THE INFLUENCE OF BUSINESS ETHICS ON CUSTOMER WORD OF MOUTH
This study analyzes the effect of business ethics on customers word of mouth. This study hypothesizes that there is a direct relationship between companies operating using a 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 behavior 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 behavior. The role of social media in spreading out the word of mouth will also be discussed in this study. Finally, the study also discusses how corporate social responsibility affects consumers perception and their word of mouth as well. The key findings of this study show direct correlation between companies acting ethically and consumers positive word of mouth. It also concludes that ethical behavior between company employees and consumers leads to consumer loyalty and commitment and finally a positive word of mouth.
Keywords: Consumer behavior, business ethics, corporate social responsibility, social media, employee behavior.
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 the way 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 take into consideration when conducting business transactions due to its direct correlation on consumers and the effect it may have on their decisions. Company’s ethical behaviors 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 with various brands from different parts of the world. It is crucial that businesses conduct their transactions and operations in an ethical manner were consumers can see full transparency in their business dealings. Business managers need to review their company policies and align them in a way that they will not negatively affect their reputation. Technology can also provide an open gate way for communication were 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 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, O & Sierra, V (2019). On the other hand, corporate social responsibility or CSR also can play a major role in communicating the business values of a company. Company’s perform CSR activities to gain 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.
Every day, we take 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 of all those questions will indirectly relate to brands and will reflect our behavior as consumers. Decisions we take to use a product, brand or service vs. another competitor is related to many factors and word of mouth is a main one of them.
Consumer behavior 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 behavioral responses (Valentin Radu, 2021). Studying consumer behavior enables companies to understand how consumers make their decisions and based on what factors. It studies how consumers think and feel towards 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 which is 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 specific Ben & jerry’s ice-cream. This is a personal interest related to what the consumer likes and dislikes. We also have psychological factors, which is 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 which are related to family, friends, education, income and others. In other words, the close surroundings of someone can play a major role again in taking a buying decision. An example of social factors would be when someone takes a decision to go to buys a jeans jacket because his/her friends have always wore jeans jackets. So, what can affect our decision making? Marketing and advertising campaigns are the primary influencer for decision making and that is why companies spend big budgets on marketing campaigns as they realize the impact they have consumer decision making. Economic conditions also play a major influence in the decision process especially when it comes to products of high value such as apartment or car. Personal preference and group influence the decision process as well which at many times is related to why people like and dislike and to peer pressure as well. 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 competitive advantage in the market. Today, consumer decision making is driven by opinions of online forums and platforms related to a company, product or a service.
Moreover, social media is another major player in this subject matter. Social media changed our lives from the way 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 has the ability to 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 were millions of discussions take place daily and consumers interact with each other and with different brands creating word of mouth conversations that go viral reaching millions of people in just seconds. Managers need to understand the effect of social media on consumer behavior 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
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
An average of 3 hours a day are spent by every user on social media and messaging platforms
%73 of marketers believe that social media marketing has been effective in marketing their products or services
%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
%49 of consumers depend on influencer recommendations on social platforms
Social media word of mouth can be categorized in three main types. Experiential word of mouth where a customer shares a positive or negative experience with a brand, product or service. Consequential word of mouth where customers are exposed to traditional marketing and then share the information about the brand or campaign on social media. Intentional word of mouth where influencers are used to further trigger word of mouth. Marketing managers need to keep an eye on all three types and make sure to reduce negative experiences and word of mouth.
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 fulfillment of needs and wants. Businesses need to analyze their ethical behavior and structure ways to ensure they always comply to those ethical elements. Introducing “Business Ethics” policies will assist to ensure employees in the organization understand ethical guidelines and how not complying with
those policies can have damaging effects on the brand. 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. Treating employees in an ethical manner not only will retain highly qualified employees but will also give a good image to consumers who will react to the brand with a positive word of mouth.
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 an ethical conduct that all employees and managers abide by. Customers expect more than a legal compliance and believe that companies have a moral responsibility towards customers and the community. However, consumers willingness to reward ethical behaviors and punish unethical behaviors from companies is also related to other subject matters such as price, quality and time. 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 unethical acts of companies will surely damage its reputation and image but not necessarily greatly affecting the 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 were customers can log onto the e-commerce online store and select the product they want to purchase. The online purchasing process requests customers to first register their details which includes 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, R 2011).
Business ethics in terms of privacy, security and overall fulfillment are the key fundamentals for consumers as their identity and livelihood is structured around these principles. Privacy could involve their personal information protection, security involves questions such as how secure is the transaction or will they be defrauded and fulfillments is all about commitment to the business mission and values and delivering client expectations. Companies conducting business online are required to have strict measures in place pertaining to privacy; security and fulfillment as the transaction is
built on trust. Now a days, our digital devices are programmed to store our data and learn many things related to our behavior, interests, likes, dislikes, habits and many others. This information is used for targeted advertising, analytics and profiling and beyond this. Companies consider the information available about customers as very valuable as they allow them to reach customers faster and understand their behavior and decision-making process. Managing this information in an ethical manner that does not violate people’s privacy and security is key for success of businesses. Need to note that KPMG’s “Me, my life, my wallet” report revealed that a majority %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. In order for companies to benefit from this data and convert it into profitable transactions, they need to build trust first which is reflected in security, privacy and ethical acts. We are living in the digital era and companies need to use data ethically to gain consumer rust, 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 in place to safe guard 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 give the consumer the assurance that their personal data is in safe hands. On the other hand, the e-commerce company payment gateways used need to be security tight 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 Iglesias, O & Sierra, V (2019).
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 itself, its stakeholders and to the public. By practicing CSR, companies are more aware of the impact they have on the society they operate in. It allows companies to build a positive reputation in the society which will help them in building trust with people in the society to attract talents and customers. Increased competition has changed the marketing direction of brands 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 the integration of social, environmental, ethical, human rights, and as well 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 behaviors with all stakeholders can have a direct impact on the word of mouth and thus on the overall image of the company.
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. Second, companies can contribute a certain percentage of their sales to support a certain cause. Third, companies support the development of a behavior change campaign to improve health, safety and the environment of community. 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 and finally, corporations can discretely conduct business practice that support social causes and the well-being of the community. Social media can deliver a message in a very fast way reaching millions of people at a press of a button. It can also play a major role in building up 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 and at the same time it may amplify the impact of the message on the company’s image and reputation. Companies nowadays need to give special attention to social media and properly use these platforms to deliver the right message to customers and all related stakeholders mentioned above.
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 a guide for 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 bad reputation. If businesses don’t have a strategic business code of ethics in place 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, O & Sierra, V (2019). It is Management’s responsibility to ensure organizational culture surrounding business ethics is promoted positively with bases of company values and ethos on individual levels as well as 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 company level. (Brooks, R 2011).
The role out of business ethics conduct will give organizations the advantage to counter any external attack on its 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, a positive word of mouth and reputation will surround the business. This positive word of mouth will lead to a positive brand reputation and have a direct influence on the 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 their competitors (Brooks, R 2011).
It is important that businesses 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. The implementation of this policy also assists in keeping 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. It is important that organizations 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 as this will reflect transparency and trust (Iglesias, O & Sierra, V (2019).
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 to e-commerce and started to have e-
consultations. E-commerce is not restricted to the purchase of 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 the access to information and reduces barriers between customers and brands. Security and privacy are one of the major factors of online shopping and companies need to ensure they have the right platforms in place that ensure there is no unethical use of information and that customers information are 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 an increasing anxiety for customers, companies and governments. E-commerce companies need to ensure they enforce a structured business ethic 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 deliver on day 12, this will spread negative word of mouth and result the company’s ethical stance to be questioned since they are considered to be misleading customers. (Iglesias, O & Sierra, V (2019). 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 vis versa. Trust is essential to maintain business transactions and while negative events will have a major negative impact on the company.
Ethical behavior and word of mouth
It has been proven that satisfied customers will engage in a positive word of mouth and will recommend the product / service to others. On the contrary dissatisfied customers tend to tell others about their bad experience at least twice as much as
satisfied customers. Word of mouth actively increases as the satisfaction and / or dissatisfaction increases. However dissatisfied customers engage in greater negative word of mouth than the highly satisfied customers. When a minor dissatisfaction experience occurs with customers, 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 experience with friends and family members and they use social media platforms to attack the brand or service causing a bad reputation and a negative word of mouth. 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 decision or brand and company perception. Moreover, it is also noted that over time, the
impact of ethical behaviors 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 behaviors 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 its 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. With social media, customer’s opinions and experiences with a product or service is no longer limited to one-on-one conversations. Thousands of people can engage in conversations about a brand at the same time. Part of the research before making a purchase is asking for recommendations from friends or communities on social media channels. A good example is Facebook’s feature “looking for recommendations” if someone posts the need for recommendations, he/she can get many different comments some are good and some are bad. Adding to this are influencers on social media and their impact on their followers and how they can affect their decisions or perception of the brand or product. 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 brands 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 experience 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 while 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 the power of social media and have to make sure they maintain positive image on those platforms.
Business ethics is an integral part of an organization’s business operations and companies need a sound business ethics code of conducts 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 business ethical policies as the changes happen. Thus, a business should form a strong organizational culture amongst all stakeholders when it formulates it business code of ethics plan to ensure that the business would not be negatively influenced by the outcomes of word of mouth (Iglesias, O & Sierra, V (2019). Organization culture forms the element that structure the organizations foundation: promoting and motivating employees to exercise good ethical practices will not only assist the business but it 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, R 2011). It is proven that unethical behaviors 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 McDonalds, unethical behaviors 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 were loyalty is not so high such as fast-moving consumer goods that have many alternatives, the impact of a negative word of mouth may not only damage the brand but also affect the sales figures.
Finally, unethical behaviors may lead to negative word of mouth and negative word of mouth may affects brands directly and indirectly so companies need to ensure to maintain ethical behaviors both internally and externally at all times.
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