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Cause Marketing: Spillover Effects of Cause-Related Products in a Product Portfolio

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  • Aradhna Krishna

    () (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Uday Rajan

    () (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

The number of firms carrying a cause-related product has significantly increased in recent years. We consider a duopoly model of competition between firms in two products to determine which products a firm will link to a cause. We first test the behavioral underpinnings of our model in two laboratory experiments to demonstrate the existence of both a direct utility benefit to consumers from cause marketing (CM) and a spillover benefit onto other products in the portfolio. Linking one product in a product portfolio to a cause can therefore increase sales both of that product and, via a spillover effect, of other products in the firm's portfolio. We construct a CM game in which each firm chooses which products, if any, to place on CM. In the absence of a spillover benefit, a firm places a product on CM if and only if it can increase its price by enough to compensate for the cost of CM. Thus, in equilibrium, firms either have both products or neither product on CM. However, with the introduction of a spillover benefit to the second product, this result changes. We show that if a single firm in the market links only one product to a cause, it can raise prices on both products and earn a higher profit. We assume each firm has an advantage in one product and show that there is an equilibrium in which each firm links only its disadvantaged product to a cause. If the spillover effect is strong, there is a second equilibrium in which each firm links only its advantaged product to a cause. In each case, firms raise their prices on both products and earn higher profits than when neither firm engages in CM. We also show that a firm will never place its entire portfolio on CM. Overall, our work implies that, by carrying cause-related products, companies can not only improve their image in the public eye but also increase profits.

Suggested Citation

  • Aradhna Krishna & Uday Rajan, 2009. "Cause Marketing: Spillover Effects of Cause-Related Products in a Product Portfolio," Management Science, INFORMS, vol. 55(9), pages 1469-1485, September.
  • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:9:p:1469-1485
    DOI: 10.1287/mnsc.1090.1043
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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1043
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    References listed on IDEAS

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    2. Dentoni, Domenico & Peterson, H. Christopher, 2011. "Multi-Stakeholder Sustainability Alliances in Agri-Food Chains: A Framework for Multi-Disciplinary Research," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 14(5), pages 1-25, December.
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    7. Grolleau, Gilles & Ibanez, Lisette & Lavoie, Nathalie, 2016. "Cause-related marketing of products with a negative externality," Journal of Business Research, Elsevier, vol. 69(10), pages 4321-4330.
    8. Kumar, Bipul & Sinha, Piyush Kumar & Shukla, P. R. & Abhishek, 2013. "Broadening the Concept of Sustainability and Measuring its Impact on Firm’s Performance," IIMA Working Papers WP2013-08-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    9. Matsdotter, Elina & Elofsson, Katarina & Arntyr, Johan, 2014. "Got green milk? Field Experimental Trail of Consumer Demand for a Climate Label," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183076, European Association of Agricultural Economists.
    10. João Guerreiro & Paulo Rita & Duarte Trigueiros, 2016. "A Text Mining-Based Review of Cause-Related Marketing Literature," Journal of Business Ethics, Springer, vol. 139(1), pages 111-128, November.
    11. Banerjee, Sumitro & Wathieu, Luc, 2017. "Corporate social responsibility and product quality: Complements or substitutes?," International Journal of Research in Marketing, Elsevier, vol. 34(3), pages 734-745.
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    13. Roca, Esther & Giarratana, Marco S. & Fosfuri, Andrea, 2010. "Community-based strategies in action: building and sustaining a product differentiation advantage," INDEM - Working Paper Business Economic Series id-10-01, Instituto para el Desarrollo Empresarial (INDEM).
    14. Bolton, Lisa E. & Mattila, Anna S., 2015. "How Does Corporate Social Responsibility Affect Consumer Response to Service Failure in Buyer–Seller Relationships?," Journal of Retailing, Elsevier, vol. 91(1), pages 140-153.
    15. Bhardwaj, Pradeep & Chatterjee, Prabirendra & Demir, Kivilcim Dogerlioglu & Turut, Ozge, 2018. "When and how is corporate social responsibility profitable?," Journal of Business Research, Elsevier, vol. 84(C), pages 206-219.
    16. Ganesh Iyer & David A. Soberman, 2016. "Social Responsibility and Product Innovation," Marketing Science, INFORMS, vol. 35(5), pages 727-742, September.
    17. Wirl, Franz & Feichtinger, Gustav & Kort, Peter M., 2013. "Individual firm and market dynamics of CSR activities," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 169-182.

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