The Impact Of Corporate Social Responsibility Practices On Customer Loyalty Of Haier Group In China Market
1.0 CHAPTER ONE: INTRODUCTION
1.1 Background Information
The entry into the World Trade Organisation (WTO) in 2001 opened many opportunities for Chinese companies. This entry was flagged by the 1979 government-sponsored open door policy. This policy catapulted Chinese companies to global fame in terms of their ability to export high quality products to overseas markets. One of the most notable developments since the start of the open door policy and the subsequent entry into the WTO is the expansion and diversification of the local home appliances market (Fernadez & Fernadez-Stembridge, 2006).
Broadly, the Chinese home appliances market has grown tremendously since 1979. The demand for critical home appliances such as washing machines, refrigerators, vacuum cleaners, television sets, and audio equipments has been amazing compared to the situation before 1979 (Zhang, 2011). Major manufacturers and retailers of home appliances such as Haier and Gome have shown phenomenal growth in both local and international markets (Li, 2005). This however is coming at a time when both local and international markets are beginning to slow down courtesy of the ongoing market recovery slow-down (Zhang, 2011), stiff competition among major players (Li, 2005), and the saturation of major markets due to unfavourable demographic factors such as stagnant population growth and changing social values (Zhang, 2011).
Nevertheless, home appliances continue to occupy the leading position among Chinese consumer market products. Specifically, white goods are the most popular trade goods in the country (Li, 2005). This has contributed to the maturity of the Chinese home appliances industry to the levels of most European and American standards – it has formed a robust industrial chain that consists of large manufacturing and retailing industrial outlets out to promote economic development sustainable healthy lifestyles among consumers (Zhang, 2011).
Based on recent data gathered and analysed by the National Bureau of Statistics between January and June 2009, the local home appliances manufacturing industry registered a total output of 353.4 billion Yuan, with total sales amounting to 343.65 billion Yuan (Hao, 2012). During this period, the overall washing machine production output amounted to over 20,056, 000 units (4.1 percent growth), refrigerators amounted to 30,044,000 units (9.2 percent growth), home freezer output grew to 6,332,400 units (9.6 percent growth), colour television output was 41,742,000 units (1.3 percent) mobile handsets output was 267,881,500 units (5.1 percent decrease), air-conditioning equipments amounted to 45,328, 000 units (20 percent decrease), computer machine output was 76,623,300 units (10.9 percent growth). The overall industrial output was 68.62 billion Yuan (Hao, 2012), a relatively stable growth given the prevailing economic and demographic conditions.
Analytically, the Chinese home appliance industry has shown strong momentum and stability in recent years. This strong market stability has been buoyed by the Chinese government’s strategy to pump in 4 trillion Yuan in support of locally owned industries to make them more competitive at the face of large multinational companies such as LG, Sony, and Samsung (Li, 2005). Moreover, this market momentum has been buoyed by the decision by the Chinese government to offer subsidies to local companies that engage in energy efficient manufacturing practices such as triple energy air-conditioning as well as those who venture into the global markets (Fernadez & Fernadez-Stembridge, 2006). As a matter of fact, China has encouraged its companies to venture into the international market through subsidies as well as by improving its overall international business reputation. Overall, the Chinese home appliances industry is currently in a critical phase of its growth (Zhang, 2011). The demand for home appliances in both rural and urban markets is low yet robust – the rural market has been opened up following many infrastructural developments undertaken in the marginalised regions (Li, 2005). Urban markets on the other show signs of saturation but it is still robust following the increase in urban population.
Both the local and international market for home appliances have been opened and diversified to accommodate new home appliances. For instance, between 1989 and 2000, there was a 101 times growth in the world’s possession of home refrigerators in the local market. This growth was flagged by a 78.14 percent annual growth. The world’s washing machines possession rose by 287 times buoyed by a 102.88 percent growth. From a domestic standpoint, the possession of household refrigerators increased by a 92.23 margin while that of washing machines grew at a margin of 84.82 percent (Hao, 2012). A large chunk of this growth, about 90 percent of the industry’s total sales was made up by the major home appliances such as Coloured TV, washing machine, microwaves and air conditioners.
Historically, the Chinese household appliances can be broken down into four major phases. The first phase started in 179 and ended in 1983. This phase was also known as initial development stage. The second phase was referred to as the fast-growing stage and started in 1984 and ended in 1988. The third phase was the stable adjustment stage and started in 1989 (Li, 2005). This is the ongoing phase and it is characterised by low demand and market consolidation among the leading manufacturers (Zhang, 2011). Overall, the leading manufacturers of home appliances have consolidated their market share through capitalistic synergy building strategies such as mergers and acquisitions and supply chain partnerships. Haier, for instance, has acquired many local manufacturers of home appliances and has also entered into many mergers to boost its overall market standing in the local and international markets. The company merged with Germany’s Liebherr Group in the 1980s and has since acquired local companies such as Qingdao Electroplating Company, Qingdao Air Conditioner Plant, Red Star Electric Appliance Factory, and Huangshan Electronics Group (Haier, 2012). This has catapulted it to great heights and currently the company occupies the largest market share in the domestic home appliances market.
The growth in the domestic demand for home appliances can be attributed to a robust economy and change in consumption habits. According to Kotler (2008), the development of consumer products industries in emerging markets is usually occasioned by increase in disposable income and shift from traditional ways of life to modern ways. As a matter of fact, the most important of the factors influencing the recent developments in the Chinese household appliances is the large growth in the phenomenal household income (Li, 2005). This large income growth has been as a result of various government economic and socio-cultural programmes that have increased employment and investment opportunities while decreasing inflation rates. Currently, the Chinese economy is relatively stable compared to what is happening in the international landscape.
On the other hand, the opening up of Chinese culture to accommodate western cultural values has led to change in consumption habits among Chinese households. Currently, there is more inclination to leisure spending than any other time in the history of Chinese economy. Both urban and rural households tend to spend a big chunk of their disposable income buying non-basic commodities such as television sets, smart phones, washing machines, and home freezers (Zhang, 2011). Moreover, there is demand for high-end and efficient products that can improve the quality of life experiences among Chinese households. Following this phenomenal change in economic and social fortunes, it is expected that the demand for high-end home appliances will definitely rise to cushion the high production costs incurred by large manufacturers such as Haier.
A desk survey conducted by the researcher unearths many studies addressing the relationship between CSR practices and customer loyalty. The most comprehensive and recent of these studies is done by Mandhachitara and Poolthong (2011) who divide CSR practices into four major components of community support, employee relations, product and service-oriented, and environment support. The authors then show that these practices shape customer’s attitudinal loyalty. On their part, Carroll (1991), Mohr et al. (2001), del Mar Garcia de los Salmones et al. (2005), Maignan (2001), and Matten and Crane (2005) show that CSR comprise of economic, legal, ethical, and discretionary functions. The authors argue that these practices enhance customer loyalty and firm’s profitability.
On their part, Ailawadi et al. (2011) and Luan and Ailawadi (2011) find that though not all CSR practices lead to customer loyalty, those CSR practices related to products and the employees who directly serve consumers enhances loyalty. On his part, Kotler (2008) argues that a socially responsible firm is responsive to its stakeholders and many firms today employ CSR as part of their customer retention efforts. On their part, Berens et al. (2007), Bhattacharya and Sen (2003), Folks and Kamins (1999), Lichtenstein et al. (2004), Luo and Bhattacharya (2006), and Mohr et al. (2001) reason that CSR practices have a direct influence on consumer attitudes towards a particular firm and its products.
Nevertheless, there is a shortage of empirical studies tackling the relationship between CSR and customer loyalty from a Chinese home appliances perspective in general, and from Haier standpoint in particular. Even the studies that address Haier as a leading market player in China do not factor in the relationship between CSR and customer loyalty. For instance, in his Bachelor’s thesis, Yidan (2009) finds the correct brand building strategy Haier’s globalisation pursuits. It is therefore important to study how CSR, a proven critical customer retention strategy applies in the case of Haier and how such CSR practices can be better employed by the company for better results.
1.3 Research Aim and Objectives
This study aims to investigate and report the impact of CSR practices on customer loyalty of Haier Group in China market. From this overarching aim, the study will also pursue the following objectives:
- Analyse the impact of community support on customer loyalty in Haier;
- Analyse the impact of employee support on customer loyalty in Haier;
- Analyse the impact of product and service oriented responsibility on customer loyalty in Haier;
- Analyse the impact of environment support on customer loyalty in Haier;
1.4 Structure of the Study
This study is structured into five main chapters. The first chapter offers a general overview of the Chinese home appliances industry – it presents a comprehensive account of the history and future as well as the present developments of the industry in the face of the ingoing economic and social developments such as local and global economies, changing consumer habits and strategies employed by large home appliances manufacturers such as Haier to enhance customer loyalty. The second chapter covers the dynamics of CSR as it pertains to the case of Haier. This chapter is divided into three main sections. The first section addresses customer loyalty, the second section addresses CSR, while the last section addresses the relationship between CSR practices and customer loyalty.
The third chapter covers the study methods and methodology. Here, the study philosophy, approach, strategy, sampling methods and methods of data collection and analysis are addressed. In addition, the chapter covers the ethical obligations and the limitations experienced during the course of the study. The fourth chapter is perhaps the most important because it presents in a detailed and structured manner, the findings of the study as well as the discussions underpinning such findings. Finally, the fifth chapter wraps up the study findings and offers a set of recommendations on how Haier can employ the various components of CSR to enhance customer loyalty.
2.0 CHAPTER TWO: LITERATURE REVIEW
2.1 Theoretical Review Concerning Customer Loyalty
2.1.1 Definition of Customer Loyalty
Customer loyalty involves attracting customers, encouraging them to purchase much often, making them to purchase in large quantities, and encouraging them to make successful purchase referrals (Kotler, 2008; Mandhachitara and Poolthong, 2011; Schlesinger & Heskett, 1991). Organisations build customer loyalty through keeping a good rapport with their customers through constant communication, creating a team of competent and well motivated employees (Schlesinger & Heskett, 1991), showing care and empathy towards customers by partaking of activities that add value to their lives (Luan & Ailawadi, 2011), and rewarding customers regularly for shunning competing products (Kotler, 2008; Kotler & Armstrong, 2008).
2.1.2 Dimensions of Customer Loyalty
Normally and as Mandhachitara and Poolthong (2011) find, there are three core models of customer loyalty. These three models amount to measures used by marketers in evaluating the propensity for customers to buy again and bring their friends with them when making repeat purchases. These are “attitudinal, behavioural and combinational loyalty measures” (p.122). The main contention underpinning the attitudinal, behavioural and combination models is that customer attitudes towards a product influence their purchasing behaviours (Kotler & Armstrong, 2008). The attitudinal approach contends that for customer loyalty to be sustained in the long run there must be a strong attitudinal commitment or genuine consumer intentions to purchase a specific product or service from a specific firm (Jacoby & Chestnut, 1978; Uncles & Dowling, 2003). On the other hand, behavioural approach posits that behavioural indicators such as the propensity to exclusively purchase from a certain firm as may be shaped by attitudes towards that firm is critical for the enhancement of genuine consumer loyalty (Chaudhuri & Holbrook, 2001). As the name suggests, the combinational model is derived from both attitudinal and behavioural approaches. It posits that the propensity to make a repeat purchase is determined by the expectations customers have on a certain product and the ability for them to affiliate the quality of a certain product with their expectations (Kolter & Armstrong, 2008).
Other models include the service quality model advanced by Storbacka, Strandvik and Gronroos (1994). This model posits that customer satisfaction is a function of recent experiences about a certain product or even a service – the more the recent experiences surpass customer expectations, the more the customer loyalty, the more strong the relationship, the more the customer loyalty (Dawkins & Reichheld, 1990). This is an indicator that customer loyalty can still be achieved even with low quality products especially when customer expectations are low or when the price of the product is low compared to its performance (Storbacka et al., 1994). This approach holds that the strength of business relationships is a function of customer satisfaction. Such satisfaction is built around the quality of a product, the quality of stakeholders’ relationships, and the consumer commitment towards a product (Buchanan & Gilles, 1990). Overall, so as to achieve a sustainable customer loyalty firms should ensure their products are relevant to their consumers experiences all the time, their consumers stay within their operation regions, there no suitable alternative products, and that there no unexplainable price changes.
Another popular customer loyalty model is the loyalty business model. This model can be described to be more of a strategic management strategy than a marketing one. This is because it is argues that customer loyalty is a long term strategic competitive advantage gimmick and should therefore be built around a company’s core resources, core capabilities and core competences (Mandhachitara & Poolthong, 2011). Moreover, this model argues that customer loyalty is a corporate strategy that helps organisations to achieve corporate goals (Kotler & Armstrong, 2008).
According to Figure 22.214.171.124 below, customer loyalty can be described as a multidimensional approach. It is multidimensional because it incorporates the gains made in the realms of product and service delivery, employee satisfaction and competence, customer satisfaction, product of prices, and relationship with the local communities (Schlesinger & Heskett, 1991). This model perceives customer loyalty to be a gradual process that begins from how a product or a service is presented in the market, the ability of such product to satisfy customer needs, and the ability of the customers to keep coming back for more or the product or service, and the overall impact of such repeat purchases on a firm’s profitability.
Figure 126.96.36.199 A Typical Customer Loyalty Model.
Source: Schlesinger and Heskett (1991).
However, for purposes of this dissertation, the combination loyalty measure of customer loyalty as argued by Mandhachitara and Poolthong (2011) will be employed. The decision to pursue this measure is based on the fact that it captures two main determinants of consumer decisions. Specifically and as Mandhachitara and Poolthong (2011) argue this measure captures the product quality and CSR constructs. Reliable evidence show that product quality and CSR have been noted to be major profitability constructs in a high competitive and saturated home appliances market (see for example Chaudhuri & Holbrook, 2001; Kotler, 2008; Jacoby & Chestnut, 1978; Kotler & Armstrong, 2008; Mandhachitara & Poolthong, 2011).
Moreover, behavioural and attitudinal models have weaknesses. Each of them cannot independently explain the reasons behind loyalty in an exhaustive manner. Attitudinal model for instance only shows the attitudes customer build towards a product but does not explain why such attitudes are built (Chaudhuri & Holbrook, 2001). On the other hand, behavioural approach explains why these attitudes are formed but does not explain how they are formed. A combination approach is therefore the most suitable for this study. Moreover, though each of these three models is independent, they are in most cases perceived to be interlocking. They are interlocking because they are built on each other – the combination model for instance is built on both attitudinal and behavioural models (Mandhachitara & Poolthong, 2011).
The above arguments are derived from Kotler and Armstrong’s (2008) position that customer loyalty is a critical facet of today’s marketing strategies that help firm’s to achieve long term competitive advantage. This is so since Jacoby and Chestnut (1978) posited that “the success of a brand in the long term is not based on the number of consumers that buy it once, but on the number of consumers who become regular buyers of the brand” (p.1). This is true since organisations incur more costs in obtaining one new customer than retaining an existing customer and that profitability increases with the increase in customer loyalty (Chiou & Droge, 2006).
2.1.3 Factors Influencing Customer Loyalty
The combination model of customer loyalty adopted by this study argues that customer loyalty is determined by attitudinal and behavioural factors. The behavioural measures include the propensity to make repeat purchase, the propensity to make exclusive purchase, and the propensity to spread a good word about a production among friends. On the other hand, the attitudinal indicators include the level of commitment, the intention to buy, and the intention to spread a good word about a product (Chaudhuri & Holbrook, 2001). These measures are occasioned by among other things the quality of the existing relationships between firms and their consumers, the quality of products, the prices of products, lack of suitable substitute products, proximity of products/firm to the customers, and the perceived relevance of products.
Several studies have acknowledged that customer loyalty is enhanced by the quality of a product – a high quality product will attract more repeat customers while low quality ones will not (see for example, Berens et al., 2005; Carroll, 1999; Chiou and Droge, 2006; Mandhachitara & Poolthong, 2011 and Maignan, 2001). Several studies too argue that the relationship between firms and their customers, lack of suitable substitute products, proximity of products/firm to the customers, and the perceived relevance of products are responsible for increased customer loyalty (see for example Buchanan & Gilles, 1990 and Storbacka et al., 1994). The studies posit that the propensity for customers to make repeat purchases is shaped by their expectations which in turn are advised by product-related factors.
Moreover, other studies posit that customer loyalty is shaped by the prices of products. For instance, Storbacka (1994) argues that highly priced products rarely attract repeat purchase unless they are perceived to be of excellent quality. On the other hand, it has been argued that lowly priced products tend to attract repeat customers especially when the customers perceive the quality of the products to be irrelevant to the purpose they serve (Chiou and Droge, 2006; Mandhachitara & Poolthong, 2011). This is true especially for basic commodities like food stuff among poor communities who have few choices, if any when fulfilling their daily needs.
2.2 Theoretical Review Concerning Corporate Social Responsibility
2.2.1 Definition of Corporate Social Responsibility
CSR is a self-regulating obligation fulfilled by firms to a set of legal and ethical standards informally set forth by stakeholders. According to Mandhachitara and Poolthong (2011), CSR comprises of four major components of practices which are aimed at enhancing community support, employee relations, quality of products and services, and environmental support. On their part, Carroll (1991), Mohr et al. (2001), del Mar Garcia de los Salmones et al. (2005), Maignan (2001) and Matten and Crane (2005) show that CSR comprise of economic, legal, ethical, and discretionary functions. On the other hand, Berens et al. (2007), Bhattacharya and Sen (2003), Folks and Kamins (1999), Ailawadi et al. (2011), Kotler (2008), Kotler and Armstrong (2008), Lichtenstein et al. (2004), Luan and Ailawadi (2011), Luo and Bhattacharya (2006), and Mohr et al. (2001) reason that CSR Comprise of a set of social and moral obligations to their stakeholders. Overall, these authors agree that CSR practices have a direct influence on consumer attitudes towards a particular firm and its products.
2.2.2 Aspects of Corporate Social Responsibility
Two major aspects can be drawn from the above operational definitions of CSR. These aspects are based on the notion that CSR is a voluntary yet a necessary strategic competitive advantage-building tool that determines firm’s long term survival in a competitive and unpredictable business world (Kotler, 2008). BDA (2006) offers that the two major aspects of CSR are its ability to lobby national and international policy makers in ensuring that companies remain committed to their voluntary social obligations as well as its ability to offer non-obligatory advice and other informational support to companies so as to help them become committed to their social obligations without having to explicitly stipulate a specific code (Ailawadi et al., 2011). The authors suggest that CSR can be described in terms of its voluntary approach and its ability to turnaround company’s fortunes through relationship building.
From these two major aspects, a number of minor issues emerge. These minor aspects include the fact that CSR is voluntary, it helps organisations to achieve competitive advantage, it helps organisations to relate well with their society, it is a form of long term strategic driver among large multinational companies such as Haier, and there are no “best” CSR practices (BDA, 2006). Companies are not required by any existing law to honour their CSR obligations yet cases of huge sponsorship deals litter the corporate world today. Wal-Mart, for instance spent about $512 million between February 2009 and January 2010 on CSR activities (Ailawadi et al., 2011). It has been shown in earlier parts of this study that companies do this with the hope of improving their public image, increasing market share, and building good relationships with their stakeholders.
However, how each company undertakes their CSR obligations differs across the corporate divide. While western companies are known for their generous philanthropic contributions to the society, Asian and African companies have a rather laid back approach. Reliable evidence shows that this difference is as a result of the market maturity, competition as well as the increased participation by social organisations such as labour unions, consumer watch groups, media bodies, environmental groups, and government agencies (Jamali, Safieddine, & Sabbath, 2008; O’Laughlin, 2008). The western market is more open to criticism than its Asian and African counterparts – there is immense media scrutiny in the western world than there in Asian and African countries (BDA, 2006). For instance, large multinational companies such as BP and its subsidiaries have been on the recovering end in the recent years for alleged poor working conditions and poor operating processes that endanger the environment yet Chinese energy firms have the worst work conditions and environment conservation records but they continue to make good business especially in their Asian and African based operations. While drawing from the fact that CSR is a form of capitalistic market penetration strategy (Kotler, 2008; Kotler & Armstrong, 2008), it is arguable that, large Chinese firms such as Haier which were initially owned by the state and are still considered as partly-private and partly-public may feel less obligated to fulfil their CSR obligations as they enjoy state patronage and a monopolistic market dominance.
On a different note, it is arguable that the impacts of CSR efforts differ across the market divide. CSR efforts carried out by multinational companies operating in emerging countries such as China with pressing social issues related to disease, security, child labour, and poor education and health standards may not be easy to quantify when compared to the case in the western world with strong social systems – a CSR budget of say, $2 billion in China will make little impact compared to a similar budget in the western world (BDA, 2006). Overall, CSR is becoming a major theme among leading multinational companies with a footprint in both mature and emerging markets (O’Laughlin, 2008). Even in Asian and African markets where western and local companies have been in the past somehow relaxed to undertake huge CSR projects, trends are changing and companies are sponsoring large projects such as green energy, disease control and eradication as well as infrastructure development.
2.2.3 Practices of Corporate Social Responsibility
CSR practices can be grouped into four main components. This grouping is advised by Mandhachitara and Poolthong (2011) arguments that CSR is meant to serve four major stakeholders which are the consumers, immediate community, employees, and the environment. Analytically, these four major stakeholders comprise of the four major components of CSR which according to Mandhachitara and Poolthong (2011) are community support, employee relations, product and service-oriented, and environment support. Overall, it is arguable that CSR practices covered in Mandhachitara and Poolthong (2011) model as well as in other models seek to create a friendly business climate that allow for maximisation of profits while making the world a happy place to live in.
Each of these four components is broken further to include other specific practices. As Figure 188.8.131.52 below shows, community support is divided into five specific practices of donations made charities, help to the disadvantaged, disaster relief, anti-drug campaigns, and provision of education scholarships (Mandhachitara & Poolthong, 2011). On the other hand, employee relations is divided into four specific practices of provision of safe working environment, support to employees family values, provision of fair compensation, and upholding of the equal employment opportunities policies (Mandhachitara & Poolthong, 2011). Product and service-oriented practices are broken down into two specific practices of provision of quality products and services as well as the provision of customer-satisfying products and services (Mandhachitara and Poolthong (2011). Lastly, environment support practices can be conceptualised into three specific activities of support to forest preservation efforts, support to environmental preservation efforts and support extended to water resources preservation efforts (Mandhachitara & Poolthong, 2011). These specific practices can be assumed to be the benchmarks against which organisational competitive advantage should be measured. Since customer loyalty is one of the major facets of competitive advantage, then it is right to clarify that the specific practices builds to customer loyalty.
Figure 184.108.40.206: A Typical CSR Model as it Relates to Customer Loyalty
Adapted from: Mandhachitara and Poolthong (2011)
Other CSR models include the Kinder, Lydenburg, Domini (KLD) index of corporate social performance. This index quantifies CSR efforts into the following facets “cost judgment, profit judgment, price fairness, and customer loyalty (attitudinal and behavioural)” (Ailawadi et al., 2011, p.8.). This model posits that CSR performance in general, and its impacts on customer loyalty, is a function of consumer perceptions on the cost of a product relative to other similar products (Bhattacharya & Sen, 2003). Further, the model posits that all facets of CSR directly contribute to attitudinal loyalty yet not all CSR practices contribute to behavioural loyalty. To this effect, it has been clarified that CSR practices that encourage consumer-firm relationships such as well treatment of employees or even sourcing raw materials from the local communities have positive impact on behavioural loyalty (Ailawadi et al., 2011).
Bhattacharya and Sen (2004) re-examined the relationship between CSR initiatives and their effect of customer loyalty. They categorized a firms CSR initiatives into six main domains which include: employee support, this encompasses issues such as profit sharing, employee safety concerns and job security just to mention a few; diversity include a firms and the family institution, accommodation of different genders and race, support for the disabled and sexual orientation; the environments’ main domains include management of hazardous waste, eco-friendly products, recycling and pollution; community support, this is mostly synonymously associated with CSR, it include philanthropic donations, support to health and education initiatives; non-domestic operations like labour practices overseas; and product which includes mainly product safety.
Lastly, the social identity theory built by various scholars undertaking consumer-company identification research can be employed to explain the consumer inclination to CSR compliant firms. This theory argues that consumers tend to show great liking for companies that dedicate a significant chunk of their profits towards CSR activities (Ailawadi et al, 2011; Bhattacharya & Sen, 2003). Consumers build a clear and distinctive identity of a company that has a clear CSR record (Ailawadi et al, 2011). Basing on the combined model of measuring customer loyalty adopted by this study, it is arguable that consumers tend to dedicate their attitudes and behaviours towards companies with good CSR track record.
Nevertheless, for purposes of this dissertation, Mandhachitara and Poolthong (2011) four-pronged model will be utilised. The reason behind this decision is supported by the fact that, Mandhachitara and Poolthong (2011) study is dedicated to the examination of the impact of CSR on customer loyalty in an Asian market perspective, Thai banking industry. While other studies may have made attempts to arrive at a balanced conclusion regarding the role CSR practices play in enhancing customer loyalty, it is strongly held that no other recent study achieves purpose better than Mandhachitara and Poolthong (2011). Moreover, the model captures almost all the pertinent issues pertaining to both CSR and customer loyalty.
2.3 Influence of Corporate Social Responsibility Practices On Customer Loyalty
2.3.1 Community Support and Customer Loyalty
Although the semantics on CSR may differ, it almost universally accepted that CSR has an impact on customer loyalty. This is so since more and more customers are increasingly buying products produced in a socially and environmentally acceptable way (Lai, 2006, p.10). However the effects of CSR on customer loyalty have continually proven difficult to quantify – depending on how an organisation handles CSR activities, their impact may either be positive or negative.
Countless studies have been done on the effects of community support related CSR activities on customer response to a company’s products and services. Vavra (1994), for instance argues that customer satisfaction is an important aspect in all successful business organisations. As stipulated by Mandhachitara and Poolthong (2011), community support comprises of all activities falling within the following facets: donation to charities, help to disadvantaged, disaster relief, anti-drug campaigns, and education scholarships. In the current corporate environment, the success of an organisation is dependent on its relationship with key stakeholders who include customers and their level of satisfaction (Vavra, 1994). According to Li (2009), customers are more likely to offer support to businesses that engage in community based initiatives such as donating to charity and sponsoring anti-drugs campaigns. Overall and as Arli and Lasmono (2009) posit, community support related activities play two important roles in creating customer loyalty – they improve the attitude of the customer towards the company and reduce any negative customer concerns the customers might have towards a product.
Galbreath (2008) and Li (2009), have a different perspective on the relationship between CSR and customer loyalty. Their emphasis is on the importance of a company’s reputation and public image. To them, community support based CSR efforts build customer loyalty by continually emphasizing on a positive public image and reputation which customers use to associate with the company’s products. Bromley (2001) defined corporate images as the mental perception held by an individual or group of people, according to Gray and Balmer (1998), this mental perception of the business can be created by the use of community support programmes such as setting educational funds. Reputation on the other hand comes from stakeholders in form of feedback received regarding perceived businesses identity (Whetten & Mackey, 2002). While using the social identity theory, it is arguable that customers embrace a company with a unique identity built from the company’s community support initiatives (Bhattacharya & Sen, 2004). Yoon and Gurhan-Canli (2003) deduced that companies that are perceived positively by consumers will also be perceived to produce superior quality products.
Almost all literature on the impact of CSR on customer loyalty are in agreement that customer perception on a company’s image brought about by community support initiatives are very crucial in developing a customer base for the long-term and goes a long way in creating brand loyal customers (see for example Godfrey & Hatch, 2007; Raghubir et al., 2010). Nevertheless, organisations should ensure there community based support projects have the maximum impact on the customers perception son them. Effective community support programmes should help consumers build positive images of the organisation.
2.3.2 Employee Relations and Customer Loyalty
Organizations that are involved in employee-related CSR practices appeal to their customers. Studies have revealed that customers tend value the relationships organisations build with their employees (see for example and Hopkins, 2007; Hond et al., 2007). Participation in CSR activities that are essential to employees helps to build employees who are responsible to customers’ needs (May, 2007). Encouraging staff to participate in CSR initiatives creates a social bond beyond the business needs of the company (Turban, 2000). Based on expert views from Hopkins (2007) and Hond et al., (2007), it is arguable that organisations achieve employee relations-related customer loyalty. This accords them the opportunity to focus on developing teams and building leadership capacity through employee involvement in CSR activities. Since customers shape their attitudinal and behavioural decisions based on the products as well as the employees who serve them (Mandhachitara & Poolthong, 2011), it becomes therefore easy for an organisation to win the trust and hence the loyalty of its customers when it cultivates good relationships with its staff.
Based on equality theory, it is arguable that influential motives underpinning staff behaviour go a long way in creating strategic competitive organisations. Assuming employees’ perceptions of CSR contribute to positive customer attitude and behaviours, it is agreeable that multiple needs model of company’s fairness is a precursor to customer loyalty (Hopkins, 2007). This hypothesis implies that employees’ concern for workplace fairness arises from relational, instrumental, and ethical-based motivations derived on the three basic needs for control, belongingness and consequential existence. Relational needs for fairness are linked to the psychological need of belongingness (Mandhachitara & Poolthong, 2011). Relationships signify the suggestion of an individual’s position, rank, and level of fit within the society. On the other hand, belongingness beliefs can cause issues of self-identity among staffs (Hopkins, 2007). Relational factors for instance trust as well as alleged organizational support arbitrate justice effects. Employees will turn to CSR to evaluate the degree to which their company values such relations.
Lastly, control is essential to human because having control over circumstances can optimise the favourability of results. Employees derive instrumental desires for assuming that an organization is interested with the outcomes of its activities on its immediate community (Kotler & Armstrong, 2008). In other words, a company’s CSR measures show the staff that the company is concerned about their welfare thus fulfilling their need for control (Kotler, 2008). A final significant concern is the social implication provided by the company for its initiative, which to some level alleviate effects of supposed unfairness (Hopkins, 2007). This refers to the belief that when a company has dedicated an act that is socially reckless to its staff, one likely instigation that might minimize negative reactions would be to provide a realistic validation for such actions.
2.3.3 Product and Service Oriented Responsibility and Customer Loyalty
Product and service quality directly impact on customer loyalty. While basing on Mandhachitara and Poolthong (2011) four components model of CSR, it is arguable that the basic product quality indicators which include quality of products and the level of customer satisfaction. Since organisations are social responsible to their customers to provide them with high quality products and services as well as to fulfil their product-related concerns, it is arguable to argue that satisfied customers are more loyal than unsatisfied ones (Yaseen et al., 2011). Contemporary consumers are more aware about brands than ever before and base their purchase attitudes and behaviours on strong brands that add value to their socio-economic needs (Grewal, Monroe and Krishnan, 1998). Organisations should however invest more on brand awareness especially for new products or new technology as consumers without proper knowledge of a particular brand will shun it for well known ones notwithstanding the fact that the new brand may even be of high quality compared to existing ones.
Reliable evidence shows that strong and popular brands contribute directly to customer loyalty. Consumers have been to be willing to disseminate positive information and to make repeat purchases if they perceive a brand to be popular and capable of fulfilling their needs (MacDonald & Sharp, 2000). This calls for brand awareness among organisations. For instance, Haier refrigerators are perceived to be of high quality among Chinese households and customers are always willing to advice their friends to buy them. According to Grewal et al., (1998), Kotler (2008) and Yaseen et al., (2011), a company’s profitability is directly tied to the quality of its brands as consumers are always willing to be associated with superior brands irrespective of the price of such brands. Manufacturers of durable home appliances such refrigerators should therefore ensure that their products are superior and that they accord the best customer care to their customers so as to encourage them to replace such durable products for new ones just to keep abreast with new technology.
2.3.4 Environment Support and Customer Loyalty
CSR has had a tremendous increase over the years in the business context. Branco and Rodrigues (2007) established that majority off Forbes and Fortune companies employ some form of environment friendly CSR initiatives. Bhattacharya and Sen (2004) argue that customers and companies develop strong bonds especially when they perceive a company to be environmentally responsive. According to Auger (2004), firms that engage in CSR research have come to a conclusion that customers are a driving force that corporate cannot do without. To this effect, a considerable number of companies are applying life-cycle chain principles to innovate and establish leading green practices. For example HP accompanies its inkjet printer cartridges with an envelope to allow customers recycle their old cartridges at no cost and with relatively little effort (Maignan, 2001; Olson, 2010). This is a major CSR undertaking that has won the hearts of many customers especially those who perceive the wellbeing of their immediate environment to be part of their lives.
In the past 10 years environmental support initiatives have become a major driver of customers’ perceptions. Bhattacharya and Sen (2004) argue that customers’ commitment towards a company increases gradually when a given problem or issue is of paramount importance to them as in the case of environmental conservation or even water conservation. Since customers can pressurise organizations to engage in green practices through activism and boycotting a company’s products or services, any slight indication of a negative publicity portrayed through the media houses is dealt with quickly (Maignan, 2001). Currently, companies are offering a wide variety of high-quality products and this has made the consumers to shift their focus to the commitment of companies towards conservation of environment failure to which will make customers impose sanctions towards companies which are environmentally irresponsible (Dashwood, 2007). More customers are expressing dissatisfaction towards environmentally irresponsible companies. This is expressed through their purchasing behaviour. Therefore, companies need to reposition their role in conservation of the environment so as to become acceptable to the customers.
Carroll (1999) and Branco and Rodrigues (2007) examined how CSR engagement earn companies a well deserved license which in turn builds customers loyalty on a certain corporate action towards the environment. The authors find that companies must produce environment friendly products so as to gain customers loyalty. Moreover, it was found that environmental support serves to extend the penetration a corporate into the market and as a process the corporate reaps huge benefits since there will be an increase in shareholding value. Maignan (2001) further emphasized that the nature of corporate business engagement forces a corporate body to understand its abilities and limitations in a manner that reflects its need of the surrounding community. These scholars emphasize that when a corporate understands this it forms a social contact in such a way that a consensus is built between the company and its community it gives way to fulfilment of both parties expectations.
Customer Loyalty is determined by a combination of customer attitudes and behaviours towards a specific product or a firm. While the reviewed literature provides a comprehensive account of what entails customer loyalty, it is strongly felt that the existing literature is too broad to apply to the case of Haier. Specifically, there is need to collect first-hand information of some of the most pertinent indicators of customer loyalty from a Chinese perspective.
Nevertheless, the reviewed literature suggests that CSR practices are critical for customer loyalty. Practices such as community support, employee relations, product and service quality and environment support are believed to be the most comprehensive set of CSR practices with the most impact on customer loyalty. However, it is worth noting that not all CSR practices have a direct impact on customer loyalty – some practices shave little impact while others have much impact. As such, organisations should engage in the most rewarding CSR activities if they expect to boost their customers’ loyalty levels. To this end, there is need to collect first-hand data that is relevant to the Chinese and Haier situation and compare it with what other studies have found in other countries and companies.
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