New study finds that campaigns offering discounted prices may backfire when paired with donations.
Cause marketing, or marketing campaigns involving the combined efforts of a for-profit and non-profit organization, is commonly conducted in retail shops, restaurants, movie theaters and even online. Whether you are attending a “give back” night at Chipotle or a special charity event at a local boutique, cause marketing campaigns seem like the perfect situation for all parties involved. If a portion of each burrito or clothing purchase goes to a worthwhile charity, customers likely feel more motivated to spend money and feel altruistic afterwards. Likewise, the marketer expects to attract customers that might not otherwise shop at the store, leading to increased visibility and higher profits.
However, in their new study “Self-Signaling and Prosocial Behavior: A Cause Marketing Experiment,” University of Chicago Booth School of Business Professor of Marketing Jean-Pierre Dubé, Xueming Luo of Temple University and Zheng Fang of Sichuan University find that the effects of cause marketing are more complicated than that. In their study, to be published in the forthcoming INFORMS journal Marketing Science, the researchers find that offering price discounts and donations simultaneously can actually reduce sales in cause marketing settings. This means that while cause marketers believe that combining discounted services and donations will automatically lead to higher traffic and overall revenue, often the opposite is true.
Since consumers are inherently motivated to support charities and ultimately perceive themselves as selfless, offering large discounts on top of the donation might not be compelling enough. As odd as it sounds, a higher price is psychologically more enticing in these charitable situations.
“A highly discounted ticket would likely be purchased anyway, regardless of altruism. A large discount therefore prevents the buyer from feeling altruistic,” Dubé explained. “In contrast, when a high-priced ticket includes a donation to charity, it is easier for the buyer to feel altruistic since they would not have otherwise bought the ticket.”
To reach this conclusion, the researchers collaborated with a major wireless service provider in China to conduct field experiments. In a randomized study, the provider offered over 40,000 mobile subscribers one of 21 different promotional deals. Each of the promotions had a different combination of price discount and percentage donated to charity. The results were clear: larger price discounts without donations led to higher sales and larger donations without discounts also increased sales. On the other hand, larger discounts combined with moderate-sized donations led to a decline in sales.
“The key insight is that while discounts increase the appeal of the ticket offer, they also dampen potential self-signaling about the subscriber’s own goodness and altruism,” said Dubé.
“Consumers indeed derive more utility from the self-perception of being charitable than from the intrinsic act of charitable giving,” he concluded.