Cause-related marketing of products with a negative externality

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18 July 2016

Firms increasingly develop partnerships with non-profit organizations (NPO) to support a cause and improve their corporate image. This type of Corporate Social Responsibility, called cause-related marketing, commits firms to fund associations that encourage environmental protection, international development, and other causes by donating part of their profits. In this article, we argue that when cause-related marketing is applied to products with a negative externality, these a priori win–win arrangements can generate adverse and unexpected effects. We consider a vertical differentiation model integrating two assumptions. First, consumers may perceive the firm’s contribution to be higher than the actual donation. Second, consumers who value highly socially responsible behavior may prefer not to consume rather than consuming products that aren’t socially responsible. In this set-up we identify several possible counter-productive effects such as the likelihood of increase of the externality and the crowding out of direct contributions. We also draw policy and managerial implications.