Thursday, July 29, 2010

Altruism as good business - shoppers who care

Gneezy et al. add an interesting twist to studies of how we buy things. Companies loose money in attempts to enhance sales with pay-what-you-want pricing, and adding a charitable contribution to standard pricing has little effect. However, in a variation of pay-what-you-want with half going to charity, a more reasonable profit was returned. (It is not clear whether the charitable giving by the company generated additional generosity by the consumer or created additional social pressure.)

A field experiment (N = 113,047 participants) manipulated two factors in the sale of souvenir photos. First, some customers saw a traditional fixed price, whereas others could pay what they wanted (including $0). Second, approximately half of the customers saw a variation in which half of the revenue went to charity. At a standard fixed price, the charitable component only slightly increased demand, as similar studies have also found. However, when participants could pay what they wanted, the same charitable component created a treatment that was substantially more profitable. Switching from corporate social responsibility to what we term shared social responsibility works in part because customized contributions allow customers to directly express social welfare concerns through the purchasing of material goods.

1 comment:

Anonymous said...

But it's also possible that by dropping the fixed price sales would have gone up and profit increased. The controls aren't good enough to establish the way the study is reported.

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