How does regulatory monitoring of cause marketing affect firm behavior and donations to charity? |
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| Institution: | 1. Signal Companies’ Professor of Management, Professor of Marketing, 100 Tuck Hall, Tuck School of Business at Dartmouth, Dartmouth College, Hanover, NH 03755, United States;2. Dwight F. Benton Professor of Marketing, R6354 Ross School of Business, University of Michigan, 701 Tappan Street, Ann Arbor, MI 48109, United States;3. David B. Hermelin Professor of Business Administration, Professor of Finance, R5434 Ross School of Business, University of Michigan, 701 Tappan Street, Ann Arbor, MI 48109, United States;4. Professor of Marketing, College of Business, California State University, Long Beach, 1250 Bellflower Boulevard, Long Beach, CA 90840, United States;1. School of Economics and Management, Tsinghua University, Beijing 100084, China;2. College of Economics and Management, Nanjing Agricultural University, Nanjing 210095, China;3. Monash Business School, Monash University, Caulfield East, VIC 3145, Australia;1. Pepperdine University, Graziadio Business School, 24255 Pacific Coast Highway, Malibu, CA 90263, United States;2. Chase Minority Entrepreneurship Distinguished Professor, Loyola University New Orleans, 6363 St. Charles Ave, New Orleans, LA 70118, United States;3. James J. Pierson Endowed Chair in Marketing, Richard A. Chaifetz School of Business, Saint Louis University, 3674 Lindell Blvd, St. Louis, MO 63108, United States;1. Lee Shau Kee School of Business and Administration, Hong Kong Metropolitan University, Hong Kong;2. The Henry Rutgers Professor of Marketing, Rutgers University Camden, United States;3. Department of Marketing, Hong Kong Polytechnic University, Hong Kong;1. UQ Business School, University of Queensland, Colin Clark, 39 Blair Dr, St Lucia, QLD 4067, Australia;2. School of Marketing, UNSW Business School, University of New South Wales, Sydney 2052, NSW, Australia;1. WOLFF & MÜLLER Holding GmbH & Co. KG, Schwieberdinger Str. 107, 70435 Stuttgart, Germany;2. Karlsruhe Institute of Technology (KIT), Institute of Information Systems and Marketing (IISM), Zirkel 2, Building 20.21, Room 105, 76131 Karlsruhe, Germany;1. Opus College of Business, 1000 LaSalle Avenue, Minneapolis, MN 55403, United States;2. Muma College of Business, 4202 East Fowler Avenue, Tampa, FL 33620, United States;3. Seidman College of Business, 50 Front Avenue SW, Grand Rapids, MI 49504, United States;4. Farmer School of Business, 800 E. High Street, Oxford, OH 45056, United States |
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| Abstract: | Cause marketing (CM) typically involves for-profit firms donating part of their sales revenue to a charity, with the hope that this will increase their revenue. We argue that it is important for a regulator to monitor firms’ CM activities, and to assess how differences in the enforcement of CM laws impact the CM practice by firms. Our analytical model uses a Stackelberg leader–follower game that endogenizes the regulator’s decision to enforce CM. The firm then decides whether to truthfully declare or overstate the amount it contributes to charity (and if overstate: by how much). We find the following results in equilibrium under different conditions: (i) CM campaigns are a win–win–win situation – they increase profit for the firm while being truthful, generate larger donations for the charity, and generate a cause marketing surplus for the regulator, resulting in doing well while doing good, (ii) the best response of the firm is to be strategic, even when the regulator is strict with monitoring, (iii) the regulator itself decides not to monitor CM, even though it knows that this results in untruthful behavior by firms. When we endogenize the extent of overstatement, we find that the firm tends to be strategic by overstating donation percentage, whether the regulator is strict or not. As the proportion of unsophisticated consumers (who believe a firm’s claims, whether truthful or not) increases, the donation proportion decreases in general, and the overstatement level increases when the regulator is lenient and decreases when the regulator is strict. In equilibrium, the regulator is strict if the market size is large, and lenient otherwise. A survey with consumers supports key modeling assumptions regarding consumers' lack of knowledge of CM laws. |
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| Keywords: | Cause marketing Corporate social responsibility Regulatory enforcement Strategic behavior |
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