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CSR Can Backfire When Prices Are Increased - Ideas for Leaders
Idea #835

CSR Can Backfire When Prices Are Increased

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KEY CONCEPT

Corporate Social Responsibility activities may have an unexpected consequence: they raise customer expectations of fairness that can backfire when the company decides to raise prices. Ironically, customers who are sceptical of the company’s CSR activities will also be less critical of price increases.


IDEA SUMMARY

Companies that raise prices might expect some unhappiness from customers, especially if the price increase is seen as deliberate profit-taking. The reaction to Marks & Spencer doubling the price of hand sanitizer during Covid is one example of a price hike consumers found particularly objectionable.

The backlash from customers was compounded by the fact that Marks & Spencer touts its corporate social responsibility (CSR) efforts. As one customer responded on social media, “I expect this behaviour from lesser companies, but thought better of you!”

Through a series of scenario-based experiments, a team of researchers reveal a connection in the minds of customers that companies may not fully appreciate: the more a company is known for CSR, the greater the customer backlash to price increases.

As shown through the research, the perception of companies being engaged in CSR raises expectations of corporate price fairness. When these companies raise prices, customers feel that they have violated those expectations. Thus, while companies who may expect their brand image to be burnished by their CSR activities will find that customers who pay the most attention to a company’s CSR image are also the ones most likely to respond negatively to a price increase.

The exception is for customers who are sceptical of CSR activities. Unimpressed with CSR, and thus having no or little expectations of price fairness, they do not react as strongly to price hikes.

The research was based on three scenario-based experiments. In the first experiment, more than 3,000 German customers of a global furniture retailer and manufacturer read one of two scenarios: in one scenario, the company was raising a product’s price, in the second scenario there was no price increase. The participants then answered a questionnaire that measured their perception of 1) the level of the company’s commitment to corporate social responsibility and 2) the level of fairness of the product’s price. The results showed that customers who did not perceive any CSR commitment by the company were less inclined to believe that the price increase was unfair. In contrast, customers who believed that the company was committed to CSR also believed that the price increase was unfair. The more the company was seen as committed to CSR, the more the price increase was deemed unfair.

In the second experiment, 303 participants were asked to imagine that they were buying an electronic toothbrush. They received information about the toothbrush company’s commitment to CSR—some participants being told the commitment was high, others told the commitment was low. The researchers then measured the price fairness expectations of the participants.

In the next phase of the experiment, the participants were randomly divided into two groups: one group being told about a price increase for the toothbrush, the second group being told that there had been no price increase. A questionnaire then measured the participants’ opinion on whether or not the price of the toothbrush violated their fairness expectations and whether or not the price was unfair.

This experiment yielded the core results of the study: If the company’s CSR commitment was perceived to be high, participants had high price fairness expectations. As a result, any price increase was deemed unfair because it violated these expectations.

The third study filled in the final piece of the puzzle. Using a different scenario—this one involving the purchase of eyewear—the researchers replicated the process of experiment 2 but added a new element: they also measured the participants’ CSR scepticism. The result: Customers sceptical of CSR had low expectations of price fairness from the company, and therefore did not feel that a price increase violated any price fairness expectations.


BUSINESS APPLICATION

Corporate Social Responsibility may seem like a winning value for companies, improving the image of the brand by demonstrating a concern for stakeholders, the environment, and social issues. CSR activities send a message that making a profit is not the only concern of the company.

 

However, this research reveals a hidden effect that might be diluting the benefits of CSR. Instead of improving brand image, CSR can hurt the brand by raising the price fairness expectations of customers who are then disappointed, if not angry, when prices are increased.

 

To avoid this price increase backlash, the company must make a deliberate effort to separate the company’s CSR image from price fairness expectations. One way to achieve this separation is to clearly communicate to customers the distinction between the company’s market actions, relating to the financial health of the company, and the company’s social actions, relating to the company’s desire to be a positive social influence and change-maker. The company can go further by explaining to customers how prices are set. Transparency, reflecting respect and honesty, can work wonders.


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FURTHER READING

Sascha Alavi, Laura Marie Edinger‐Schons, Urs Müller, Johannes Habel. Psychology & Marketing (April 2, 2022).

https://onlinelibrary.wiley.com/doi/full/10.1002/mar.21656

 

 

Further Relevant Resources:
Jenni Sipilä’s Katya Fernandez’s profile at LUT School of Business and Management

https://research.lut.fi/converis/portal/detail/Person/100133?auxfun=&lang=en_GB

 

Sascha Alavi’s profile at Ruhr-University of Bochum

https://smd.rub.de/profil-sascha-alavi/

 

Laura Marie Edinger‐Schons’ profile at University of Mannheim

https://www.bwl.uni-mannheim.de/en/schons/team/prof-dr-edinger-schons/

 

Urs Müller’s profile at SDA Bocconi

https://www.sdabocconi.it/en/faculty/urs-peter-mueller

 

Johannes Habel’s profile at Bauer College of Business

https://www.bauer.uh.edu/directory/profile.asp?firstname=Johannes&lastname=Habel


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Idea conceived

April 2, 2022

Idea posted

Dec 2022
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