and Scorse (2006) have criticized past literature as having focused mainly on the “corporate side” of CSR and examining issues such as relationship between CSR and financial performance, governance and philanthropy. So, within this gap it is why this research intent to investigate the response of consumer about CSR. By assuming not only the superior financial performance, but firm can achieve the CSR advantages as reputation on the long run.

Consumer can support the profit of the firm in long run through their purchase decisions. CSR’s ability to produce positive consumer attitudes and purchase behavior has been extensively investigated, ( Auger et al.,2003, Brown and Dacin, 1977, Sen and Bhattacharya, 2001). Sen and Bhattachary (2001) reported that CSR can affect customer purchase intentions. While study from Klein and Dawar (2004) showed that CSR associations have a strong and direct impact on consumers’ attributions, which in turn influences brand evaluations and purchase intentions However, it remains unclear how important of purchase intention is as compared with company reputation. More specifically, it is still unclear whether real consumers are aware of CSR activities when facing real purchase decisions. This research will examine in the contact of banking sector, not only because it seem to be most active sector involved in CSR in Malaysia but also relate with high –involvement purchase decision. The decision to become a customer of a bank, typically a very infrequent decision by consumer because consumer process information actively and normally consumers tend to stay loyal to the banks over long periods of time. As consequences, it can be assumed that CSR information would also be processed as part of decision making process.

Dawkins (2004) revealed that more information on company’s social and ethical behavior would influence their purchasing decision; however, companies have not strongly communicate their CSR initiative. It is also important for the consumer to be informed of which firms are and are not socially responsible and also they also want to be informed about what firms are doing in order to support firm that pursue CSR activities. However which of the most trusted media for effective CSR communication is not fully answer yet.

This study aim to gain an insight in the context of awareness among real consumer in an industry sector (banking) in which members of the firm disseminate information (CSR communication) to influence perceptions of corporate image (reputation) and consumer favor (purchase intention) pertaining Corporate Environmental Responsibility (CER) activities.

1.3 Objectives of the Study and Research Questions

This research objectives and research questions are:

Objective 1: To analyze and predict consumer reaction towards organizational reputation.

Research Question:

What is the relationship between CSR activities and consumer perceptions of organizational reputation?

Objective 2: To analyze and predict consumer reaction towards purchase intention

Research Question:

What is the relationship between CSR activities and consumer purchase intentions?

Objective 3: To explore the moderating role of media selections between CSR activities and outcome variable (reputation and purchase intentions)

Research Question:

(3) Does level of marketing communication moderate the relationship between CSR and its consequences?

1.5 Significance of Study

These research contributions are:

To extend the emerging literature on impact of Corporate Social Responsibility (CSR) on consumer behavior (Bhattacharya and Sen 2004; Mohr and Webb, 2005)

Hopefully, this research will be the first to examine the respond of Malaysian customer because prior researches have concentrated on develop countries. Besides, in the Malaysian context, research on CSR focus more on corporate disclosure on CSR ( Teoh and Thong, 1984; Andrew et al.,1989; Rashid and Ibrahim , 2002; Nik Ahmad et al.,2003, Abdul Hamid, 2004; Haniffa and Cooke, 2005; Nazli A, 2007)

The result of this research may be relevant to decision maker, nationwide, giving them criteria for the management of their corporate social initiative and characteristic for the lounching of products and social attributes in segmentation.

The insights of Corporate Social Responsibility (CSR) gained from this study will be interests to practitioners and significantly useful for management to justify on CSR implementation in their organizations. Companies and their stakeholders can devote attention to enforce and further direction of their CSR practices. Government also can establish regulations or shaping supporting policies in area of sustainable development.

1.6 Scope of the Study

This study highlight on customer attitudes and behaviors toward industry – related traits, so it is covers only banking industry in Malaysia (developing country in Asia). By doing so it would ensure that companies develop the right CSR strategy and why attention of CSR is warranted and also what consumer groups are expecting. Four different categories of financial institutions representing in this study: commercial banks, co – operative banks, savings banks and public banks.

This study will investigate a detailed knowledge of banks’ CSR initiative through secondary sources before evaluating the attitude and behavior of consumer as proposed by resource matching theory ( Anand and Sternthal, 1989) because to get actual knowledge of consumer in order to evaluate the communication effort by firm.

Literature Review

Corporate Social Responsibility (CSR) Development.

Based on business sustainability literature, researchers have concentrated on establishing different categories of studies that related with Corporate Social Responsibility (CSR); (1) conceptual, (2) motives-oriented, and (3) outcomes-related.

Under conceptual work, researchers justify CSR on normative ground and business case ground. The concept of company’s investment in CSR initiatives can provide return to the company, commonly reoffered to as the business case of CSR, is supported in the literature by a large evidence showing that across numerous stakeholder (investors, customers, vendors, suppliers, employees, communities, and governments reward companies that engage in CSR activity. However, there are no clear definition is given for CSR. Some researcher define CSR as companies are responsible for their impact on society (e.g., Carroll, 1999; McWilliams and Siegel, 2001); but other similar concepts include corporate social performance (CSP), which has been used to describe the financial returns an organization may see from CSR activities (Clarkson, 1995; Turban and Greening, 1997; Waddock and Graves, 1997); and corporate social orientation (CSO), which refers to how people view CSR and CSP cumulatively society” (Mohr, Webb, and Harris, 2001,).

Studies focusing on the motives (e.g., management and corporate) had generally sought to reveal the motivations and characteristics of corporate giving managers engaging in CSR (Bucholtz, Amason, and Rutherford, 1999; Fitzpatrick, 2000; Quazi, 2003; Thomas and Simerly, 1994). Results of these studies indicated generally that longer managerial experience and superior knowledge of stakeholder’s practical concerns subsequently broaden the understanding and acceptance of the wider scope of CSR.

Within the outcomes category, the study of CSR from the consumer perspective such as Brown and Dacin (1997) found that corporate associations, which include corporate ability (CA) and CSR, affected consumers product and overall corporate evaluations. Mohr et al. (2001) found that consumers desired moderate to high levels of CSR from companies. Mohr and Webb (2005) maintained that within the domains of philanthropy and the environment, CSR had a positive impact on company evaluation and purchase intentions. Furthermore, Lichtenstein, Drumwright, and Braig (2004) found that CSR initiatives may result in (1) corporate benefits, including increased actual purchase behavior and more favorable evaluations, and (2) increased benefits, in the form of consumer donations, for nonprofits involved in CSR initiatives. The benefits occur both directly and indirectly through customers’ identification with the corporation.

CSR also been shown to impact corporate image, which has been found related to perceived quality, customer satisfaction and customer loyalty (Andereassen and Lindestad, 1998). CSR also been related to the overall evaluation of service (Salmones, Crespo and Bosque,2005), enhance consumer resilience to negative information, and increase consumer willingness to talk positively about the company ( Bhattacharya and Sen, 2004).

CSR and Corporate Reputation

Strategy scholars (e.g., Baden-Fuller and Ang, 2001; Balmer and Gray, 1999; Barney, 1991, 2001; Celentani, Fudenberg, Levine, and Pesendorfer, 1996; Clark and Montgomery, 1998; Deephouse, 2000; Hall, 1992, 1993; Kotha, Rajgopal, and Rindova, 2001; Oliver C., 1997; Phelan and Lewin, 2000; Russo and Fouts, 1997; Weigelt and Camerer, 1988) have investigated reputation as a resource for the firm and, as such, something that has value and can be managed and in some way contribute to competitive advantage in the marketplace of goods and services. On the other hand CSR scholars have accepted that reputation and strategy are interconnected (Acar, Aupperle, and Lowy, 2001; Carroll, 1999, 2000; Griffin, 2000; Hess, Rogovsky, and Dunfee, 2002; McWilliams and Siegel, 2001; Mitnick, 2000; Rowley and Berman, 2000; Stanwick and Stanwick, 1998; Swanson, 1999; Wood, 1991)

Reputation is a component in improving the organization’s strategic positioning in the marketplace (Kartalia, 2000) Research has shown that a positive reputation does contribute to corporate success. Fombrum and Shanley (1990) argued that a favorable reputation may enable firms to charge premium prices, enhance their access to capital markets and attract better applicants and investors.Evidence in their study concluded that the greater a firm’s contribution to social welfare, the better its reputation and subsequent consumer patronage. Consumers’ buying decisions therefore, may increasingly be influenced by a company’s social reputation (Fitzpatrick, 2000). Vendelo (1998) believed that reputation serves as valuable input to consumer decision-making when they are unable to invest resources in obtaining detailed information about companies’ products, acting as a mechanism for assuring product/service quality, influencing customer loyalty.

Goldsmith et al. (2000) suggested that the reputation of a company may well be foremost in consumer’s minds as they process an advertisement for a firm’s products. Alternatively, a positive corporate reputation prompts consumers to believe advertising claims (Goldberg and Hartwick, 1990). Eberl and Schwaiger (2005) maintained that a firm’s reputation is based on stakeholders’ interactions and transactions with the company or on communicative surrogates for interactions and transactions (e.g., corporate branding and past financial performance). Reputation therefore serves as a risk reduction mechanism for customers, which in turn will lead to higher post-purchase or post-use satisfaction (Aaker, 1994).

CSR and Purchase Intentions

Increased sales are often seen as the ultimate effect of corporate programs which include sponsorship, promotions, advertising, and social responsibility. The basis of a purchase intention is a positive and favorable attitude toward a product. According to Fishbein’s theory of reasoned action (Fishbein and Ajzen, 1975), a consumers’ purchase intention serves as the mediator between their attitude toward a product and their actual purchasing behavior. Consumer intentions have been used to investigate numerous variables including satisfaction (LaBarbera and Mazursky, 1983; Oliva, Oliver and MacMillan, 1992; Oliver R.L., 1993), perceived value (e.g., Wood and Scheer, 1996), brand equity (e.g., Keller, 1993; Srivastava and Shocker, 1991), and sponsorship recognition (Gwinner and Swanson, 2003; Madrigal, 2001; Meenaghan, 1996, 1999).Gruber (1971) suggested that intentions provide a link between consumers’ reactions to products and their acquisition or use of the products. Thus, intention has been used in numerous studies as an alternative measure to actual purchase behavior.

Brown and Dacin (1997) found that corporate associations, which include corporate ability and corporate social responsibility, affected product evaluations through corporate evaluations. In their model, corporate social responsibility (i.e. the character of a company with regard to social issues) has a positive effect on corporate evaluation, and in turn, corporate evaluation positively effected product/brand evaluation. They concluded that when a consumer identifies a brand with a company, all the information stored in memory regarding the company may influence the evaluation of the brand due to the association between the brand and the company. Netemeyer et al. (2001) found that the organizational association of being a “goodcorporate citizen” was related to willingness to pay a price premium for a brand and brand purchase. Ricks (2005) using an experimental design noted that consumers react positively to corporate philanthropy with no alternative intentions (e.g., reactive to a negative corporate event). Bhattacharya and Sen (2003) argued that consumers who identify with companies are more likely to be loyal to those companies, promote them to others, and be resilient to negative information about them. They went on to propose that consumers were likely to identify with a company that offers them a positive and meaningful social identity.

Mohr and Webb (2005) examined the influence of corporate social responsibility and price on consumer responses. The authors created scenarios to manipulate corporate social responsibility and price across two domains (environment and philanthropy). Results from a national sample indicated that CSR in both domains had a positive impact on evaluation of the company and purchase intent. Furthermore, in the environmental domain corporate social responsibility affected purchase intent more strongly than price did. The afore cited studies suggest an overall positive attitude toward companies associating themselves with causes that benefit society, and companies using their resources to benefit society is clearly related to the concept of CSR.

Conceptual Framework and Hypotheses

Marketing Communication

External communication

Internal communication

Purchase Intention

Corporate Reputation

Corporate Social Responsibility

CORPORATE ENVIRONMENTAL RESPONSIBILITY (CER)

The conceptual model suggests that the independent variable of Corporate Social Responsibility (CSR) will impact the dependant variables of corporate reputation and purchase intentions. The dependent variable moderate by marketing communication (internal and external communication)

Corporate Environmental Responsibility ( CER) is the environmental aspect of corporate social responsibility that reflect the duty to cover the environmental implication of the firm’s operation, product, facilities, service and also minimize practices that effect community and country resources for the future generations. This study adopt different variables on CER from past literature (Jamison et al., 2005 and Mazurkiewicz, 2008)

Research Hypothesis are:

H1: CSR activities will positively affect the organization’s reputation as assessed by consumer.

There is very little dispute among consumers and corporate executives that corporate reputation, whether good or bad, is important to a company’s success. Company’s perspective, reputation is one of the most valuable intangible assets available to the company (Hall, 1992). Evidence from the reputation literature suggests that the greater a firm’s contribution to social welfare, the better its overall reputation (Fombrun and Shanley, 1990; Lewis, 2001; Rindova and Fombrun, 1999). These studies also suggested an overall positive attitude toward companies associating themselves with causes that benefit society; as such, companies using their resources to benefit society are clearly related to the concept of CSR.

H2: CSR involvement will be positively related to patronage behaviors toward sport teams.

Several studies have investigated purchase intention regarding consumer perceptions of socially conscious businesses (e.g., Brown and Dacin, 1997; Mohr and Webb, 2005; Porter and Kramer, 2002; Ricks, 2005), and found that corporate associations influenced product evaluations and overall consumer attitudes about the organization.

H3a: Marketing communication will moderate the relationship between CSR and corporate reputation.

H3b: Marketing communication will moderate the relationship between CSR and purchase intentions.

Marketing is suggested the most powerful and proper business tool to conduct the role of CSR (Maignan and Ferrell, 2004).Morsing and Schultz (2006) mention three form of communication with stakeholders: stakeholder information strategy, stakeholder response strategy and stakeholder involvement strategy. The question of how CSR is communicated is still to be explore ( Landfeldt, 2006; Maignan and Ferrell, 2004;Takala, 1996) Even businesses with clearly unsustainable business idea such as the oil and petroleum industry, make efforts in communicating awareness of sustainability issues (Doane, 2004)

RESEARCH Methodology

Today, consumers are concerned about the issues that affect them directly as well as indirectly (Maignan and Ferrell, 2004). The growing number of conscious consumers are forming social pressure groups and emerging as an influential stakeholder group. From the company’s perspective, they can be the target audience of their marketing strategy incorporating CSR initiatives as well as a pressure group.

The population of Malaysian consumers will be defined as all consumers of at least 21 years old who live in Malaysia and a consumer of a bank. This study will involve measuring respondents’ behavior in terms of their intent to purchase and corporate reputation, so this experimental investigation will involve surveying at least 600respondents.

This study is a cross-sectional research in which data gathering occurs only once. This experimental study will include a stratified random sampling design. Therefore, the internal and external validity will be expected to be high.

Primary and secondary data will be gathered. For the primary data this study collects and analyzes based on questionnaire, and also deep interview for further understanding on any subject matter. The secondary data will be collected through annual report, sustainability report and companies website.

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