Cause Marketing: Product Pricing, Design and Distribution
Forthcoming in Manufacturing & Service Operations Management
42 Pages Posted: 2 Dec 2018
Date Written: November 24, 2018
Problem Definition: In a cause marketing (CM) campaign, a firm donates part of its sales revenue to a charity for a social cause when customers purchase the cause-linked product. We study a firm's pricing decisions with CM and its implications on the participating charity. We also consider the design and distribution of cause-linked products.
Academic/Practical Relevance: CM has become popular in recent years. However, there is little analytical work on how a firm's strategic actions (e.g., product pricing, design, distribution) impact the effectiveness of a CM campaign. We address this gap.
Methodology: Game theory.
Results: First, it may be optimal for the firm to decrease the price after the implementation of CM despite the donation cost. Second, a higher level of firm-cause fit may lead to a smaller total donation amount to the charity in a CM campaign. Third, the choice to design a special version of the product for a CM campaign depends on the size of the prosocial segment in the market. Finally, a decentralized supply chain may generate more social value through CM, compared to the centralized case.
Managerial Implications: For firms, we show that it may not be optimal to increase the price of cause-linked products and identify conditions when firms should introduce a special product in a CM campaign. For charities, we show that a high firm-cause fit level may have a negative effect on the total donation amount and further identify conditions under which charities should collaborate with a downstream retailer or an upstream manufacturer in a CM campaign. Our results indicate that the correlation between customer preferences for the product and for the social cause has a significant impact in a CM campaign for both firms and charities.
Keywords: cause marketing, corporate social responsibility, pricing, product line design, supply chain management
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