What is the significance of the product lifecycle in lifecycle pricing for companies that promote CSR?
CSR is no longer an ancillary practice for corporations that compete in the global marketplace. Consumers across the world are demanding that, beyond the brand, companies demonstrate CSR company-wide and engage in ethical and sustainable practices in all or many facets of their operations.
Before we can develop an effective CSR measure all costs need to be included in the production process. This is achieved via the concept of lifecycle pricing. Read the case study, Lifecycle Pricing (p.192-195), in your textbook.
In a well-written paper, answer the following questions:
- What is the significance of the product lifecycle in lifecycle pricing for companies that promote CSR?
- What are the implications for a firm’s reputation when there is a dichotomy between the final consumer product and the inputs to its production?
- Describe two examples of companies that, in the past, have not always paid attention to the product life cycle of their brands. What should they have done differently to be socially responsible?
- Describe five steps to take as a leader in a global company to ensure that it is engaging in ethical and sustainable practices.
Expert Answer and Explanation
Practices in CSR and Significance of CSR
Organizations are shifting away from a culture where they solely focus on making profits, and within the corporate sector, stakeholders are calling on industry players to be socially responsible. This is noticeable in the United States (U.S.) where a number of companies are integrating corporate social responsibility (CSR) into their organizational operations.
Various social issues including the climate change are driving the call for organizations to adopt ethical business practices. However, an organization should only concentrate on CSR if it manages to make a given amount of profits. A firm, prior to engaging in CSR, has to include the costs in the production process so that it can project the extent to which it can sustain the CSR (Liu et al., 2016).
Accordingly, this presents the issue of lifecycle pricing which organizations use to make projections on whether they can meet CSR expectations as this study explores. Part of this study also examines which have a history of not paying attention to the life cycle of their brands.
Significance of the Product Lifecycle
The product lifecycle (PLC) pricing is a concept that organizations utilize when making decisions pertaining to the CSR, and the concept is therefore, significant when it comes to the CSR. The benefit of this concept is noticeable where a firm develops consistent and precise models for measuring of the CSR, and which make it possible for the various stakeholder groups to assess the social implications of a firm’s products.
Based on the PLC pricing model, a business sets a price, and when setting this price, it considers the cost of producing a product as well as the costs it incurs to dispose or recycle the wastes or the end products (Sanclemente-Tellez, 2017).
The use of this strategy to attach a price to a product is important in the sense that it ensures that the business and the consumers take responsibility in supporting the CSR practices. The carbon levy is an example of this form of pricing, and a firm which pays this levy is likely to build trust in the organization among consumers.
Previously, businesses relied on details such as the generated revenue or profits to decide the amount of money to allocate to the social cause. This approach to managing CSR functions is changing considering that more and more business organizations are resorting to the use of the PLC pricing because of the benefits linked to this model of pricing. This pricing strategy reduces the pressure on the organizations to lead the SCR operations, and instead, puts emphasis on the need for the customers and other stakeholders to be partners in the CSR.
Accordingly, this cushions the corporate entities from blame because of the social issues such as poverty and pollution (Al-Hadi et al., 2017). Besides, the firm is able to engage in sustainable business practices, and this can limit the organization’s risk of experiencing decline in sales or even lawsuits linked to the breach of environmental laws.
The Impact of the Dichotomy between the Product and the Input of Production on A firm’s Image
The image of a firm matters when it comes to attracting customers, and the connection between the product the firm produces, and the inputs it uses to produce this product, has a certain level of impact on this image. The firms which use coal as a source of energy to manufacture products are receiving condemnation, and this demonstrates that the input of production can adversely affect a business’ reputation if the business uses energy sources which can harm individuals.
The same applies to the use of the agrochemicals in the agriculture sector considering the harmful nature of some of these chemicals. An agricultural firm that uses unsafe chemicals to produce food is likely to have a dented image. The input of production a business uses can also be important in helping it build and project a positive image. When a business focuses solely on using green sources of energy to produce goods, for instance, this demonstrates the business’ commitment to use sustainable means of production (Capati & Kesselheim, 2016). This can positively build the firm’s reputation.
Examples of Firms which did not Pay Attention to Product Life Cycles of their Brands
There are cases in which firms such as General Motors (GM) and Monsanto failed to pay attention to the PLC of their brands of products. Although GM practiced CSR prior to 2014, the company had a scandal in which it fitted the GM-manufactured vehicles with the faulty ignition switch. This example demonstrates the lack of GM’s commitment to pay attention to the PLC.
As a result of not paying attention, the GM’s decision led to the death of 124 individuals. This means that some of the GM’s inputs of production did not meet the required safety standards, and other than causing deaths, these inputs exposed the consumers of GM’s brands of vehicles to the risk of injury and death.
Monsanto is another firm that failed to make the right choice when managing the PLC. The firm, in 2018 settled a lawsuit charge in which a client accused the firm of producing cancer-causing seeds. These firms should have examined the possible implications of their decisions prior to making the decisions they made (Zou, Guo, & Guo, 2016).
Steps which Ensure an Organization engages in Ethical and Sustainable Practices
There are key steps through which an organization can pursue when seeking to engage in ethical and sustainable business practices. These steps include:
- The first step involves developing the code as well as prioritizing on involving workers to act morally. This code has to be clear, and communicate how the organization expects workers to behave.
- During the second step, the organization’s leadership sets the tone by leading by example, and demonstrating the commitment to practice moral values. Employees emulate their leaders, and they are likely to adopt ethical behaviors.
- Engagement of the employees and communicating the ethical message to them. Undertaking this measure may help engrain ethical behaviors in the staff.
- Establish feedback and reporting systems which can help employees report incidences of breach of ethical codes.
- Evaluate the efficacy of the ethical initiative by assessing metrics such as customer satisfaction.
In overview, there is need for firms to move to the use of the PLC pricing when seeking to engage in CSR. This is important because it cushions these firms from the myriad problems which have a tendency of occurring where an organization willingly uses profit data to make decisions on whether to give back. When an organization incorporates the PLC as the framework for pricing, it can prevent cases where the stakeholders blame it for engaging in unstainable or unethical business practices. Thus, the PLC pricing can have a positive impact on the organization’s reputation.
Al-Hadi, A., Chatterjee, B., Yaftian, A., Taylor, G., & Hasan, M.M. (2017). Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia. Accounting and Finance, 59 (2), 961-989. Doi: https://doi.org/10.1111/acfi.12277.
Capati, V. C., & Kesselheim, A. S. (2016). Drug Product Life-Cycle Management as Anticompetitive Behavior: The Case of Memantine. Journal of managed care & specialty pharmacy, 22(4), 339–344.Doi: https://doi.org/10.18553/jmcp.2016.22.4.339.
Liu, W., Shi, L., Pong, R. W., & Chen, Y. (2016). How patients think about social responsibility of public hospitals in China?. BMC health services research, 16(a), 371.Doi: https://doi.org/10.1186/s12913-016-1621-1.
Sanclemente-Tellez, J.C. (2017). Marketing and Corporate Social Responsibility (CSR). Moving between broadening the concept of marketing and social factors as a marketing strategy. Spanish Journal of Marketing- ESIC, 21 (1), 4-25. Doi: https://doi.org/10.1016/j.sjme.2017.05.001.
Zou, B., Guo, F., & Guo, J. (2016). Absorptive capacity, technological innovation, and product life cycle: a system dynamics model. SpringerPlus, 5(1), 1662.Doi: https://doi.org/10.1186/s40064-016-3328-5.
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