Executive summary of “The differentiated effects of CSR actions in the service industry”

Citation

(2014), "Executive summary of “The differentiated effects of CSR actions in the service industry”", Journal of Services Marketing, Vol. 28 No. 7. https://doi.org/10.1108/JSM-09-2014-0307

Executive summary of “The differentiated effects of CSR actions in the service industry”

Article Type: Executive summary and implications for managers and executives From: Journal of Services Marketing, Volume 28, Issue 7

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

Customers like “good” firms – the ones they perceive as being responsible and honest – and if firms get out their message that they care about the environment and about their employees, customers are likely to believe they care about them too. If customers like “good firms”, then so do the shareholders and so, it is believed, do the stock markets. There’s little doubt then that firms need to establish and protect a socially acceptable reputation, and they need to tell people about it.

The importance of corporate social responsibility (CSR) has over past decades become an integral part of business practice, partly because of pressures from customers and society as a whole, and partly because the benefits that might accrue from an enhanced reputation has been recognized by those responsible for the bottom line.

In “The differentiated effects of CSR actions in the service industry”, Dr Ana B. Casado-Díaz et al. propose that CSR is likely to play a particularly important role in service-selling contexts, compared with product-selling. They propose that that service firms’ investors react more positively to CSR activities compared to product firms’ investors because of the specific nature of the services. Although they are assumed to be rational decision-makers, they often evaluate information using cues and heuristics. So, as services firms are harder than products firms to evaluate, investors may value their CSR efforts higher because they contribute to reducing their perceived risk.

Service firms’ investors value their stock prices not only directly but also indirectly through the effect that marketing strategies such as CSR actions’ announcements have on consumers. While manufactured goods tend to be more easily checked for conformance with objective quality standards, service customers often face great variability in service outcomes. In this information asymmetry context, and prior to the service encounter, customers look for information regarding the company and its true characteristics to reduce the perceived risk. At the same time, service firms send signals to the market so that customers can make inferences about them and the quality they offer.

The research does indeed demonstrate that CSR activities have a positive impact on firm performance that is higher for service firms than for product-based firms and shows that CSR plays a particularly important role in service-selling contexts.

The use of market value facilitates the analysis of the effect of CSR on performance by estimating unbiased market predictions on future profits. This technique uses a forward-looking firm performance that overcomes all the difficulties of the traditionally used backward-looking firm profitability, i.e. accounting measures. Specifically, once the CSR activity is announced, managers might observe the evolution of share prices to determine how valuable the news is perceived. If shareholders’ perceptions of it are not as good as the managers would have expected, they may want to see whether this is due to a lack of information (or even to misinformation). If this were the case, a new flow of information should be released to clarify the firm’s CSR activity. Considering the different level of shareholders’ reactions, this performance measure might offer more insightful clues in the case of service firms.

Finding that CSR actions have a positive impact on firm market value means that the market considers that a “good” service company has a higher likelihood of attaining their sales objectives. This indicates that CSR activities are an effective tool for improving a service firm reputation, and therefore any service company implementing CSR initiatives should show how good it is by releasing news through a well-executed public relations system.

Firms’ CSR initiatives are used as a positive signal of the firm’s reliability and its commitment to quality and honesty. Accordingly, service firms actively involved in CSR activities should emphasize their responsible behavior as a mechanism to differentiate themselves from competitors. Managers can use CSR as a powerful strategic tool to build customer perceived quality to help enhance their positive attitudes and, consequently, increase the likelihood of improving the economic performance of the company.

The financial and economic crisis has raised the question of whether supporting CSR activities is beneficial for firms. If they are purely profit-maximizing units, it would be expected that they would not engage in CSR activities. However, a crisis also increases distrust among customers and provides additional motivation for service firms to focus on CSR.

From the perspective of investors (individuals and investment funds), the potential reaction in the capital market associated with CSR actions undertaken by firms is crucial. Investors expect a potential reaction in the capital market associated with CSR actions undertaken by the firms where they invest. To maximize the return of their portfolios, investors should take into account that the expected abnormal returns are higher in service firms than in goods firms, and hence over-proportionally invest in socially responsible service firms.

To read the full article enter 10.1108/JSM-07-2013-0205 into your search engine.

(A précis of the article “The differentiated effects of CSR actions in the service industry”. Supplied by Marketing Consultants for Emerald.)