Risk and Responsibility: Marketing CSR in a Time of Economic Turmoil

Future Perspectives

Risk and Responsibility:

Marketing CSR in a Time of Economic Turmoil September 20, 2011

Risk and Responsibility: The Future Perspectives are thought-pieces with concise, focused insights into important issues of interest to marketing and business strategists.

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Marketing CSR in a Time of Economic Turmoil

By John Page and J. Walker Smith

Affording Responsibility In the run-up to the global recession of 2008/2009, a growing chorus of critics and consumers were insisting that companies of all sorts embrace a stronger commitment to corporate social responsibility (CSR). Much of this centered on sustainability, but many other areas were implicated as well, from fair labor to fair trade to community engagement to philanthropy. Social accounting metrics were making inroads and globalization had come under widespread criticism. Many observers felt that CSR had become “table stakes.� Doing well by doing good was the mantra of the times.

But then the tumultuous economic tumble in the fall of 2008 triggered the worst global downturn since the 1930s, along with a lingering stagnation that is stifling a robust recovery. As a result, many pundits now question whether CSR remains relevant and affordable in a time of financial austerity.

This Future Perspective offers an answer to this question. Bottom line,

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Š 2011 The Futures Company. All rights reserved.

CSR is more important than before, not less. While the affordability of CSR has become a bigger question mark for consumers and companies alike, consumers feel more strongly about CSR. The reason is that attitudes about CSR are closely tied to the central lesson that consumers have learned from this downturn.

This lesson is not about frugality; it is about minimizing exposure to risk.

A short battery of questions about CSR was included in the 2011 US Yankelovich MONITOR of The Futures Company. These questions provide insights into the ways in which CSR is embedded in the expectations and preferences of US consumers and, thus, the manner in which and extent to which the importance of CSR for the American marketplace has been affected by the weaker economy.

Certainly, there is the possibility that a faltering economy might undermine the commitment to CSR. A long-standing rap on CSR is that

it means higher prices, so in the current context, affordability could work against it. But as the results shown here demonstrate, economic difficulties also exacerbate worries about risk, and worries about risk trump concerns about affordability when it comes to CSR. The economy does, indeed, matter for attitudes about CSR, but the reason is risk, not frugality.

Risk Matters More There is a heightened sense of risk among US consumers these days. With each day bringing wild swings in the stock market and reports of conflicting indicators about a double-dip recession, it is no surprise that risk has become a more salient concern. But the revival of concerns about risk springs from a deeper well than the daily news.

The reawakening of risk is something that The Futures Company first identified in a white paper about the impact of the recession on the global consumer marketplace

called A Darwinian Gale: The Recovery Consumer Marketplace in the Era of Consequences. As discussed in detail in that white paper, the era of indulgence that preceded the recession encouraged insouciance about risk that fostered unsustainable levels of immoderation and extravagance in consumer spending and shopping.

When it all fell in on itself, risk and its consequences were back on the table.

The reemergence of risk is apparent in all of the syndicated tracking research conducted by The Futures Company. For example: • 70 percent agree: “I have become a much more cautious person in general as a result of the recent economic turmoil” (MONITOR 2011, Wave 1) • Only 14 percent agree: “Among my friends I am known as a risk taker” (MONITOR 2011, Wave 2)

• 41 percent agree: “I avoid taking risks whenever possible” (MONITOR 2011, Wave 2) • A drop from 39 percent in 2008 to 30 percent in 2011 who agree: “I like to take part in activities that have an element of risk or adventure” (Global MONITOR, US standardized data) US consumers have become more attuned to exposure to risk. The economy is the reason. With financial hardship afflicting many and financial anxiety plaguing the rest, far fewer consumers are willing to ignore or indulge risk. Table 1 shows the strong relationship between finances and risk.

Two MONITOR questions (from Wave 1) have been combined to divide respondents into the three groups shown in Table 1. One question asked about personal finances, the other about the economy in general.

© 2011 The Futures Company. All rights reserved.

Global MONITOR Survey

US Yankelovich MONITOR Survey

UK MONITOR

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Macro Dynamics

Str

• Personal finances: Respondents were asked whether they “feel [their overall financial security] will increase, decrease or stay about the same in the next few years.” Respondents saying “increase” are noted in Table 1 as “positive” about their personal finances, respondents saying “decrease” are noted as “negative.”

• Economy in general: Using a 7-point likelihood scale, respondents were asked to assess a number of statements about the “world in 10 years,” including, “The economy will be more stable.” Respondents who selected “6” or “7” are noted in Table 1 as “positive” about the economy in general, those who selected lower values (“1” through “5”) are noted as “negative.”

Respondents are shown in three groups in Table 1. At either extreme are respondents who are either

entirely negative or entirely positive about their economic situations and prospects. In between are respondents who are at least positive about one aspect of their economic situations, whether personal or in general. Thus, these three groups of respondents provide a continuum of economic anxiety from the most to the least. These three groups are compared on a MONITOR question in which respondents are asked to indicate which one of two statements most closely describes their attitudes about risk.

Three things can be seen in Table 1.

First, there are big differences across the continuum of economic anxiety.

Consumers who feel relatively positive about their personal finances and/or the economy in general are much less risk averse. They are less likely to avoid risks. Conversely, respondents who are negative are much more likely to err on the side of caution. While this pattern is shown in Table 1 for only a single question

about risk, the pattern is similar for all MONITOR questions about risk.

Second, even among respondents who feel relatively positive about their economic situations and prospects, the level of risk aversion is high.

Nearly four in ten respondents who feel positive characterize themselves as risk averse. In effect, this is a baseline level of risk aversion, so the negative impact from the economy increases the breadth of risk aversion by nearly 50 percent.

Finally, the overwhelming majority of consumers perceive some degree of negative economic impact. Only 11 percent of consumers feel positive about both their personal finances and the economy in general. In contrast, five times as many—55 percent—feel negative about both.

How, then, does the exacerbation of risk by the shaky economy affect attitudes about CSR?

Table 1

I am happy to take some risks for the chance to enjoy greater rewards

Positive about BOTH Personal Finances AND Economy in General (n=472) (A)

Positive about EITHER Personal Finances OR Economy in General (n=1,401) (B)

Negative about BOTH Personal Finances AND Economy in General (n=2,287) (C)

61%(C)

57%(C)

42%(C)

39%

43%

58%(A,B)

VERSUS I prefer to play it safe and not take unnecessary risks 4

© 2011 The Futures Company. All rights reserved.

Risk and Corporate Responsibility Given the strong link between economic anxiety and attitudes about risk, the relationship between risk and responsibility is worth a look.

The underlying hypothesis is that higher risk aversion translates into greater demands for companies to embrace corporate responsibility.

Risks are fewer when companies are responsible, so with the economy ratcheting up the desire for fewer risks, there should be a corresponding increase in the demand for CSR. This is what MONITOR data show.

• 59 percent agree: “Companies have a responsibility to help support the society in which they operate” (MONITOR 2011, Wave 2) Notwithstanding their doubts and fears about the economy, consumers see only upside in companies pursuing CSR. In fact, consumers most concerned about risk are also more likely to feel that companies should embrace efforts around CSR. Table 2 makes this clear.

Note that this hypothesis about risk and responsibility runs counter to the affordability idea. The notion of affordability would suggest that CSR loses salience and priority when financial concerns rear up. With money tight, consumers are less willing to pay extra for CSR, so the desire for CSR should decline. In fact, though, interest in CSR shows a different pattern, one tied to risk.

Respondents are divided into two groups in Table 2 based upon selfdescriptions of risk avoidance (from MONITOR Wave 2). These two groups are contrasted with respect to their agreement that companies have a social responsibility to give something back. As is seen, there is a dramatic jump in agreement with CSR among respondents who are risk avoiders.

The level of agreement jumps from 50 percent to 73 percent—nearly a 50 percent increase—from non-risk avoiders to risk avoiders.

The vast majority of consumers continue to profess interest in corporate responsibility as well as worries about corporate irresponsibility. CSR remains an important factor when consumers are choosing between similar options in the marketplace. For example:

In short, risk aversion means a greater insistence on CSR. As the weak economy drives up risk aversion, so, too, will it drive up the desire for CSR. A more austere economy doesn’t mean CSR has become unaffordable.

Instead, it means that CSR has become more indispensable.

• 79 percent agree: “Business is too concerned with profits and not enough with public responsibility” (MONITOR 2011, Wave 1) © 2011 The Futures Company. All rights reserved.

Global MONITOR Survey

US Yankelovich MONITOR Survey

UK MONITOR

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Macro Dynamics

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Table 2 RISK AVOIDERS Agree: “I avoid taking risks whenever possible” (n=2,930) (A)

NON-RISK AVOIDERS Disagree: “I avoid taking risks whenever possible” (n=4,299) (B)

73%(B)

50%

Companies have a responsibility to help support the societies in which they operate

What Sort of CSR?

Risk and Personal Responsibility There is more to the relationship between risk and responsibility, though, than just CSR. Consumers are much less likely to hold their own actions to the same level of responsibility as that they demand of businesses. Social responsibility is not something most people demand of themselves, while, on the other hand, it is something most people demand from companies.

Personal commitments to socially responsible causes take time, cost money and add to an already over-full list of things to do. For businesses, though, people see things differently.

So it is unsurprising that concerns about risk have very little impact on feelings about social responsibility from a personal perspective.

Table 3 shows the same two groups of respondents as in Table 2. In Table 3, however, they are compared on attitudes about doing things oneself to give back to the community. The level of agreement is very low and changes very little from non-risk avoiders to risk avoiders.

The unanswered question here is why risk is important for CSR but not personally. The results from this analysis of MONITOR data do not address this question, but the fact that attitudes about personal responsibility are so low to begin with means that this is not an area of attention that would be affected by any change in circumstances. Another possibility is that financial concerns are so personally overwhelming that all other personal priorities get pushed aside.

One final possibility is that the areas

Table 3

I feel a responsibility to seek out ways in which I can help to improve my community 6

entailed in social responsibility are not the sorts of things that individuals can affect or to which individuals can contribute. Only corporations can take on social responsibility, and in a time of financial crisis, it is more imperative than ever that they do so.

RISK AVOIDERS Agree: “I avoid taking risks whenever possible” (n=2,930) (A)

NON-RISK AVOIDERS Disagree: “I avoid taking risks whenever possible” (n=4,299) (B)

38%(B)

31%

© 2011 The Futures Company. All rights reserved.

One last area can be examined from the MONITOR data collected on CSR, and that is the issue of what companies should focus on in their CSR efforts. With risk perceptions at a peak, CSR is more important, so companies should make sure that their efforts address the things that consumers believe are part of CSR. Table 4 provides a way of prioritizing CSR initiatives by the percentage of respondents who agree that a particular action “shows that a company is trying to be socially responsibility.” It shows the crucial subset of items. A large percentage of risk avoiders agree that each of these items connotes social responsibility and the level of agreement among risk avoiders is 8 to 10 percentage points higher than that among non-risk avoiders.

Table 4 lists these activities in rankorder based on percentage agreement for the total sample. These activities are shown in three groups, which correspond neatly to total sample rank-order.

The first group of two activities is related to sustainability. Green initiatives top the list of CSR priorities at most companies, so it is encouraging that this corresponds to top consumer priorities as well.

kind of CSR, and thus, perhaps, are better satisfied by corporate practices than by any specific initiative per se.

well-being of communities.

The final group of three is about making a difference, even at the sacrifice of profits. These items involve putting social responsibility first, ahead of profitability in some cases. The measure of success is the difference that can be seen from making financial investments in the

The second group of two is less specific than the first. It consists of commitments by companies to avoid doing harm. Transparency and openness are the hallmarks of this

Table 4

Total (n=7,229)

RISK AVOIDERS Agree: “I avoid taking risks whenever possible” (n=2,930) (A)

NON-RISK AVOIDERS Disagree: “I avoid taking risks whenever possible” (n=4,299) (B)

50%

56% (B)

46%

It uses environmentally responsible manufacturing processes

48

54 (B)

44

It has a reputation for being open and honest in all of its business dealings

48%

54% (B)

44%

It makes every effort to avoid harming the society in which it operates

47

53 (B)

43

It contributes money to socially responsible causes

46%

52% (B)

42%

It is willing to sacrifice some profits in order to be more socially responsible

44

49 (B)

41

You can see ways in which your community benefits from the company

42

47 (B)

39

Shows that a company is trying to be socially responsible (selected items):

It has recycling/resource management programs

© 2011 The Futures Company. All rights reserved.

Global MONITOR Survey

US Yankelovich MONITOR Survey

UK MONITOR

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Macro Dynamics

Str

Making a Difference in a Time of Economic Anxiety The US MONITOR data reviewed in this Future Perspective show an unambiguous story about risk and responsibility. Risk awareness is on the rise, and with it, risk aversion.

Risk aversion is up because anxiety about the economy has worsened since the downturn began in 2008.

With the rise in risk aversion comes a greater demand for CSR. Socially responsible actions by companies can alleviate risks, which is exactly what people want in a more uncertain, more anxious economy.

At the very least, companies must recognize this as they look to reduce any barriers that might keep consumers from shopping and buying. It is hard enough as it is to get financially anxious consumers to spend. Underperformance on CSR should not provide consumers with another reason to buy from someone else or to stay home entirely.

But what’s possible with CSR in today’s economy is more than just defensive marketing. With CSR more salient than ever, companies have an even stronger lever to pull in the everharder effort to persuade consumers to buy. In a marketplace where consumers are economizing on so much else, CSR is one of those things that actually matters more. It is a differentiating attribute in an economy 8

© 2011 The Futures Company. All rights reserved.

that is turning most other attributes into commodity features that provide parity at best.

Companies can also use CSR as a rallying cry for their brands. One of the biggest things missing from today’s marketplace is the kind of inspired hopefulness and aspiration that energized consumers in years past. Economic worries make such exuberance seem foolish, if not unseemly. But CSR is different. It is by nature the act of giving something back, so it is very fitting to spotlight it in this environment. CSR can and should be the platform for inspiration, innovation and reengagement with consumers in the marketplace. With the return of risk putting past indulgence to shame, CSR is the one extravagance that can pass muster.