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Marketing social responsibility

  • Sumitro Banerjee

    (ESMT European School of Management and Technology)

  • Luc Wathieu

    (McDonough School of Business, Georgetown University)

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    We analyze the marketing strategies of vertically differentiated firms when consumers observe their performance on corporate social responsibility (CSR) and firms simultaneously decide the price, advertising intensity and the investment in CSR. While advertising increases consumers’ perception of product quality, CSR is introduced as “an observable and measurable behavior or output” which adds value for the society and “exceeds levels set by obligatory regulation or standards enforced by law” (Kitzmueller and Shimshack 2012). Results show that the firm strategies are contingent on product quality. A high quality monopolist charges a higher price, spends more on advertising but less on CSR to sell only to consumers who have a higher valuation of product quality. A low quality monopolist, in contrast, charges a lower price, spends less on advertising but more on CSR to address the entire market. However, in the presence of a high quality competitor, a low quality firm spends less on CSR than in a monopoly but may still spend more than the high quality competitor if the size of the low-end market is sufficiently large. Finally, when quality is not observable, a high quality firm spends more on CSR and charges a higher price to signal product quality. We conclude that CSR is a greater strategic consideration for firms who either rely on extensive market coverage or need to signal higher quality.

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    Paper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-10-002 (R1).

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    Length: 30 pages
    Date of creation: 22 Mar 2010
    Date of revision: 07 Jun 2013
    Handle: RePEc:esm:wpaper:esmt-10-002
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    1. Bénabou, Roland & Tirole, Jean, 2004. "Incentives and Prosocial Behaviour," CEPR Discussion Papers 4633, C.E.P.R. Discussion Papers.
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