Discussion
To address the literature gap on CSR in developing countries, our study aims to increase the understanding of the effects of CSR practices on consumer attitudes, such as customer satisfaction and customer loyalty, in developing countries using the case of Bolivia, which is the least developed among the developing countries in the Americas (IMF
2017). In particular, this is the first such empirical study on the effects of CSR in Bolivia, which – like many developing countries – still lags behind in building a strongly research-oriented university system.
Using structural equation modeling of quantitative data from two industry contexts, we explore the direct [indirect] relationships of recycling convenience, eco-friendly practices, and ethical behavior with customer satisfaction [customer loyalty]. With the exception of a single non-significant path in the soft drink context (from eco-friendly practices to customer satisfaction: βsoft drinks = 0.030, p > 0.05), our findings support the hypothesized linkages among the study constructs (H1-H2).
The results of our complementary qualitative data analysis support the quantitative findings. Similar to our quantitative results, interviews with Bolivian CSR experts confirmed the influence of CSR practices on customer satisfaction (H1) and customer loyalty (H2). These experts also confirmed that CSR practices lead to intrinsic satisfaction with the firm’s values and thus that customer satisfaction mediates the effects of CSR practices on customer loyalty (H2). Hence, we found theoretical and empirical coherence between the qualitative and quantitative results.
In addition, the CSR experts proposed a role of trust as an additional mediator of the relationship between CSR practices and customer loyalty. Their argumentation suggests that CSR practices signal honesty, which helps build trust within the frequently non-trustworthy market environment of a developing country and thus is effective in influencing customer loyalty. This qualitative result appears to be of special importance to our studied context of developing countries and corresponds with reasons for an enhanced importance of brand reputation in developing countries (Frank et al.
2013). As additional insights, the CSR experts reported that Bolivian firms focus more on environmental than social CSR practices, that young managers and multinational firms are leading the way in implementing and promoting CSR practices, and that younger consumers drive increasing demand for products and services from ethically responsible firms. These results correspond with recent findings of a greater importance of value identification for younger consumers (Herbas Torrico and Frank
2018), which our results thus may extend to CSR contexts.
Theoretical implications
Through the theoretical lenses of signaling theory and stakeholder theory, our conceptual framework and empirical results contribute to a better understanding of the effects of CSR practices in developing countries.
Based on signaling theory, our study suggests that CSR practices enable firms to signal intangible capabilities to consumers (also Frombrun et al.
2000; Su et al.
2016), which we posited to be of particular importance in the less transparent environment of developing countries, where information access is limited and information frequently is not trustworthy (Miller et al.
2009). Such intangible capabilities include a better understanding of consumer concerns, a higher capability to create value for consumers and society (H1a/b: recycling convenience, eco-friendly practices), advanced technological capabilities (H1b: eco-friendly practices), and a low purchase risk from cheating and hidden quality problems (H1c: ethical behavior). CSR practices are very effective in signaling such capabilities because they make apparent the firm’s willingness to incur higher costs now in order to create future benefits for customers and society at large (Moore
2002). The use of such signals leads to a positive customer response reflected by higher levels of customer satisfaction and customer loyalty (H2), and thus has the potential to translate into long-term financial benefits (Frank et al.
2009).
Based on stakeholder theory, our study suggests that CSR practices are especially effective at addressing stakeholder concerns in developing countries, where the negative effects of corporate behavior on society frequently are especially pronounced (Ward et al.
2007). Addressing such stakeholder concerns leads to positive stakeholder responses, such as higher levels of customer satisfaction (H1) and customer loyalty (H2) in case of customers as a firm’s most important stakeholder group, and thus can benefit the firm in the long term. In order to reap beneficial stakeholder responses, firms need to focus on CSR practices of particular relevance to developing countries, such as recycling convenience (H1a: lack of infrastructure in developing countries), eco-friendly practices (H1b: prevalent environmental pollution in developing countries), and ethical behavior (H1c: prevalent customer cheating due to weaker consumer protection and government supervision in developing countries). At the same time, it is important that firms not only promise CSR practices, but also keep such promises. Otherwise, stakeholders might condemn firms as being hypocritical and misleading, and thus might react negatively, rather than positively, to promised CSR practices (Chen et al.
2014).
Regarding our empirical results, a nominal comparison of the effects of distinct CSR types on customer satisfaction indicates consistently for both industry contexts that ethical behavior has the strongest effect, followed by recycling convenience and eco-friendly behavior. As ethical behavior primarily concerns social and labor conditions, this result may indicate that consumers in developing countries most strongly focus on still unmet social needs, whereas environmental needs are only secondary. By contrast, social needs more or less tend to be met in developed countries, where environmental CSR appears to be more effective as a differentiator (Khanna et al.
2005).
Managerial implications and future research
Our quantitative and qualitative results suggest that CSR practices directly influence customer satisfaction and indirectly influence customer loyalty for Bolivian consumers. This result has the following managerial implications.
First, our study suggests that not only in developed countries, but also in developing countries, consumers account for a brand’s CSR practices when evaluating its products and services (H1). Therefore, in order to increase customer satisfaction, firms should behave ethically because consumers are willing to pay higher prices or show different signs of loyalty as a way to reward the firm’s ethical behavior. Specifically, according to Creyer and Ross (
1997), in order to behave ethically, organizations should subscribe to values such as transparency, honesty, and humility.
Second, our study finds that recycling convenience is an important antecedent of customer satisfaction in a developing country context where limitations in financial resources often make harmless disposal and waste treatment practices difficult (H1a). This finding suggests that organizations not only should consider the use of recyclable materials when designing a product, but they also should ease the recycling process for the consumer. For example, Domina and Koch (
2002) suggest that consumers are willing to recycle a wider variety of waste when the system is more convenient. Therefore, firms in developing countries should develop recycling systems that make recycling a convenient activity. For example, municipalities could implement curbside collection days for recyclable products.
Third, our results show that eco-friendly practices influence customer satisfaction in a developing country context where environmental degradation frequently is a problem (H1b). This suggests that consumers in developing countries indeed are aware of the influence of their own purchase behavior on the environment. Therefore, as Han et al. (
2009) proposed, organizations actively should inform less environmentally conscious groups that eco-friendly purchasing exerts a positive influence on the environment, and convince them that protecting the environment is everyone’s responsibility. These campaigns would motivate consumers to engage in eco-friendly activities, strengthen their intentions to purchase eco-friendly products, and thus increase their satisfaction.
Fourth, we find that ethical behavior influences customer satisfaction in a developing country context where ethical standards in labor practices, product safety, and social contributions tend to be lower than in developed countries (H1c). Therefore, our results suggest that organizations in developing countries should consider behaving ethically to their own benefit. While unethical behavior might be motivated by cost-cutting and increased short-term profits through cheating, a negative stakeholder reaction to such behavior may offset all apparent profit-related benefits of unethical behavior. Due to the stakeholder reaction by consumers, ethical behavior should increase a firm’s market share because consumers perceive the firm’s products as being made under ethically impeccable conditions and reward the firm through higher purchases (Auger et al.
2003). As the CSR experts in our qualitative study suggested, Bolivian firms currently are breaching the labor law. Thus, in order to behave ethically and increase customer satisfaction, such firms first should comply with the labor law, especially since ethical behavior consistently has the strongest effect on customer satisfaction across product categories in our quantitative study.
Of particular note, our consistent finding across categories of a greater role of ethical behavior and a smaller role of environmental CSR in our developing country context of Bolivia is especially intriguing because the results of our qualitative study indicate that Bolivian firms follow the opposite strategy of focusing more on environmental CSR and less on social or labor-related ethical behavior. Our results thus suggest a need for Bolivian firms with limited resources for CSR to rethink and to align their CSR activities with consumer priorities for ethical behavior, rather than prioritize environmental CSR.
Fifth, our results show that CSR practices indirectly influence customer loyalty through customer satisfaction (H2). Similar to de los Salmones et al. (
2005), this finding suggests that CSR practices do influence customer loyalty, or purchase behavior in general, via the customer’s overall evaluation of the product or service. Therefore, in order to make profits from consumer purchases, firms in developing countries should link their economic orientation with a social orientation. Specifically, such firms should have well-defined codes of ethics and a clear philosophy of social commitment, have respect for the environment, and show honesty. Moreover, firms from developing countries should subscribe to international codes in order to both formalize their policies and improve through benchmarking themselves against organizations in other developing or even developed countries. In addition, firms in developing countries should communicate their social orientation and environmental involvement using the Internet. For example, organizations can use both social media and mass media to inform society about their CSR practices. The use of the Internet reduces costs, which is of crucial importance in developing countries.
Finally, our qualitative results also show that local firms in a developing country lag behind multinationals. Therefore, local firms and the government should enforce the use of CSR practices to improve operations and thus increase customer satisfaction.
This study had many limitations. For example, we collected data from only two industries. Future studies should collect data from other industries to validate and improve our model. Moreover, future research can study the influence of cultural factors on the importance of the CSR practices included in our model. As typical for developing countries with a traditional economic structure, Bolivia is characterized by traditional values. Thus, we propose that future studies account for the moderating effect of tradition in analyzing the effects of CSR practices.
In order to address the lack of CSR studies in developing countries in general and in Bolivia/Latin America in particular, our work is an attempt to provide new ideas about the consequences and meanings of CSR practices in a developing country context with a still low level of development. We hope that our study stimulates new research to deepen the understanding of the commercial implications of CSR practices for firms in developing countries.