Ethical brands boost customer loyalty (and satisfaction)

Brands that behave ethically also increase positive word-of-mouth, customers' commitment and perceived quality.

This article is based on research by Oriol Iglesias & Vicenta Sierra

Customers are increasingly expecting brands to have ethical values. Brands that behave unethically risk making their customers angry and seeing their reputations dented. Companies that do not make business ethics a priority are also missing out on the positive effects that exemplary corporate behaviour has on customers.

Brands with a conscience are a great opportunity for business – they boost customer loyalty and foster long-term relationships with firms, according to research led by Associate Professor Oriol Iglesias and his coauthor Professor Vicenta Sierra in the Journal of Business Ethics.

Brands with a conscience boost customer loyalty

"An ethical brand acts with integrity, responsibility, honesty, respect and accountability. Companies that place ethics at the core of their business strategy have a positive impact on their customers' affective commitment towards the brand. Ethical brands also increase customer satisfaction, service quality, financial performance and customer retention," write the authors.

5 major benefits of ethical brands

The researchers analysed the perceptions of 2,179 customers from 18 to 65 years old regarding their involvement in purchasing services from financial institutions, clothing retail chains, insurance companies, internet and telephone service providers, hypermarket and supermarket chains, gas stations, utility companies and hotel chains utility companies and hotel chains.

The data provide empirical evidence that service brands engaging in ethical behaviour reap the following 5 major benefits:

1. Commitment toward the brand

Customers have a greater affective commitment and emotional attachment to those brands they see as being more 'ethical' than others.

Furthermore, committed customers are less sensitive to price differences in relation to competitors and are willing to pay more. They are also more likely to blame service failures on external factors or even themselves, thereby becoming more forgiving of poor brand performance.

Committed customers are less sensitive to price differences

2. Customer perceived quality

A company embracing ethical behaviour transmits trust to customers. This positive behaviour boosts a customer's perception of quality service rendered by the company.

When customers recognise a company as ethical, they perceive the brand's service excellence as superior compared to its competitors.

3. Empathy and satisfaction

Customers value being treated in a helpful manner by a company's employees. Brands with staffers who show empathy elicit greater positive emotions from customers, raising relationship satisfaction and commitment to the brand.

Empathic employees are also better at understanding customer needs and so are more able to personalise their services for each client.

Ethical brands benefit from higher levels of loyalty

4. Customer loyalty

Compared to their counterparts, ethical brands benefit from higher levels of loyalty and customers' strong commitment to repurchase a company's products or services.

The emotional commitment that people develop toward a service provider boosts customer retention and loyalty and prevents the search for alternatives among competing brands.

5. Positive word-of-mouth

Brands that behave ethically make customers' more loyal. The findings confirm that greater loyalty also boosts positive conversations about the brand.

When customers are loyal to a brand, they are more likely to share their positive feelings with others, thus 'spreading the good word' about the company and its products and services.

Managerial implications

The results of this research have major implications for managers. Companies operating in service industries need to build their ethical commitment from within and behave accordingly. This means that a company's brand strategy needs to be aligned with human resource policies and practices.

"Human Resources Departments have to implement recruitment, training and promotion policies and practices that allow for ethicality to flourish and turn into employee behaviour," write the authors. "Corporate service brands require employees who behave in an empathic and ethical way during every single interaction and touch-point with customers."

The researchers warn that managers need to reverse the current trend of hiring poorly-skilled, minimum-wage service employees and start to hire and train qualified staff that are highly empathic and ethical.

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