Memo to CEOs: Would you like customers to rate your company’s merchandise as superior to your competitors? Preferably without switching to better-quality, higher-cost ingredients?
Newly published research suggests a simple way to do so: Make sure the corporate budget includes a generous allotment to charitable causes.
“Doing good can indeed translate into doing well,” Alexander Chernev and Sean Blair of Northwestern University write in the Journal of Consumer Research. “Our findings suggest that in addition to benefitting society, corporate social responsibility can contribute to the company’s bottom line by improving consumers’ evaluations of the company’s products.”
Giving money to good causes isn't only a noble thing to do; it's also a smart way to get a leg up on your competitor.
In four experiments, Chernev and Blair present evidence for—and discuss the limits of—the “halo effect,” in which the general perception of an organization extends to its component parts.
“We argue that the halo effect stemming from the moral undertone of the company’s socially responsible activities can influence not only the overall company image, but also the perceived performance of company products,” they write. “Products made by companies engaged in pro-social activities are perceived to have superior performance.”
The first of the study's four experiments featured 52 participants in an executive education seminar who were recruited to take part in a wine-tasting experiment. "Each participant was given a sample of red wine in a small, unmarked plastic cup, along with a card introducing the winery that purportedly produced it," the researchers write.
"Following the general information about the winery, some of the respondents ... were told that the company donates 10 percent of its sales revenue to the American Heart Association," they add. "After reading the description, respondents sampled the wine and were asked to rate its taste on a nine-point scale."
The results: Participants who were told of the winery's socially responsible choice rated the wine as better tasting than those who were not. Not surprisingly, this effect "was more pronounced for respondents reporting lower levels of wine expertise."
Granted, wine tasting is a quite subjective, and easily manipulated, activity. But in other experiments, Cherney and Blair found the same results with hair-loss and teeth-whitening treatments. In general, they write, the effect seems to be strongest "in cases where product quality is not readily observable, and/or consumers do not have clearly articulated preferences."
In addition, as part of the teeth-whitening experiment, they found "the positive impact of a company's socially responsible activities on perceived product performance is more pronounced when consumers learn about these activities from an independent source than when they learn about them from a company advertisement."
Thus the researchers suggest that companies should (a) use social media and public relations as indirect ways of getting out the message about the firm's generosity, and (b) make sure customers are cognizant of "the company's motivation for engaging in pro-social behavior."
"The company needs to internalize social values and align its motivation with those values," they conclude.
So non-profits asking for corporate donations can now appeal not only to the civic-mindedness of CEOs, but also to their abiding interest in the bottom line. Giving money to good causes isn't only a noble thing to do; it's also a smart way to get a leg up on your competitor.
It turns out wines taste better if they carry with them a hint of humanitarianism.