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Business Finance

Renmin University of China

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THE INFLUENCE OF BUSINESS ETHICS
ON CUSTOMER WORD OF MOUTH

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Abstract
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.

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 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-

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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.
Critical Review
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
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

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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

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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

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 in 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

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managers cannot ignore the power of social media and have to make sure they maintain
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 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

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customer’s products need to b...


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