The Hidden Cost of 15 Percent

Buy a pink water bottle and the store will donate 20 percent of its price to support breast cancer research. Come in for dinner on a Tuesday night and the restaurant will give 10 percent of the cost of your meal to feed the hungry. Attend a performance of a new play in town and 15 percent of your ticket price will be donated to combat homelessness.

I love the spirit of our local business owners who set up programs like these. These good people are trying to find creative ways to both help their businesses thrive and give back to our community at the same time. Unfortunately, these generous companies might also be unknowingly undermining the charities they want to support. There is a growing body of evidence that when a charity participates in a cause marketing program, it can actually decrease the total amount of contributions it receives.

Cause marketing, also known as consumption philanthropy, is when a business commits to make a donation to a charitable cause in exchange for the purchase of a product or service. It is a quintessentially American idea. It allows us to buy something for ourselves and still give back to others.

There are reams of evidence to show that cause marketing is great for business. For instance, the annual Do Well Do Good Survey found that 75 percent of consumers prefer companies that give back to their local communities. Sixty-one percent of people would even be willing to try a new product, or shop at a new store, if a percentage of their spending would be donated to charity.

When cause marketing first began to take off in the United States, people viewed it as another way to support the charities to which they already give. For instance, an existing donor to an animal shelter was only too happy to shop at a particular pet store when they found out that 10 percent of their purchase would be donated to the animal shelter. The donor needed to buy pet food and supplies anyway, so shopping at this pet store was an easy way to make an additional gift to the animal shelter the donor loved.

Unfortunately, instead of making both a direct donation and a purchase, people are increasingly considering their purchase as their donation. Dr. Aradhna Krishna of the University of Michigan Ross School of Business calls this the “Cause Marketing Paradox.” In her paper of the same name, Krishna writes that “consumers think of their purchase as a charitable act and decrease subsequent charitable acts.”

Similarly, Dr. Angela Eikenberry published a paper in the Stanford Graduate School of Business Social Innovation Review titled “The Hidden Costs of Cause Marketing.” She argues that cause marketing campaigns hinder future donations to charities because consumers think that their purchases are donations.

Today, it is more common for a person to see the 10 percent of their purchase at the pet store as their contribution to the animal shelter, and thus feel no need to make any subsequent direct donations to the charity.

Krishna’s research found that “if two consumers have equal preference for a product which is offered at the same price to both, but one of them buys this product as a [cause marketed] product, her charitable giving will be lower than the other’s.”

The effect is even more pronounced with larger purchases. Krishna demonstrates that the higher the purchase price, the more precipitous the drop in charitable giving, “indicating that people may mentally assign their [cause marketed] expenditure as their charitable giving.”

Some charities believe that by affiliating with a business, cause marketing is raising awareness of their organization and that will eventually lead to future donations. Unfortunately, as cause marketing has become ubiquitous, researchers are also finding that it might actually be having the opposite effect. As Michael Anft wrote in “Is Raising Visibility a Waste of Time?” in the Chronicle of Philanthropy, “Research conducted at the University of Michigan, the University of Southern California, and elsewhere has found that when people are subjected to repeated messages designed to raise awareness, they are less responsive than they might otherwise be and are likely to give less to the sponsoring charities.”

In her paper “Cause-related marketing: More buck than bang?”, Dr. Cheryl Nakata of the University of Illinois College of Business Administration offers her own theory. “In response, individuals may simply tune out and say ‘no’ because they cannot process each and every request, or because they believe they have already donated enough.”

Not all cause marketing is a losing proposition. If the vast majority of a purchase price is going to the charity, it can still result in an overall net increase in donations. Krishna writes that “cause marketing will raise overall money for good causes only if a decent proportion of the money spent by the consumer is going to the cause – for example, if 75 percent of a $1 pink plastic ring supports breast cancer [research].”

The problem is that virtually all cause marketing results in less than 15 percent of the purchase price being donated to charity. At these low percentages, over time, researchers believe that a charity will actually collect less money for their organization then if they simply declined to participate in a cause marketing relationship.

However, if your favorite charity still insists on participating in a cause marketing program with a business, don’t count the 10 percent of the price of your dinner as your donation to the charity. Remember that you still need to make a gift directly or the cause you care about will actually be losing money!