Cause-Related Marketing: An Economic Analysis
Cause-related marketing is a business strategy where firms bundle their products and brands with contributions to designated charities. The double appeal of this strategy is that it responds to societal pressure for “corporate social responsibility” and at the same time could prove commercially profitable. The paper inquires into the origins and incidence of economic gains of cause-related marketing. It identifies two sources of its profitability – first, corporations utilize their advantages over households in covering transaction costs of philanthropy, and second, can exploit cause-related marketing as a price-discrimination tool. Cause-related marketing channels to charity significant resources that would not be available otherwise due to high transaction costs of individual donations. It thus contributes to social welfare and, at the same time, to the bottom-line of practicing firms. This explains the observed rapid proliferation of this strategy against the overall stagnation and even decline of corporate philanthropy.