In the Volkswagen cheating scandal, every single day seems to bring new information. From ca. 500k vehicles in the US, figures climbed to more than 1m potentially affected vehicles in Europe. As of today Seat vehicles are also under scrutiny and it can be expected that Skoda will soon be the next “victim”. After all, why would the problems be limited to one or two brands while the 4-cylinder engines are shared among all brands of the Volkswagen Group?
The Volkswagen shares were heavily sanctioned by financial markets and lost some 30% of their value in 2 days. This is perfectly normal. Financial markets overreacted because the uncertainty was maximal and no one could know in advance the potential damages to the VW group. The big question however is to predict what the consequences will be and especially how customers will react to this scandal. To answer that question we first need to go through a few basics in terms of Corporate Social Responsibility (CSR).
Unethical firm behaviors
In a review published in 2010, Öberseder and colleagues from the University of Vienna tried to resolve a long-lasting paradox; namely why consumers don’t care about Corporate Social Responsibility (CSR). They summarize the paradox as follows:
There is an unresolved paradox concerning the role of corporate social responsibility (CSR) in consumer behavior. On the one hand, consumers demand more and more CSR information from corporations. On the other hand, research indicates a considerable gap between consumers’ apparent interest in CSR and the limited role of CSR in purchase behavior.
Their conclusions are important and help us understand and foresee the impact of the VW scandal on future customers’ behavior:
- CSR is of minor importance compared to other purchase criteria such as price, quality, brand, country of origin, or service
- When consumers have no or only little information about a company’s socially-responsible behavior, CSR will unlikely be considered a purchase criterion
- CSR will only be considered if this belongs to a consumer’s personal concerns. Schmalz and Roth (2012) have shown that attachment attenuates judgments of unethical behavior, contributes to emotional ambivalence, and affects purchase intentions. They also showed that the buffering role of attachment is limited to conditions when the information about firm ethics is moderately rather than extremely negative.
- The financial situation of a consumer constitutes a central factor for considering or not CSR in a future purchase
How may consumers react to Volkswagen unethical behavior
The position of the VW group seems to be pretty safe. A car purchase is a conscious, well thought out decision. Pricing plays a major role in the decision. Moreover the scandal regards the lower end of the product range (4-cylinder cars) which attracts price conscious customers.
Finally, despite figures mentioned in the press that NOx emissions are 50 times higher than what they should have been,n my take is that the average customer will still have difficulties to understand precisely what it means for the environment and for him. NOx emissions, although highly toxic, are invisible and by definition less “shocking” than a petroleum pollution like the one that occurred in the Gulf of Mexico.
My prediction is that customers will forget the Volkswagen scandal quickly. What Volkswagen did, although shocking and unethical, is not a top concern for customers. It will only become one if it turns out that VW cars ownership costs increase because engines get penalized by higher pollution taxes. In that case, as I explained in an interview given the Belgian television, customers will have to make an arbitrage and VW cars may be less at their advantage.
Tags: branding, consumer behavior, Corporate Social Responsibility, customer loyalty