Corporate Social Responsibility

Abstract

This research builds on the halo effect of corporate social responsibility (CSR) literature in marketing to provide insight into the positive effect of CSR in a service encounter. Using a company’s green practices as CSR, this research examines how customers’ perceptions of CSR might spill over into their evaluations of the company and behavioral intentions in a service recovery context. The results, from 418 participants of the scenario-based role-playing experiment, indicate that CSR and service recovery have a significant effect on customer satisfaction, trust, word-of-mouth recommendations, and repeat patronage intentions in a casual-dining restaurant setting. Also, an interaction effect suggests that the CSR effect is more pronounced in a positive service recovery compared to a negative service recovery. The findings of this research provide researchers and practitioners with a better understanding of CSR and the positive influence it has on customer responses in a service encounter.

Keywords

corporate social responsibility (CSR)green practices service recovery halo effect

Introduction

Consumers are becoming increasingly aware of environmental problems and the ethical operations of hospitality organizations (Rudež, 2010), and they expect companies to act as good corporate citizens beyond generating profit (Crook, 2005; Sparkes, 2002). Companies have been addressing this growing consumer need in the form of corporate social responsibility (CSR).

CSR refers to a company’s voluntary activities “that appear to further do some social good, beyond the interests of the firm and that which is required by law” (McWilliams & Siegel, 2001, p. 117). Such activities usually include the adoption of advanced human resource management practices, reduction of environmentally hazardous substances, participation in humanitarian activities, and support for local communities and businesses (Barnett, 2007; McWilliams & Siegel, 2001). Darden (2012), for example, has presented itself as one of the leading restaurant companies committed to sustainability efforts, including green practices and an industry partnership with fisheries in the Gulf of Mexico. Due to its significance in different areas of a company’s competitiveness, CSR has become an essential component of companies’ business models and strategic planning (Franklin, 2008).

CSR has become a part of the contemporary business world, and it serves as an indication of society’s attitude change in the past decade (Bohdanowicz & Zientara, 2008; Tzschentke, Kirk, & Lynch, 2008). According to the National Consumers League (2005), the majority of U.S. adult consumers choose “being socially responsible” as the factor most likely to make them loyal followers of a particular brand or company. Similarly, previous studies indicate that customers evaluate a company favorably when its CSR activities are known to them (Marin, Ruiz, & Rubio, 2008; Sen, Bhattacharya, & Korschun, 2006). Other studies suggest that CSR is subject to a halo effect, whereby consumer perceptions of a company’s CSR activities spill over to their perceptions of the company’s performance in other areas (Smith, Read, & Lopez, 2010) and even protect a company from undesirable consequences resulting from negative events or crises (Klein & Dawar, 2004). Although there has been a growing research interest in CSR and its impact on consumer attitudes toward the company and purchasing intentions (e.g., Brown & Dacin, 1997; Kim, Kang, & Mattila, 2012), there is a lack of research on how CSR influences customers’ perceptions and behavioral intentions in service encounters.

Service encounters are the “critical moments of truth” in which customers often develop a long-lasting impression of service organizations (Zeithaml & Bitner, 2000). Particularly, for failed service encounters, an appropriate service recovery is necessary to lessen the negative effects of the service failure, increase postrecovery satisfaction, and retain customers (Smith, Bolton, & Wagner, 1999). CSR is often used as a strategic-planning tool to promote a company’s positive image and increase attraction from current and potential customers (Reich, Yueying, & McCleary, 2010), whereas service recovery is one of the main customer retention strategies that restores trust and fairness to dissatisfied customers (Ok, Back, & Shanklin, 2005). Extending the role of CSR to customer retention strategies, this study proposes that CSR can influence customers’ perceptions and behavioral intentions within a service recovery context.

This study focuses on the halo effect of consumers’ perceptions of a company’s green practices and how these perceptions might spill over into their evaluations of service recovery in a casual restaurant setting. Green practices are chosen as a CSR activity in the study because they are widely implemented in the hospitality industry (Butler, 2008; Tzschentke et al., 2008), and customers show positive attitudes toward restaurants that care about the environment (Schubert, Kandampully, Solnet, & Kralj, 2010). The findings of this study can provide empirical evidence regarding the effects of perceptions of green practices on service recovery, thus contributing to the existing service recovery and CSR literature. Furthermore, the findings of this study provide managers with a better understanding of CSR and the positive influence it has on customer perceptions and behavioral intentions.

Literature Review

Corporate Social Responsibility

Businesses of all sizes and industries are recognizing the many benefits of incorporating CSR in their strategic planning. According to the KPMG International Survey of Corporate Responsibility Reporting 2011 (KPMG, 2011), 95 percent of the largest 250 global companies are involved in some form of CSR initiatives. The hospitality industry has also capitalized on this business practice via various forms, such as community involvement, environmentally friendly practices, and customer and employee relations (Holcomb, Upchurch, & Okumus, 2007). Particularly, environmentally friendly practices have been widely accepted and are even becoming the norm in the hospitality industry (Butler, 2008). For example, car rental companies are providing hybrid vehicles for rent, hotel chains are introducing power management systems and green programs, and restaurants are focusing on waste reduction and recycling practices (Parker, 2011).

CSR is not a new concept, and researchers have discussed its conceptualization, effects, and benefits to the hospitality and tourism industry (Bohdanowicz & Zientara, 2008; McGehee, Wattanakamolchai, Perdue, & Calvert, 2009). One of the earliest works on CSR is Bowen’s 1953 book, Social Responsibilities of the Businessman. Since then, CSR has been generally conceptualized as actions that are beyond maximizing investors’ wealth (Goodpaster, 1991; McWilliams & Siegel, 2001). According to Pirsch, Gupta, and Grau (2006), CSR can be understood via two types: institutional and promotional. Institutional CSR is described as firms being socially responsible through their policies and procedures, whereas promotional CSR refers to activities (e.g., fundraising and donations) that drive sales. Their findings suggest that consumers prefer institutional CSR to promotional CSR due to skepticism regarding occasional promotion-based CSR activities (Pirsch et al., 2006). Similarly, Vlachos and Tsamakos (2011) showed that profit-motivated giving likely diminishes loyalty and that benevolent giving likely increases loyalty, and such effects may take place both directly and indirectly through consumer perception of trust.

CSR-Related Benefits

CSR positively affects different areas of a firm’s competitiveness (Porter & Kramer, 2006). Sen et al. (2006) demonstrated that stakeholders who are aware of the company’s CSR initiatives exhibit more positive company-related connotations, such as a greater intent to purchase products from, seek employment with, and invest in the company, than those individuals who are unaware of the CSR initiatives. Similarly, other researchers suggest that a socially responsible brand image has a positive impact on attitudes toward a company (Brown & Dacin, 1997; Lii & Lee, 2012), product and service quality, and brand loyalty (Marin et al., 2008; Reich et al., 2010). In addition, firms with higher CSR are associated with a positive reputation and organizational commitment from employees, and are more attractive as an employer than firms with lower CSR (Backhaus, Stone, & Heiner, 2002; Deery, Jago, & Stewart, 2007; Greening & Turban, 2000)

CSR also has a positive impact on financial performance (e.g., Lee & Park, 2010; Molina-Azorín, Claver-Cortés, López-Gamero, & Tarí, 2009). Inoue and Lee (2011) examined the effects of five CSR dimensions (employee relations, product quality, community relations, environmental issues, and diversity issues) on the financial performance of four tourism-related industries (airlines, casinos, hotels, and restaurants). The results show that each dimension has a different effect on both short-term and future profitability. For example, CSR activities targeted toward the community signiﬁcantly decrease short-term proﬁtability for the airline industry, but increase both short-term and future proﬁtability for the hotel and restaurant industries (Inoue & Lee, 2011). Similarly, Luo and Bhattacharya (2006) reported that CSR practices have a positive influence on consumer satisfaction and consequently a firm’s market value.

CSR-Related Concerns

Although CSR is advocated by business practitioners and researchers, it has been criticized by researchers mainly for three reasons. First, from an ethical point of view, some researchers question the need for CSR. Basically, it is argued that the sole purpose of doing business is to maximize profit, and CSR may interfere with essential business operations such as capitalizing on evolving business opportunities and profitable activities (Cogman & Oppenheim, 2002; Friedman, 1970). For example, business activities, such as the use of legally contestable markets (e.g., tobacco, gambling, alcohol, and sex), the development of new technologies, entry into third world markets, and moving from the public to the private sector, may fulfill legal and financial purposes but clash with CSR principles (Robins, 2005). Thus, Devinney (2009) asserted that the socially responsible corporation is fundamentally impossible due to the naturally conflicted nature of the corporation.

Second, CSR has been criticized for its true purpose. L’Etang (1994) pointed out that the true reason why corporations engage in CSR practices is to address external pressures imposed by the environmental activists rather than to integrate long-term CSR policies that will benefit the community. Many companies still consider CSR as merely a marketing gimmick to enhance their market presence through cosmetic, public relations stunts rather than as an aiding source for the community in which they operate through the CSR initiatives (Bohdanowicz & Zientara, 2008; Porter & Kramer, 2006). This superficial CSR approach produces minimal social impact, generates consumer skepticism, and ultimately fails to deliver business value (Du, Bhattacharya, & Sen, 2011).

Third, some researchers found negative effects of doing right. Due to an inherent trade-off between the ethical attributes and functional effectiveness of a product, some CSR activities can lower the value that customers perceive (Luchs, Naylor, Irwin, and Raghunathan, 2007). For example, consumers respond to fair trade coffee as having a less enjoyable taste than regular coffee (Obermiller, Burke, Talbott, & Green, 2009) and consider green products (e.g., eco-friendly detergent) to be less effective than regular products (Lin & Chang, 2012). Also, CSR initiatives often involve a cost to the company, and such cost could lead to a price increase for consumers, consequently leading to lower sales (Mohr & Webb, 2005).

The heart of the CSR debate is whether companies should be managed based on the stakeholder perspective or shareholder perspective (Choi & Ng, 2011; Devinney, 2009). From the stakeholder perspective, the principle is that a company must consider the impacts of its actions on the stakeholders beyond the owners of the firm, which can include customers, employees, suppliers, the environment, and the community. In contrast, the shareholder perspective suggests that a company’s sole obligation is to meet the expectations of its owners and shareholders by focusing on monetary profitability within the framework of the law. Thus, CSR is viewed as an imperative from a stakeholder perspective but not a relevant matter from a shareholder perspective (Choi & Ng, 2011).

Although the need for CSR is criticized from both ethical and business standpoints, its benefits, such as brand image enhancement (Brown & Dacin, 1997; Lii & Lee, 2012) and favorable product and service quality perceptions (Marin et al., 2008; Reich et al., 2010), are far more significant to a company than its concerns. CSR can be considered as one of the offensive marketing strategies designed to obtain additional customers, encourage brand switching, and increase purchase frequency, whereas service recovery is one of the main defensive marketing strategies that reduces customer exit, brand switching, and negative word of mouth through customer complaint management (Fornell & Wernerfelt, 1987). By extending the CSR effect to customer retention strategies, this study examines the effect of CSR on customers’ perceptions and behavioral intentions within a service recovery context.

Service Failure and Service Recovery

A service failure–service recovery encounter is a sequence of events during which a service failure triggers a procedure that generates economic and social interaction between the customer and the company (Smith et al., 1999). Service recovery following a failure incident becomes vital for service firms because it allows service providers to rectify a problem and to convert the negative attitudes of unsatisfied customers into positive ones (Miller, Craighead, & Karwan, 2000). Numerous study results have shown that the consequences of a service failure and an unsatisfactory service recovery lead to customer dissatisfaction, and, in turn, cause complaining and switching behaviors (e.g., Keaveney, 1995; McCollough, 2000; Ok et al., 2005). Therefore, successful service recovery has been emphasized due to its ability to improve customer satisfaction, promote positive word of mouth, and increase customer loyalty (Karatepe, 2006; Leong & Kim, 2002). Because previous research confirms the positive effect that service recovery has on customer evaluation of the company and behavioral intentions, stating specific hypotheses seems unnecessary. We generally expect that a positive service recovery results in higher satisfaction, trust, word-of-mouth recommendations, and repeat patronage intentions than a negative service recovery.

CSR Halo Effect and Service Recovery

Halo effect refers to a positive preconception of one measure that spills over into another measure (Beckwith, Kassarjian, & Donald, 1978). This effect has been researched extensively in the marketing literature in regard to prechoice evaluation (e.g., Holbrook, 1983) and consumer satisfaction (e.g., Wirtz, 2000). Smith et al. (2010) suggested that consumers make implications about an organization’s CSR practices based on limited information. Their findings indicate that consumer awareness of one type of CSR action (e.g., recycling) influences their perceptions of other types of CSR actions (e.g., community involvement) about which they have little or no information.

Research has suggested that consumers’ perceptions of a company’s CSR activities positively influence their satisfaction (Luo & Bhattacharya, 2006), trust toward the company (Swaen & Chumpitaz, 2008), loyalty (Marin et al., 2008; Rudež, 2010), and attitudes and behavioral intentions (Joyner & Payne, 2002; Mohr & Webb, 2005). In this study, we are interested in the halo effect of customers’ perceptions of the company’s green-practices CSR on company evaluations and behavioral intentions in the service recovery context. On the basis of aforementioned prior research, we expect customers who perceive the company’s positive green-practices CSR to show higher levels of satisfaction, trust, word-of-mouth recommendations, and repeat patronage intentions than those who perceive negative green-practices CSR or no green-practices CSR information. Therefore, we propose the following:

H1a: Perception of a company’s positive green-practices CSR is associated with higher satisfaction with the company.

H1b: Perception of a company’s positive green-practices CSR is associated with higher trust toward the company.

H1c: Perception of a company’s positive green-practices CSR is associated with higher word-of-mouth recommendation intentions.

H1d: Perception of a company’s positive green-practices CSR is associated with higher repeat patronage intentions.

Although the CSR halo effect has been shown to positively influence customers by enhancing their perceptions, attitudes, and evaluations (e.g., Mohr & Webb, 2005), some researchers have highlighted the benefit of CSR in terms of mitigating negative effects (Klein & Dawar, 2004). For example, Coombs and Holladay (2006) found that as companies create a positive image with stakeholders, these stakeholders might be more likely to minimize or disregard negative information about the company. Similarly, Lin, Chen, Chiu, and Lee (2011) showed that perceived CSR moderates the relationship between perceived negative publicity and trust during product harm crises. Customer trust can be easily hurt by negative publicity when there is a lack of a CSR initiative; however, a company with good CSR is in better shape to resist negative publicity (Lin et al., 2011). Other researchers also found that positive CSR practices influence customer evaluation of a company by mitigating negative publicity or skepticism and enhancing customer perception of the company (Eisingerich, Rubera, Seifert, & Bhardwaj, 2011; Mattila, Hanks, & Kim, 2010). These findings indicate that the CSR halo effect is particularly effective in buffering against negative effects.

Therefore, this study posits that the CSR effect will be stronger in the negative service recovery than in the positive service recovery. When a customer receives a positive service recovery, the recovery outcomes (satisfaction, trust, and behavioral intentions) are already high due to the good service recovery, and a positive CSR will not add much incremental effect to increasing the outcome variables. When a customer receives a negative service recovery, however, a positive CSR acts as a buffer and effectively reduces the negative service recovery effects on satisfaction, trust, and behavioral intentions. In other words, the CSR effect will be more pronounced in a negative service recovery. Hence, the following hypotheses are postulated:

H2a: The effect of green-practices CSR on satisfaction is stronger for negative service recovery than for positive service recovery.

H2b: The effect of green-practices CSR on trust is stronger for negative service recovery than positive service recovery.

H2c: The effect of green-practices CSR on word-of-mouth recommendation intentions is stronger for negative service recovery than for positive service recovery.

H2d: The effect of green-practices CSR on repeat patronage intentions is stronger for negative service recovery than for positive service recovery.

Method

Procedure

An experimental study consisting of a 3 (CSR) × 2 (Recovery) between-subjects factorial design was used. Three CSR conditions (positive CSR information, negative CSR information, and no CSR information [control]) were matched with two service recovery conditions (positive and negative). Participants were randomly assigned to one of the six experimental conditions. The scenarios used in the study are shown in Appendix A.

First, participants were presented with the CSR scenario, a company description containing positive, negative, or no green practices information. Positive CSR was represented by exemplary green practices, and negative CSR was represented by poor green practices. The control group did not receive any green-practices information but just a company description. The CSR scenarios were developed based on Sen and Bhattacharya’s (2001) study. Following the CSR scenario, participants were asked questions regarding the company’s green practices (manipulation check), their personal environmental beliefs (covariate), and the believability of the scenarios.

The second part of the survey asked participants to role-play as casual restaurant customers who experience a service failure and a recovery described by a written scenario based on Smith et al. (1999). The service failure involved inattentive service by the server, and the service recovery description presented either an appropriate response from the managers accompanied by an apology and compensation (positive) or a delayed response from the managers with no apology or compensation (negative). After reading the second scenario, participants answered questions designed to measure their perceptions of the service recovery (manipulation check), dependent constructs, and scenario realism.

Measures

For the CSR manipulation check, three items (e.g., This restaurant supports good causes, α = .97) were adapted from Berens, Cees, Van Riel, and Van Bruggen (2005) and Lichtenstein, Drumright, and Braig (2004). For the service recovery manipulation check, a 7-item justice scale (e.g., The outcome I received was fair, α = .97) from Blodgett, Hill, and Tax (1997) was used. In addition, the believability of the company description with green-practices information (r = .75) and the realism of the service recovery scenario were assessed (r = .63).

Customer satisfaction was assessed by five items (e.g., I am satisfied with my overall experience with this restaurant, α = .96) adapted from Olorunniwo, Hsu, and Udo (2006); and trust was measured via four items (e.g., I feel that this company is trustworthy, α = .96) from Sirdeshmukh, Singh, and Sabol (2002). Word-of-mouth recommendation intentions were measured by four items (e.g., I would recommend this restaurant to others, α = .80) from Blodgett et al. (1997) and Keillor, Hult, and Kandemir (2004). Repeat patronage intentions were assessed by three items (e.g., I would eat at this restaurant again, α = .79) from Blodgett et al. (1997) and Leong and Kim (2002). In addition, participants’ general environmental beliefs were measured by eight items (e.g., Humans are severely abusing the environment, α = .79) from Dunlap, Van Liere, Mertig, and Jones (2000) from Schubert et al. (2010), and were included as a covariate in the analysis.

All items were assessed on a 7-point Likert-type scale, and the scale items used in the study appear in Appendix B. A pretest was conducted with 199 undergraduate students to assess the manipulations and the constructs used in the study. The pretest results indicated that the research design and measurement items were sound and suitable; thus, we proceeded to the main study.

Sample

Four hundred and eighteen subjects who had a dining experience at a casual restaurant were recruited by a reputable marketing research firm. An online survey was developed and distributed to the marketing research firms’ consumer panel in the United States. Of the 418 participants, 40% dined at a casual-dining restaurant 3~5 times a month, and 19% dined out six times or more. The majority of the sample population was female (66%), and the average age of the participants was 37 years (range 18~70). The majority of the participants were White/Caucasian (82%), and about 58% of the participants were married. The education and the income level of the participants were much dispersed, but 27% of them had a college degree and 44% reported an income level of $20,000–59,999. Table 1 provides detailed information of the sample demographics.

Table 1

Sample Characteristics (N = 418)

	Frequency	%
Frequency of casual dining patronage (past month)
Never	25	6.0%
1–2 times	146	34.9
3–5 times	167	40.0
6–12 times	60	14.4
More than 12 times	20	4.8
Gender
Male	142	34.0
Female	276	66.0
Age
Average age	37 years (min = 18, max = 70)
Ethnicity
White/Caucasian	341	81.6
Black/African American	23	5.5
Asian	23	5.5
Hispanic/Latino	24	5.7
Other	7	1.7
Marital status
Single	143	34.2
Married	241	57.7
Other	34	8.1
Education
Some high school	11	2.6
High school degree	107	25.6
Associate degree	51	12.2
College credits; no degree	98	23.4
College degree	112	26.8
Graduate school	39	9.3
Income level
Less than $20,000	62	14.8
$20,000–39,999	93	22.2
$40,000 –59,999	91	21.8
$60,000–79,999	68	16.3
$80,000–99,999	42	10.0
$100,000 or more	62	14.8

Results

Manipulation Check

ANOVA results show that there is a significant difference among the means of the three CSR scenarios (F = 195.06, p < .001). As expected, the mean CSR score was the highest for positive CSR (M = 6.10), followed by no CSR (M = 4.26) and negative CSR (M = 2.62). Furthermore, the pairwise comparisons (Tukey) confirmed the significant mean differences between all three levels. Next, t-test results confirmed a significant mean difference between the positive service recovery (M = 4.54) and negative service recovery (M = 2.31) conditions (t = 14.02, p < .001). Finally, regarding realism, study participants perceived the CSR scenario description as believable (M = 5.32) and the service recovery scenario as realistic (M = 5.29). Taken together, the results indicated that the manipulations were effective.

Hypotheses Testing

The main and interaction effects on customer satisfaction, trust, repeat patronage, and word of mouth were examined. First, MANOVA results indicated significant main effects of Recovery (F = 25.78, p < .001, η² = .21) and CSR (F = 3.71, p < .001, η² = .04), and an interaction effect (CSR*Recovery: F = 2.04, p < .05, η² = .02). Because multivariate results suggest that all main and interaction effects are significant, univariate analyses’ results are examined. Table 2 provides the summarization of the multivariate and univariate results, and Table 3 shows cell means by condition.

Table 2

MANOVA Summary Statistics

Dependent Variable	Main and Interaction Effects	df	Wilks’ F	Sig.
Multivariate statistics
	CSR	8, 772	3.71	<.001
	Recovery	4, 386	25.78	<.001
	CSR*Recovery	8, 772	2.04	.040
Univariate statistics
Satisfaction	CSR	2, 389	5.26	.006
	Recovery	1, 389	29.15	<.001
	CSR*Recovery	2, 389	1.06	.349
Trust	CSR	2, 389	8.65	<.001
	Recovery	1, 389	83.25	<.001
	CSR*Recovery	2, 389	3.65	.027
Positive word of mouth (WOM)	CSR	2, 389	6.06	.003
	Recovery	1, 389	47.21	<.001
	CSR*Recovery	2, 389	5.47	.005
Repeat patronage	CSR	2, 389	5.72	.004
	Recovery	1, 389	58.98	<.001
	CSR*Recovery	2, 389	3.25	.040

Table 3

Means by Condition

Dependent Variable	Service Recovery	Positive CSR	Negative CSR	No CSR	Average
Satisfaction	Positive	3.82 (1.72)	3.10 (1.75)	3.13 (1.52)	3.35 (1.69)
	Negative	2.69 (2.04)	2.48 (1.81)	1.93 (1.39)	2.37 (1.75)
	Average	3.26 (1.92)	2.79 (1.79)	2.53 (1.57)
Trust	Positive	4.81 (1.38)	3.61 (1.65)	4.11 (1.44)	4.18 (1.56)
	Negative	3.03 (1.84)	2.74 (1.88)	2.25 (1.31)	2.67 (1.68)
	Average	3.92 (1.80)	3.18 (1.79)	3.18 (1.66)
Positive WOM	Positive	3.89 (1.18)	2.98 (1.31)	3.55 (1.19)	3.47 (1.28)
	Negative	2.80 (1.52)	2.63 (1.48)	2.15 (1.19)	2.53 (1.40)
	Average	3.35 (1.42)	2.81 (1.39)	2.85 (1.38)
Repeat patronage	Positive	4.24 (1.35)	3.32 (1.48)	3.93 (1.31)	3.83 (1.42)
Repeat patronage	Negative	2.97 (1.69)	2.66 (1.64)	2.37 (1.29)	2.67 (1.54)
	Average	3.61(1.61)	2.99 (1.60)	3.15 (1.51)

Note: Standard deviations are shown within parentheses.

Satisfaction

A univariate analysis indicated that CSR has an effect on customer satisfaction (F = 5.26, p < .05, η² = .03). Satisfaction was the highest for the positive CSR (M = 3.25), followed by the negative CSR (M = 2.79) and no CSR (M = 2.53). Furthermore, simple contrast analysis results indicated a significant mean difference between positive and no CSR (mean difference = .72, p < .05), and between positive and negative CSR (mean difference = −.46,p < .05), but no significant mean difference between negative and no CSR. As for the interaction effect of CSR and service recovery on customer satisfaction, the results show that there is no significant interaction effect.

Trust

A univariate analysis indicated that CSR has a significant effect on trust (F = 8.65, p < .05, η² = .19). Trust was the highest for the positive CSR (M = 3.92), followed by no CSR (M = 3.18) and the negative CSR (M = 3.18). Consistent with the results of satisfaction, there is a significant mean difference between positive and no CSR (mean difference = .74, p < .05), and between positive and negative CSR (mean difference = −.74, p < .05), but no significant mean difference between negative and no CSR. As for the interaction effect of CSR and service recovery on trust, the results show that there is a significant interaction effect (F = 3.65, p < .05, η² = .02). Positive CSR with positive recovery had the highest trust (M = 4.81), and no CSR with negative service recovery had the lowest trust (M = 2.25). This interaction effect is further illustrated in Figure 1.

Figure 1

Interaction Effect: Consumer Trust

Word of mouth (WOM)

A univariate analysis indicated that CSR has a significant effect on positive WOM (F = 6.06, p < .05, η² = .12). WOM was the highest for the positive CSR (M = 3.35), followed by no CSR (M = 2.85) and the negative CSR (M = 2.81). Simple contrast analysis results showed a significant mean difference between positive and no CSR (mean difference = −.54, p < .05), and between positive and negative CSR (mean difference = −.92, p < .05), but no difference between negative and no CSR. In addition, there was a significant interaction effect of CSR and service recovery on WOM (F = 5.47, p < .05, η² = .03). Positive CSR combined with positive recovery had the highest mean (M = 3.89), and no CSR combined with negative recovery had the lowest (M = 2.15) (see Figure 2).

Figure 2

Interaction Effect: Word of Mouth

Repeat patronage

A univariate analysis indicated that CSR has a significant effect on repeat patronage (F = 5.72, p < .05, η² = .14). Repeat patronage intention was the highest for the positive CSR (M = 3.61), followed by no CSR (M = 3.15) and the negative CSR (M = 2.99). Simple contrast analysis indicated a significant mean difference between positive and no CSR (mean difference = .46, p < .05), and positive and negative CSR (mean difference = −.92, p < .05); however, there was no significant difference between negative and no CSR. As for the interaction effect of CSR and service recovery on repeat patronage, the results show that there is a significant interaction effect (F = 3.25, p < .05, η² = .02). Positive CSR combined with positive recovery had the highest mean (M = 4.24), and no CSR combined with negative recovery had the lowest (M = 2.37) (see Figure 3).

Figure 3

Interaction Effect: Repeat Patronage

Discussion

This study suggests that the CSR halo effect plays an important role in customers’ service encounter outcomes. The results showed that positive CSR displayed a significant positive effect on the outcome variables compared to negative CSR and no CSR. Yet, there was no significant difference between negative CSR and no CSR. These findings provide supporting evidence for Hypothesis 1, which predicts that the positive CSR has an effect on customer satisfaction, trust, repeat patronage, and WOM recommendations. These results are consistent with past research that CSR initiatives positively influence customers’ attitudes and behavioral intentions (Marin et al., 2008; Sen et al., 2006).

More interestingly, the results indicated an interaction effect between CSR and service recovery on trust, WOM recommendationsm and repeat patronage intentions, but not satisfaction. This means that service recovery efforts are most likely to determine customer satisfaction after a service encounter; however, their attitudinal perceptions (e.g., trust) and future behavioral intentions (WOM recommendations and repatronage intentions) are determined more holistically by customers, who include the company’s CSR perception. Particularly, the interaction plots suggest that when service recovery was positive, the company’s positive CSR magnified the positive service recovery effects, resulting in higher outcome measures. The company’s negative CSR practices substantially lowered the effectiveness of service recovery, however, even when service recovery was positive. Furthermore, negative CSR was more harmful to a company than no CSR when a customer received a positive service recovery.

In contrast, when the service recovery was negative, the outcome variables were less influenced by CSR. These results indicated that trust, WOM recommendations, and repeat patronage intentions were already lowered by poor service recovery, and the CSR effect was smaller in the negative service recovery than it was in the positive service recovery. For customers who experience a double deviation, service failure and recovery failure, the perceptions of the company and behavioral intentions are more driven by the negative service encounter itself than by the company’s reputation of CSR.

Past research suggested that positive CSR mitigates negative effects (e.g., Lin et al., 2011; Luo & Bhattacharya, 2006), and Hypothesis 2 conceptualized a stronger positive CSR effect for the negative service recovery than the positive service recovery. The findings of this study, however, suggested the opposite pattern: that positive CSR magnified the positive effects of the service recovery. In other words, the effects of CSR (an increase from negative CSR to positive CSR) in the negative service recovery condition were smaller than those in the positive service recovery condition. This interaction pattern suggested that the positive CSR effect was more pronounced in the positive service recovery compared to the negative service recovery. Although the interaction effects of CSR and service recovery were significant, the results illustrated an opposite pattern from the prediction. Thus, Hypothesis 2 is not supported.

This opposite pattern can be explained by two aspects. First, CSR may alter customers’ perceptions of service encounters in an asymmetric manner. When customers perceive the company as being socially responsible, a successful service recovery becomes a further validation of a good company. These may lead customers to reward the company with amplified desired outcomes. When, however, customers perceive the company as being not socially responsible, customers may resent and punish the company by discounting the positive service recovery efforts. Previous research has provided evidence for consumers’ tendency to punish firms for bad CSR behaviors (Williams & Zinkin, 2008). Second, CSR may not always buffer the negative effects. Recently, Eisingerich et al. (2011) showed that CSR protects firms from only the negative information associated with their CSR practices. It does not protect the organization from the negative information related to service quality or concern for customers. Our results serve as an indication that in service recovery that directly relates to the organization’s service quality, customers perceive CSR more as a perk for a positive situation rather than a shield for a negative situation. Therefore, the CSR effect was larger in the positive service recovery than it was in the negative service recovery.

Managerial Implications

This study’s findings offer implications for managers and marketers in the hospitality business. First, it is beneficial for companies to implement CSR activities and communicate CSR efforts and achievements effectively with customers. Companies often use CSR to gain a competitive advantage by creating a favorable image of themselves among consumers. Our results indicate that good CSR strengthens the company’s service recovery effort, but poor CSR undermines it. According to the study findings, a company’s CSR positively affects the desired outcomes, and, therefore, companies must be socially responsible although it may cost more. Such efforts, however, will benefit the company directly and indirectly, as demonstrated in this study. To reap the benefits of CSR, communicating CSR activities is essential to enhancing customers’ awareness of the CSR activities and perceptions of the company. In particular, communication channels that are not directly controlled by the company (i.e., CSR-related awards or third-party ratings) can be effective by increasing trust in and reducing skepticism from customers.

Second, hospitality organizations should view CSR as being not just a promotional tool to attract customers but also an aid to increase customer loyalty and retention. We suggest that hospitality companies incorporate CSR into loyalty programs as a means to increase customer awareness of a company’s CSR activities, encourage their participation, and in turn increase customer loyalty. Many hospitality organizations already have some form of loyalty program in place. As opposed to promotional CSR, which usually focuses on advertising to link with purchasing behaviors to increase sales, institutional CSR provides all stakeholders, including customers, with an opportunity to support and be involved in the company’s social responsibility position through their policies and programs (Pirsch et al., 2006). Incorporating eco-labels into loyalty programs can increase environmentally and socially responsible behavior awareness in customers (Rudež, 2010). For example, Starwood’s Make a Green Choice program provides guests with 500 Starpoints or a $5 food and beverage credit for each night a guest declines housekeeping services (Starwood Hotels & Resorts, 2013). These CSR–loyalty programs can provide the member with an opportunity to be involved in the company’s CSR program beyond just their support through purchases. Hotels can offer loyalty program members with an opportunity to participate in the company’s CSR programs while staying on the property in the form of energy-saving cooperation, volunteer activities, or other community involvement.

Limitations and Future Research

The present study is not without limitations. First, this study was conducted in a casual-dining restaurant context by using green practices as CSR. Consequently, the findings may not be generalizable to other hospitality industry businesses and other forms of CSR. Future research should replicate and extend the effect of CSR on service recovery evaluations in other hospitality service contexts. Also, there are many different forms of CSR, such as fundraising for a cause, community involvement, and company ethical behavior, and different forms of CSR might have a stronger or weaker effect in different hospitality businesses. Future research is encouraged to investigate which type of CSR has a better fit with what type of business to maximize its effect.

Second, researchers suggest that consumers’ personal beliefs about CSR influence their reactions to the company’s CSR practices (Sen & Bhattacharya, 2001). In our study, individual customers’ personal beliefs about CSR were controlled to examine CSR and recovery effects in a casual-dining setting. We may suspect, however, that upscale-dining patrons can have different perceptions concerning CSR from those of fast-food diners. Future research is suggested to study the effect of customers’ characteristics by service type in examining the CSR halo effect.

Another limitation is that our experiment was scenario based. Although the respondents found the scenarios believable, this scenario-based experiment may not fully represent service recovery situations in the field. It is impossible to capture all of the nuances of an actual service encounter in a scenario, and it therefore may not accurately reflect the respondents’ reactions in the hypothetical situation. Furthermore, because respondents were asked to report their attitudes and behavioral intentions, rather than actual behavior, the findings may not accurately reflect the behaviors that follow real-life service failures. Future research is recommended to extend to a field experiment, especially in the context of service evaluations with a CSR halo effect.

Last, this study focused on the effects of CSR in a failed service transaction and recovery situation. Magnifying and mitigating effects of CSR on customer perceptions of the company and behavioral intentions were a function of the service recovery received. Customers’ evaluations of a company can, however, be influenced by various factors, such as prior experience, price, and so on. In addition, behavioral intentions after a service encounter are likely to unfold throughout time. A longitudinal study approach, including other relevant variables, is recommended to examine a real long-term effect of CSR on customers’ attitudinal and behavioral responses.

Footnotes

Appendix A: Scenarios

Appendix B: Measurement Items

Variable	Items	Cronbach’s α
CSR	• This restaurant supports good causes.	.97
	• This restaurant behaves responsibly regarding the environment.
	• This restaurant has a strong record of environmentally friendly practices.
Service recovery evaluation	• The outcome I received was fair.	.97
	• In resolving the problem, the restaurant gave me what I needed.
	• With respect to its policies and procedures, the restaurant handled the problem in a fair manner.
	• The restaurant responded quickly to my needs.
	• The manager put the proper effort into resolving my problem.
	• In dealing with my needs, the manager treated me in a courteous manner.
	• I was treated fairly during my interactions with the manager.
Satisfaction	• I am satisfied with my overall experience at this restaurant.	.96
	• I am pleased with my overall service experience at this restaurant.
	• My experience at this restaurant was enjoyable.
	• Choosing this restaurant was a wise decision
Trust	• I feel that this company is trustworthy.	.96
	• I have confidence in the products and services of this restaurant.
	• I feel that this restaurant has the ability to provide good products and services.
	• I believe that this company is concerned about my interest.
Word-of-mouth recommendation	• I would recommend this restaurant to others.	.80
	• I would say good things about this restaurant.
	• I would complain to others about this restaurant.(R)
	• I would warn others about this company. (R)
Repeat patronage	• I would eat at this restaurant again.	.79
	• I would never eat at this restaurant again. (R)
	• I plan to return to this restaurant.
General environmental belief	• Humans have the right to modify the natural environment to suit their needs. (R)	.79
	• When humans interfere with nature, it often produces disastrous consequences.
	• Humans are severely abusing the environment.
	• The so-called ecological crisis facing humankind has been greatly exaggerated.(R)
	• The balance of nature is strong enough to cope with the impacts of modern industrial nations. (R)
	• It is important to engage in energy and waste reduction.
	• It is important to use biodegradable or recycled products.
	• It is important to donate to environmentally friendly projects.

Note: All items are measured via a 7-point Likert-type scale (1 = disagree completely; 7 = agree completely). R = reversed-coded item.

Heidi Albus (email: halbus@knights.ucf.edu) is a University of Central Florida graduate with her Master’s degree in Hospitality Management and her Bachelor’s in Business Administration. She has been working in the hospitality industry and human resources in both the Caribbean and the U.S.

Heejung Ro (email: heejung.ro@ucf.edu), PhD is an Associate Professor in Rosen College of Hospitality Management, University of Central Florida. Her research focuses on service encounters, specifically customer complaining behavior, service failure and recovery, consumption emotions, dissatisfaction responses, and LGBTQ customers’ service evaluations. She has published research papers in refereed journals including, International Journal of Hospitality Management, Journal of Hospitality and Tourism Research, and Journal of Business Research.

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