Without stricter regulation, the charitable donations of the companies are ripe for exploitation, according to the business experts from UM

Some companies are specific and transparent when it comes to their charity, others vague and opaque.

This leaves room for companies to exaggerate or even lie about how much they give for worthy causes. It is important for government regulators to monitor companies ‘marketing activities and assess how differences in implementation affect companies’ activities, according to a new study.

When it comes to ‘marketing for a cause’, as is well known, consumers cannot check the breakdown of corporate sales and profits, and the laws governing corporate social responsibility vary from country to country.

The study, accepted for publication by the International Journal of Research in Marketing, is co-authored by Aradhna Krishna, a professor of marketing at the Ross Business School at the University of Michigan; Uday Rajan, Professor of Finance at Ross; Praveen Kopalle, Professor of Marketing and Management at the Tuck School of Business at Dartmouth College; and Yu Wang, a professor of marketing at the College of Business at California State University in Long Beach and a former doctoral student at Krishna at UM.

The team of marketing and financial experts set out to document the effects of marketing cause marketing – which usually involves for-profit companies donating some of their sales or charitable income in the hope that it will increase their revenue.

Not a small question: they say that thousands of companies advertise that they will donate some money to charity. In North America, the cost of marketing companies was about $ 2.14 billion in 2018, an annual growth rate of 4.4%.

By studying both genuine and fraudulent decisions of companies, researchers found that their behavior in relation to marketing a cause varies greatly in terms of what they reveal to consumers. They cite Ethos Water, which “clearly states” that 5 cents of each bottle purchased goes to the charity fund for programs in “countries with water”.

On the other hand, researchers note ambiguity in Gap’s promise to donate 50% of profits from the sale of AIDS products, as well as Apple’s announcement that “every purchase of an iPhone Product Red Special Edition contributes to the Global Support Fund.” of HIV / AIDS programs ”

“In both cases, the profit is not known to consumers and the amount of the donation is ambiguous,” the researchers wrote in the report. “It is important to study the consequences of such heterogeneity in the company’s behavior from a regulatory point of view.

Non-compliance is also prevalent on the regulatory side. Researchers say some states require companies to disclose the exact amount they donate, while others do not have such laws. Even where there are strict laws, companies can circumvent them – the authors cite the example of companies that promote the marketing of the causes of breast cancer without donating.

Given all the variability – and unpredictability – researchers recommend building new models for marketing causes that take into account the costs of regulatory oversight and sanctions imposed on companies if they break the law.

When the regulator imposes marketing reasons and the implementation is effective, the company earns higher profits, if true, instead of fraudulent. This scenario also leads to the highest amounts of donations.

Of course, a balance must be struck: the analytical model of researchers shows that strict, transparent laws are desirable when the stakes are high, such as a large market size or a high-quality product. But their model also shows that when monitoring marketing is expensive, it may be better for regulators to be lenient, even if companies are more fraudulent.

“Because marketing has a huge potential for the public good, if done right. “Unfortunately, because marketing laws in many countries are weak and companies can use those laws quite easily,” Krishna said. “Exploitation is interesting because it is used by companies to look more conscientious in society to their customers than they actually are.”

Kopalle said he believes this is the first study to link three important areas related to business: marketing tactics regarding pricing, marketing the cause as a public policy issue, and the regulatory area of ​​state law.

“In this regard, we are showing that marketing campaigns can be profitable for the company, the charity and the regulator,” he said, adding that “the winning scenario requires the regulator to have strong laws that are well enforced.”

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