Corporate Social Responsibility Adds to Brand Value - Essay Example

? Corporate Social Responsibility adds to brand value Introduction The high increase of competition in all industries worldwide, especially duringthe last decade, has led to the following result: firms operating in different sectors have been trying to identify strategies that allow them to increase their competitiveness without setting their operations in risk. The development of brand value is one of the most common strategies for increasing organizational competitiveness. However, the success of this strategy is depended on a series of factors. The level at which the organization is committed to its corporate social responsibility (CSR) rules affects its efforts to increase its brand value. The relationship between CSR and brand value can be characterized as quite close. The specific relationship is reviewed in this paper. Particular emphasis is given on the potentials of CSR to add brand value. The literature published in regard to this subject has been reviewed. The studies reviewed indicated that CSR has a key role in adding brand value. However, the above role is not standardized in firms worldwide. Rather, it is depended on the position of each firm in the global market, the organizational structure and the local culture and ethics. Indeed, consumers worldwide are not likely to be equally affected by the performance of an organization in regard to CSR, even if the value of the organization as a business unit is highly influenced by the level at which CSR rules are incorporated in the organization’s strategies. 2. Corporate social responsibility and brand value 2.1 Corporate social responsibility – overview In order to understand the involvement of CSR in adding brand value, it is necessary to describe the context of CSR, as developed in modern organizations. In accordance with Hennigfeld et al. (2007) the corporate social responsibility can be described as an activity of ‘undertaking business in an ethical way in order to achieve sustainable development, not only in economic terms, but also in the social and environmental sphere’ (Hennigfeld et al. 2007, in Mead and Andrews 2009, p.429). In other words, corporate social responsibility, as part of organizational environment, can be characterized as a framework of rules aiming to secure that the operations of a particular firm is ethical, as referring to the labour laws, the environment and so on. The CSR framework of each organization is usually based on the local ethics, laws and culture. However, when the firm operates in the global market its CSR rules need to be also aligned with the international laws and principles governing various organizational activities. The plan of CSR within modern organizations is presented in Figure 1, Appendix. Through the specific graph it is clear that CSR defines the relationship between the organization and its stakeholders, including the customers, the government and the communities. The level at which these relationships are developed or not affects the firm’s image in the market, including its brand image. In practice, it has been proved that CSR is used as a tool for promoting brand value. At the first level, such trend can be understood since CSR affects the firm’s image in the market, including its brand image. However, the terms under which CSR can be involved in adding brand value are not quite clear. The context of the use of CSR for adding brand value is described below, referring to the practical implications of the relationship between CSR and brand image. 2.2 How corporate social responsibility adds brand value Branding is closely related to CSR. Their relationship can be described as follows: firms that have been found to violate the law in regard to labour relations or the environment are not likely to be welcomed by consumers in the developed countries (Visser, Matten and Tolhurst 2010). The activities of the above firms in the developing countries would be also negatively affected. Indeed, producers in these countries would not trust such organizations and would prefer to cooperate with firms that respect the CSR rules (Visser, Matten and Tolhurst 2010). It is implied that the brand value of organizations that violate continuously the principles of CSR is likely to be low. In this context, firms that would be interested in increasing their brand value should primarily review their performance in regard to the application of CSR rules. On the other hand, Jonker and de Witte (2006) note that the interest of firms in promoting CSR is developed under the pressure of the following need: firms that try to develop their brand image have to employ strategies in which CSR rules are, necessarily, incorporated. This means, that sustainability, as also other CSR rules, become a strategic priority since there is no other choice for organizations in order to develop their brand value. In accordance with Jonker and de Witte (2006) the promotion of CSR rules for supporting brand value can have two, different, motives: it can be based on ‘the demand of shareholders’ (Jonker and de Witte 2006, p. 140), i.e. as a tool for ‘avoiding major risks’ (Jonker and de Witte 2006, p.140); the above motive is characterized as defensive. The second motive used for promoting CSR rules within organizations is characterized as offensive and focuses on the promotion of the organization’s identity (Jonker and de Witte 2006, p.140). Either of the above motives can lead to the increase of brand value; it is not the motive that defines the role of CSR but the effects of CSR rules on organization’s performance. In accordance with Kim, Kang and Mattila (2012) the risks in using CSR for increasing brand value can be effectively controlled by employing advertising strategies that are aligned with the market trends while they also help to improve the market image of the organization. In the empirical research developed by Kim, Kang and Mattila (2012) was proved that the effects of CSR on brand image is differentiated in accordance with the type of hope promoted through the advertisements that the particular organization has chosen. On the other hand, Brunk (2010) notes that the role of CSR in influencing the brand image cannot be standardized since the ethical perceptions held in each market are different. Thus the level at which consumers in each market will be influenced by a firm’s CSR practices cannot be precisely estimated in advance. However, Werther and Chandler (2005) note that certain ‘corporate actions can violate, even destroy, brand image’ (Werther and Chandler 2005, p.317). The above problem seems to be more common in firms operating in the international market. The relationship between the CSR and brand image cannot be denied. The specific relationship is verified not only in the practical implications of CSR for brand value but also in the theories and models that have been developed in regard to this field. For example, the Total Integrated Market theory is based on the view that ‘the entire value chain of the company must be integrated with the core brand strategy’ (Hulbert et al. 2003, in Franze and Moriaty 2008, p.515). Also, the brand-positioning grid (Figure 2, Appendix) indicates the potential role of CSR in adding brand value. Firms with a popular brand image are more likely to be preferred by consumers being considered as appropriate sources of inspiration. The brand-positioning grid (Figure 2, Appendix) shows the terms under which the CSR framework of an organization has to be developed; the specific graph makes clear the continuous dependency of brand value on CSR. In accordance with Maneet and Sudhir (2011) the influence of CSR on brand image is differentiated in accordance with the firm’s position in the market. More specifically, CSR is more likely to add to brand value when a firm is already known in its market (Maneet and Sudhir 2011, p.682); otherwise, the benefits of CSR on brand value would be limited. It should be noted that CSR is not the only factor influencing brand value. The experiences of customers on other, similar products are also likely to influence their preferences in regard to a particular brand (Figure 3, Appendix). However, the importance of CSR in adding brand value could be also verified even through the above fact: customers who are dissatisfied by a particular product would choose the product of a firm that has a popular brand image, as supported by its CSR practices. The role of CSR in developing brand value is made clear in the case of EMC, a ‘B2B technology company based in Massachusetts’ (Davis 2009, p.107). The firm operates in the global market and is characterized by a continuous growth. In 2008, the firm increased its performance by 17%, despite the severe turbulences caused by the global crisis (Davis 2009, p.107). In the past the firm ‘was used as a storage company’ (Davis 2009, p.107). However, through the years the firm tried to change its brand image, incorporating ‘information’ activities (Davis 2009). The development of the firm’s ‘information infrastructure category’ (Davis 2009, p.108) was based on a series of tools, including CSR. For many years, the firm ‘has been committed in a variety of philanthropic initiatives’ (Davis 2009, p.110), funding projects for the support of unprivileged people in developing countries, such as Cambodia (Davis 2009). These initiatives have shaped the firm’s image in the market and are expected to highly promote its efforts for expanding, also, its brand image. Another critical example for understanding the relationship between the CSR and the brand value is the case of Starbucks. For many years, the organization has been quite popular for the quality and the range of its products. The firm has managed to develop an ‘ethical profile’ (Mead and Andrews 2009, p.428), which has highly benefited the firm’s brand image. In 2005 the government of Ethiopia, the country that supplies coffee to Starbucks, decided that the country’s production in coffee should be promoted to the global market. This fact led to the increase of the product’s price, since Ethiopian coffee became a well-known brand; however, the above initiative harmed Starbuck’s image in the market. By becoming aware of the conditions under which Ethiopia coffee is produced, people worldwide started to perceive the practices of Starbucks as unethical. The strategy of the organization to emphasize on its CSR practices, meaning especially its efforts to support local communities has harmed its brand value in the global market (Mead and Andrews 2009). At the next level, by ‘compromising its brand values, the firm has lost its identity’ (Mead and Andrews 2009, p.429). In the study of Mallin (2010) reference is made to the extensive use of CSR by Korean firms in order to improve their brand image (Mallin 2010, p.130). 3.Conclusion The ability of organizations to promote CSR is not standardized. However, CSR is a necessary part of organizational activities, meaning that CSR rules need to be incorporated in each firm’s daily policies, especially if the firm aims to keep its competitiveness towards its rivals. The role of CSR in supporting organizational growth is made clear in the case of brand value. The research developed in the particular field, as presented above, proves that corporate social responsibility can highly affect the brand value. The rules on which the use of CSR for adding brand value is based are differentiated in each organization. Also, under certain terms, CSR can harm the brand image, decreasing the brand value, as in the case of Starbucks presented earlier. This means that the relationship between CSR and brand value has both positive and negative aspects. For this reason, the use of CSR for improving brand image, i.e. for increasing brand value, needs to be carefully planned and monitored. Failures in promoting CSR could lead to severe damages on brand image, even if there are brands that have been benefited by similar practices. The use of theories and models that have been widely tested in the empirical research, such as the corporate social responsibility positioning grid (Figure 2, Appendix) could reduce the chances for failures when using CSR for increasing brand value. References Brunk, K. (2010) Exploring origins of ethical company/brand perceptions — A consumer perspective of corporate ethics. Journal of Business Research, Vol. 63, Issue 3, pp. 255-262 Davis, J. (2009) Competitive Success, How Branding Adds Value. Hoboken: John Wiley and Sons. Franze, G., and Moriaty, S. (2008) The Science and Art of Branding. New York: M.E. Sharpe. Jonker, J., and de Witte, M. (2006) Management models for corporate social responsibility. New York: Springer. Kim, E., Kang, J., and Mattila, A. (2012) The impact of prevention versus promotion hope on CSR activities. International Journal of Hospitality Management, Vol. 31, Issue 1, pp. 43-51 Mallin, C. (2010) Corporate social responsibility: a case study approach. Cheltenham: Edward Elgar Publishing. Maneet, K., and Sudhir, A. (2011) Corporate Social Responsibility – a tool to create a positive brand image. Proceedings of ASBBS, Vol.18, No 1, pp.681-688 Mark-Herbert, C., and von Schantz, C. (2007) Communicating Corporate Social Responsibility – Brand management. Electronic Journal of Business Ethics and Organization Studies, Vol 12, No. 2, pp.4-11 Mead, R., and Andrews, T. (2009) International Management. Hoboken: John Wiley and Sons. Visser, W., Matten, D., and Tolhurst, N. (2010) The A to Z of Corporate Social Responsibility. Hoboken: John Wiley and Sons. Werther, W., and Chandler, D. (2005) Strategic corporate social responsibility as global brand insurance. Business Horizons, Vol. 48, Issue 4, pp. 317-324 Appendix Figure 1 – Corporate Social Responsibility, elements (Source: http://www.industryplayer.com/corporate_social_responsibility.php) Added associations or beliefs Identity based (what do we offer) Inspiration/ vision Emotional values/ Lifestyle Market based (what’s in it for me) Attributes Benefits Intrinsic elements Figure 2 – The CSR Brand Positioning Grid (As in: Jonker and de Witte 2006 p.141) Figure 3 – Elements of brand value (Source: Mark-Herbert, 2004, 6, as in Mark-Herbert and von Schantz 2007, p.7). Read More