New research just released shows that corporate social goodwill can elevate a company’s profits by improving consumers’ perceptions of its products, but only when it's seen as genuine.
The past ten years have seen a massive spurt in the growth of acts of social responsibility by companies across the world. But why do they do it? Well, research suggests that it’s mostly to improve a company’s reputation in the eyes of its customers and community (McKinsey & Company 2009).
That said, research has shown that socially-responsible firms are likely to deliver superior financial performance (Orlitzky, Schmidt, and Rynes 2003), with consumers rewarding their good intentions through higher sales (Mohr, Webb, and Harris 2001).
But is there more to these structured acts of kindness than companies (and consumers, for that matter) realise? Could it also be the case that by being a morally-upstanding member of society, a company benefits in other ways? It appears so, with new research by Chernev & Blair (2015) suggesting that we consumers tend to see products from companies that are morally-just as superior than those that lack these credentials.
This we shall call the Noble Edge Effect.
This research flies in the face of what most senior managers actually think right now. A survey by the researchers found that 86% believed that acts of company kindness wouldn’t affect perceived product performance.
The Noble Edge Effect is important because it shows that investing in a Corporate Social Responsibility programme, when done in the right way - and we’ll get on to what that actually means later - can also improve a company’s profits. The total benefits of being socially-minded might be more profound than we thought. Let’s take a look at the research…
Social goodwill increases perceived quality of a company’s products
56 people were given a plastic cup of red wine, along with a card that explained more about its winery. They were split into two groups, with one of the groups containing an extra sentence stating that “the company donates 10% of its revenues to the American Heart Association.”
After reading and tasting, both groups were asked to rate the taste of the wine, from 1 to 9 (with 9 being very good). They were also asked how much they knew about wine, on a similar scale.
The results, well, they were quite profound! Those who were told of the winery’s charitable donations rated the wine as tasting better than those who weren’t!! What??! Interestingly, the results also became stronger for those who weren’t very experienced with wine, next to those who were more in the self-confessed wine-snob category.
This study first suggests that consumers’ judgements on a product’s performance are directly affected by its brand’s socially-responsible behaviour. Second, the effect seen is stronger for those with less expertise or product knowledge.
Products are perceived as better when their companies are motivated by genuine kindness over self-interest
Even though many organisations give to charity, this doesn’t necessarily mean they do so for the right reasons. Motive is important when we make judgements on a company’s products, as we’ll see from this next study.
236 people were asked to look at a hair-loss product. They were split into two groups: one focused on corporate kindness, and one on self-interest.
The kindness group were told:
“Companies often make donations to charity because they believe it is the moral thing to do. What do you think about companies that donate for moral reasons?”
The self-interest group were told:
“Companies often make donations to charity because they want the publicity. What do you think about companies that donate for selfish reasons?”
Half of both groups were then told that the hair-loss company donates 20% of its revenues to a medical charity for the under-privileged.
All were then asked to look at two photos of a man’s head, said to be before-and-after snaps following usage of the hair loss product. They were asked how much the hair grew back after treatment, from 1 (very little) to 7 (a lot).
The results showed that people rated the hair growth performance more highly for companies seen as genuinely giving over those motivated by self-interest. Another interesting point to highlight is that products of the self-interested companies who donated were rated worse than those who didn’t donate at all!
The lesson to learn here is the importance of your motives when giving back. If people perceive your brand to be strategically self-interested, then any goodwill will be thrown right back in your face. Their judgements on the performance of your products will suffer as a result.
If, however, your moral intentions have integrity and are seen as genuine, your products will be boosted, giving you the Noble Edge over your competitors.
Consumers will rate your products higher when hearing about your social responsibilities from an independent source instead of you
When you’re successful in life, it’s sometimes too easy to brag about yourself and risk a cynical backlash to bring you back down to earth. On the other hand, to keep your head down, work hard and build a strong network that does your talking for you is a much more powerful way of building a reputation. And the same is true for companies as for us mere individuals, according to research.
194 people were asked about the performance of a teeth-whitening product called Ultradent. Half were told that this made-up company makes sizeable donations to UNICEF, and half weren’t given this information.
Those who were told that Ultradent donates were either told that this info was taken from an independent business news report, or were told it was from a recent company advert.
Everyone was then shown two images of teeth, one dental shade apart, to be used as before-and-after photos following use of Ultradent. They were then asked to rate how well the teeth-whitening product worked, from 1 to 7.
The results showed that when people learned of Ultradent’s social responsibilities from an independent source, they rated the product higher (4 out of 7) than when it came from an advert (3.4 out of 7). Interestingly, the self-interested company was actually better off not donating, with its product fairing better with a score of 3.7. Crazy!
This study shows how powerful the role of publicity is in communicating a company’s social responsibilities. It’s more likely to have a positive effect on product performance when shared via an independent party, rather than through what would be cynically perceived as a self-interested corporate advertising campaign.
The effect varies depending on the consumer’s moral standing
A final study looked at the extent to which peoples’ judgements on the performance of a product was dictated by their own moral orientation.
77 people were told about SmartScan, a fictitious software company that digitises printed books. All were told that it donates 3% of its profits to charity.
They were then split into two groups: one was told that even in the toughest of times, SmartScan donated, because doing so was aligned with its values. The other was told that donating was really just about Smartscan’s public image, and it cared little as long as positive publicity was generated.
Everyone was then shown two images of text: “Without SmartScan” and “With SmartScan”, and were asked to rate - out of 7 - how much SmartScan improved the text quality.
They were also asked a second question: “How important it is for companies to give back to society?” again out of 7.
The results showed that product performance was stronger for respondents who believed it was important for companies to give back to society. They rated the quality of SmartScan’s product a relatively high 5.4. This differed heavily from those who had a low expectation of a company’s moral standing, opting for a lower score of 3.8.
It’s also worth pointing out that regardless of the person’s moral expectations, the company that gave back to society for moral reasons was consistently rated better than when just giving for reasons of self-interest.
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Doing Well by Doing Good: The Benevolent Halo of Social Goodwill PDF (Chernev & Blair 2015)
Valuing corporate social responsibility: McKinsey Global Survey Results Article (McKinsey & Co, 2009)
Corporate Social and Financial Performance: A Meta-analysis PDF (Orlitzky, Schmidt & Rynes, 2003)
Do Consumers Expect Companies to be Socially Responsible? The Impact of Corporate Social Responsibility on Buying Behavior PDF (Mohr, Webb & Harris, 2005)