Effect of Corporate Social Responsibility on Customer Loyalty in Financial Service industry
Research questions and Objectives 6 1. Research question 6 1. Research objectives 6 1. Research Hypothesis 7 1. Significance of the study 7 1. Attitudinal Loyalty 21 CHAPTER THREE: Methodology 22 3. Research Philosophy 22 3. Positivism vs. interpretivism method 22 3. Deductive vs. Interpretation of research outcome and discussion 35 CHAPTER FIVE: Conclusion and recommendation 36 5. Summary of research outcome 36 5. Conclusion 38 5. Research limitation 39 5. Research recommendations 40 5. World Business Council for Sustainable Development Effect of Corporate Social Responsibility on Customer Loyalty in Financial Service industry Abstract Corporate social responsibility involves different activities and initiatives undertaken by business organization to give back to the society and its stakeholders. The study determines the effect of CSR initiatives on customer loyalty using a case study of BOC and HSBC financial service institutions in Hong Kong. It uses mixed method (qualitative and quantitative) to determine how the two service institutions have engaged in CSR initiatives.
According to the secondary data extracted from HK Oxfam research, both HSBC and BOC have engaged in CSR in different capacities with HSBC performing better. It was concluded that the success of any financial service institution depends on how it engages in CSR activities. Investors like investing a lot in such organizations, guaranteeing their long-term survival as well as enhancing their competitiveness (Greening and Turban, 2000). Corporate social responsibility is among the most significant issues creating a lot of public interest. For instance, an extensive international research shows that 67% of people prefer organizations that contribute to social objectives instead only focusing on the wealth of its shareholders (Environics International, 1999). The global financial service industry is not left behind concerning participating in CSR activities that are beneficial to the society.
They facilitate a lot towards economic development of a nation as well as meeting populace demand through providing access to different services such as financing businesses, loans as well as interest accounts. Research on the behavior of consumers show that they are becoming more concerned about ethical service delivery which influences institutional financial status. Research questions and Objectives 1. Research question What are the effects of Corporate Social Responsibility to customer loyalty, a case study of financial service institutions in Asia? 1. Research objectives The research used BOC (Bank of China) and HSBC based in Hong Kong as a case study to determine how CSR affects loyalty among customers in a business based on the following objectives; 1. To determine the connection between CSR programmes and trust among customers 2.
” Further, it will help in differentiating contribution level to loyalty between CSR initiatives towards primary and secondary stakeholders. Such knowledge will help financial service institutions such as BOC and HSBC in Hong Kong to in proper allocation of its resources. Also, the study will help in understanding the effects of trust on loyalty among customers as one of the moderating factors. Previous research shows that trust influences customer loyalty directly within a business institution (Aurier and Lanauze, 2012). Therefore, the research helps in verification of such connections and justify the work of previous scholars that have not fully confirmed its existence (Park et al. Different firms began acknowledging the benefits associated with the adoption of CSR, such as Fortune companies which developed explicit CSR activities together with other business organizations that adopted various CSR initiatives for attaining competitive advantage of their competitors.
Data recorded by 261 firms, 62 being among the largest Fortune companies indicated that their annual revenues and amount invested in charitable activities was over 25 billion US dollars in 2013 (Committee Encouraging Corporate Philanthropy, 2014). A lot of business corporations have invested heavily in building customer loyalty by participating in CSR activities today. The international financial recession and OWS (Occupy Wall Street) organization came as an eye-opener to the financial service industry, making it focus much on CSR, with their executives getting concerned about State regulations as well as customers who questioned their conduct and corporate ethics (Bouvain, Baumann, & Lundmark, 2013). Most of these financial institutions realized the importance of engaging in activities that do not have negative effects on society and the environment. It was proposed that business organizations should not over voluntary services which are socially, economically or environmentally related.
According to Freidman, firms were only responsible for maximizing their profits and democratic consent coupled with public preference indicated that businesses and State governments could neither provide public services nor control externalities (Friedman, 1970). Such a division was later referred to as a classical dichotomy. In contrast to the above argument, early researchers believed that businesses needed to focus on the effects of their actions even if it means reducing the wealth of the shareholders. However, recent research shows a changed perception of CSR. Some of the financial service institutions have developed specific programs and foundations that help in the implementing CSR initiatives. Although such foundations are not within institutional major competence, they help in effecting CSR programmes in a coordinated and organized approach.
CSR concept has nothing to do with free things but it is only people who tend to have confused misconceptions. It involves efforts by different businesses to invest their resources in such a way that uplifts living standards of people while developing sustainable relationships between the two parties, making it a win-win program. Benefits/Value of Corporate Social responsibility Business analysts are mostly interested in identification of different benefits associated with adoption of CSR during peak and off-peak economic seasons. D, 1999). It was further echoed by GE and Virgin Group which came up with “unlimited holiday/time-off policies” for their employees because they were convinced that the firm will be repaid and climb ladder in terms of its performance. Financial benefits of CSR Research by business economists show that business organizations are faced by different risks are either systematic which is directly connected to market portfolio or residual (Alexander, 2008).
Systematic and residual risks are believed to account for 15-19% and 81-85 percent respectively. However, CSP (corporate social performance) by CSR helps in reducing the two type of risks, especially if it is incorporated with the advertisement. The client-oriented CSR activities are associated with both psychosocial advantages as well as consumer welfare. A research that involved above 10,000 people in terms of gross domestic product from largest countries in the world indicates that CSR plays a significant role to the financial performance of a business. Most of the research respondents felt that firms ought to operate in a responsible manner and even stretch beyond what is required by the law and prefer commodities that involve CSR initiatives because it determines what they will purchase and from which firm.
In some cases, some of the good things done in the community are widely appreciated by business partners, customers, and the public. A good example is the case of a domestic restaurant based in Hong Kong which is referred as “culinary good Samaritan” because the owner has developed a behavior of offering meals for free to needy people for a couple of years. Later, an accounting formula referred as “triple bottom line/TBL” was enforced for measuring as well as reporting performance of a business against other significant environmental, economic and social parameters so as to encourage businesses to take part in CSR activities. These three Ps are termed as sustainability pillars and TBL framework allows their measurement to evaluate total cost of operation in a firm which helps in understanding its actual contribution towards CSR initiative (Slaper and Hall, 2011).
Research shows that most of the multinational corporations have begun reporting their 3BL returns, such as Tesco in 2014. However, most of the emerging financial service institutions have been found to be catering for lip service to corporate social responsibility. Some of the famous companies like Spencer and Coca-Cola have been accused of greenwashing their customers through boasting about their charitable work (International Business Times, 2013). Different financial institutions invest their revenues by giving back to the society. A good example is a case Spanish banks which invest 20-30 percent of their annual net revenues on charitable and social activities. Another study on CSR shows that approximately 61% of the institutions in the financial service industry have recorded increased programs and initiatives towards the society in 2011 compared to 49% in the previous three years.
A research conducted on 800 customers from different financial service institutions found that “there exists a firm relationship between customer loyalty and CSR,” where ethical responsibility played a significant role in building loyalty through trust. On the other hand, loyalty was found to be influenced by philanthropic relationship via customer-financial institution identification. Corporate social responsibility creates a positive reputation in the mind of customers, something can be achieved through offering quality products and timely services. Different researchers have proved how corporate image and reputation have a significant influence on the consumer behaviors. According to Kotler and Lee, “Perceptions of an organization reflected in the associations held in consumer memory” (Kotler & Lee, 2008). Business reputation and its participation in CSR activities are basic factors that promote loyalty among customers because they result in customer retention in the long run.
Attitude theory assumes that “the foremost cause of corporate image is the evaluation of services which increases value and becomes more accessible in memory” (Irshad et al. out of the possible 5 with its highest score of 4. in labor activities and a 4. score in community development. However, a significant improvement was noted in environmental aspects (Hong Kong Quality Assurance Agency, 2014). Research shows that HKEx introduced ESG reporting as a regulatory policy. However, such identifications can only be formed through CSR. Developing trust among the primary business stakeholders reduces operation cost by very big margins, resulting in improved financial performance. Such trust can only be reinforced through CSR initiatives which induce positive perception among consumers. Research by Edelman titled “Edelman Trust Barometer” noted that trust results from different basic aspects categorized into five key clusters such as purpose, operations, customer/employee engagement and products/services offered.
The research concluded that trust is important for a business organization because it serves as one of the factors for promoting reputation because consumers expect such firms to participate in charitable works in the society. The business that focus much on social roles have high chances of reaping a lot of benefits from satisfaction of customers as well as brand loyalty (Mackenzie, 2007). The positive relationship that exists between customer loyalty and trust has been determined by different scholars who claim that the two parameters are directly related. An effort by researchers has also proved that “there is a strong relationship between customers’ loyalty and different CSR initiatives. ” It was further proved that ethical, customer-centric, philanthropic and green environmental CSR have played a significant role in fostering loyalty among customers (Yusof et al.
The link connection between customer’s attitudes and corporate social responsibility towards products and services offered by a firm is strong, something that results to customer retention as well as continued purchasing. “It is a research approach that uses empirical investigation, and quantitative analysis to develop formal and explanatory theory. ” Therefore, it is mostly associated with quantitative research method of collecting and analyzing data. On the other hand, the interpretive approach helps researchers to use experience and perceptions of research participants to view the world. In this method, the research uses such perceptions and experiences to interpret his/her understanding of the collected information. According to research by Willis, “interpretivism usually seeks to understand a particular context, and the core belief of the interpretive paradigm is that reality is socially constructed” (Willis, 2007).
Further, research onion involves grounded theory, archival, action and ethnography researches which adopt the inductive method and pragmatic philosophy (Saunders et al. This research involves a case study of two multinational financial service institutions in HK. It is important to consider multiple case studies because if the results of the first one reappear on the others, it brings in a sense of generalization and opportunities for future research. The research aimed at determining the effect of CSR on customer loyalty in the context of financial service institutions located in Hong Kong. The study question is tackled by adopting a survey strategy that is attributed to positivist philosophy. The qualitative method was adopted to monitor the trend of CSR initiatives as well as underlying motivations for customers to seek financial services from the two banks.
The method adopted a semi-structured approach to determine how different users view CSR services offered by the two institutions. On the hand, the qualitative method involved quantifying the research questions in such a way that a numerical data could be generated that was later translated into usable statistics. It helped in quantifying opinions and attitudes concerning CSR initiatives. The two methods were used to collect secondary data from the 2009 CSR report titled “Corporate Social Responsibility Survey of Hang Seng Index Constituent Companies” which involved a lot of companies but this research focused on both BOC and HSBC. Considering the kind of subjects and variables investigated, it is obvious that this research adopted a longitudinal approach because it involved determining the relationship between CSR and customer loyalty using trust and awareness as variables.
Ethical Consideration The research observed study ethics as stated in different authorities in Hong Kong. The researcher observed ethical considerations and other codes of ethics governing all the research centers in the country. The researcher sought permission from the University before carrying on with the study. The secondary data that was sourced from the institutions’ websites and other sources was solely used for research analysis and later disposed well to avoid getting into wrong hands. Therefore, the research was dominated by male respondents out of the 73 respondents who participated in the survey. The report further grouped respondents into different age brackets as indicated in the following table. Age (Years) Number of Respondents % 23-33 13 17. and above 7 9. Total 73 100 Table 3: Distribution of age According to the above table, it was found that almost 50 percent of the research participants (49.
while 24. had master’s level education. Only 15. of the respondents had attained Bachelor’s degree with the least number of them having diploma certificates. Therefore, most of the research respondents were educated enough to undertake the survey competently based on the research questions. On the other hand, a mean of 4 to 5 indicates that the subject factor has been embraced by the financial service institution to a smaller degree. Extent of effect of CSR awareness on overall performance of BOC and HSBC Mean value Std. Deviation Provision of safe working environment within its premises 3. Waste and pollution reduction 4. Enhance transparency in operations 3. Research shows that policies governing CSR initiatives can change the perception of employees towards the firm. These policies influence their commitment to the firm because they bring a sense of belonging where consumers feel like part of the firm because of the good deeds extent by the firm to the society.
Research by Tsai and colleagues argues that there is need to encourage employees towards embracing innovative and emerging ways of satisfying as well as developing a strong relationship with customers because it is beneficial to the two parties (Tsai et al 2001). In such a case, the outcome will be fulfilling institutional roles towards the community. It is the role of institutional employees to commit themselves to their routine tasks so as to develop a culture that is devoted to serving customers in a better way. According to the above table, the number of people interviewed as per the 2009 Oxfam report did not show interest of supporting any financial service institution that takes part in unethical and insincere practices as indicated by a mean of 3.
The respondents agreed to support a financial service institution that encourages CSR initiatives because they have feeling that some of the commissions deducted from their money saved in the bank is going to be of help to the needy in the society. Most of them acknowledged to be comfortable transacting with the financial institution because of its effort to participate in CSR activities as indicated by a mean of 4. and std. deviation of 1. The above literature review in chapter two shows that corporate social responsibility initiatives help in the prediction of institutional competitiveness as well as satisfaction of clients in different business sectors, including the financial service industry. Institutions offering services such as BOC can develop a competitive advantage by taking part in the above mentioned CSR activities that determine their financial success.
Therefore, it is easier to craft such activities in the organizational strategy. However, it is the duty of business management to consider different micro as well as macro environmental parameters as they plan on implementing such programmes. The study concluded that if a service organizations such as HSBC and BOC have to become successful and remain competitive in the market, then they must nurture a perfect and long-term positive interaction with their customers because it will become them make keep on repurchasing or seeking their services and eventually become committed. Other activities that such institutions engage in is sponsoring other community development projects such as funding children homes, drilling boreholes, deforestation, and even wildlife conservation. It was found that these CSR initiatives are sustainable and publicized fairly.
It was found that almost 99% of the CSR activities correspond to strategic intent of almost all the BOC branches in Hong Kong. It was also found that not all the CSR initiatives that contribute towards achieving strategic intent at the financial service institutions via their different contributions towards expectations of its stakeholders. The CSR activities allow staff members to work as volunteers, something that promotes a feeling of belonging as well as social responsibility to the organizational objectives. The research framework tested during this survey proved a strong relationship between customer loyalty and trust for financial service institutions. It has confirmed a positive relationship between parameters that contribute to customer loyalty which results in increased organizational profitability in the long run.
The research has contributed a lot to research literature by proving the important link between attitudinal loyalty and trust in the financial service industry, a context of BOC bank in Hong Kong. It would serve as a reference for future scholars who would wish to research on the same topic, specifically in the financial service industry, both nationally and internationally. Conclusion The survey concluded that Bank of China has embraced CSR activities that correspond to institutional strategic intent. Secondly, the research chose participants whose demographics represent a population in Hong Kong but a sample size of 100 was not ideal and it could not have presented other all the BOC customers well. The study focused on people living in HK who may have included a lot of mainland immigrants from China who may have migrated after 1997 handover.
The differences in beliefs and culture between the two groups were not accounted for during the study. Also, the young research participants may not have been aware of the CSR initiative, affecting the validity and authenticity of their survey answers. Research recommendations 5. On the other hand, report presented by HK Oxfam indicate that HSBC has performed excellently in terms of its CSR initiatives. This means that the company is investing heavily by giving back to the society compared to the other 37 companies. Developing trust between a business and its customers is important because it significantly contributes to loyalty which improves business profitability in the long run. Some of the customers are skeptical concerning organizational charity initiatives and it is therefore proposed that such activities ought to be scrutinized well to confusion and any possible critics due to unspecified communication on the use of grants.
Recommendation for future study The research emphasized only on banking industry, a context of BOC bank in HK and concluded that both corporate social responsibility and customer related are positively related and depend on each other. Attig, N. El Ghoul, S. Guedhami, O. and Suh, J. Corporate Social Responsibility and Credit Ratings. and Salomon, R. Beyond dichotomy: the curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27(11), pp. BBC NEWS (2016). Feeding Hong Kong's poor and hungry. BOCHK. Corporate Social Responsibility Report, Bank of China Hong Kong (Holdings) Limited. Bouvain, P. Baumann, C. and Lundmark, E. Business & society: Ethics and Stakeholder Management. Cincinatti: Southwestern Publishing. Chaudhuri, A. and Holbrook, M. The Chain of Effects from Brand Trust and Brand Affect to Brand Performance: The Role of Brand Loyalty.
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