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Table of contents
1. CORPORATE SOCIAL RESPONSIBILITY: CONSUMER BEHAVIOR, CORPORATE STRATEGY, AND
PUBLIC POLICY..............................................................................................................................................

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Document 1 of 1

CORPORATE SOCIAL RESPONSIBILITY: CONSUMER BEHAVIOR, CORPORATE STRATEGY,

AND PUBLIC POLICY
Author: Kreng, Victor B; Huang, May-Yao
ProQuest document link
Full text: Headnote
In this theoretical article the concept of feedback with a system perspective and the system dynamics of causeeffect feedback circuits are used to explore the dynamic relationships among consumer behavior, corporate
strategy, and public policy with regard to 2 aspects of corporate social responsibility; making a profit and
providing social services. A good harmony with consumer behavior is based on emotion, with consumers
playing the roles of demander and care receiver. In addition, effective corporate strategy and policy is based on
reason, with the corporation playing the roles of supplier and philanthropist. Finally, the regulations established
by public policy are based on law, and thus public policy plays the roles of guider and regulator.
Keywords: corporate social responsibility, consumer behavior, corporate strategy, public policy, system
dynamics.
Ferrell and Fraedrich (1997) described the development of US corporate ethics as falling into five stages: (1)
corporate ethics before the 1960s; (2) social problems faced by corporations, 1960s and 1970s; (3) the
emergence of corporate ethics, 1970s and 1980s; (4) the integration period, 1980s and 1990s, and (5) the
systematization of ethics, from the 1990s. Since the 1960s, the social expectations of the public with regard to
corporations have increased substantially. Carroll (1979) stated that corporate achievement is essential for
evaluating a business, and that certain social criteria are also important. Keller (1998) defined corporate image
as "the consumers' impression of the corporation itself, corporate product marketing, and the services provided
by the corporation". Corporate image is thus the consumers' subjective overall assessment of the corporation.
Some marketing experts believe that the role corporations play in the wider society will help build their corporate
image. For instance, how a business deals with employees, investors, communities, and others will influence
consumer perceptions of it.
Swasy (1990) observed that consumers want not only to understand a firm's product characteristics and
marketing activities, but also to know about the corporation itself and their cognition will be built up from different
sources of information. Denworth (1989) found that 71% of consumers have a good impression of a corporation
if they have access to positive information about it. Corporate image is, thus, one of the elements making up
brand name benefit, and, thus, firms seek to influence consumer perception of corporate image. Consumer
understanding of what a firm thinks, says, and tends to do in relation to others (i.e., its sense-making process) is
also likely to strengthen perception of corporate social responsibility (CSR; Basu &Palazzo, 2008).
Based on the notion of CSR, there is a systematic dynamic cause and effect relationship among consumers,
corporate strategies, and public policies. In this article we use the system dynamics approach to clarify these
relationships. We also aimed to enable consumers, corporations, and governments to make better decisions
based on the perspective of CSR.
CORPORATE SOCIAL RESPONSIBILITY AND CONSUMER BEHAVIORS, CORPORATE STRATEGY, AND
PUBLIC POLICY
Lantos (2001) examined the definitions of corporate social responsibility, and concluded that it is a social
contract between corporations and society, based on long-term social demands and expectations. Keller (1998)
defined CSR image as the consumers' associations arising from corporate activities related to public affairs,
literature and arts, social welfare, and so on. CSR is, therefore, differentiated from fulfillment of a firm's core
profit-making responsibility and from the social responsibilities of a government (Friedman, 1970).
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Basu and Palazzo (2008) proposed three general principles of corporate social responsibility: stakeholder
driven, performance driven, and motivation driven. These broader concepts can be reinterpreted as: a)
consumer-behavior driven: treating all consumers equally, doing no harm to and being honest with
stakeholders; b) corporate-strategy driven: establishment by an enterprise of a system that values a culture of
ethics and support, internalizing the external demands into employee qualities; fulfilling missions within the
enterprise, and acting as a societal model externally; c) public-policy driven: using resources authorized by
societies efficiently, and creating additional value for societies.
CORPORATE PROFIT
Snell, Youndt, and Wright (1996) defined value as the ratio of benefits to costs. Therefore, value may be
created and enhanced if costs can be reduced and greater benefits can be delivered to consumers. Human
capital can also improve consumer benefits. For example, when knowledge workers improve manufacturing and
service processes, they not only reduce the organization's costs, but also improve product reliability and
consumer satisfaction (Garvin, 1993). Because humans are not like robots, they allow an organization to have
more flexibility (Youndt, Snell, Dean, &Lepak, 1996), and this comes from their capacity to provide products and
services promptly, thus improving consumer benefits. Narasimhan, Talluri, and Das (2004) compiled a list of
supplier-related activities that could impact the development of manufacturing flexibility: supplier ability to modify
products to meet customer needs, responsiveness to schedule delivery and volume changes, assistance in
product design, and assistance in process design and innovation. Creative personnel are the heart and soul of
product and service innovation, and by satisfying consumers' demands, more consumer benefits can be
delivered (Farrell, 1993).
Firms can learn a great deal from customers, and if a corporation can better understand the products and
services needed by consumers, then it can become a leader and not a follower. Customer relationship capital
has a distinctive influence on corporate performance evaluation, and this will be enhanced by the influence of
the elements that comprise intellectual capital. The quality, reliability, and flexibility of customer relationship
capital can be enhanced by innovations in manufacturing and service processes that consequently increase
customer benefits (Upton, 1995). The creation and maintenance of customer relationship capital can, thus, be
promoted through social technology and the culture of organization capital.
STUDYING CORPORATE SOCIAL RESPONSIBILITY WITH A SYSTEM DYNAMICS APPROACH
Faced with the current challenges of environmental uncertainty and globalization, firms can no longer follow a
policy of static equilibrium. Instead, they must evolve dynamically by interacting with various affiliates, such as
vendors, governments, consumers, suppliers, and competitors. However, in the existing theoretical models it
has been assumed that the intraaffiliate interaction is linearly related, and includes a feedback mechanism
(Hung, Li, &Tu, 2004). Accordingly, our focus was the relatively unresearched area of corporate social
responsibility and the relationships among consumer behavior, corporate strategy, and public policy. The
principal objective in this article was to use system dynamics to clarify the complex intersystem causal
relationships, and to determine the factors that drive consumer behavior, corporate strategy, and public policy.
Both individual behavior and behavior as a phenomenon can be studied from micro and macro perspectives in
physical social systems. However, in a social system, the complicated interaffiliate interactions cannot be
described by a single formula (Weidlich, 2003). Indeed, a common characteristic of all social systems is their
complex network of nonlinear relationships (Liu, 1994; Stacey, 1995; Weidlich, 2003), representing an open
holistic system. The continuing interaction between affiliates will induce the system or organization to undergo
spontaneous changes, and this feedback loop, made up of free selection and actions, creates a cycle of cause
and effect (Forrester, 1958; Senge, 1990). Chase (1985) believed that systemic industrial development is based
on the interaction of various feedback forces in the physical world, and that system dynamics (Forrester, 1961)
provides a way to stimulate such evolution, and is, thus, an ideal method for understanding why behavior varies
over time. It is also appropriate to apply system dynamics to making strategic decisions, and the method has
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been shown to be useful in testing the theory of an aggregate society (Jacobsen, Bronson, &Vekstein, 1990).
The model structure of system dynamics is based on a direct comparison of theory with descriptive information
on real-system structure; model behavior can be compared to observed real-system behavior. It is focused on
the study of "high-level, non-linear, and multi-loop" dynamic complex systems (Forrester, 1961). System
dynamics is a method of analysis in which a mathematical language is used to express the positive/negative
feedback structure, causal relationships, and delay effect of complicated systems (Hsieh, 1987).
In system dynamics system operations are monitored by considering the personnel, capital, materials, orders,
and machines in an organization as a flow. By monitoring this flow, an administrator will cross suborganization
boundaries as a matter of course and widen the horizon of inquiry. Consequently, conflicts between
suborganizations can be solved and individual performance targets can be integrated to benefit the entire
organization (Jan, 2000). Testing involves the comparison of a model to empirical reality for the purpose of
either corroborating or refuting it. According to the Random House Unabridged Dictionary of the English
Language (Flexner, 1971) the word empirical means derived from or guided by experience or experiment.
Hence, empirical information for testing a model includes information in many forms other than simply numerical
statistics. Model structure of a dynamic system can be compared directly to descriptive knowledge of realsystem structure, and model behavior may be compared to observed real-system behavior (Forrester &Senge,
1980). We adopted system dynamics and a qualitative research method to explore consumer behavior,
corporate strategy, and public policy in relation to corporate profit and social service as the two aspects of CSR.
A causai feedback loop comprises two or more causally related variables that are connected to form a closed
loop structure. If the loop contains all positive causal links or the sum of negative causal links is an even
number, then it is termed a positive causal feedback loop. On the other hand, if the sum of negative causal links
is an odd number, then it is termed a negative causal feedback loop. As shown in Figure 2, variable A is the
cause of variable B, or variable B is the effect of variable A. If the changes in variable A and variable B are in
the same direction, the relationship between them is positive, and if not, then it is a negative. If A is influenced
by C, then B is also influenced by A, C is influenced by B, and the three variables form a closed feedback loop
that contains all positive links, then the sum of the negative links is an even number, making it a positive causal
feedback loop. Conversely, if the sum of the negative links is an odd number, then it is a negative causal
feedback loop. Theoretically, with a positive causal feedback loop there will be a snowball effect, and the loop
will grow mdefinitely over time, and the result of every action will be magnified to generate an even bigger
action. However, in real life, this phenomenon of indefinite growth is inhibited by the limited variables in a
positive causal feedback loop. Conversely, a negative causal feedback loop is a dynamic convergent process in
which the system status tends to proceed toward the target or boundary and reduce the gap progressively.
ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY WITH A CAUSAL FEEDBACK LOOP
Definitions of organizational performance differ according to variations in scholars' views of the nature of an
organization. Anderson (1988) reasoned that organizational performance is determined by a firm's environment,
strategies, and targets, and, thus, it is very difficult to define a performance standard appropriate for every
organization, instead, a general performance standard is developed, that includes efficiency, satisfaction, and
adaptability or effectiveness. Efficiency represents the cost effectiveness of production from start to finish,
including profitability, market standing, and overall productivity. Satisfaction is the evaluation of attitudes and
values of personnel, such as work satisfaction, while adaptability or effectiveness indicates the degree of
accomplishment in achieving a target.
Fine and Hax (1985) wrote that corporations cannot accomplish every target, and, thus, a list of priorities must
be established. Steers (1975) described operating performance as a corporation's degree of achievement when
completing particular targets. However, besides operating performance, corporations must also consider their
social responsibilities and expectations. Therefore, operating performance cannot be evaluated based on only
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one criterion. We used a causal feedback loop of system dynamics to describe the causal relationships among
corporate profits, social services, consumer behavior, corporate strategy, and public policy with regard to
corporate social responsibility.
As shown in Figure 3, both corporate profits and social services are the core of the interactions among
consumers, corporate strategies, and public policies. The purchase behaviors of consumers directly and
positively affect corporate profits, and corporate image positively affects the purchase behaviors of consumers.
Corporate profits positively affect corporate capabilities, and corporate capabilities negatively affect corporate
profit ambitions. Corporate profit ambitions positively affect corporate strategies, public strategy regulations
have a positive influence on social responsibility requests, and social responsibility requests have a positive
influence on corporate strategies. In addition, social responsibility requests have a positive influence on the
purchase behaviors of consumers and corporate profits through social services and corporate image.
DESCRIPTION AND VERIFICATION OF THE CAUSAL FEEDBACK LOOP OF SYSTEM DYNAMICS
In system dynamics the feedback process and causal relationships are emphasized, and it is held that variables
will influence each other (Richardson, 1991), and therefore, that these variables can be used to study the time
delay effect (Sastry, 1997). We used the concept of feedback with a system dynamics perspective, which is
different from the idea of causal relationships adopted in statistics. Since it is difficult to compare the simulated
action in the model with the real action in the system (Sterman, 2000), we focused solely on the qualitative
analysis of a causal feedback loop to avoid the problems encountered in quantitative simulations.
The causal relationships among corporate social responsibility, consumer behavior, corporate strategy, and
public policy in terms of consumer behavior Engel, Blackwell, and Miniard (1995) suggested that there are two
factors that influence the purchase decisions of consumers. The first of these is individual factors, including
economic resources, knowledge, and attitudes towards products, motivations, personalities, values, and
lifestyles of consumers. According to Blackwell, Miniard, and Engel (2001), the halo effect is an important factor
influencing consumer decision making, that is to say, if the consumer believes that one attribute of an object is
positive, the rest of its attributes will also be perceived positively. For instance, when an individual has a good
impression of a person, he or she tends to trust everything about that person, and the same effect applies with a
corporation. For example, consumers will have a good impression of a corporation if it has made efforts to
organize socially responsible activities, because consumers will then assume that if it has higher moral
standards than other firms then its products will be of high quality. This process will then result in positive
corporate brand name bias (Assael, 1995).
When firms are involved in social initiatives consumers may reward them for their efforts through purchase
behavior. Consequently we believed that additional investigations focused on the interaction between the
inherent virtue of the CSR action and the perceived tangible benefit to the firm with regard to consumers' buying
behavior would be warranted in order to determine the external validity of the findings set out here (BeckerOlsen, Cudmore, &Hill, 2006).
The causal relationship among corporate social responsibility, consumer behavior, corporate strategy, and
public policy in terms of corporate strategy Customer loyalty can be seen as a long-term, committed, affectladen transaction relationship (Fournier, Dobscha, &Mick, 1998). Customer loyalty represents a consumer's
behavioral preference for a product and service, and is an important factor directing consumer buying behavior.
Customers who are loyal often have the following four characteristics: frequent buying, buying all relevant
products from that company, praising that company publicly, and ignoring competitors (Griffin, 1995).
Customer satisfaction is an important factor influencing repeat buying behavior, and is the most commonly
discussed variable in the related literature. Oliver (1980) described customer satisfaction as the gap between
the expectation before and the cognition after buying. Westbrook and Oliver (1991) subsequently found that in
addition to cognitive factors, customer satisfaction is a response mechanism to express feelings after buying,
and that positive or negative emotions will directly influence the degree of satisfaction and complaint. Engel and
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colleagues (1995) claimed that if the assessment after buying is better than previously expected, the product or
service will be considered satisfactory, and if it is worse than expected then the product or service will be
considered unsatisfactory. More recently, Kotier (1998) described satisfaction as a degree of happiness or
disappointment, measured in terms of the gap between the expectation for a purchase and the actual
experience of it.
Whether or not a corporation can satisfy a customer's demands a most important factor influencing consumer
satisfaction (Anderson, Forneil, &Lehmann, 1994; Juran, 1986). Individual customers are emphasized in
relationship marketing because customized services and products should be provided so that long-term
relationships are established and the maximum value is obtained from each consumer (Berry, 1983; Peppers,
Rogers, &Dorf, 1999). If a corporation can provide customization, it can not only improve customer satisfaction,
but also enhance customer loyalty.
Complex problems require a complex cognitive framework in order to effectively understand and respond to
them. Macroenvironmental and market-oriented organizations are, in some ways, equally effective.
Macroenvironmentally focused firms simply omit customer input in conceptualizing the environment, which
explains their underperformance on the customer dimension. Interestingly, those organizations focusing on the
market (i.e., competitor and customer dimensions) have been found not to perform as well on customer
outcomes as those firms that take into account customer input (Neill &Rose, 2006).
The causal relationship among corporate social responsibility, consumer behavior, corporate strategy, and
public policy in terms of public policy There are two completely opposite points of view with regard to CSR: On
one hand, Friedman (1970) reasoned that corporations should only pursue the goal of profit maximization, as
the consequent efficiency with regard to using social resources would be greater and so the contribution to
social resources would be larger. On the other hand, Drucker (1954) argued that corporations need to take
group responsibility for different profit organizations, including customers, employees, providers, the
government, and finance institutions. Drucker maintained that only by responding actively to social needs and
expectations, with fair and reasonable distributions to various profit organizations, could a corporation profit and
improve on a long-term basis.
One of the key corporate moral responsibilities has been identified as avoiding being the cause of any harm to
the consumer or society. This responsibility exists whether or not it is codified, although a society can also
express its demands through laws or public policy. In addition, a government helps corporate management
through legislation and control, and also controls and supports the wider social fabric that supports the
operation of corporations. The government also explains and controls the regulation of corporate activities. In
general, legal regulations set by the government of a country are essential when a firm lacks its own discipline,
information, incentives, or moral authority. Modern economies also need legal regulations to protect consumers.
However, although public policy can protect consumers, it is an expensive way to regulate corporate strategy.
An above-average moral standard is like a high quality product in that it can be produced only by a highly
motivated corporation, and is difficult to impose by legal means. Stone (1975) suggested that the nature of law
itself makes it insufficient to achieve corporate social responsibility, and many corporations do not regard law as
the final judgment of their ethical standards. Thus, although the first reaction of consumers who are dissatisfied
is to call for new legislation, a law may have limited effect. As noted by Bowie (1999), there is a problem of time
difference in legal regulation, in that laws may be enacted only after serious damage has already occurred.
THE ROLE OF CONSUMER BEHAVIOR, CORPORATE STRATEGY, AND PUBLIC POLICY
With regard to corporate social responsibility and in terms of corporate profit, consumer behavior is the force
driving economic development, and also guiding corporate innovation and reform. Therefore, consumer
behavior plays the role of demander. Those who decide on corporate strategy always pay attention to consumer
behavior and innovation to improve profits, and thus corporate strategy takes on the role of supplier. The
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objective of public policy is to improve the economic structure as well as to promote supply/demand efficiency,
and so public policy has the role of guider. In terms of social services, consumer behavior is often regarded as
powerless and passive when compared with corporate strategy and public policy, and thus consumer behavior
has the role of a disadvantaged minority. Corporate strategy not only has to take care of normal operations, but
social welfare must also be considered and, thus, public policy has a philanthropic role. The purpose of public
policy is to establish norms of social responsibility and to harmonize the interaction between economic and
social goals, and thus public policy has a role as regulator (see Table 1).
CONCLUSION
Both governments and corporations aim to satisfy public demands. However, although they have the same
objective, their relationship is different, and often complicated by the presence or absence of mistrust and
mutual trust, conflict and cooperation. Corporations have a close interaction with society, and their operations
and activities will influence investors, personnel, consumers, communities, and the environment in various
ways. In addition, in the 21st century, consumers have higher expectations of corporations, and expect that they
will not only make a profit for their investors, but that they will also be honest and socially responsible.
Furthermore, corporations not only have to ensure workplace safety for their employees, but also have to satisfy
economic and social demands of their employees. Externally, corporations must take into account consumers'
rights, and at the same time be responsible for such activities as the recycling of resources and environmental
protection. In the event that any harmful effects are caused by corporate products or activities, the firm is
expected to bear the financial cost. In short, consumers want corporations that are not only profitable, but also
can provide a social service.
For this reason, governments have imposed social regulations on corporations in terms of public policy in order
both to gain control of market functions and to increase economic efficiency. For instance, in Taiwan the
implementation of an Act setting out labor standards was an important regulation for corporations. Modern
corporations are not just for making profit, but also to establish good relationships among investors, employees,
consumers, government, suppliers, and customers.
These days, corporations cannot simply use the pursuit of profit to guide their operations and management,
because of both public expectation and changes in the business environment. Instead, corporations need to
take social responsibility into account when making business decisions, pursuing reasonable profits and social
responsibility at the same time.
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AuthorAffiliation
VICTOR B. KRENG AND MAY-YAO HUANG
National Cheng Kung University, Tainan, Taiwan, ROC
AuthorAffiliation
Victor B. Kreng and May-Yao Huang, Department of Industrial and Information Management, National Cheng
Kung University, Tainan, Taiwan, ROC.
Appreciation is due to anonymous reviewers.
Please address correspondence and reprint requests to: Mao-Yao Huang, Department of Industrial and
Information Management, National Cheng Kung University, No. 1 University Road, Tainan City 701, Taiwan,
ROC. Email: r3895114@nckualumni.org.tw or ncku.ta@gmail.com
Publication title: Social Behavior and Personality
Volume: 39
Issue: 4
Pages: 529-541
Number of pages: 13
Publication year: 2011
Publication date: 2011
Year: 2011

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Publisher: Scientific Journal Publishers Ltd

Place of publication: Palmerston North
Country of publication: New Zealand
Publication subject: Sociology, Psychology
ISSN: 03012212
CODEN: SBHPAF
Source type: Scholarly Journals
Language of publication: English
Document type: General Information
ProQuest document ID: 874622042
Document URL: http://search.proquest.com/docview/874622042?accountid=61315
Copyright: Copyright Society for Personality Research, Incorporated 2011
Last updated: 2014-05-10
Database: ProQuest Psychology Journals,ProQuest Science Journals

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Bibliography
Citation style: Harvard
Victor, B.K. & May-Yao Huang 2011, "CORPORATE SOCIAL RESPONSIBILITY: CONSUMER BEHAVIOR,
CORPORATE STRATEGY, AND PUBLIC POLICY", Social Behavior and Personality, vol. 39, no. 4, pp. 529541.

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