The Academy of National Economy under the Government of the Russian Federation
Department of Economic and Social Sciences
Written by Tryashina Daria, 3rd year student
Date : May 20,2008.
Altruism. Corporate responsibility. Philanthropy. These words are often used to describe cause-related marketing, an activity in which businesses join with charities or causes to market an image, product, or service for mutual benefit.
Embracing a cause makes good business sense. Nothing builds brand loyalty among today's increasingly hard-to-please consumers like a company's proven commitment to a worthy cause. Other things being equal, many consumers would rather do business with a company that stands for something beyond profits.
Cause-related marketing can positively differentiate your company from your competitors and provide an edge that delivers other tangible benefits, including: Increased sales, increased visibility, increased customer loyalty, enhanced company image, positive media coverage etc. These rationales have been strong enough to ensure a rapid growth of the practice, driven by willingness of consumers to reward socially responsible behavior and give preference, at least all else equal, to companies that contribute to various public goods. In the growing literature on economics of philanthropy relatively little attention is paid to an increasingly popular business strategy, known as cause-related marketing (CRM), when commercial firms tie to their brands and products contributions to charitable causes. At the beginning of my working on the course paper, CRM seemed something inadmissible to me. I could not accept mixing marketing and charity, lust for the profit and a helping hand. But after looking deeper in the problem, after studying the cases of cause-related marketing campaigns I made up my mind. If that is the most attractive way of helping the indigent, then why not everybody turn into CRM, no matter what is their driving motive.
In this paper I will explain the main goals and forms of CRM, its advantages and disadvantages and also set a few examples of CRM campaigns.
Corporations and philanthropy
In the early-to-mid twentieth century US corporations were often making generous contributions to charitable causes. Corporate giving was motivated by the recognition of the key role of large companies in the economy and society, and thus their responsibility for social progress and welfare. These sentiments were later reinforced by environmental concerns, growing inequality, protests against exploitation of domestic and foreign labor, etc. In response to such societal pressures, companies pledged “socially responsible” behavior – a broad concept that provides, inter alia, for sizeable, at times massive, corporate donations.
However, corporate philanthropy raises serious questions that were put forcefully by Milton Friedman in his henceforth famous 1970 diatribe of the practice1. Friedman argued that corporations’ sole business was business, and thus corporate social obligations should be restricted to those before the shareholders, and to the compliance with laws and government regulations. This view doesn’t leave room for corporate contributions to charitable causes.
Rationales of philantropy
To better appreciate the economic underpinnings of Friedman’s critique, one should invoke rationales for philanthropy. The latter usually fall into two main categories. First, donors could directly benefit, alongside the rest of society, from the supported public goods. The power of this incentive for private provision of public goods is however limited due to free riding; besides, this rationale cannot explain often observed contributions to “remote” causes which have no immediate bearings upon the benefactor. The second explanation is an altruistic one, when donors find satisfaction from the very act of giving and their involvement in...
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