Cause Marketing: Product Pricing, Design, and Distribution

Abstract

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 the implications for 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, and 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. Fourth, a decentralized supply chain may generate more social value through CM compared with 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 where 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 the social cause has a significant impact in a CM campaign for both firms and charities.