By Rob Heidrck
Originally posted on Texas Enterprise

During the holiday giving season and throughout the year, many companies support charitable causes by donating a portion of sales to partner nonprofit organizations. In addition to promoting social responsibility, these campaigns are also designed as marketing tools to generate business and improve the company’s image in the eyes of potential customers.

“Marketers are looking for ways to add value to their products, and one of the ways that they try to do this is by donating to causes,” says Marketing Professor Wayne Hoyer.

In a forthcoming study, Hoyer and his colleagues examine the factors that can enhance or limit the success of cause-related marketing. Their findings could give corporate managers some guidance in planning charitable partnerships from perspectives that previous studies have not covered in detail.

“There's no research telling them, ‘How much do I need to donate? What cause should I select?’” Hoyer says. “What our study tries to do is say, ‘Here are some conditions. Think about what kind of cause it is, and how your target market feels about the cause.’”

Giving and Getting

Cause-related marketing campaigns are not limited to the holidays. Many companies have ongoing relationships with their nonprofit partners at different times throughout the year — Coca-Cola, Target, Visa, and Starbucks are among hundreds of companies that participate in such donation programs. Hoyer estimates that U.S. businesses spent an estimated $1.55 billion on cause-related marketing alliances in 2009.

“There are two key reasons why marketers would do that,” Hoyer says. “One is social responsibility. It's a good thing to do. Companies do want to be socially responsible and they want to help charities make a positive impact on society.

“But the other reason is a more self-serving reason,” he adds. “It creates more value, and customers — hopefully — will want the product more.”

Hoyer explored the question of whether the size of the donation  — in terms of percentage of sales — affects customers’ desire to buy a company’s products, an action known in the study as “willingness to pay” (WTP).

The researchers found that charitable donations generally do have a positive impact in encouraging customers to spend. However, the relationship between the percentage of sales donated and WTP is not linear, and the success of cause-related marketing campaigns depends on a number of different variables, or moderating factors.

Connecting to the Cause

One element to consider is “cause fit” — the extent to which the cause being supported has a clear relationship with the image of the company selling the product. For example, Victoria’s Secret and BMW each donate to Susan G. Komen for the Cure, a nonprofit that raises money for breast cancer research. But because Victoria’s Secret customers are primarily women, the company has a more direct connection to the cause, making the campaign appear more meaningful in the eyes of customers.

“We find that more value is added when there’s a fit between a company and a cause,” Hoyer says.

The value of a cause-related marketing campaign increases when the cause fit is high because customers can easily see the link and are thus more eager to support it. This means the company doesn’t have to donate as much to get the same positive response. When there is a low fit, however, a company has to give even more money to avoid the perception that the campaign is merely an attempt to manipulate consumers.

“[Customers] don’t think the company really believes in the cause unless they give a high donation amount, so it has to donate more when the cause fit is low,” Hoyer says.

Another factor that moderates the success of cause-related promotions is “cause affinity” — customers’ opinions of the organization being supported. While cause fit depends on customers’ ability to identify the connection between the product and the cause, cause affinity hinges on whether that relationship generates a positive response among consumers. If it does, buyers may even be willing to pay more to ensure a higher donation.

“If it’s a charity that [consumers] really feel positive about and really believe in, you can have a lower donation amount and get high willingness to pay,” Hoyer says. “If it’s a charity you don’t like as much, then of course that lowers your willingness to pay and the value added by that.”

Hoyer says this research will be valuable in planning cause-related marketing campaigns. For example, the study recommends that companies do thorough preliminary market research to gauge customers’ attitudes toward prospective causes, as well as the degree to which they currently support charitable organizations. In addition to narrowing down options for partner nonprofits, market research would help managers set an optimal percentage of sales to donate.

The study also highlights the need to keep track of customers’ perceptions of a cause-related marketing program after it has begun. If there is a negative response, the company could decide whether to make adjustments to the campaign.

By providing guidelines about how to arrive at more specific targets, these findings offer a more complete insight of how to make cause-oriented promotions as valuable as possible.