We’ve heard the advice before: If you want to reach the younger generation of consumers, make sure you’ve got a story to tell about the good you’re doing in the world.

Corporate social responsibility (known as CSR) has become an integral part of a digital marketing plan.

But have we been doing it wrong all this time?

Dionne Nickerson is an Assistant Professor of Marketing at the Kelly School of Business at Indiana University. This past summer, she co-authored a research paper that is one of the first to study the effect of CSR on brand sales, and our podcast host Tod Maffin sat down with her.

Table of Contents

• The Connection to Sales
• Split-Testing The Three Types of CSR
• Is It Wise to Alert Customers to a Problem?
• Which Type of CSR Hurts Sales?
• Small Businesses Should Look Down Their Supply Line
• Study Methodology
• Can “Good Brands” Improve Their Existing CSR Efforts?
• Why Does Marketing Science Lag Behind The Field

The Connection to Sales

Tod Maffin: I was surprised to learn that this was one of the first studies on CSR to try to find a link to actual sales. Were you surprised?

Dionne: My co-authors and I were surprised. What we found was that a lot of people had done laboratory experiments and looked at purchase intentions. There’s been a couple of papers here and there that have looked at sales, but not exactly in the same way. Most of the papers that use real world data, actually look at stock price or the market valuation of the entire company and not really consumer sales.

Tod Maffin: Right. Interesting. All right. Let’s talk about the different types of corporate social responsibility. You and your colleagues identified three primary types.

Dionne: Yes. We identified corrective, compensating, and cultivating CSR.

Split-Testing The Three Types of CSR

Basically, the premise is that, corrective looks at a brand works towards addressing its own harm to society or the environment, like negative externalities, by changing its business practices, correcting for what it’s done. Compensating on the other hand, also addresses environmental or societal harm, but in this case it does not relate to changes in business practices. Then cultivating is what we typically think of as corporate social responsibility in terms of corporate philanthropy, donating time, resources, addressing various issues in society, but not related to the company’s own harm.

Tod Maffin: It was interesting to read in the paper that one of the examples you gave was Coca-Cola, that they actually test it like a marketing split test, a number of different CSR initiatives to see which one got a better consumer reaction.

Dionne: Yes. They engaged in a number of different corporate social responsibility initiatives. Of course, a large company like Coke, and this was more of like focus groups. They would tell them about different initiatives they were interested in pursuing. If you check out their CSR report, you see that they have focused a large number of resources on environmentally friendly packaging, their bottles, and then water conservation.

Is It Wise to Alert Customers to a Problem?

Tod Maffin: I want to get to the effects of all three of those in a second. Do you think there’s any risk to a brand doing the corrective action, which was one of the three that you mentioned, the more direct, fixing the things that we do wrong in the world. Do you think there’s a risk to the brand doing that corrective version of CSR in that they might alert consumers to those big impact problems? Consumers who may not have even known that that was an impact, is that a risk to the brand? That’s a big deal?

Dionne: I’d answer that in two ways. One, I would say you could look at it as a risk, but there’s also a risk for not doing it. If consumers find out down the road that you have some sort of issue that you’ve never addressed, then that can have a serious impact, not only from consumer standpoint but from stock price as well. Then secondly, we actually did some lab testing to look at, whether or not consumers were well aware of these issues or not. What we found out is that, when they weren’t aware of it, basically they treated a company like a company that had a higher CSR reputation.

That is to say, in general, if they hadn’t heard anything, they’re going to react like you’re a brand that’s doing the right thing. They don’t automatically assume that companies are doing the wrong thing. By making it salient, it’s just like if a company that was already doing the right thing did a corrective action.

Which Type of CSR Hurts Sales?

Tod Maffin: Did any of those three types, corrective, compensating and cultivating goodwill, did any of those actually hurt sales?

Dionne: Yes. We found in our analysis of real world brand sales and in the lab studies, that Cultivating CSR actually hurts purchase intentions and results in a slight drop, about 3.5% drop in sales when they’re doing Cultivating CSR.

Tod Maffin: If a brand has like nothing to do with, I don’t know, the homeless, but they’re donating money to the homeless instead of working on corrective or compensating, that impacts sales negatively. Why do you think that is?

Dionne: Exactly. So one of the things we tested in the lab was sincerity. The sincerity of the brand’s initiative, and so that came out. Consumers tend to think that corrective and compensating CSR actions are quite sincere, with corrective being the most sincere, and cultivating is seen as relatively insincere. The intuition there is that, it’s a distraction taking away resources. You’re investing this money into- if you’re Starbucks, they had a Race Together campaign some years back 2015 or so, they got a lot of backlash for that.

You’re investing in this initiative that doesn’t help an issue that you already may have a problem with health, or even to invest it- you’re not even invested in improving your product. It’s just going towards something that is seen as trying to cultivate the goodwill of consumers as opposed to working on your product or any issue that you might have.

Small Businesses Should Look Down Their Supply Line

Tod Maffin: I’m thinking about a brand that might, or a small business even, that might not have any direct negative social or environment impact that corrective action might be taken. Like a small business owner who sells jewelry online, for instance. Should they still stay away from cultivating goodwill, or should they look deeper to find something in their supply chain? Like maybe the impact of diamond mining or something and use a corrective or compensating model on that?

Dionne: There’s a recent report, Carbon Majors report. I think I was looking at the one from 2017 or 2018 that said, 100 companies are responsible for about 70% of greenhouse gases. That means that– and even our study, we study larger brands from larger corporations. Most of the onus when it comes to corporate social responsibility, should be on larger companies because they have the outsized impact on society and environment. When it comes to a smaller organization, I think that, as I said before, you should be aware as a company, even a small company, of any issues in your supply chain or things of that nature, because it could come back to bite you later on.

When it comes to corrective, maybe there are some things that are a lot more difficult for a smaller business to correct, but when it comes to how they treat their employees, that’s something that is very much within their purview to do. I would say maybe you can focus on cutting down your own waste, your use of energy, your relation to employees. There are ways of engaging in corrective CSR for a small business that are feasible. Your relationship to the community that you’re operating in. So things of that nature.

Study Methodology

Tod Maffin: What was your methodology here to find that correlation to brand sale? I understand part of it involved studying news releases.

Dionne: Yes. We actually looked at 80 different CSR press releases for consumer packaged food brands, and then we collected weekly sales data for one year before the announcement and one year after for the brand in question, and a set of competitor brands. On average we had about five competitor brands. From there we collected data on the brand CSR reputation. We actually devised an index where we recorded the number of instances where the brand for the year prior to the CSR announcement, for the brand in each of its competitors. If it announces its CSR annual report, any sustainability awards, a new sustainability website, all of those things to get an idea of their reputation.

We also looked at whether or not the CSR announcement was related to the environment or to social issues. Then finally, to rule out other reasons that the brand sales could increase or decrease, we collected data on the brand’s product prices, the intensity of its distribution, so we looked at 48 designated market areas in the United States, advertising sales as spending. We looked at display or promotion in the stores and negative and positive press coverage.

Tod Maffin: Dionne, this is why I’m not an academic person, because I would have no patience for that. I’d get about an hour in and just be completely overwhelmed by the data. I leave it to the people who are good at it.

Dionne: Yes, there’s a lot of data collection.

Can “Good Brands” Improve Their Existing CSR Efforts?

Tod Maffin: It sounds like it. What if a brand has already got a really good reputation for Corporate Social Responsibility? How much do more CSR initiatives move the needle on sales for those types of brands? Is there any amplifying effect or their sales changes going to be more modest?

Dionne: The sales changes are going to be more modest, and we attribute that to a ceiling effect. These brands actually are already doing the right thing or moving in the right direction, and so doing more doesn’t give them as much of a sales lift. For compensating and corrective, they’re going to get a sales lift, but not as much as maybe a lower reputation brand where it’s more unexpected. It changed a lot of things and consumers are reacting more positively, but I liken it to ad sales. Everybody knows Coca-Cola, but they still spend on ad sales. It’s just expected to keep it at top of mind and with a higher reputation brand, it’s just an expectation that they’re going to be doing the right thing, and so they need to continue doing it anyway.

Tod Maffin: You mentioned earlier, in addition to the three Cs, there were also different topic focuses as well, and two kinds in that area, environmental programs and social programs. Things like employee wellness and so on. Did you find that one of those was better in terms of driving sales?

Dionne: Yes. We found that at least for corrective and even cultivating, when brands engage in environmental CSR, corrective is going to get a higher sales boost, and cultivating is going to get them out of the negative into a positive sales increase. For compensating, there’s no difference for environmental or social, both of them are positive. We attribute that to just the fact that consumers are more aware of brand’s impact on the environment. Also, when it comes to social issues, there may be groups or issues that consumers feel more or less comfortable with. You can think of breast cancer as seen as relatively acceptable to donate to, but maybe some other issues maybe are seen as more politically motivated or activists. When brands engage in that, consumers may not like that.

Tod Maffin: I see. That’s interesting because if I had my money to put down on which consumers would respond better to environmental or social, I would’ve picked social.

Dionne: Yes. I think a lot of people would have, but when you think a little deeply, and there’s a paper that some researchers came out with last year in the Journal of Marketing, that showed that activism from a corporate standpoint can hurt the brand in terms of stock price and things like that. It’s documented as well.

Tod Maffin: A lot of the reporting around this topic usually includes, as I did in fact, I mentioned that corporate social responsibility is especially important to young people. Did I get that wrong or how much more broad are these concerns than just gen Z and millennials?

Dionne: I think that in general, consumers- although in this paper, we did not look at age, but in general, this is just from my research and other readings that I’ve done, consumers are more aware of these issues. We’re just a lot more interconnected, a lot easier to share information right now, but definitely the younger generations are even more concerned about that, and you can think it makes sense. They are growing up seeing a lot of these climate disasters, and they’re going to have to live with it a lot longer than even us. I think that they expect companies to engage in some way in terms of the environment and society.

Why Does Marketing Science Lag Behind The Field

Tod Maffin: Can we talk a bit about marketing science as a whole? My wife is a Public Health Scientist. She tells me that it takes 17 years for research knowledge in health to make it to the patient’s bedside. Is that a problem in this field as well?

Dionne: I would say that– a lot of my colleagues, first of all, they do work with companies to get data and help them with some of the issues that they are facing. That’s one thing that’s just clear, but on the other hand, I would also say that I’m an academic researcher and so think about a political science professor. They’re not necessarily- every paper that they write or book they write, is going to be taken up by one of our political parties and apply. Sometimes when it comes to academia, you’re studying things over a longer-term to understand greater phenomena, and companies might not have time to wait for that. I think there are two aspects to it.

There are people who are working directly with companies and, like I have a paper where I’m interviewing chief marketing officers right now looking at brand inclusivity. There are some projects that I’m working on that are, that this one took a longer time. We had to analyze the data and so, I think it depends.

Tod Maffin: It’s interesting because I’ve always thought that there’s a gap between the academic world that’s observing these data, and then the boardrooms where those decisions are made. As you point out wisely, I guess it varies really more than anything, but the frustration, especially– I’m just thinking in terms of us researching this and trying to get access to the data. It’s in complicated language, it’s behind journals that have pay walled stuff. It’s funny that these– and I’m not trying to defend marketing science as a practice, but it’s just like, does it frustrate you? That there’s a gap often between the work that you’re doing and the knowledge that you’re sharing, and the people who are making the decisions that should be taking those things into account?

Dionne: Yes. I would say there is some frustration, but I think that one of the things, for example, journals like the Journal of Marketing, they’re trying to have a greater interface between researchers and the public, whether it be practitioners or even just consumers. There is work trying to get that interface between those groups. Then I also think that there can be a difference. I might study things and make recommendations that brands just will not do because I can take a longer-term view of things. When it comes to Corporate Social Responsibility, that’s exactly what’s needed. Whereas, at least most companies and definitely most publicly traded companies, the focus is on profits and on the very shorter term, maybe a year or so. These issues that are very serious when it comes to CSR and sustainability, take a much longer time to deal with.