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

Aradhna Krishna () and Uday Rajan ()
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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

Management Science, 2009, vol. 55, issue 9, 1469-1485

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.

Keywords: cause marketing; experimental economics; marketing and pricing strategy; product policy (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (43)

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