The potential benefits of CSR relative to the costs for business & stakeholders. CSR is the extent to which an organization accepts its obligations to society over and above legal requirements. Firms can benefit from CSR.
It will help them gain marketing advantage. This could be firms USP and they could add profit margins. Consumers may be prepared to premium price, if the CSR product suits them. For example, Costa coffee used Fairtrade and its premium customers were prepared to pay high price. This is backed up by ? 1b UK sales figure of Fairtrade products.
This shows that more customers now look at firm’s ethical standards before spending.CSR may also reduce business costs and at the same time be beneficial to the community. PepsiCo, for instance aims to reduce carbon footprint and reduce inefficiencies. They have a 5 year plan to reduce carbon emissions by 50% by helping farmers to identify carbon hotspots and suggesting ways to reduce them. One such inefficiency measure was switching to 100% British potatoes to reduce transport costs & pollution. The resultant saving was over ? 400,000 which was reinvested in the business. Firms should also avoid bad PR, as it will be remembered by its customers & may cost business more money than they were trying to save.
For example, Walmart was accused of gender discrimination. They may have to pay huge sums of compensatory damage, if proved in the wrong. Therefore, CSR is important for business reputation & could beneficial for firms. There are costs of CSR. Shareholders decide where to spend the money. Company can’t invest on non-core activities like community projects, as they have a legal obligation to shareholders & maximize profits. Eg.
Coca Cola outlined a charitable spending of ? 88b alone, which would have been shareholder’s decision.So shareholders of large firms may go for CSR but smaller businesses may not go for such an investment, as their costs are already high & revenue is not as much. Thus CSR will be more costly for small firms. Secondly, it could be argued that advertising is a calculated decision & firms want to maximize their own selfish interests because there is no legislation which requires them to operate in a CSR way. Also, there are high costs involved with CSR, but companies operate in a CSR way as it may reap rewards in the long term. Thirdly, in a recession, buying CSR product may not be affordable to customers.In such cases, businesses are likely to choose between the rich & poor.
This may be greater ethical problem, if poorer customers are losing out because they have less variety to choose from. Fourthly, it can be questioned whether CSR achieves what it claims to achieve. A report by Phillip Booth(TheTelegraph newspaper) raises question on Fairtrade. Research has suggested that only 25%of the extra price paid by consumers are given to producers in the poor countries. This shows that firms extract most of the extra price to benefit themselves, in the name of Fairtrade(Why should customers pay for the needs of the supermarkets? .
But, the Fair trade Foundation have responded by saying that they no longer charge price premiums( i. e. adding extra profit margins to give it a snob appeal). But, this still does not justify them taking 75% of the extra price, that customers pay.
Thus CSR firms may sometimes keep customers(shareholders) in the dark. In conclusion, CSR will not come without a cost. CSR should be communicated effectively to customers to increase their awareness of the product. But, success of the CSR product will depend on the economic conditions. Firms must also ensure that they achieve their CSR objectives.