What should luxury companies know about CSR: Pitfalls and opportunities

In the face of stakeholder expectations and changing social norms, corporate social responsibility (CSR) has become a requirement for luxury companies. However, there is not sufficient understanding of how consumers in fact react to luxury companies’ CSR engagement and how it affects their financial performance. 

On the one hand, CSR can act as a guilt-reducing mechanism for luxury consumers: knowing that you support a good cause with your purchase can provide a convenient license to splurge on an expensive watch or piece of jewelry. On the other hand, CSR and luxury can be perceived as conflicting concepts. Particularly when a luxury brand symbolizes dominance and exclusivity, it can seem contradictory that the brand also engages in CSR, which tends to be associated with equality and welfare.     

To reach an improved understanding of the outcomes of CSR in luxury contexts, my colleagues and I conducted a research project with a team of researchers from Finland and Germany. The starting point of our research was a longitudinal study based on real company data derived from Thomson Reuters’ databases, including famous luxury companies such as Bulgari, Burberry Group, and Christian Dior. Our analysis revealed an alarming pattern: over time, CSR reduced the financial performance of luxury companies. Thus, CSR engagement can potentially have negative consequences for luxury companies. 

To understand why this might be the case, we ran additional studies based on consumer data. We found out that in fact, consumers may perceive that the company engages in CSR for egoistic reasons, such as attracting new customers. This subsequently reduces intentions to be loyal to the company, which in turn can be harmful for the company’s long-term financial success. 

Does this mean that luxury companies should not engage in CSR? Definitely not! Rather, these findings motivated us to find solutions for how luxury companies can engage in CSR without a negative backlash. As a luxury brand manager, consider these recommendations: 

Engage in employee-focused CSR. We compared different types of CSR engagement and found that by engaging in internal, employee-focused CSR instead of external, philanthropic CSR, luxury companies can reduce consumers’ negative reactions and increase their loyalty intentions. Employee-focused CSR could take the form of investing in employee health, wellbeing and development, competitive compensation, or mentorship programs. Consider investing in some of these activities.

However, if you prefer to focus on company-external CSR activities such as philanthropy, frame your brand as sustainable rather than exclusive. Despite the potential advantages, it may not be possible or even ethical for some luxury companies to suddenly reduce their philanthropic engagement. Luckily, framing a luxury brand as sustainable instead of exclusive can help luxury companies overcome the negative outcomes of philanthropic CSR engagement. In practice, you may consider communicating a sustainability-related brand purpose and/or visibly committing the brand to certain sustainable development goals. A prime example of a successful sustainable brand framing is Stella McCartney. However, while employing a sustainable brand framing, make sure to live up to your sustainability promises to prevent consumer skepticism and perceived hypocrisy. For example, use sustainable raw materials and ensure sustainability along your entire supply chain.

In a nutshell: Luxury companies cannot ignore their social responsibilities. However, CSR engagement may carry the risk of negative financial and customer outcomes. With the recommendations outlined in this post, luxury companies are able to mitigate these potential negative consequences. 

Interested to learn more? Please read the full paper here (https://link.springer.com/article/10.1007/s11747-020-00755-x) and get in contact by sending an email to jenni.sipila@lut.fi

About the author

Jenni Sipilä is an Assistant Professor in marketing at LUT School of Business, Lahti campus. Her research focuses on sustainable consumption and CSR communication. The blog post is based on the following recently published article: Sipilä, J., Alavi, S., Edinger-Schons, L.M., Dörfer, S., & Schmitz, C. (2020). Corporate Social Responsibility in Luxury Contexts: Potential Pitfalls and How to Overcome Them. Forthcoming in Journal of the Academy of Marketing Science.

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