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December 22, 2009

Good Cause and Effect

Catherine New
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Creative models for buying and selling goods allow consumers to act philanthropically through charity tie-ins with product purchases. But are they profitable?

New research from Professor Ray Fisman, Dan Elfenbein of Olin Business School, Washington University in St. Louis, and Brian McManus of University of North Carolina, Chapel Hill, shows that linking a product with a charity donation is an effective way to boost sales — but not quite enough to make up for the cost in the bottom line.

In the study, Fisman and his academic collaborators worked with Steve Hartman ’07 (EMBA) to assemble data from eBay’s GivingWorks program, where sellers can offer a portion of their auction proceeds to a charity. They found that on average, an item advertised with a 10 percent donation is 20 percent more likely to sell than its non-charity counterpart, and for a price that’s on average 2 percent higher. But these benefits aren’t enough to make up for the cost of the 10 percent donation itself.

The study also showed that inexperienced sellers who lacked a selling track record benefitted from a charity tie-in more than experienced sellers. Fisman suggests that buyers see the charity tie-in as a signal of trustworthiness, which is particularly valuable to a seller that has yet to establish a reputation for reliability. The study also found that following Hurricane Katrina, the impact of charitable giving on sales and price nearly doubled; at a time of national need, benevolence actually became profitable. Fisman also cautions that immediate financial profit is often only part of the overall goal of companies’ giving programs. Good corporate citizens also may bolster their brands over the long-term, and also may contribute to the social good because it’s the right thing to do, whether or not it adds to the bottom line.

This research certainly doesn’t prove that you can’t do well by doing good, or that charity is a “waste” of shareholder dollars. Rather, it highlights the complicated relationship between corporate social responsibility and profits. As business school students and future business practitioners, it’s worth asking how companies can effectively integrate philanthropy and other aspects of CSR into their business models.

Photo courtesy of the Social Enterprise Program


by Sergiy Kadulin | December 24, 2009 at 5:54 PM

Charity is not the tool to boost revenue and profit. One should donate without expecting anything back. It must come from the open heart and clean soul. It has only single ultimate goal: to help people. Nothing elase. If money is what one expects back from the charity, then this is not charity, it is bribery.

by Gerardo Garcia | December 29, 2009 at 2:14 AM

Sergiy, if you read the article carefully, you will notice that this is not the message being conveyed. The research points to the relationship between linking a product to a charitable cause and how sales tendencies are affected. I would be interested to see if the same tendencies apply to markets outside the 'online auction' arena. Regards, G.G.

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