Photo by Sgt. Randall A. Clinton
How to battle the upcoming recession
Do good and boost your sales
2008. The recession had hit computer processor manufacturer Intel hard. Stocks had gone down by 42 percent and Intel had lost 90 percent of its net income. Normally, shareholders would have been demanding for costs to be cut and for all charitable activities to be put on hold. Instead, Intel decided to pledge over a hundred million dollars to a global education programme and bought 1.3 billion kilowatt-hours of renewable energy.
As soon as the recession was over, they bounced back. ‘They regained all of the stock value from before the crisis and their sales went up by ten percent’, notes UG marketing expert Abhi Bhattacharya.
Intel is not the only company that used what researchers call CSR, or Corporate Social Responsibility, to good effect. Bhattacharya recently published two articles, one in the European Journal of Marketing and the other in the Journal of Business Ethics, showing that doing good when times are tough is an extremely effective way to strengthen your brand and boost your sales. ‘It’s the gift that keeps on giving’, he says with a smile.
People will perceive you as the friend that stays by their side through the bad times
‘People will perceive you as the friend that stays by their side through the bad times. They will trust that friend, or in this case, that company, even more’, he says. ‘You don’t have to stick with them, but when you do that during a recession, when people don’t expect it, it gives you extra credibility.’
Bhattacharya observed the effect with big companies like Disney and Microsoft. ‘Disney increased their brand value by 1.5 percent in the midst of the 2008 financial crisis’, he says. ‘It was a direct result of them increasing their CSR spending from 209 to 230 million dollars.’
The company spent this money on major projects like the Great Ormond Street Hospital for children in London or on exclusive tickets to film premieres or Disneyland trips for poor children. ‘1.5 percent is a huge deal for a well-established company like Disney’, Bhattacharya explains. ‘Everybody knows the name of the company; everybody is familiar with their reputation and their brand. That means it’s hard to grow, but it also means a little increase will lead to a lot of extra sales.’
It’s not just the big and wealthy companies that benefit from this strategy. ‘We saw an even higher effect in younger companies. Their CSR had an even higher impact. Since people know the bigger companies’ reputations, the risk of purchasing, for example, a Microsoft product, is very low. You already know what to expect. For a smaller company there’s an even greater benefit, because the risk of purchasing from them is higher.’
However, Bhattacharya’s research also shows that not all CSR activities work equally well. Contrary to what he expected, ‘benevolent’ CSR – giving money to a sports club, funding a park, or donating to a festival – doesn’t have the same impact as ‘process-oriented’ CSR.
‘That form of CSR is related to sustainable practices in the company’, he explains: making sure your products don’t involve child labour, for example, or having a diverse staff and board, treating your employees well, and being politically transparent.
When you take care of your people, customers feel you are dedicated
‘We thought that people would appreciate benevolent CSR the most’, Bhattacharya says. ‘Everybody likes getting gifts, don’t they?’
But what makes the difference during a recession is combining benevolent and process-oriented CSR. ‘The customer might see the “giving” as not completely honest’, he says, as if you’re just doling out money to look good. ‘But when you take care of your people and your product, they feel that you – as a company – are really dedicated. Then you will get a return on the money you spend.’
That’s probably because all companies have at least some CSR activities, these days. They put women on the board just to look good. They say they care about inclusiveness or the social situation in the countries where they manufacture their products.
But customers aren’t that gullible, Battacharya says. They quickly realise when a company is window dressing, like BP did when it donated money to cancer research after the enormous oil spill in the Gulf of Mexico in 2010 that the company caused. Boeing, in the news last year after two of its 737 MAX planes crashed, donated 250,000 medical face masks to China in January. ‘They probably did that for nothing’, says Bhattacharya. ‘The donations will not make up for the damage that was already done.’
Nor do CSR activities work when companies, like Adidas or Reebok, try to come across as do-gooders while using sweatshops in Malaysia, where workers produce sportswear under dire circumstances.
It’s much smarter for a company to do the right thing all along and keep doing it when a recession hits. That’s when your customers will believe you, and when the strategy actually pays off. Once the recession caused by the coronavirus hits us, Lidl doesn’t stand a chance if they suddenly start to care about the environment, nor does Amazon, which should have treated its employees better all along.
Mix goodwill with whatever message you want to get out
That doesn’t mean that the small businesses that will be affected by the upcoming recession can’t do anything. On the contrary. ‘I actually spoke to some hairdressers about this’, Bhattacharya says. ‘Especially now, when people are still afraid, local companies should emphasise not just the ways in which they maintain their customers’ safety, but also that they are generally invested in the community and that by supporting them you can join this wonderful venture and be part of the community too.’
Customers will trust a company that sends a message like that, he thinks, and they will be less afraid of visiting it.
‘Mix some goodwill with whatever message you want to get out. And give out some vouchers to the homeless, too, making sure you show that you are not giving up and that what you stand for is still the same. That will help.’