Business Ethics and Word of Mouth

THE INFLUENCE OF BUSINESS ETHICS ON CUSTOMER WORD OF MOUTH

Sameer Khan

N0720151

Abstract

This study analyzes the effect of business ethics on customers’ word of mouth. This study hypothesizes a direct relationship between companies operating using clear ethical work conduct and customers’ word of mouth. The study believes that companies working according to business ethics will generate a positive customer word of mouth which will eventually reflect positively on the company’s image and performance. In order to reach a better understanding of this theory, we will need to understand consumer behaviour and what makes them take the decisions they do and understand what triggers their actions. We will also study business ethics and what effect it has on consumer decisions and behaviour. The role of social media in spreading out word of mouth will also be discussed in this study. Finally, the study also discusses how corporate social responsibility affects consumers’ perception and word of mouth. This study’s key findings show a direct correlation between companies acting ethically and consumers’ positive word of mouth. It also concludes that ethical behaviour between company employees and consumers leads to consumer loyalty and commitment and finally a positive word of mouth.

Keywords: Consumer behaviour, business ethics, corporate social responsibility, social media, employee behaviour.

Introduction

Word of mouth marketing is probably one of the oldest unofficial marketing techniques that can reflect on a company’s performance both positively and negatively. Word of mouth marketing is when consumers’ interest in a company’s product or service is reflected in their daily dialogues (Kenton, 2020). Word of mouth is triggered by customers’ experience and interaction with a certain product or service, and it goes beyond customers’ expectations in either a positive or a negative manner. On the other hand, business ethics are moral principles that act as guidelines for how a company

conducts business transactions. Those guidelines are part of the company values and constitute part of the business strategy. The correlation between business ethics and consumer word of mouth is a subject matter that all business owners need to consider when conducting business transactions due to its direct correlation on consumers and the effect it may have on their decisions. A company’s ethical behaviours can be reflected in different forms and channels. In this study, we will focus on how

digital media can play a role in reflecting the business ethics of a company, in addition to corporate social responsibility and its effect on consumer word of mouth and decision-

making process. Advanced technology made it easy for people to connect and communicate with each other and various brands from different parts of the world. It is crucial that businesses conduct their transactions and operations ethically where consumers can see full transparency in their business dealings. Business managers need to review their company policies and align them to not negatively affect their reputation. Technology can also provide an open gateway for communication where business information can be easily researched and accessed. Businesses need to ensure that no bad publicity is listed under their brand representation on various digital channels, especially on social media channels, as consumers might link bad publicity as an unethical business practice. Businesses with excellent brand reputation and ethical business practices: attract long-term customer loyalty, customer service satisfaction, increase in revenue, and strong brand presence (Iglesias et al., 2017, pp.441-459). On the other hand, corporate social responsibility or CSR can also play a major role in communicating a company’s business values. Companies perform CSR activities to gain a competitive advantage and improve their reputation. This will reflect on customer mindset and how they perceive the company. Company’s also leverage new technology and the growth of digital media to communicate their CSR activities. They also interact with customers on social media channels where they get the chance to get direct feedback from them. Customers interact with each other and with brands on social media channels, and it is known that customers are more likely to believe or listen to another customer than to the brand. Most previous studies have covered the ethical perspectives that customers use in basing their word of mouth as either positive or negative. The relationship between the various dimensions used by customers to determine the ethicality of an organization i.e., privacy, security, fulfillment and non-deception has not yet been clarified so it is difficult to determine the level of positivity or negativity of word of mouth from customers in each dimension. However, this study aims to analyze the effect of business ethics on customers’ word of mouth without establishing any specificity on any dimension.

Critical Review

Every day, we make tens of decisions related to different products or services. What will I wear today? What will I eat today? What shall I do today? The answers to all those questions will indirectly relate to brands and will reflect our behaviour as consumers. Decisions we take to use a product, brand, or service vs another competitor are related to many factors, and word of mouth is the main one.

Consumer behaviour

Consumer behaviour is the study of consumers and the processes they use to choose, use (consume), and dispose of products and services, including consumers’ emotional, mental, and behavioural responses (Valentin Radu, 2021). Studying consumer behaviour enables companies to understand how consumers make their decisions and based on what factors. It studies how consumers think and feels towards the brand and the

effect of some marketing activities, including word of mouth, on the decision-making process.

Three main factors influence consumer decision-making. Personal factors related to people’s personal interests are affected by age, gender, culture, and other factors. An example of personal factors affecting decision making might be someone’s interest in ice-cream more than chocolate, even more, specifically Ben & jerry’s ice-cream. This is a personal interest related to what the consumer likes and dislikes. We also have psychological factors related to how people perceive a certain product or brand and how they react to an advertising message of the brand, and how the brand itself has positioned itself in the market. An example of the psychological factor might be someone’s decision to purchase the new iPhone after viewing its latest ad that played a role in convincing the consumer and affected his/her decision making. Finally, we have the social factors related to family, friends, education, income, and others. In other words, someone’s close surroundings can play a major role again in taking a buying decision. An example of social factors would be when someone decides to buy a jeans jacket because his/her friends have always worn jeans jackets. So, what can affect our decision-making? Marketing and advertising campaigns are the primary influencers for decision-making. That is why companies spend big budgets on marketing campaigns as they realize their impact on consumer decision-making. Economic conditions also play a major influence in the decision process, especially when it comes to high-value products, such as apartments or cars. Personal and group preferences influence the decision process as well, which is related to why people like and dislike and to peer pressure. Consumer word of mouth is directly related to personal preferences and group influence as they may involve other people’s interactions with certain brands and reflects their experiences. A positive experience will result in a positive word of mouth and may positively affect the decision-making process and vice versa.

Effect of technology on brands and decision making

In modern economic times, businesses can no longer just depend on direct marketing or traditional advertising to gain a competitive advantage in the market. Today, consumer decision-making is driven by opinions of online forums and platforms related to a company, product, or service.

Moreover, social media is another major player in this subject matter. Social media changed our lives from how we get our news to the way we interact with friends,

relatives, and colleagues and even the way we perceive and interact with brands. Social media proved to be very powerful and can cross borders and narrow down

language and cultural differences. It is a continuously evolving digital platform with a large worldwide audience. Facebook, Instagram, and WhatsApp are just a few platforms where millions of discussions take place daily. Consumers interact with each other and with different brands creating word of mouth conversations that go viral, reaching millions of people in just seconds (Libai et al., 2010, pp.267-282). Managers need to understand social media’s effect on consumer behaviour and consumer decision-making and create strategies that directly talk to consumers and listen to their concerns and what they have to say. Social media made almost all brands consumer-centric and not product-centric anymore. Here are some recent statistics for social media:

3.5 billion daily active social media users, which is about 45% of the global population (Oberlo, 2021).
Facebook is still the market leader, with 68% of adults in the USA report being Facebook users.
90.4% millennials, 77.5% Generation X, and 48.2% baby boomers are social media users (Oberlo, 2021).
Every user spends an average of 3 hours a day on social media and messaging platforms.
73% of marketers believe that social media marketing has been effective in marketing their products or services (Oberlo, 2021).
54% of social media browsers use social media to reach products.
71% of customers who had a positive experience on social media with brands are likely to recommend this brand to their friends and family (Oberlo, 2021).
49% of consumers depend on influencer recommendations on social platforms (Oberlo, 2021).

Customers share their experiences on social media on a daily basis. They positively interact with brands with likes, shares, reviews, and comments. Marketing managers are making social media platforms more transparent by sharing comments and reviews even if they were negative ones provided they reply to them and take actions to deal with them. This creates trust among customers and increases brand conversion rates. Happy customers might not always share their experiences on social media channels, or maybe this happy experience might reach a few people only, but managers need to be assured that unhappy or unsatisfied customers will share their experiences on social media

channels, reaching much more people than the happy ones. In general, one happy customer may tell three people about his nice experience with the brand. In contrast, an

unhappy customer will tell ten people about his bad experience with the brand. This can affect the brand reputation and damage the brand image, and this is why marketing

managers cannot ignore social media’s power and have to make sure they maintain a positive image on those platforms.

Effect of business ethics on decision making

Some critical ethical elements that consumers evaluate when dealing with a company are related to privacy, security, and fulfilment of needs and wants. Businesses need to analyze their ethical behaviour and structure ways to ensure they always comply with those ethical elements (Corporate Finance Institute, 2021). Introducing “Business Ethics” policies will help ensure employees in the organization understand ethical guidelines and how not complying with those policies can have damaging effects on the brand (Richins, 1983, pp.68-78). Positive word of mouth starts internally at any company. Employees reflect the company’s image and values, and this, in return, will also reflect on the consumer perception of the brand (Gremler et al., 2001, pp.44-59). Treating employees in an ethical manner will retain highly qualified employees and give a good image to consumers who will react to the brand with a positive word of mouth (Crever, 1997, pp.421-432).

What is deemed ethical or unethical differs between individuals and companies. The subjectivity in determining what is ethical and what is not is more complicated in businesses than on the individual level, and this is why companies need to work based on ethical conduct that all employees and managers abide by. Customers expect more than legal compliance and believe that companies have a moral responsibility towards customers and the community. However, consumers’ willingness to reward ethical behaviours and punish unethical behaviours from companies is also related to other subject matters such as price, quality, and time (Sharma and Lijuan, 2014, pp.414-435). At some times, consumers might be willing to pay an extra price to purchase the product of an ethical company, but at many other times, being ethical alone will not justify the higher price and vice versa. However, what is definite is that companies’ unethical acts will surely damage its reputation and image but not necessarily greatly affecting sales. Companies need to maintain ethical acts towards their employees, customers, and communities not just to gain higher profits but simply because it is the right thing to do and because it is their responsibility towards them.

Effect of E-commerce on decision making

An online e-commerce store can be simply explained as a process where customers can log onto the online e-commerce store and select the product they want to purchase. The online purchasing process requests customers to first register their details, including personal information, proof of address, and payment tender type (which includes the customers’ bank card or payment method to conclude the purchase). Another important factor in the e-commerce business is service delivery, where the

customer’s products need to be delivered on time and as per agreement with customers (Brooks, 2011).

Business ethics in terms of privacy, security, and overall fulfilment are the key fundamentals for consumers as their identity and livelihood are structured around these principles. Privacy could involve their personal information protection; security involves questions such as how secure is the transaction or will be defrauded, and fulfilment is all about commitment to the business mission and values and delivering client expectations. Companies conducting business online must have strict measures in place on privacy, security, and fulfilment as the transaction is built on trust. Nowadays, our digital devices are programmed to store our data and learn many things related to our behaviour, interests, likes, dislikes, habits, and many others. This information is used for targeted advertising, analytics, and profiling, and beyond this. Companies consider customers’ information as significantly valuable as they allow them to reach customers faster and understand their behaviour and decision-making process. Managing this information in an ethical manner that does not violate people’s privacy and security is key for businesses’ success. Need to note that KPMG’s “Me, my life, my wallet” report revealed that 64% of consumers worldwide feel anxious about the authorized tracking of their online habits by companies, governments, or criminals, while even more feel anxious about identity theft 74%.

For companies to benefit from this data and convert it into profitable transactions, they need to build trust first, reflected in security, privacy, and ethical acts. We live in the digital era, and companies need to use data ethically to gain consumer trust. This is why we currently see many companies investing in their security systems and hiring data professionals to establish a trusted system that gains the trust of customers. E-commerce online stores need to have a trusted IT infrastructure to safeguard all the personal information of the customer so no external party will be able to acquire these details. Indicating on e-commerce websites that the company has a state-of-the-art IT infrastructure to protect customers will assure the consumer that their personal data is in safe hands. On the other hand, the e-commerce company payment gateways used need to be tightened as customers’ financial data is displayed and used to check out the items purchased. To ensure customers are satisfied with the company payment gateways, companies need to make appropriate arrangements with the correct financial institutions to handle efficient and effective payment systems that the consumer can trust. It is also important that customers receive the products that they have ordered online in the required time that was advertised to ensure customer satisfaction (Roman and Cuestas, 2008, pp.641-656).

Effect of Corporate Social Responsibility on decision making

By definition, Corporate Social Responsibility (CSR) is a self-regulated business model that helps companies be socially accountable to themselves, their stakeholders, and the public (Investopedia, 2021). By practising CSR, companies are more aware of their impact on the society they operate in. It allows companies to build a positive reputation in society, helping them build trust with people in society to attract talents and customers (Investopedia, 2021). Increased competition has changed brands’ marketing direction, whereas it is no longer product-focused but more customer-focused, looking after customers’ needs and wants. In the fast-moving world we are currently in, especially after the introduction of social media, companies found themselves needing to further evolve their marketing strategies and shift their marketing practices to include all stakeholders who are becoming more and more ethically oriented. CSR refers to the impact organizations have on their societies and the consequences of integrating social, environmental, ethical, human rights, and consumer concerns into business operations and core strategy in close collaboration with stakeholders (European Commission, 2011). There are five major stakeholder groups both internally and externally: owners, employees, customers, local communities, and the society at large. Ethical behaviours with all stakeholders can directly impact word of mouth and thus on the company’s overall image.

On the other hand, there are different CSR-related activities that companies execute. First, companies can provide financial contributions to other resources to build awareness for a social cause (Eajournals, 2021). Second, companies can contribute a certain percentage of their sales to support a certain cause. Third, companies support the development of a behaviour change campaign to improve health, safety, and the community’s environment. Fourth, organizations directly contribute to charities in the form of cash donations. Fifth, companies support and encourage retail partners to volunteer their time and support the community (Eajournals, 2021). Finally, corporations can discretely conduct business practices that support social causes and the well-being of the community. Social media can deliver a message quickly reaching millions of people at a press of a button. It can also play a major role in building up a company’s reputation and brand image by providing higher social visibility and greater exposure. Social media can amplify the CSR message companies want to deliver to the public. Simultaneously, it may amplify the impact of the message on the company’s image and reputation. According to Riegner (2007, pp.436-447), companies nowadays need to give special attention to social media and properly use them to deliver the right message to customers and all related stakeholders mentioned above.

Discussion

Business Ethics and word of mouth

Business ethics and word of mouth are two elements that are interrelated and will influence a company on many levels. Business ethics conduct is defined as the foundation of how a company conducts business and guides them to conduct business the right way. Business ethics is also built on a legal stance that might influence a business negatively and may result in major financial losses or a bad reputation. Suppose businesses don’t have a strategic business code of ethics in place. In that case, it may result in a negative word of mouth for this company, and consumers will use online digital platforms to express their negative experiences, which may lead to damaging the brand reputation and to huge financial losses (Iglesias et al., 2017, pp.441-459). Management’s responsibility to ensure organizational culture surrounding business ethics is promoted positively with bases of company values and ethos on individual levels and professional and corporate levels. Businesses should provide training, develop ethics programs and reporting lines so they can investigate all suspicious actions. Providing a strong professional and ethical environment enforces certain components such as education, individual recognition, and shared knowledge at the company level (Brooks, 2011).

The roll-out of business ethics conduct will give organizations the advantage to counter any external attack on their integrity from outside the organization. The balance of good business ethics is to ensure companies satisfy components relating to costs, environment, and social responsibility. If this balance of business ethics is adhered to, a positive word of mouth and reputation will surround the business. This positive word of mouth will lead to a positive brand reputation and directly influence business growth. Customers rate a company based on their ethical stance, commitment, customer satisfaction, customer loyalty, and positive word of mouth. Business ethics policies in key categories such as finance, legal, human resources, operations, sales, and marketing will give the business the competitive advantage amongst its competitors (Brooks, 2011).

Businesses must have a code of ethics policy in place that will guide employees and all stakeholders in a way to conduct business in an ethical manner and within legal grounds. Implementing this policy also helps keep employees accountable for their actions and protects the business operations from possible legal actions. Business ethics can be classified into three different categories of responsibility: personal, professional, and corporate. Organizations must clarify the code of ethics policy with all stakeholders to ensure accountability and responsibility in all three categories. Stakeholders should be well aware of the consequences they will face if

the code of business ethics is not adhered to. Companies can communicate their ethics commitment to the public, reflecting transparency and trust (Markovic et al., 2015, pp.721-740).

According to Roman and Cuestas (2008, p.1), the consumer perception of online retailers’ ethics significantly influences consumers’ word of mouth. The findings on the relationship between business ethics and consumers’ word of mouth resulted from conclusive research that entailed 357 online shoppers for the study. As cited by Roman and Cuestas (2008, p.1), business ethics is determined based on four dimensions which include privacy, non-deception, security, and fulfillment. Toysmart, a popular website that sold educational toys through the internet, gathered the personal information of its customers, including addresses, names, and family profiles. However, when the firm had an economic crisis, it attempted to sell its comprehensive customer database. However, the Federal Trade Commission filed a lawsuit against it, after which Toysmart went bankrupt after word spread rapidly over the internet regarding the company’s privacy breach. The link between ethics in business and word of mouth is further highlighted by Brooks (2011), who states that in the contemporary world, consumers make decisions after hearing other people’s opinions, including strangers. Brooks (2011) asserts that this behavior among consumers is presenting emerging opportunities and dynamic difficulties for marketers. Organizations are trying to keep up with the ethical guidelines as established by word of mouth Marketing Association (WOMMA) and PRSA to solve ethical engagement dilemmas in which customers use social media to spread information regarding a company (Brooks, 2011). The common principles shared by WOMMA and PRSA to enhance companies’ business ethics are honesty, transparency, and disclosure.

In a statement by Sharma and Lijuan (2013, p.414), consumers’ frequency of purchase from the same vendor significantly depends on consumer perception concerning online vendors’ business ethics. The internet has become a major channel through which word of mouth spreads fast to other consumers, thereby influencing their decisions regarding a vendor. The customers rely on the internet as a source of information on the ethical practices of a business and subsequently results in them making a decision based on other people’s perception about an online vendor (Sharma and Lijuan, 2013, p.415). Markovic et al. (2015, p.721) assert that customers’ perception of a corporate’s ethicality indirectly but positively influenced customer loyalty on the basis of perceived quality and affective commitment. Also, employee empathy influences customers’ perceived ethicality on customer loyalty and customer affective commitment, thereby impacting customer word of mouth (Markovic et al., 2015, p.721). The positivity of word of mouth as such depends on employee empathy which constitutes business ethics which is the metric that customers use to establish their commitment to a particular business. Brooks (2011) coincides with the fact that employee empathy influences consumer word of mouth and the difficulty to address the situation if it is continually perceived by organizations as a straightforward challenge. Establishing solid business ethics and aiming to use customer word of mouth as a marketing weapon extends beyond desirable rules such as reputable in-house units and public relations. For instance, the issue of privacy, which results in negative word of mouth from dissatisfied customers, is a technological challenge because of the democratized nature of technology in which even in-line employees have the communication tools at their disposal (Brooks, 2011). Employees thereby encompass a significant component in organizations with considerable impact on business ethics which essentially translates to either positive or negative word of mouth (Brooks, 2011). According to Roman and Cuestas (2008, p.1), security and privacy have been continually identified as essential ethical concerns of internet users whose infringement by companies results in dissatisfaction and consequently negative word of mouth. For instance, Brooks (2011) discusses the negative word of mouth from Facebook customers on its unethical privacy infringement are an extension of the impact of technological advancements, which cannot be regulated under the PRSA and WOMMA guidelines.

Business Ethics and E-commerce

Unlike offline shopping, internet shoppers cannot physically inspect the product. COVID-19 played a major role in pushing e-commerce businesses further, and companies found themselves forced to change their business strategies in order to survive. E-commerce is no longer restricted to physical products but has also majorly expanded into the services industry. Even doctors adopted e-commerce and started to have e-consultations. E-commerce is not restricted to purchasing a product or service, but it extends and includes communication platforms that companies may offer to their customers ranging from pre-purchase information to after-sales service. The implication of the internet market eases access to information and reduces barriers between customers and brands. Security and privacy are one of the major factors of online shopping. Companies need to ensure they have the right platforms in place that ensure there is no unethical use of information and that customers’ information is safe and secure. The enhancement of e-commerce and related technologies has facilitated companies to collect and accumulate customers’ personal information. The privacy of stored customer information is increasing anxiety for customers, companies, and governments. E-commerce companies need to ensure they enforce a structured business ethics code of conduct for every phase of the ethical phases. If the set codes are not enforced in operations, it will result in customers questioning the company’s code of business ethics. If a customer’s personal details are not protected, and the customer is subject to fraud, this could result in a viral social media post which will discourage potential new customers to buy from the e-commerce store since the company’s business integrity cannot be trusted. If, on the other hand, the payment system gets hacked and customers cannot make secure payments, it will influence the consumers’ word of mouth, and the company will be seen as untrustworthy. Part of business ethics is that companies deliver on what they promise. So, if the e-commerce company indicates on their website that their delivery time is between 7 to 10 days and the company only delivers on day 12, this will spread negative word of mouth and result in the company’s ethical stance being questioned since they are considered to be misleading customers. (Markovic et al., 2015, pp.721-740). Trust is of high significance in e-commerce as customers often have little knowledge of sellers and must deal with doubt, uncertainty, and risks. Higher levels of trust lead to more commercial transactions and vice versa. Trust is

essential to maintaining business transactions, and while negative events will have a major negative impact on the company.

Ethical behaviour and word of mouth

It has been proven that satisfied customers will engage in positive word of mouth and will recommend the product/service to others. On the contrary, dissatisfied customers tend to tell others about their bad experiences at least twice as much as

satisfied customers. Word of mouth actively increases as the satisfaction and/or dissatisfaction increases (Anderson, 1998, pp.5-17). However dissatisfied customers engage in greater negative word of mouth than highly satisfied customers. When a minor dissatisfaction experience occurs with customers, the response is often minimal as well, and most consumers will not spread a negative word of mouth. However, when the dissatisfaction is serious, consumers tend to complain and talk about their negative experiences with friends and family members, and they use social media platforms to attack the brand or service, causing a bad reputation and negative word of mouth (Richins, 1983, pp.68-78). However, it is worth mentioning that when customers have positive emotions and feelings towards a certain brand or service, they tend to be less sensitive and may disregard some poor service or minor unethical acts by the company. It is also noted that the greater the brand heritage, the weaker the impact of any unethical act on customers’ perception of the brand, and the higher the brand loyalty, the lower the impact of unethical acts on customers purchasing decisions or brand and company perceptions. Moreover, it is also noted that over time, the

impact of ethical behaviours on brand images diminishes because customers learn and assume that ethics are one of the brand or service essential commitments and will link this assumption into their basic expectations from the brand.

Social media and word of mouth

Social media is a platform where consumers can interact with brands and with each other. On this platform, customers often express their feelings towards brands and talk about their experiences with a certain company or brand. Negative experiences or unethical behaviours end up with negative comments or posts on social media channels which can go viral, crossing borders and reaching millions of people in minutes. Companies need to monitor social media channels and have open conversations with customers and users. Conversations that can talk about products and their benefits, talk about customer experiences and resolve any misunderstanding are essential to maintain a positive image and a positive word of mouth towards the company or brand.

Conclusion

Business ethics is an integral part of an organization’s business operations, and companies need a sound business ethics code of conduct to ensure positive word of mouth. It is found that word of mouth can influence a business both positively and negatively, and technological evolution makes communication easier, wider, and faster.

Some elements of technological changes will continue to evolve, but it is important that organizations review their ethical business policies as the changes happen. Thus, a business should form a strong organizational culture amongst all stakeholders when it formulates its business code of ethics plan to ensure that the business would not be negatively influenced by the outcomes of word of mouth (Iglesias et al., 2017, pp.441-459). Organizational culture forms the element that structures the organization’s foundation: promoting and motivating employees to exercise good ethical practices will not only assist the business but will create an environment of accountability. With all business policies in place, the customer will have positive word of mouth, and that will lead to a successful business (Brooks, 2011). It is proven that unethical behaviours can influence customers and can push them to negatively talking about the brand; however, it has also been proven that at many times especially when there is high customer loyalty such as Apple, Starbucks, or McDonald’s, unethical behaviours may affect the way customers perceive the brand but will not get to the stage of stopping using and purchasing the brand. However, in brands where loyalty is not so high, such as fast-moving consumer goods with many alternatives, the impact of negative word of mouth may damage the brand and affect the sales figures.

Finally, unethical behaviours may lead to negative word of mouth, and negative word of mouth may affect brands directly and indirectly. As such, companies need to ensure to maintain ethical behaviours both internally and externally at all times.

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